National Company Law Tribunal and National Company Law Appellate Tribunal – Law, Practice & Procedure 9789354354021, 9354354025

Citation preview

2021

ABOUT THE BOOK This book will equip the professionals with necessary knowledge tools to practice in NCLT/NCLAT, acting as their non-verbal guide. Whether it is oppression and mismanagement cases or winding up/liquidation matters or mergers/de-mergers or class actions or an insolvency case, this book will help you find answers to most of your practical problems. For a new practitioner, this book will provide the necessary handholding for understanding the law, practice and procedure for dealing with any type of case in NCLT/NCLAT. For professionals already practicing in corporate laws, this book will prove to be invaluable in analyzing the evolution of the insolvency code, understating applicability of old case laws, resolving transitional issues arising out of transfer/abatement of existing cases, incisive analysis of new legal provisions and detailed comparison with the 1956 Act.

KEY FEATURES

2021 ISBN 978-93-89714-00-5 90100

9 789389 714005

xxx

www.bloomsbury.co.in

Law, Practice & Procedure

SEVENTH EDITION

Prachi Manekar Wazalwar

• Quick reference of recent developments in IBC and Companies Act • Case digest of select judgments of Supreme Court and NCLAT under IBC • Case Digest on latest judgements under Companies Act • Incorporates the impact of the Companies (Amendment) Act, 2019 and 2020 • Ready Reference of relevant concessions given by SC, RBI, IBBI, Central Government and other authorities during corona pandemic • Commentary on all the areas of practice including mergers & amalgamation, oppression and mismanagement, winding up, class action & investigation • Explores new areas of practice for chartered accountants, company secretaries, cost accountants and corporate lawyers • Revised table containing summary of all the powers of NCLT • Includes updated NCLT and NCLAT Rules

National Company Law Tribunal and National Company Law Appellate Tribunal

Prachi Manekar Wazalwar Highlights • Includes case digest of select judgments of Supreme Court and NCLAT under IBC • Case Digest on latest judgements under Companies Act • Overview of developments in law during corona pandemic • Ready Reference of relevant concessions given by authorities during corona pandemic • Commentary on all the areas of practice including mergers & amalgamation, oppression and mismanagement, winding up, class action & investigation • Snapshot of Apex Court's decision in Tata vs. Mistry case

Bloomsbury Professional India

Law, Practice & Procedure

SEVENTH EDITION

2021

National Company Law Tribunal and National Company Law Appellate Tribunal

NCLT & NCLAT - Law, Practice & Procedure

SEVENTH EDITION

About the pagination of this eBook Due to the unique page numbering scheme of this book, the electronic pagination of the eBook does not match the pagination of the printed version. To navigate the text, please use the electronic Table of Contents that appears alongside the eBook or the Search function. For citation purposes, use the page numbers that appear in the text.

i

NCLT and NCLAT Law Practice and Procedure, 7e

ii

Important developments of 2019, 2020 & 2021: at a glance

Seventh edition

Prachi Manekar-Wazalwar

iii

NCLT and NCLAT Law Practice and Procedure, 7e First Published in India 2016 © Seventh updated edition, 2021, Author All rights reserved, No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval systems, without prior permission in writing from the publishers Disclaimer No responsibility for loss caused to any individual or organization acting on or refraining from action as a result of the material in this publication can be accepted by Bloomsbury or the author. No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is sold on the terms and understanding that: (1) the author is not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services and (3) the author is not by means of this publication rendering legal, accounting, professional or other advice or services and therefore do not owe any duty of care to any person whomsoever. The publisher, and author, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents in this publication. While best efforts have been made in preparing this book, the publisher and author makes no representations or warranties of any kind and assumes no liabilities of any kind with respect to the accuracy or completeness of the content and specifically disclaims any implied warranties of merchantability or fitness of use for a particular purpose. The publisher and author believe that the content of this book does not violate any existing copyright/intellectual property of others in any manner whatsoever. However, in case any source has not been duly attributed, the publisher may be notified in writing for necessary action. BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc. ISBN: 978-93-54354-02-1 10 9 8 7 6 5 4 3 2 1 Bloomsbury Publishing India Pvt. Ltd. DDA Complex, LSC Building No. 4 Second floor, Pocket C – 6 & 7, Vasant Kunj New Delhi 110070 www.bloomsbury.com Printed and bound in India by Rajkamal Electric Press, Kundli To find out more about our authors and books visit www.bloomsbury.com. Here you will find extracts, author interviews, details of forthcoming events and the option to sign up for our newsletters.

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Important developments of 2019, 2020 & 2021: at a glance

To My parents

Dr. Vijay and Jyoti Manekar & Deepak and Meenakshi Wazalwar

v

NCLT and NCLAT Law Practice and Procedure, 7e

vi

Important developments of 2019, 2020 & 2021: at a glance

Important developments of 2019, 2020 & 2021: at a glance Dates 27/2/2019

08/03/2019

06/08/2019

16/08/2019 15/11/2019 18/11/2019

Events Vide IBC (Second Amendment), 2018 Section 7 was amended where the power to file an application under Section 7 was given not only to the financial creditors but also to other persons who are notified by Central Government. The Central Government has notified that following person can also file an application under Section 7 before the Adjudicating Authority, on behalf of the financial creditor (i) a guardian; (ii) an executor or administrator of an estate of a financial creditor; (iii) a trustee (including a debenture trustee); (iv) a person duly authorised by the Board of Directors of a Company. Two benches of NCLT were constituted viz. National Company Law Tribunal, Indore Bench at Indore and Amaravati Bench at Amaravati. The Indore Bench has territorial jurisdiction to deal with matters of State of Madhya Pradesh. National Company Law Tribunal, Amravati Bench has territorial jurisdiction over State of Andhra Pradesh. Insolvency and Bankruptcy Code was amendment vide IBC (Amendment) Act, 2019. The key amendments were as under: - it is clarified that Resolution plan may include provisions for restructuring of the corporate debtor including by way of merger, amalgamation and demerger. - NCLT has to give reasons in writing if the decision with respect to application under Section 7 is not passed within the prescribed period. - the provisions dealing with time period for completing CIRP period was amended - Section 25A was amended. The manner in which authorised representative of class of financial creditors will vote was specified. - Section 30 dealing with resolution plan was amended. Certain safeguards and conditions were inserted with respect to distribution of amount specified in resolution plan. This was to protect interest of operational creditors while approving resolution plan. Insolvency and Bankruptcy Code (Amendment) Act, 2019 made effective from this date. Inter alia Part III of Insolvency and Bankruptcy Code, 2016 was notified only in so far as they relate to personal guarantors to corporate debtors. Section 227 of IBC provides that provisions of insolvency code can be invoked against financial service providers (FSPs) notified by Central vii

NCLT and NCLAT Law Practice and Procedure, 7e

Dates

28/12/2019

30/01/2020

12/03/2020 13/03/2020

13/03/2020

15/3/2020

viii

Events Government. On this date, Central Government in consultation with the Reserve Bank of India notified that the insolvency resolution and liquidation proceedings can be initial against the following FSPs: - Non-banking finance companies (which include housing finance companies) with asset size of Rs.500 crore or more, as per last audited balance sheet. The proceedings under insolvency code can be initiated only by Reserve Bank of India. The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 promulgated. The amendment inter alia sought to introduce following changes: - threshold limit introduced under Section 7 for real estate allotees, securities and deposits and other specified classes of creditors. - If related party financial creditors, are regulated by a financial sector regulator, then the bar under section 21 prohibiting related parties to be a part of COC will not apply. - Section 32A introduced that it limits the liability of corporate debtor and resolution applicant in case of approval of resolution plan. Central Government, in consultation with the Reserve Bank of India, notified the manner of dealing with the third-party assets that are in custody or possession of financial service providers against whom proceedings under insolvency code are initiated. In Form GNL-2 a provision was made to allow filing with respect to IBC law. A Bench of the National Company Law Appellate Tribunal (NCLAT) is established at Chennai to hear the appeals against the orders of the Benches of the National Company Law Tribunal (NCLT) having jurisdiction over Karnataka, Tamil Nadu, Kerala, Andhra Pradesh, Telangana, Lakshadweep and Puducherry. The Insolvency and Bankruptcy Code (Amendment) Act, 2020 received presidential assent. The amendment inter alia sought to introduce the following: - threshold limit introduced under Section 7 for real estate allotees, securities and deposits and other specified classes of creditors. - If related party financial creditors, are regulated by a financial sector regulator, then the bar under section 21 prohibiting related parties to be a part of COC will not apply. - Section 32A introduced that it limits the liability of corporate debtor and resolution applicant in case of approval of resolution plan. Notice was issued in NCLT that all NCLT benches were to take up only urgent matters between 16th March 2020 to 27th March 2020.

Important developments of 2019, 2020 & 2021: at a glance

Dates 18/03/2020

18/03/2020 22/3/2020 24/3/2020

27/3/2020

28/3/2020 7/4/2020 17/4/2020

20/4/2020

Events An additional source of funding was included within the meaning of interim finance which will get priority in repayment before all other debts. Central Government notified a debt raised from the “Special Window for Affordable and Middle-Income Housing Investment Fund I” as interim finance. It clarified that the expression “Special Window for Affordable and Middle-Income Housing Investment Fund I” shall mean the fund sponsored by the Central Government for providing priority debt financing for stalled housing projects, as an alternate investment fund and registered with the Securities and Exchange Board of India, established under sub-section (1) of section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), to provide financing for the completion of stalled housing projects that are in the affordable and middle-income housing sector. Extent of the Insolvency and Bankruptcy Code, 2016 to whole of India Notice issued by NCLT that all NCLT benches would remain shut from 23rd March were to remain closed from 23rd March 2020 to 31st March 2020. NCLT issued notices giving clarification with respect to limitation stating that the order dated 23rd March, 2020 passed by the Hon’ble Supreme Court (WP-03/2020) is suo moto binding on everyone in India. RBI permitted lending institutions to grant a moratorium of three months on payment of all term loan instalments falling due between March 1, 2020 and May 31, 2020. In respect of all accounts that were regular and classified as standard as on February 29, 2020, even if they become overdue, the moratorium period, wherever granted, shall be excluded by the lending institutions from the number of days past-due for the purpose of asset classification under the IRAC norms. Deferment period was granted for working capital facilities. In respect of working capital facilities sanctioned in the form of cash credit/overdraft (“CC/OD”), the Regulatory Package permitted the recovery of interest applied during the period from March 1, 2020 upto May 31, 2020 to be deferred. Provisioning requirements were also relaxed. NCLT Benches to remain closed till 14th April 2020 Urgent hearing was being conducted in NCLT through video conferencing. Guidelines for appearing online were issued. Insolvency and Bankruptcy Code (Amendment) Ordinance promulgated. Section 10A was introduced in IBC by way of this ordinance. Section 10A provides for suspension of initiation of corporate insolvency resolution process with respect to IBBI inserted a new regulation 47A under IBBI (Liquidation Process) Regulations,2016 to exclude the COVID-19 lockdown period from the computation of the timeline for any task that could not be completed in relation to any liquidation process. ix

NCLT and NCLAT Law Practice and Procedure, 7e

Dates 20/4/2020

24/03/2020

27/03/2020

12/05/2020

23/05/2020

x

Events Regulation 40C was inserted in CIRP regulations. 40C deals with special provision relating to timeline were inserted wherein it was provided that the period of lockdown imposed by the Central Government in the wake of Covid-19 outbreak would not be counted for the purposes of the timeline for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process. Threshold limits increased to 1 crore for filing petition under Section 7, 9 and 10. Minimum amount of default for filing any fresh petition has been increased from Rs. 1 lakh to Rs. 1 crore. RBI issued Statement on Development and Regulatory Policies. This Statement sets out various developmental and regulatory policies that directly address the stress in financial conditions caused by COVID-19. They consist of: (i) expanding liquidity in the system sizeably to ensure that financial markets and institutions are able to function normally in the face of COVID-related dislocations; (ii) reinforcing monetary transmission so that bank credit flows on easier terms are sustained to those who have been affected by the pandemic; (iii) easing financial stress caused by COVID-19 disruptions by relaxing repayment pressures and improving access to working capital; and (iv) improving the functioning of markets in view of the high volatility experienced with the onset and spread of the pandemic. This policy was to be read in conjunction with the Monetary Policy Committee’s decision on monetary policy actions and stance in its resolution. NCLT directed that default record from the information utility for application under section 7 of the Code were compulsory. It was further directed that no new petitions would be entertained without record of default u/s 7 of IBC, 2016. Prudential Norms for classification of debts were relaxed. The period from 1st March 2020 to 31st August 2020 was to be excluded from the calculation for determining the period within which resolution plan were to be implemented for stressed assets. In respect of all such accounts, the residual Review Period shall resume from September 1, 2020, upon expiry of which the lenders shall have the usual 180 days for resolution. RBI allowed the financial institutions mentioned in the notification to extend the moratorium on loans by another three months i.e., from 01.06.2020 to 31.08.2020 on payment of all instalments in respect of term loans. Notification further stated that interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period. In respect of working capital facilities sanctioned in the form of cash credit/overdraft (“CC/OD”), lending institutions were permitted to allow a deferment of another three months, from June 1, 2020 to August 31, 2020, on recovery of interest applied in respect of all such facilities. Lending institutions were permitted, at their discretion, to

Important developments of 2019, 2020 & 2021: at a glance

Dates

31/7/2019 06/08/2020

13/08/2020

23/09/2020

20/09/2020 24/09/2020

23/10/2020

22/12/2020

24/12/2020

Events convert the accumulated interest for the deferment period up to August 31, 2020, into a funded interest term loan (FITL) which shall be repayable not later than March 31, 2021. Companies (Amendment) Act, 2019 received Presidential Assent RBI issued notification for Resolution Framework for COVID-19related stress to enable a facilitating revival of real sector activities and mitigating the impact on the ultimate borrowers by enabling lenders to grant concessions to borrowers for COVID19-related stress in personal, MSME and corporate loans. Order of NCLT in modification of earlier Order dated 12th May 2020 regarding filing of default record from the IU for application under section 7 of the Code – to file default record from the IU for application under section 7 of the Code wherever available with the Information Utility. The Insolvency and Bankruptcy Code (Second Amendment) Act, 2020 enacted. It provides for insertion of a new section i.e. section 10A that deals with suspension of initiation of corporate insolvency resolution process from 25th March 2021. Companies (Amendment) Act, 2020 received presidential assent. In exercise of the powers conferred by section 10A of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) [as inserted by section 2 of the Insolvency and Bankruptcy Code (Second Amendment) Act, 2020 (17 of 2020)], the Central Government hereby notifies further period of three months from the 25th September, 2020 for the purposes of the said section The Government of India announced a Scheme for grant of ex-gratia payment of difference between compound interest and simple interest for six months to borrowers in specified loan accounts (1.3.2020 to 31.8.2020) (the ‘Scheme’), which mandates ex-gratia payment to certain categories of borrowers by way of crediting the difference between simple interest and compound interest for the period between March 1, 2020 to August 31, 2020 by respective lending institutions. In exercise of the powers conferred by section 10A of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby notifies further period of three months from the 25th December, 2020, for the purposes of the said section. By virtue of this notification, the IBC remained suspended till 24th March 2021. Order passed with respect to e-filing of proceedings in NCLT: “e-filing has been mandatorily started in all benches of NCLT across the country. Completion of e-filing includes the points/stages incorporated in the list attached, which are namely e-filing, e-scrutiny, Automatic Case Number Registration, Case allocation, e-cause list generation. xi

NCLT and NCLAT Law Practice and Procedure, 7e

Dates

23/1/2021

8/3/2021

xii

Events Further decided that all the benches which have implemented e-filing have to start the second phase of e-court which is Automatic Case Number Generation compulsorily from 1st January 2021. The automatic number has to be generated from E-filing portal i.e. efiling.nclt.gov.in” Order to start Chennai Bench of NCLAT passed “NCLAT will start its functioning from 25.01.2021 through Virtual Mode. Therefore, the filing of Fresh Appeals against the orders of the Benches of the National Company Law Tribunal having jurisdiction in respect of States of Karnataka, Tamil Nadu, Kerala, Andhra Pradesh and Telangana and Union Territories of Lakshadweep and Puducherry shall have to be made before the Chennai Bench of NCLAT w.e.f. 25.01.2021. Further, the filing of Interlocutory Applications / Reply / Rejoinder etc. in respect of aforementioned appeals will also be made before the Chennai Bench of NCLAT as per NCLAT Rules, 2016 and SOP.” The Apex Court disposed of the Suo motu writ petition by which limitation was stayed with following directions: a. In computing the period of limitation for any suit, appeal, application or proceeding, the period from 15.03.2020 till 14.03.2021 shall stand excluded. Consequently, the balance period of limitation remaining as on 15.03.2020, if any, shall become available with effect from 15.03.2021. b. In cases where the limitation would have expired during the period between 15.03.2020 till 14.03.2021, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 15.03.2021. In the event the actual balance period of limitation remaining, with effect from 15.03.2021, is greater than 90 days, that longer period shall apply. c. The period from 15.03.2020 till 14.03.2021 shall also stand excluded in computing the periods prescribed under Sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of Section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.

NCLT & NCLAT – information at fingertips

NCLT & NCLAT – information at fingertips S. Section of the Nature of application / petition No. CA, 2013 1. Sec. 2 (41) Application for change in financial year

5,000/-

2. Sec. 7 (7)

Application for change in financial year 5,000/This power is transferred to Central Government by virtue of Companies (Amendment) Ordinance, 2018 w.e.f. 2nd November 2018

3. Sec. 14 (1)

Conversion of public company into a private company. 5,000/This power is transferred to Central Government by virtue of Companies (Amendment) Ordinance, 2018 w.e.f. 2nd November 2018

4. Sec. 55 (3)

Application for issue further redeemable preference shares. 5,000/-

5. Sec. 58 (3)

Appeal against refusal of registration of shares.

1,000/-

6. Sec. 59

Appeal for rectification of register of member.

1,000/-

Application for reduction of share capital

5,000/-

Sec. 66 (1)

1

Fees

7. Sec. 62 (4)

Appeal against order of Govt. fixing terms and conditions for 5,000/conversion of debentures and shares.

8. Sec. 71 (9)

Petition by Debenture-trustees.

9. Sec. 71 (10)

Application in the event of failure of redeeming of 1,000/debentures.

10. Sec. 73 (4)

Application by [deposition]1 for repayment of deposit or 500/interest.

11. Sec. 74 (2)

Application to allow further time as considered reasonable to 5,000/the company to repay deposits.

12. Sec. 97 (1)

Application for calling of Annual General meeting.

13. Sec. 98 (1)

Application for calling of general meeting of company other 1,000/than annual general meeting

14. Sec. 119 (4)

Petition to pass an order directing immediate inspection of 500/minute’s books or directing a copy thereof be sent forthwith to person requiring it.

15. Sec. 130 (1)

Application for re-opening of books of account, if made by 5,000/any person other than Central Government, Income Tax

2,000/-

1,000/-

Subs. w.e.f 20-12-2016, for the word “deposition” by the National Company Law Tribunal (Amendment) Rules, 2016, vide GSR 1159(E ), dt. 20-12-2016.

xiii

NCLT and NCLAT Law Practice and Procedure, 7e S. Section of the Nature of application / petition No. CA, 2013

Fees

authorities, SEBI or any other statutory regulatory body or authority. 16. Sec. 131 (1)

Application by company for voluntary revision of financial 5,000/statement on Board’s report.

17. Sec. 140 (4)

Application for not sending the copy of representation of 1,000/auditor to the members.

18. Sec. 140 (5)

Application by any other person concerned for change of 2,000/auditors.

19. Sec. 169 (4)

Application for not sending copies of representation

20. Sec. 213

Application to Tribunal for investigation into company 5,000/affairs.

21. Sec. 218 (1)

Application for approval for action proposed against 1,000/employee.

22. Sec. 222 (1)

Application for imposition of restrictions on securities.

23. Sec. 230 (1)

Application for amalgamation.

24. Sec. 234

Application for cross border mergers and amalgamations. 2

5000/-

25. Sec. 235 (2)

Application by dissenting shareholders

1,000/-

26. Sec. 238 (2)

Appeal against order of Registrar refusing to register any 2,000/circular.

27. Sec. 241 (1)

Application in cases of oppression and mismanagement.

10,000/ -

28. Sec. 242 (4)

Application for regulating the conduct of company.

2,500/-

29. Sec. 243(1)(b) Application for appointment as Managing Director

5,000/-

compromise

arrangement

1,000/-

2,500/and 5,000/-

30. Sec. 244 (1)

Application for waiver of requirement specified in clause (a) 2,500/or (b) of Sec. 244 (1)

31. Sec 245

Class action suits

5000/-

32. Sec. 441

Application for compounding of certain offences.

1,000/-

33. Section 421

Appeals to NCLAT

5,000/-

34. Application under any other provisions specifically not mentioned herein above 1,000/35. Fee for obtaining certified true copy of final order passed to parties other 5/- per than the concerned parties under Rule 50 page.

2

xiv

Until another amount is specified.

NCLT & NCLAT – information at fingertips

S. Applicant No. 1. Application by financial creditor (whether solely or jointly) Application for change in financial year

Fees (in Rs.) 25,000/-

2.

Application by operational creditor

2,000/-

3.

Application by corporate debtor

25,000/-

New Delhi, the 1st June, 2016 S.O. 1932(E).-In exercise of the powers conferred by section 408 of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes the National Company Law Tribunal to exercise and discharge the powers and functions as are, or may be, conferred on it by or under the said Act with effect from the 1st day of June, 2016. [F. No. A-45011/14/2016-Ad. IV] PRITAM SINGH, Addl. Secy. **** NOTIFICATION New Delhi, the 1st June, 2016 S.O. 1933(E).-In exercise of the powers conferred by section 410 of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes the National Company Law Appellate Tribunal for hearing appeals against the orders of the National Company Law Tribunal with effect from the 1st day of June, 2016. [F. No. A-45011/14/2016-Ad. IV] PRITAM SINGH, Addl. Secy. ****

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NCLT and NCLAT Law Practice and Procedure, 7e

New Delhi, the 1st June, 2016 S.O. 1934(E).-In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 20l3 (18 of 20l3), the Central Government hereby appoints the 01st day of June, 2016 as the date on which the following provisions of the said Act shall come into force, namely :SI. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29.

Section Sub-section (7) of section 7 [except clause (c) and (d)] Second proviso to sub-section (1) of section 14 Sub-section (2) of section 14 Sub-section (3) of section 55 Proviso to Clause (b) of sub-section (1) of section 61 Sub-sections (4) to (6) of section 62 Sub-sections (9) to (11) of section 71 Section 75 Section 97 Section 98 Section 99 Sub-section (4) of section 119 Section 130 Section 131 Second proviso to sub-section (4) and sub-section (5) of section 140 Sub-section (4) of section 169 Section 213 Sub-section (2) of Section 216 Section 218 Section 221 Section 222 Sub-sections (5) of section 224 Sections 241, 242 [except clause (b) of sub-section (1), clause (c) & (g) of subsection (2)], 243, 244, and 245 Reference of word ‘Tribunal’ in sub-section (2) of section 399 Sections 415 to 433 (both inclusive) Sub-section (1)(a) and (b) of section 434 Sub-section (2) of section 434 Section 441 Section 466

[F. No. A-45011/14/2016-Ad.IV] PRITAM SINGH, Addl. Secy.

**** xvi

NCLT & NCLAT – information at fingertips

[Author’s note: The principal notification was published in the Gazette of India, Extraordinary, Part II, Section 3, Subsection (ii), vide number S.O. 1935(E), dated the 1st day of June, 2016 and subsequent amendments were published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), vide number S.O. 345(E), dated the 3rd February, 2017, number S.O. 3145 (E), dated the 28th June, 2018, number S.O. 3430 (E), dated the 12th July 2018, number S.O. 3683 (E), dated the 27th July 2018, and number vide SO 1216(E), dt. 8-03-2019,]

New Delhi, the 1st June, 2016 S.O. 1935(E).-In exercise of the powers conferred by sub-section (1) of section 419 of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes the following Benches of the National Company Law Tribunal mentioned in column (2) of the table below, located at the place mentioned in column (3) and to exercise the jurisdiction over the area mentioned in column (4), namely:-

TABLE Serial Number (1)

3 4

5 6

7 8

Title of the Bench (2)

Location (3)

Territorial Jurisdiction of the Bench (4)

1.

(a) National Company Law New Delhi Tribunal, Principal Bench. (b) National Company Law Tribunal, New Delhi Bench.

(1) [***]3 (2) [***]4 (3) Union territory of Delhi.

2.

National Company Law Tribunal, Ahmedabad Bench.

Ahmedabad

(1) State of Gujarat. (2) [***]5 [(3) Union territory of Dadra and Nagar Haveli and Daman and Diu.]6

3.

National Company Law Tribunal, Allahabad Bench.

Allahabad

(1) State of Uttar Pradesh. (2) State of Uttarakhand.

4.

National Company Law Tribunal, Bengaluru Bench.

Bengaluru

(1) State of Karnataka.

5.

National Company Law Tribunal, Chandigarh Bench.

Chandigarh

(1) State of Himachal Pradesh. [(2a) Union territory of Jammu and Kashmir. (2b) Union territory of Ladakh.]7 (3) State of Punjab. (4) Union territory of Chandigarh. [(5) State of Haryana]8

Omit, “(1) State of Haryana”, vide SO 345(E), dt. 3-2-2017. Omit, w.e.f. 1-07-2018, the entry “(2) State of Rajasthan” from S.No.1, Column No. 4, vide S.O 3145(E), dt 28-06-2018. Omit, w.e.f 8-03-2019, entry “(2) State of Madhya Pradesh” vide SO 1216(E), dt. 8-03-2019. Subs. w.e.f. 12-2-2021, vide SO 654(E), dt. 12-2-2021 for the entries “(3) Union territory of Dadra and Nagar Haveli, (4) Union territory of Daman and Diu.”. Subs. w.e.f. 12-2-2021, vide SO 654(E), dt. 12-2-2021 for the entry “(2) State of Jammu and Kashmir.”. Ins. w.e.f. 3-2-2017, vide SO 345(E), dt. 3-2-2017.

xvii

NCLT and NCLAT Law Practice and Procedure, 7e Serial Number

Title of the Bench

Location

Territorial Jurisdiction of the Bench

6.

National Company Law Tribunal, Chennai Bench.

Chennai

(1) [***]9 (2) State of Tamil Nadu. (3) [***]10 (4) Union territory of Puducherry.

7.

National Company Law Tribunal, Guwahati Bench.

Guwahati

(1) State of Arunachal Pradesh. (2) State of Assam. (3) State of Manipur. (4) State of Mizoram. (5) State of Meghalaya. (6) State of Nagaland. (7) State of Sikkim. (8) State of Tripura.

8.

National Company Law Tribunal, Hyderabad Bench.

Hyderabad

(1) [***] 11. (2) State of Telangana.

9.

National Company Law Tribunal, Kolkata Bench.

Kolkata

(1) State of Bihar. (2) State of Jharkhand. (3) [* * *]12 (4) State of West Bengal. (5) Union territory of Andaman and Nicobar Islands.

10.

National Company Law Tribunal, Mumbai Bench.

Mumbai

(1) [* * *]13 (2) State of Goa. (3) State of Maharashtra.

14

[11

National Company Law Tribunal, Jaipur Bench.

Jaipur

(1) State of Rajasthan.]

15

[12

National Company Law Tribunal, Cuttack Bench.

Cuttack

(1) State of Odisha (2) State of Chhattisgarh]

16

[13

National Company Law Tribunal, Kochi Bench.

Kochi

(1) State of Kerala (2) Union Territory of Lakshadweep]

17

[14

National Company Law Tribunal, Indore Bench.

Indore

(1) State of Madhya Pradesh]

18

[15

National Company Law Tribunal, Amravati Bench.

Amaravati

(2) State of Andhra Pradesh.]

**** 9 10 11

12

13

14 15 16 17 18

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Omit, w.e.f 1-8-2018, “(1) State of Kerala”, vide SO 3683(E), dt. 27-07-2018. Omit, w.e.f 1-8-2018, “(3) Union Territory of Lakshadweep”, vide SO 3683(E), dt. 27-07-2018. Omit, w.e.f 8-03-2019, entry “(2) State of Andhra Pradesh” vide SO 1216(E), dt. 8-03-2019. Omit, w.e.f. 15-07-2018, the entry “(3) State of Odisha” from S.No.9, Column No. 4, vide S.O 3430(E), dt 12-07-2018. Omit, w.e.f. 15-07-2018, the entry “(1) State of Chhattisgarh” from S.No.10, Column No. 4, vide S.O 3430(E), dt 12-07-2018. Ins. w.e.f. 1-07-2018, vide S.O 3145(E), dt 28-06-2018. Ins, w.e.f. 15-07-2018, vide S.O 3430(E), dt 12-07-2018. Ins. w.e.f. 1-8-2018, vide SO 3683(E), dt. 27-07-2018. Ins. w.e.f 8-03-2019, vide SO 1216(E), dt. 8-03-2019. Ins. w.e.f 8-03-2019, vide SO 1216(E), dt. 8-03-2019.

NCLT & NCLAT – information at fingertips

Act/ Code Powers Description of Section Section 410 of Hearing appeals against The Central Government shall, by Companies Act, orders of NCLT notification, constitute, with effect 2013 from such date as may be specified therein, an Appellate Tribunal to be known as the National Company Law Appellate Tribunal consisting of a chairperson and such number of Judicial and Technical Members, as the Central Government may deem fit, to be appointed by it by notification, for hearing appeals against, — (a) the order of the Tribunal or of the National Financial Reporting Authority under this Act; and (b) any direction, decision or order referred to in section 53A of the Competition Act, 2002 in accordance with the provisions of that Act. Section 132 of Hearing appeal against (5) Any person aggrieved by any Companies Act, orders of National order of the National Financial 2013 read with Financial Reporting Reporting Authority issued under Section 410 of Authority (NFRA) clause (c) of sub-section (4), may Companies Act, prefer an appeal before the Appellate 2013 Tribunal in such manner and on payment of such fee as may be prescribed. Section 53A of Hear and dispose of (1) The Central Government shall, by Competition Act, appeals against any notification, establish an Appellate 2002 read with direction issued or Tribunal to be known as Competition Section 410 of decision made or order Appellate Tribunal,— Companies Act, passed by the to hear and dispose of appeals against 2013 Competition any direction issued or decision made Commission of India or order passed by the Commission (CCI) under sub-sections (2) and (6) of section 26, section 27, section 28, section 31, section 32, section 33, section 38, section 39, section 43, section 43A, section 44, section 45 or section 46 of this Act;

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Act/ Code

Section 61 of Insolvency and Bankruptcy Code, 2016 read with Section 32 of Insolvency and Bankruptcy Code.

xx

Powers

Description of Section to adjudicate on claim for compensation that may arise from the findings of the Commission or the orders of the Appellate Tribunal in an appeal against any finding of the Commission or under section 42A or under sub-section (2) of section 53Q of this Act, and pass orders for the recovery of compensation under section 53N of this Act. (2) The Headquarter of the Appellate Tribunal shall be at such place as the Central Government may, by notification, specify. Hearing appeal against 1) Notwithstanding anything to the orders passed under IBC contrary contained under the by NCLT Companies Act 2013, any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal: Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal but such period shall not exceed fifteen days. (3) An appeal against an order approving a resolution plan under section 31 may be filed on the following grounds, namely:— (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the

NCLT & NCLAT – information at fingertips

Act/ Code

Powers

Section 202 of Insolvency and Bankruptcy Code, 2016

Hearing appeals against the orders passed by Insolvency and Bankruptcy Board of India with respect to insolvency professional agencies.

Section 211 of Insolvency and Bankruptcy Code, 2016

Hearing appeals against the orders passed by Insolvency and Bankruptcy Board of India with respect to information utilities

Description of Section powers by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board. Any insolvency professional agency which is aggrieved by the order of the Board made under section 201 may prefer an appeal to the National Company Law Appellate Tribunal in such form, within such period, and in such manner, as may be specified by regulations. Any information utility which is aggrieved by the order of the Board made under section 210 may prefer an appeal to the National Company Law Appellate Tribunal in such form, within such period, and in such manner, as may be specified by regulations.

S. Title of the Location Territorial Jurisdiction of the No Bench Bench (1) (2) (3) (4) nd rd 1. National 2 , & 3 Floor of Mahanagar The Bench of the NCLAT at New Company Law Doorsanchar Sadan Delhi shall be known as the Appellate (M.T.N.L. Building), 9, Principal Bench of the NCLAT Tribunal, New Lodhi Rd, CGO Complex, which shall continue to hear appeals Delhi Bench Pragati Vihar, New Delhi, other than those in the jurisdiction Delhi 110003 of Chennai Bench of the NCLAT.

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S. Title of the Location Territorial Jurisdiction of the No Bench Bench (1) (2) (3) (4) 2. National 6th Floor, Ezhilagam Annex, This bench is created only to hear Company Law Chepauk, Chennai – 600005 appeals against the orders of the Appellate Benches of the National Tribunal, Company Law Tribunal (NCLT) Chennai situated at Bench. (1) Karnataka (2) Tamil Nadu (3) Telangana (4) Andhra Pradesh (5) Kerala (6) Union territory of Lakshadweep. (7) Union territory of Puducherry. It cannot hear appeals against the decisions of NFRA, IBBI or Competition Commission. IT is however, empowered to hear appeal against orders of NCLT passed under Companies Act, 2013 and Insolvency and Bankruptcy Code, 2016.

NOTIFICATION New Delhi, the 1st June, 2016 S.O. 1936(E).-In exercise of the powers conferred by clause (a) of sub-section (1) of section 434 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 01st day of June, 2016, on which all matters or proceedings or cases pending before the Board of Company Law Administration (Company Law Board) shall stand transferred to the National Company Law Tribunal and it shall dispose of such matters or proceedings or cases in accordance with the provisions of the Companies Act, 2013 or the Companies Act, 1956. [F. No. 1/30/CLB/2013/CL-V] PRITAM SINGH, Addl. Secy. ****

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NCLT & NCLAT – information at fingertips

NOTIFICATION New Delhi, the 7th December, 2016 S.O. 3677(E).-In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 15th day of December, 2016 as the date on which the following provisions of the said Act shall come into force, namely :SL. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

Section Clause (23) of section 2 Clause (c) and (d) of sub-section (7) of section 7 Sub-section (9) of section 8 Section 48 Section 66 Sub-section (2) of section 224 Section 226 Section 230 [except sub-section (11) and (12)], and Sections 231 to 233 Sections 235 to 240 Sections 270 to 288 Sections 290 to 303 Section 324 Sections 326 to 365 Proviso to section 370 Sections 372 to 373 Sections 375 to 378 Sub-section (2) of section 391 Clause (c) of sub-section (1) of section 434

****

NOTIFICATION New Delhi, the 26th December, 2016 S.O. 4167(E).—In exercise of the powers conferred by sub-section (3) of Section 1 of the Companies Act, 20l3 (18 of 20l3), the Central Government hereby appoints the 26th December, 2016 as the date on which the provisions of section 248 to 252 of the said Act, shall come into force. ****

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NCLT and NCLAT Law Practice and Procedure, 7e

NOTIFICATION New Delhi, the 13th April, 2017 S.O. 1182(E).—In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 13th day of April, 2017 as the date on which the provisions of section 234 of the said Act shall come into force. ****

NOTIFICATION New Delhi, the 18th October, 2017 S.O. 3393(E).—In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 18th October, 2017 as the date on which the provisions of section 247 of the said Act shall come into force. **** NOTIFICATION New Delhi, the 18th November, 2019 S.O. 4139(E).-In exercise of the powers conferred by section 227 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government in consultation with the Reserve Bank of India hereby notifies as under: The insolvency resolution and liquidation proceedings of the following categories of financial service providers shall be undertaken in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 read with the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (in this notification referred to as the 'Rules') and the applicable Regulations: Serial Category of Financial Service Appropriate Regulator Dealing with Number Provider (rule 2 of the Rules) [clause (a) of sub-rule (1) third-party assets (rule 10 of the assets (rule 10 of Rules) of rule 3 of the the Rules) Rules] (1) (2) (3) (4) 1. Non-banking finance companies Reserve Bank of India To be notified (which include housing finance separately companies) with asset size of Rs.500 crore or more, as per last audited balance sheet. ****

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NCLT & NCLAT – information at fingertips

NOTIFICATION New Delhi, the 3rd February, 2020 S.O. 525(E).—In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 3rd day of February, 2020 as the date on which the provisions of sub-sections (11) and (12) of section 230 of the said Act shall come into force.

**** NOTIFICATION New Delhi, the 13th March, 2020 S.O. 1060(E).—In exercise of the powers conferred by section 410 of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes another Bench of the National Company Law Appellate Tribunal (NCLAT) at Chennai to hear the appeals against the orders of the Benches of the National Company Law Tribunal (NCLT) having jurisdiction of Karnataka, Tamil Nadu, Kerala, Andhra Pradesh, Telangana, Lakshadweep and Puducherry. 2. The Bench of the NCLAT at New Delhi shall be known as the Principal Bench of the NCLAT which shall continue to hear appeals other than those in the jurisdiction of Chennai Bench of the NCLAT. 3. This notification shall come into force with effect from the 18th March, 2020. **** NOTIFICATION New Delhi, 24th March, 2020 S.O. 1205(E).—In exercise of the powers conferred by the proviso to section 4 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby specifies one crore rupees as the minimum amount of default for the purposes of the said section. **** NCLT ORDER File No. 10/03/2020-NCLT, 25 November 2020 The NCLT Benches are hereby re-constituted as under to attend regular hearing through Video Conference w.e.f. 1.12.2020. The Benches shall hear the matters of respective jurisdiction as were hearing before lockdown (before 23rd March 2020). All matters including pending before lockdown and filed during the lockdown shall be heard regularly on all working days. The benches shall sit as per Rule 9 of NCLT Rules, 2016- sitting hours of the Tribunal: New Delhi Principal Bench Principal Bench 1. Shri BSV Prakash Kumar, Acting President. 2. Shri Hemant Kumar Sarangi, Member (T) New Delhi Division Bench 1. Shri Abni Ranjan Kumar Sinha, Member (J) 2. Shri L. N. Gupta, Member (T)

Remarks

Monday, Tuesday, Wednesday

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NCLT and NCLAT Law Practice and Procedure, 7e

Ahmedabad

Ahmedabad

Allahabad Bengaluru

Chandigarh

Chennai

Guwahati

Hyderabad

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Division Bench 1. Ch. Mohd. Sharief Tariq, Member (J) 2. Shri Narender Kumar Bhola, Member (T) Division Bench 1. Dr. Deepti Mukesh, Member (J) 2. Ms. Sumita Purkayastha, Member (T) Division Bench 1. Shri Abni Ranjan Kumar Sinha, Member (J) 2 Shri Kapal Kumar Vohra, Member (T) Division Bench 1 Shri Patibandla Satyanarayana Prasad, Member (J) 2. Dr. V.K. Subburaj, Member (T) Division Bench 1. Ms. Manorama Kumari, Member (J) 2. Shri Chockalingram Thirunavukkarasu, Member (T) Division Bench 1 Shri M.B. Gosavi, Member (J) 2. Shri Virendra Kumar Gupta, Member (T) Division Bench-Indore at Ahmedabad 1 Shri M.B. Gosavi, Member (J) 2. Shri Virendra Kumar Gupta, Member (T) Single Bench Justice (Retd.) Rajesh Dayal Khare, Member (J) Division Bench 1 Shri Rajeswara Rao Vittanala, Member (J) 2 Shri Ashutosh Chandra, Member (T) Division Bench 1. Shri Ajay Kumar Vatsavayi, Member (J) 2. Shri Raghu Nayyar, Member (T) Division Bench 1 Shri R. Varadharajan, Member (J) 2. Shri Anil Kumar B., Member (T) Division Bench 1. Ms. Sucharita R, Member (J) 2 Shri Anil Kumar B., Member (T) Division Bench 1 Shri Venkata Subba Rao Hari, Member (J) 2. Shri Prasanta Kumar Mohanty, Member (T) Division Bench 1 Shri K. Anantha Padmanabha Swamy, Member (J) 2 Shri Veera Brahma Rao Arekapudi, Member (T) Division Bench 1 Shri K. Anantha Padmanabha Swamy, Member (J)

Thursday & Friday

Monday to Wednesday Thursday, Friday

Monday, Tuesday Wednesday

Monday, Tuesday Wednesday per Fortnight Monday, Tuesday, Wednesday Thursday, Friday

NCLT & NCLAT – information at fingertips

Kolkata

Mumbai

Jaipur

Cuttack

Kochi

2 Shri Binod Kumar Sinha, Member (T) Amravati Bench (Single Bench) at Hyderabad Shri B.P. Mohan, Member (J) Division Bench 1 Shri Rajasekhar V. K, Member (J) 2 Shri H.C Suri, Member (T) Division Bench 1 Shri Mohammed Ajmal, Member (J) 2 Shri V. Nallasenapathy, Member (T) Division Bench 1 Shri H.P. Chaturvedi, Member (J) 2 Shri Ravikumar Duraiswamy, Member (T) Division Bench 1. Shri Venkata Subba Rao Hari, Member (J) 2 Shri Shyam Babu Gautam, Member (T) Division Bench 1 Ms. Suchitra Kanuparthi, Member (J) 2, Shri Rajesh Sharma, Member (T) Division Bench 1 Ms. Suchitra Kanuparthi, Member (J) 2 Shri Chandra Bhan Singh, Member (T) Division Bench 1 Shri Ajay Kumar Vatsavayi, Member (J) 2 Shri Raghu Nayyar, Member (T) Division Bench 1. Ms. Sucharita R, Member (J) 2. Shri Satya Ranjan Prasad Member (T)

Court No. I & II

Monday, Tuesday, Wednesday Thursday, Friday

Thursday, Friday

Monday, Tuesday, Wednesday per Fortnight

Single Bench Shri Ashok Kumar Borah, Member (J)

2. This shall come into force w.e.f 1.12.2020. 3. The Constitution of Bench is as per section 419 (3) of the Companies Act, 2013. 4. This issues with the approval of Hon’ble Acting President, NCLT. ****

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NATIONAL COMPANY LAW TRIBUNAL File No. 25/02/2020-NCLT Dated: 24-12-2020 ORDER As you all are aware that our Hon’ble Prime Minister has launched a Digital India campaign to ensure the Government services are made available to citizens electronically by improving the online infrastructure. 2. In this regarding e-courts initiative in NCLT was conceptualized in year 2017 and now e-filing has been mandatorily started in all the benches of NCLT across the Country. The completion of the E-court includes the points/stages incorporated in the list attached; which are namely e-filing, e-scrutiny, Automatic Case number Registration, Case allocation, e-cause list generation. It has been decided that all the Benches which have implemented e-filing have to start the second phase of e-court which is Automatic Case Number Generation 3. It is hereby informed that the Competent Authority has decided that Automatic Case Number Generation should be mandatorily started from 1st January 2021 in all the benches across the Country. The automatically number has to be generated from E-filing portal i.e. efiling.nclt.gov.in 4. This issues with the approval of the Hon’ble Acting President. **** NOTICE (No. 025 / 2021) Dated: 23rd January, 2021 Take notice that the Chennai Bench of National Company Law Appellate Tribunal (NCLAT) will start its functioning from 25.01.2021 through Virtual Mode. Therefore, the filing of Fresh Appeals against the orders of the Benches of the National Company Law Tribunal having jurisdiction in respect of States of Karnataka, Tamil Nadu, Kerala, Andhra Pradesh and Telangana and Union Territories of Lakshadweep and Puducherry shall have to be made before the Chennai Bench of NCLAT w.e.f. 25.01.2021. Further, the filing of Interlocutory Applications / Reply / Rejoinder etc. in respect of aforementioned appeals will also be made before the Chennai Bench of NCLAT as per NCLAT Rules, 2016 and SOP. **** DATE 24.10.2016 20.12.2016

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PARTICULARS Cyrus Mistry was removed from the position of Chairman of the Company without giving 15 days prescribed notice. Two Mistry family backed investment firms, Cyrus Investments Pvt Ltd.

NCLT & NCLAT – information at fingertips

DATE

21.01.2017 06.02.2017 06.03.2017

17.04.2017

27.04.2017

21.09.2017 09.07.2018

03.08.2018 29.08.2019

23.05.2019 18.12.2019

PARTICULARS & Sterling Investments Corporation Pvt Ltd. filed petition u/s 241 to 244 of Companies Act, 2013. Mr. N Chandrashekaran was appointed as executive chairman. Cyrus was removed as director of the Company. NCLT set aside plea of the two investment firms of Mistry family over maintainability issue. It held that they did not meet the criteria of 10% ownership in the company for filing of the alleged case. NCLT also rejects plea by the two investment firms seeking waiver in the criteria of having 10% ownership for filing case of alleged oppression and mismanagement. The investment firms move to NCLAT, challenging the NCLT order which rejected their petition over maintainability and also challenged rejection of their waiver plea. NCLAT waived the minimum 10% requirement & remanded the matter back to NCLT for disposal on merits. NCLT dismisses Cyrus Mistry’s Plea against Tata Sons NCLT found no merit in Cyrus Mistry’s allegations of operational mismanagement and oppression of minority shareholders. The Court also found no merit in Mistry’s argument that Ratan Tata and Tata Sons’ trustee NA Sonawala interfered in the governance of Tata Sons. Petitioner approached NCLAT against the order of NCLT NCLAT admits the appeals filed by Cyrus Mistry in his personal capacity and decided to hear it along with the main petitions filed by the investment firms. NCLAT reverses order of NCLT completely after hearing the matter. The NCLAT held that Mistry’s dismissal was illegal and found that the affairs of Tata Sons conducted in a manner prejudicial and oppressive to its minority shareholders, namely Cyrus Mistry and his family Companies, as well as to the interest of the Company itself and its group firms. NCLAT further ordered that – 1) to reinstate Mistry and set aside order Of NCLT 2) appointment of N. Chandrasekaran to be treated as illegal 3) Suspend the implementation of this order for 4 weeks in order to provide time to Tata Sons to appeal. 4) set aside the order of Tata Sons to convert from public to private company 5) NCLAT passes adverse remarks on the conduct of ROC in issuing certificate w.r.t conversion of Tata Sons from public to private company.

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DATE Jan, 2020 10.01.2020 FEB,2020 26.03.2021

PARTICULARS Respondent filed an appeal to SC on the basis that NCLAT decision is blow to corporate democracy and rights of BODs. Supreme Court stayed the order of NCLAT and put on hold all reliefs granted by NCLAT to Cyrus Mistry. Cyrus Mistry filed cross appeal in Supreme Court seeking more reliefs from NLCAT The Supreme Court set aside the NCLAT order.

**** IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION TATA CONSULTANCY SERVICES LIMITED vs. CYRUS INVESTMENTS PVT. LTD. AND ORS. Tata v. Mistry Battle - Brief History of the Matter Excerpts from TATA v Mistry Matter in Apex Court (The paragraphs are rearranged wherever required for ease of reference) Question No.1 Whether the formation of opinion by the Appellate Tribunal that the company’s affairs have been or are being conducted in a manner prejudicial and oppressive to some members and that the facts otherwise justify the winding up of the company on just and equitable ground, is in tune with the well settled principles and parameters, especially in the light of the fact that the findings of NCLT on facts were not individually and specifically overturned by the Appellate Tribunal? 16.53 It was contended repeatedly that lack of probity in the conduct of the directors is a sufficient cause to invoke just and equitable clause. Drawing our attention to the landmark decision in Needle Industries (India) Ltd. and Ors. v. Needle Industries Newey (India) Ltd. and ors. 15 (1981) 3 SCC 333 it was contended that even the profitability of the company has no bearing if just and equitable standard is fulfilled and that the test is not whether an act is lawful or not but whether it is oppressive or not. 16.54 But all these arguments lose sight of the nature of the company that Tata Sons is. As we have indicated elsewhere, Tata Sons is a principal investment holding Company, of which the majority shareholding is with philanthropic Trusts. The majority shareholders are not individuals or corporate entities having deep pockets into which the dividends find their way if the Company does well and declares dividends. The dividends that the Trusts get are to find their way eventually to the fulfilment of charitable purposes. Therefore, NCLAT should have raised the most fundamental question whether it would be equitable to wind up the Company and thereby starve to death those charitable Trusts, especially on the basis of un-charitable

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allegations of oppressive and prejudicial conduct. Therefore, the finding of NCLAT that the facts otherwise justify the winding up of the Company under the just and equitable clause, is completely flawed. Removal from directorship/chairmanship 16.11 CPM was first removed only from the post of Executive Chairman of Tata Sons, but not from the Directorship, by the resolution of the Board dated 24.10.2016. This acted as the trigger point for CPM, to launch an offensive. On the very next day namely 25.10.2016, CPM wrote a mail alleging total lack of corporate governance and failure on the part of the directors to discharge their fiduciary duties. He also called all the Trust nominee directors as postmen. Though the mail was labelled as ‘confidential’, a copy of the mail landed up with the media creating a “sensation”. NCLT recorded a finding that CPM who owes a duty to explain this leakage of confidential mail, could not provide a satisfactory answer and that therefore, by virtue of section 106 of the Evidence Act, the leakage has to be traced to CPM. NCLAT did not overrule this finding. 16.15 Upon coming to know of CPM’s letter to the Deputy Commissioner of Income Tax, Tata Sons lodged a protest through a letter dated 26.12.2016. It was followed by a legal notice issued by Tata Sons to CPM on 27.12.2016 pointing out that he was guilty of breach of confidentiality and that he had passed on confidential and sensitive information contained in 4 box files, without any authority. CPM sent a legal reply dated 05.01.2017 claiming that he had a statutory obligation to cooperate with Income Tax authorities. As if to display his courage of conviction, CPM sent another letter dated 12.01.2017 to the Deputy Commissioner of Income Tax sending one more file and assuring the authorities that he would continue to check the records and submit any additional data/information as and when available. 16.16 In the light of whatever transpired as narrated above, a “Special Notice and Requisition” was moved on 03.01.2017 convening an EGM of Tata Sons for considering the removal of CPM as Director of Tata sons. It must be remembered at this stage that by the Resolution of the Board of Tata Sons dated 24.10.2016, CPM was merely removed from the post of Executive Chairman, but he continued to be a member of the Board as a Non Executive Director even after 24.10.2016. It must also be remembered that it was during his continuance as the member of the Board that CPM exchanged correspondence/legal notice with Tata Sons and also passed on information along with certain files, to the Income Tax authorities claiming to be a very “law abiding citizen”. 16.17 Since the EGM of Tata sons was scheduled to be held on 06.02.2017, for considering the resolution for CPM’s removal from the Directorship, the Companies (S.P. Group) which filed the complaint before the NCLT moved an interim application before NCLT for a stay of the EGM. NCLT declined stay and the appeal against the refusal to grant stay was also dismissed by NCLAT. Therefore, the EGM proceeded as scheduled on 06.02.2017 and CPM was removed from the Directorship of Tata Sons. In his place Mr. N. Chandrasekharan, was appointed as Executive Chairman. xxxi

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16.24 Therefore, the fact that the removal of CPM was only from the Executive Chairmanship and not the Directorship of the company as on the date of filing of the petition and the fact that in law, even the removal from Directorship can never be held to be an oppressive or prejudicial conduct, was sufficient to throw the petition under section 241 out, especially since NCLAT chose not to interfere with the findings of fact on certain business decisions. 16.26 For assailing the decision to remove CPM from the Chairmanship of Tata Sons, it is contended (i) that Tata Group performed exceedingly well under his stewardship; (ii) that the Nomination and Remuneration Committee for the Financial Year 2015-16 endorsed his performance and even recommended a pay hike and performance linked bonus; and (iii) that the Board unanimously approved these recommendations on 29.6.2016 just four months before his unceremonious removal. 16.27 First of all, the above contention is in direct conflict with the entire foundation on which the whole case of the complainant companies was erected. If CPM and the members of the Nomination and Remuneration Committee as well as the entire Board were on the same page till 29.6.2016 that the company was doing well under the stewardship of CPM, then there can be no allegation that the company’s affairs were conducted in a manner oppressive or prejudicial to the interest of anyone, namely the company or the minority, at least until 29.6.2016. On the contrary if the company’s affairs have been conducted in a manner oppressive or prejudicial, even before 29.6.2016, the other members of the Board and CPM could not have formed themselves into a mutual admiration society to laud CPM’s performance and CPM acknowledging that the company was doing well when he was in the driver’s seat. 16.28 An important aspect to be noticed is that in a petition under Section 241, the Tribunal cannot ask the question whether the removal of a Director was legally valid and/or justified or not. The question to be asked is whether such a removal tantamount to a conduct oppressive or prejudicial to some members. Even in cases where the Tribunal finds that the removal of a Director was not in accordance with law or was not justified on facts, the Tribunal cannot grant a relief under Section 242 unless the removal was oppressive or prejudicial. 16.29 There may be cases where the removal of a Director might have been carried out perfectly in accordance with law and yet may be part of a larger design to oppress or prejudice the interests of some members. It is only in such cases that the Tribunal can grant a relief under Section 242. The Company Tribunal is not a labour Court or an administrative Tribunal to focus entirely on the manner of removal of a person from Directorship. Therefore, the accolades received by CPM from the Nomination and Remuneration Committee or the Board of Directors on 29.6.2016, cannot advance his case. 16.31 As we have pointed out above, the validity of and justification for the removal of a person can never be the primary focus of a Tribunal under Section 242 unless the same is in furtherance of a conduct oppressive or prejudicial to some of the members. In fact the post of Executive Chairman is not statutorily recognised or regulated, though the post of a Director is. At the cost of repetition it should be xxxii

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pointed out that CPM was removed only from the post of (or designation as) Executive Chairman and not from the post of Director till the Company Petition was filed. But CPM himself invited trouble, by declaring an all out war, which led to his removal from Directorship. Question No.2 Whether the reliefs granted and the directions issued by the Appellate Tribunal, including the reinstatement of CPM into the Board of Tata Sons and other Tata companies, are in consonance with the pleadings made, the reliefs sought and the powers available under Sub-section (2) of Section 242 ? Reinstatement of CPM 17.7 Removal and reinstatement are two different things. We have dealt with the issue of removal of CPM, while answering question of law No.1, in the context of whether it was part of a scheme of oppressive and prejudicial conduct. Now we shall deal with the issue of reinstatement in the context of the contours of section 242(2) and the nature of the orders that could be passed. 17.8 As we have seen already, the original motive of the complainant companies, was to restrain Tata Sons from removing CPM as Director. Subsequently, there was a climb down and the complainant companies sought what they termed as “reinstatement” of a representative of the complainant companies. Thereafter, it was modulated into a cry for proportionate representation on the Board. 17.9 …. Therefore, despite there being no prayer for reinstatement of CPM either as a Director or as an Executive Chairman of Tata Sons, NCLAT directed the restoration of CPM as Executive Chairman of Tata Sons and as Director of Tata Companies for the rest of the tenure. 17.10 While granting much more than what the complainant companies and CPM themselves thought as legally feasible, NCLAT failed to notice one important thing. The appointment of CPM as Executive Deputy Chairman of Tata Sons, was to be for a period of 5 years from 01.04.2012 to 31.03.2017, subject to the approval of the shareholders. In the Meeting of the shareholders held on 01.08.2012, the appointment of CPM as Executive Deputy Chairman was approved and the General Body left it to the Board to re-designate CPM as Chairman. Accordingly, the Board redesignated CPM as Executive Chairman, with effect from 29.12.2012, by a resolution passed on 18.12.2012. 17.11 The judgment of the NCLAT was passed on 18.12.2019, by which time, a period of nearly 7 years had passed from the date of CPM’s appointment as Executive Chairman. Therefore, we fail to understand : (i) as to how NCLAT could have granted a relief not apparently sought for (though wished for); and (ii) what NCLAT meant by reinstatement “for the rest of the tenure”. That the question of reinstatement will not arise after the tenure of office had run its course, is a settled position. In this regard, we may refer to the decisions in Raj Kumar Dey vs. Tarapada Dey 16 (1987) 4 SCC 398, and Mohd. Gazi vs. State of Madhya Pradesh 17 (2000) 4 SCC 342. While so, it is incomprehensible that the NCLAT directed reinstatement, and that too,

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of a Director of a company, after the expiry of his term of office. Needless to say that such a remedy would not have been granted even by a labour court/service Tribunal in matters coming within their jurisdiction. 17.12 In fact NCLAT has gone to the extent of reinstating CPM not only on the Board of Tata Sons, but also on the Board of Tata group companies, without they being parties, without there being any complaint against those companies under section 241 and without there being any prayer against them…. 17.17 It is significant that Sections 241 and 242 of the Companies Act, 2013 do not specifically confer the power of reinstatement, nor we would add that there is any scope for holding that such a power to reinstate can be implied or inferred from any of the powers specifically conferred. 17.18 The following words at the end of sub­section (1) of 242 “the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit” cannot be interpreted as conferring on the Tribunal any implied power of directing reinstatement of a director or other officer of the company who has been removed from such office. These words can only be interpreted to mean as conferring the power to make such order as the Tribunal thinks fit, where the power to make such an order is not specifically conferred but is found necessary to remove any doubts and give effect to an order for which the power is specifically conferred. For instance, sub-section (2) of Section 242 confers the power to make an order directing several actions. The words by which sub-section (1) of Section 242 ends, supra can be held to mean the power to make such orders to bring an end, matters for which directions are given under sub-section (2) of Section 242. 17.19 The architecture of Sections 241 and 242 does not permit the Tribunal to read into the Sections, a power to make an order (for reinstatement) which is barred by law vide Section 14 of the Specific Relief Act, 1963 with or without the amendment in 2018. Tribunal cannot make an order enforcing a contract which is dependent on personal qualifications such as those mentioned in Section 149(6) of the Companies Act, 2013. Moreover, it has been held in the case of Vaish Degree College (supra) that the general rule is that a contract of personal services is not specifically enforceable …. 17.33 Therefore, despite the law relating to oppression and mismanagement undergoing several changes, the object that a Tribunal should keep in mind while passing an order in an application complaining of oppression and mismanagement, has remained the same for decades. This object is that the Tribunal, by its order, should bring to an end the matters complained of. 17.34 In other words the purpose of an order both under the English Law and under the Indian Law, irrespective of whether the regime is one of “oppressive conduct” or “unfairly prejudicial conduct” or a mere “prejudicial conduct”, is to bring to an end the matters complained of by providing a solution. The object cannot be to provide a remedy worse than the disease. The object should be to put an end to the matters complained of and not to put an end to the company itself, forsaking the interests of other stakeholders. It is relevant to point out that once upon a time, the provisions for xxxiv

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relief against oppression and mismanagement were construed as weapons in the armoury of the shareholders, which when brandished in terrorem, were more potent than when actually used to strike with. While such a position is certainly not desirable, they cannot today be taken to the other extreme where the tail can wag the dog. 17.35 The Tribunal should always keep in mind the purpose for which remedies are made available under these provisions, before granting relief or issuing directions. It is on the touchstone of the objective behind these provisions that the correctness of the four reliefs granted by the Tribunal should be tested. If so done, it will be clear that NCLAT could not have granted the reliefs of (i) reinstatement of CPM (ii) restriction on the right to invoke Article 75 (iii) restraining RNT and the Nominee Directors from taking decisions in advance and (iv) setting aside the conversion of Tata Sons into a private company. Question No. 3 Whether the Appellate Tribunal could have, in law, muted the power of the Company under Article 75 of the Articles of Association, to demand any member to transfer his ordinary shares, by simply injuncting the company from exercising such a right without setting aside the Article? 18.6 A person who willingly became a shareholder and thereby subscribed to the Articles of Association and who was a willing and consenting party to the amendments carried out to those Articles, cannot later on turn around and challenge those Articles. The same would tantamount to requesting the Court to rewrite a contract to which he became a party with eyes wide open. 18.7… the challenge to Article 75 …. it did not correlate to an actual conduct but the possibility of a future conduct. Section 241 is not intended to discipline a Management in respect of a possible future conduct. 18.8 It is no doubt true that the Tribunal has the power under Section 242 to set aside any amendment to the Articles that takes away recognised proprietary rights of shareholders. But this is on the premise that the bringing up of amendment itself was a conduct that was oppressive or prejudicial. 18.9 It was contended that Article 75 was repugnant to Sections 235 and 236 of the Companies Act, 2013. We do not know how these provisions would apply. Section 235 deals with a scheme or contract involving transfer of shares in a Company called the transferor company, to another called the transferee company. Similarly, Section 236 deals with a case where an acquirer acquired or a person acting in concert with such acquirer becomes the registered holder of 90% of the equity share capital of the Company, by virtue of amalgamation, share exchange, conversion of securities etc. These provisions have no relevance to the case on hand. 18.11 Therefore, the order of NCLAT tinkering with the power available under Article 75 of the Articles of Association is wholly unsustainable. ...

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Question No. 4 Whether the characterisation by the Tribunal, of the affirmative voting rights available under Article 121 to the Directors nominated by the Trusts in terms of Article 104B, as oppressive and prejudicial, is justified especially after the challenge to these Articles have been given up expressly and whether the Tribunal could have granted a direction to RNT and the Nominee Directors virtually nullifying the effect of these Articles? 19.4…, what was actually sought by the complainant companies was the deletion of the Article that necessitated the affirmative voting right of the majority of the Directors nominated by the two Trusts. There was no prayer for restraining RNT and the nominee Directors of the Trusts from taking any decision in advance. 19.7 Under Article 104B, Sir Dorabjee Tata Trust and Sir Ratan Tata Trust, acting jointly, shall have a right to nominate 1/3rd of the prevailing number of Directors on the Board, so long as the Trusts own and hold, in the aggregate, at least 40% of the paid up share capital. Article 121 provides that the matters which require to be decided by a majority of the Directors, shall require the affirmative vote of the majority of Directors appointed under Article 104B. 19.10 The swing that the S.P. Group has taken in their position relating to affirmative voting rights is quite funny. To begin with, they sought a prayer for striking off Article 121 in its entirety. Later they restricted their relief, by the Memo dated 12.01.2018, to the deletion of “the necessity of affirmative voting rights”. But now they are fine with the existence of affirmative voting rights for the majority in respect of matters covered by Article 121A, but want a similar right in favour of the nominee directors of the S.P. Group. 19.11 The frequent change of position that S.P. Group has taken and the relief that they now seek, raises a doubt whether it is actually a fight on principles. If affirmative voting rights are bad in principle, we do not know how they may become good, if conferred on S.P. Group also. 19.43 Whatever it be, the right to claim proportionate representation is not available even to a minority shareholder statutorily, both under the 1956 Act and under the 2013 Act. It is available only to a small shareholder, which S.P. Group is certainly not. 19.44 The right to claim proportionate representation is not available for the S.P. group even contractually, in terms of the Articles of Association. Neither S.P. Group nor CPM can request the Tribunal to rewrite the contract, by seeking an amendment of the Articles of Association. The Articles of Association, as they exist today, are binding upon S.P. Group and CPM by virtue of Section 10(1) of the Act. 19.49 Placing reliance upon section 163 of the Companies Act, 2013, it was contended that proportionate representation is statutorily recognised. But this argument is completely misconceived. Section 163 of the 2013 Act corresponds to section 265 of the 1956 Act. It enables a company to provide in their Articles of Association, for the appointment of not less than two-thirds of the total number of

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Directors in accordance with the principle of proportionate representation by means of a single transferable vote. First of all, proportionate representation by means of a single transferable vote, is not the same as representation on the Board for a group of minority shareholders, in proportion to the percentage of shareholding they have. It is a system where the voters exercise their franchise by ranking several candidates of their choice, with first preference, second preference etc. Moreover, it is only an enabling provision and it is upto the company to make a provision for the same in their Articles, if they so choose. There is no statutory compulsion to incorporate such a provision. Question No.5 Whether the re-conversion of Tata Sons from a public company into a private company, required the necessary approval under section 14 of the Companies Act, 2013 or at least an action under section 43A(4) of the Companies Act, 1956 during the period from 2000 (when Act 53 of 2000 came into force) to 2013 (when the 2013 Act was enacted) as held by NCLAT ? 20.42…. Once the company had become a deemed public company with effect from 1-2-1975, the privileges of a private company stood withdrawn and the company was entitled in law to allow renunciation of shares under rights issue. In any case, the validity of what was done in 1995 was not in question. That they accepted deposits from public till September 2002, is the reason why they were not reconverted as a private company at that time. Once a new definition of the expression “private company” came into force with effect from 12-09-2013 under section 2(68) of the 2013 Act, the only test to be applied is to find out if the company fits into the scheme under the new Act or not. We need not go to the circulars issued by the department or the RBI when statutory provisions show the path with clarity. The description of the company in the forms filed under Rule 10, reflected the true position that prevailed then and they would not act as estoppel when the company was entitled to take advantage of the law. That the ability of the company to raise funds has now gone and that the company will have to repay the investments made by insurance companies, are all matters which the shareholders and the Directors are to take care. The question before the court is whether the reconversion is in accordance with law or not. The question is not whether it is good for the company or not. 20.43 The real reason why SP group and CPM are aggrieved by the conversion is, that most of their arguments are traceable to provisions which apply only to public and listed public companies. If re-conversion goes, they may perhaps stand on a better footing. But that would tantamount to putting the cart before the horse. One may be entitled to a collateral benefit arising out of a substantial argument. But one cannot seek to succeed on a collateral issue so as to make the substantial argument sustainable. 20.44 Therefore, question of law No. 5 is accordingly answered in favour of Tata Sons and as a consequence, all the observations made against the appellants and the Registrar of companies in Paragraphs 181, 186 and 187 (iv) of the impugned judgment are set aside. xxxvii

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21.1… Thus in fine, all the questions of law are liable to be answered in favour of the appellants Tata group and the appeals filed by the Tata Group are liable to be allowed and the appeal filed by S.P. Group is liable to be dismissed….

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Acknowledgement Writing a book is a journey - of understanding, analysis and expression. In this journey, there are so many young and bright minds that have assisted me. I am indebted to them for their overflowing enthusiasm and ardent efforts. In 2021, when I wanted to edit this book, it looked like an uphill task with more than 5000 case laws. However, with the support and assistance from a superb team, we were able to complete the editing of the book in record time. I thank Navneet for his constant encouragement and unwavering belief. Despite his busy schedule, he never fails to heed the call for guidance and advise. Krishna Shah and Janhavi Hirlekar were a part of my core team for completing the 7th edition. They have worked tirelessly for months and many a times burnt midnight oil for editing the book and updating the case digest. Though freshers, they have an excellent understanding and great drafting skills. It is pleasure to see such promising candidates are entering our profession. I thank them for their able assistance. I thank Adv Ayushi Shastri for taking time to assist me with the book. She has painstakingly prepared comprehensive charts tracking latest developments for the book. This was a mighty task as significant changes have taken place in the last three years. I thank Rajvi Vaishnav her able support in legal research. She has diligently complied case digest on important subjects. I thank Tanmay Rane and Sushmita Motwani for their assistance in preparing a compilation of insolvency code. They have done a splendid job. As a team, all of them have been by my side and have come to my aid whenever I requested them. As regards my previous editions, I thank Adv. Sakshi Bangar and Avanti Khangal for their efforts. I want to thank Adv. Manan Sanghai who helped me in the uphill task of finding a great team for editing the book. I thank Adv. Ahmed Chunawala for giving me his valuable inputs on the topic of compromise and arrangement. I also want to thank Aditya Manekar, Ketaki Nikumbh, Harshwardhan Agarwal for their able support in legal research, interpretation and drafting. My gratitude goes out to the publishers of this book, Bloomsbury India and all the fine people in the editorial team, including Toby Thomas and Nikita Jain. They have been extremely patient and have put in an equal amount of time and efforts to perfect this publication.

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About the author Prachi Manekar-Wazalwar is an advocate and a qualified company secretary, based out of Mumbai. She is currently a member of the core group on NCLT constituted by the ICSI. She assisted the sub-group of ICSI formed to support the Companies Law Committee on NCLT related provisions of the Companies Act, 2013. She was actively involved in the core group formed by the ICSI for giving recommendations on the Insolvency and Bankruptcy Code. Currently, she is the managing partner at Wazalwar & Associates specializing in corporate laws, handling a wide variety of matters including, oppression & mismanagement cases, M&A, corporate disputes, shareholder disputes, winding up cases, corporate restructuring, commercial contracts, national and international arbitration. She regularly appears at forums like the Supreme Court, high courts, NCLTs & Competition Commission. She has earlier authored two books namely “Management of Special Economic Zones” & “Insights into the New Company Law”. She has published several articles in professional magazines and journals and is frequently invited as a speaker to several conferences and seminars organized by leading professional institutes, associations and chambers on subjects like Corporate Laws, M&A, Insolvency Code, Arbitration, Construction Contracts and SEZs.

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xlii

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Foreword to the second edition

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Preface to the fourth edition

Foreword to the first edition

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Preface to the seventh edition Dear Professionals, The corona pandemic has impacted several aspects and practices in our lives. The NCLT and NCLAT did not remain untouched. However, the Tribunals despite such unprecedented crises, within record time created a virtual platform for online hearing. Despite the crises, the Hon’ble Judges of NCLT and NCLAT started hearing cases on virtual platform. Against all odds, a large number of applications and petitions were disposed off during the corona pandemic. As a part of the lawyer community, I take this opportunity to thank the Hon’ble Chairperson, President and Members of NCLT and NCLAT for continuing the functioning of NCLT and NCLAT despite such trying times. In these five years, since the constitution of NCLT and NCLAT, the law (including case law) on various aspects of Companies Act and Insolvency Code has significantly developed. In this edition, I have tried to exhaustively cover the developments in law and case laws in the last three years. I have inserted updated case digest for your quick reference. I hope you find this edition useful. With all best wishes, Prachi Wazalwar [email protected]

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Contents at a glance Important developments of 2019, 2020 & 2021: at a glance. . . . . . . . . . . . . . . . . . . . vii NCLT & NCLAT – information at fingertips. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii I. Schedule of fees under The Companies Act, 2013. . . . . . . . . . . . . . . . . . xiii II Schedule of fees under The Insolvency and Bankruptcy Code. . . . . . . . . xv III. Constitution of NCLT/NCLAT notifications. . . . . . . . . . . . . . . . . . . . . . . xv IV. Commencement notifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvi V. Territorial jurisdiction, NCLT - notification. . . . . . . . . . . . . . . . . . . . . . xvii VI. Subject matter jurisdiction – NCLAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . xix VII. Territorial jurisdiction of NCLAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi VIII. Important notifications and Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxii IX. Landmark case (Tata v. Mistry Battle). . . . . . . . . . . . . . . . . . . . . . . . . . xxx Acknowledgement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxxix About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xli Foreword to the second edition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xliii Foreword to the first edition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xlv Preface to the seventh edition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xlvii Table of contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . li Contents provided on the website. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . lxxxi Table of cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . lxxxiii NCLT, NCLAT and Supreme Court Rulings – Table of cases. . . . . . . . . . . . . . . . . . . . cxi Key to reading this book. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . cxxi Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . cxxiii Concise Referencer Powers of NCLT: at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-1 Notified sections under IBC as on 1st July, 2021. . . . . . . . . . . . . . . . . . . . . R-7 Case Digest: List of important pronouncements under Companies Act Case Digest: List of Important Judgments under IBC . . . . . . . . . . . . . . . R-127 Chapter 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Chapter 2 Constitution of NCLT and NCLAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Chapter 3 Transition to NCLT: Impact on existing cases. . . . . . . . . . . . . . . . . . . . 3.1 Chapter 4 General powers of NCLT and NCLAT. . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Chapter 5 De-registration, Striking off of Companies and Director Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Chapter 6 Variation of Shareholders’ Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Chapter 7 Transfer and Transmission of Securities . . . . . . . . . . . . . . . . . . . . . . . . 7.1 Chapter 8 Reduction of capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 xlix

Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16 Chapter 17 Chapter 18 Chapter 19 Chapter 20 Chapter 21 Chapter 22 Chapter 23

Deposits: Delays and Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 Tribunal Convened General Meetings. . . . . . . . . . . . . . . . . . . . . . . . . 10.1 Reopening of Accounts and Revision of Financial Statements. . . . . . 11.1 Tribunal directed investigations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 Compromises and Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 Oppression and Mismanagement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 Class actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1 Revival and Rehabilitation of Sick Companies. . . . . . . . . . . . . . . . . . 16.1 Winding up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.1 Compounding of offence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1 Miscellaneous powers of Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.1 Powers of Tribunal under other Acts. . . . . . . . . . . . . . . . . . . . . . . . . . 20.1 Appeals, Reviews and Writs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.1 General practice and procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.1 Jurisdiction and Limitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.1

Annexures to the book Annexure 1

National Company Law Tribunal Rules, 2016 . . . . . . . . . . . . . . . A1-1

Annexure 2

National Company Law Appellate Tribunal Rules, 2016 . . . . . . . A2-1

Annexure 3

The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . A3-1

Annexure 4

The National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016 . . . . . . . . . A4-1

Annexure 5

The Companies (Transfer of Pending Proceedings) Rules, 2016 . A5-1

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B1-1

Table of contents Important developments of 2019, 2020 & 2021: at a glance. . . . . . . . . . . . . . . . . . . . vii NCLT & NCLAT – information at fingertips. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii I. Schedule of fees under The Companies Act, 2013. . . . . . . . . . . . . . . . . . xiii II Schedule of fees under The Insolvency and Bankruptcy Code. . . . . . . . . xv III. Constitution of NCLT/NCLAT notifications. . . . . . . . . . . . . . . . . . . . . . . xv IV. Commencement notifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvi V. Territorial jurisdiction, NCLT - notification. . . . . . . . . . . . . . . . . . . . . . xvii VI. Subject matter jurisdiction – NCLAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . xix VII. Territorial jurisdiction of NCLAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi VIII. Important notifications and Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxii IX. Landmark case (Tata v. Mistry Battle). . . . . . . . . . . . . . . . . . . . . . . . . . xxx Acknowledgement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxxix About the author. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xli Foreword to the second edition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xliii Foreword to the first edition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xlv Preface to the seventh edition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xlvii Contents at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xlix Contents provided on the website. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . lxxxi Table of cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . lxxxiii NCLT, NCLAT and Supreme Court Rulings – Table of cases. . . . . . . . . . . . . . . . . . . . cxi Key to reading this book. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . cxxi Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . cxxiii Concise Referencer Powers of NCLT: at a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I. Powers Transferred from Court to NCLT . . . . . . . . . . . . . . . . . . . . II. Powers Transferred from CLB to NCLT. . . . . . . . . . . . . . . . . . . . . III. Powers Transferred from BIFR to NCLT . . . . . . . . . . . . . . . . . . . . IV. Powers Transferred from Central Government to NCLT . . . . . . . . V. New Powers of NCLT under Companies Act, 2013. . . . . . . . . . . . VI. New Powers of NCLT under IBC. . . . . . . . . . . . . . . . . . . . . . . . . . VII. New Powers of NCLT under Companies (Amendment) Act, 2017 and amended by Companies (Amendment) Ordinance, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notified sections under IBC as on 1st July, 2021. . . . . . . . . . . . . . . . . . . . . . . . . . . .

R-1 R-1 R-2 R-3 R-4 R-4 R-6

R-6 R-7

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Case Digest: List of important pronouncements under Companies Act Transfer and Transmission of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . R-13 Reduction of capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-42 Deposits: Delays and Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-50 Tribunal Convened General Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-62 Reopening of Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-69 Revision of Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-75 Tribunal directed investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-79 Compromise and arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-90 Case Digest: List of Important Judgments under IBC . . . . . . . . . . . . . . . . . . . . . . R-127 Supreme Court Cases (with brief history). . . . . . . . . . . . . . . . . . . . . . . . . R-127 National Company Law Appellate Tribunal. . . . . . . . . . . . . . . . . . . . . . . R-158 Chapter 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 1.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 1.2. Meaning of NCLT and NCLAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 1.2.1. New enforcement mechanism—place of tribunals. . . . . . . . . . . . . . 1.2 1.2.2. Difference between NCLT and NCLAT. . . . . . . . . . . . . . . . . . . . . . . 1.3 1.2.3. Court v Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 1.3. Introduction of concept of NCLT in India – Eradi Committee. . . . . . . . . . . . 1.4 1.4. 2002 Amendment challenged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 1.5. JJ Irani Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 1.6. Introduction of Tribunal in Companies Act, 2013. . . . . . . . . . . . . . . . . . . . . 1.6 1.6.1. Nature of challenge under 2013 Act . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 1.6.2. Reasons for establishing Tribunals . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 1.7. Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 Annexure I: Constitution of NCLT and NCLAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9 Annexure II: Notification of sections of Companies Act, 2013 and notification of constitution of benches of NCLT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10 Chapter 2 Constitution of NCLT and NCLAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Constitution of NCLT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1.1 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1.2 Judicial member. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1.3 Technical member. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.2 Number of members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.3 Seat of NCLT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.4 Transfer of members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Appellate Tribunal (NCLAT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.1 Constitution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . lii

2.1 2.1 2.1 2.2 2.2 2.2 2.2 2.3 2.3 2.3 2.4 2.4

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2.3.2 2.3.3 2.3.4

2.4

2.5 2.6 2.7

Number of members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seat of NCLAT and Benches of NCLAT. . . . . . . . . . . . . . . . . . . . . . Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.4.1 Chairperson. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.4.2 Judicial member. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.4.3 Technical member. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selection process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4.1 Manner of selection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4.2 Composition of Selection Committee. . . . . . . . . . . . . . . . . . . . . . . . Term of NCLT and NCLAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Staff. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.5 2.5 2.6 2.6 2.6 2.6 2.7 2.7 2.7 2.8 2.8 2.8

Chapter 3 Transition to NCLT: Impact on existing cases. . . . . . . . . . . . . . . . . . . . 3.1 3.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 3.1.1 Transitional provisions: at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 3.1.2 Important developments – 2019-2020. . . . . . . . . . . . . . . . . . . . . . . . 3.3 3.2 Transfer of pending proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 3.2.1 Date for transfer of proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 3.2.2 Continuance of proceedings before existing forums. . . . . . . . . . . . . 3.8 3.3 Pending High Court proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 3.3.1 Corporate restructuring cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12 3.3.1.1 Compromise and arrangements. . . . . . . . . . . . . . . . . . . 3.12 3.3.1.2 Reduction of capital cases. . . . . . . . . . . . . . . . . . . . . . . 3.15 3.3.2 Pending winding up proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 3.16 3.3.2.1 What will be the status of pending cases?. . . . . . . . . . . 3.19 3.3.2.2 Appeals against orders passed by the high court. . . . . . 3.20 3.4 Pending Company Law Board proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 3.22 3.4.1 Challenge against orders of CLB. . . . . . . . . . . . . . . . . . . . . . . . . . . 3.24 3.4.2 Status of existing interim orders . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.25 3.5 Pending BIFR/AAIFR proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.25 3.6 Pending investigation proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.27 3.7 Existing interim orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.28 3.8 Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.28 Chapter 4 General powers of NCLT and NCLAT. . . . . . . . . . . . . . . . . . . . . . 4.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 General powers under the Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.1 Power to determine procedure (Section 424) . . . . . . . . . . . . . . . . . . 4.2.2 Power to punish for contempt (Section 425). . . . . . . . . . . . . . . . . . . 4.2.3 Powers of civil court (Section 424). . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.4 Powers of courts (Section 424). . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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4.3

4.4

4.5

4.2.5 Execution of orders (Section 424). . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 4.2.6 Assistance of courts/authorities (Section 429) . . . . . . . . . . . . . . . . . 4.3 4.2.7 Delegation of powers (Section 426) . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 General powers under the Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 4.3.1 Adjournment of hearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 4.3.2 General power to amend (Rule 155 of the NCLT Rules) . . . . . . . . . 4.4 4.3.3 Tribunal to be deemed to be a court . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 4.3.4 Power to dispense with the requirements of the rules. . . . . . . . . . . . 4.5 4.3.5 Saving of inherent powers of the Tribunal (Rule 11 of the NCLT Rules). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 4.3.6 Enlargement of time (Rule 15 and 153 of the NCLT Rules). . . . . . . 4.8 4.3.7 Rectification of order (Rule 154 of the NCLT Rules). . . . . . . . . . . . 4.9 4.3.8 Power to impose costs (Rule 149 of the NCLT Rules). . . . . . . . . . . 4.9 4.3.9 Amicus curiae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 4.3.10 Assessors and valuers (Rules 54 of the NCLT Rules). . . . . . . . . . . 4.10 General provisions for exercise of powers . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10 4.4.1 Production of documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10 4.4.2 Nature of exercise of powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10 Comparison between powers of different tribunals. . . . . . . . . . . . . . . . . . . . 4.10

Chapter 5 5.1 5.2

5.3

5.4 5.5 liv

De-registration, Striking off of Companies and Director Disqualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Nature of the remedy of De-registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 5.2.1 Background for insertion of this remedy. . . . . . . . . . . . . . . . . . . . . . 5.1 5.2.2 Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 5.2.3 Scope of the remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 5.2.4 Difference between provision of striking off and de-registration . . . 5.2 5.2.5 Difference between winding up and deregistration?. . . . . . . . . . . . . 5.2 Remedy of Deregistration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 5.3.1 Who can apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 5.3.2 When can one apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 5.3.3 Under what circumstances?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 5.3.4 Against which companies? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 5.3.4.1 Can registration of any company under the Companies Act, 2013 be challenged?. . . . . . . . . . . . . . . 5.6 5.3.4.2 Can registration of companies under the Companies Act, 1956 be questioned?. . . . . . . . . . . . . . . 5.7 5.3.5 Nature of reliefs sought. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 Procedure for Deregistration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 Striking off of Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.10 5.5.1 Power of Tribunal to restore companies struck off. . . . . . . . . . . . . 5.11

Table of contents

5.6 5.7

5.5.1.1 Power to restore in case of any type of striking off. . . . 5.5.1.2 Power in voluntary striking off. . . . . . . . . . . . . . . . . . . 5.5.2 High Court cases and NCLAT cases . . . . . . . . . . . . . . . . . . . . . . . . Procedure for Filing Appeal under sec 252 . . . . . . . . . . . . . . . . . . . . . . . . . Director Disqualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.1 Important case laws on disqualification of directors. . . . . . . . . . . . 5.7.1.1 Delhi High Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.1.2 Karnataka High Court. . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.1.3 Kerala High Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.1.4 Telangana High Court. . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.1.5 Allahabad High Court. . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.1.6 Madras High Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.1.7 Gujarat High Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.1.8 Bombay High Court. . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.1.9 Supreme Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.12 5.15 5.16 5.19 5.20 5.21 5.21 5.24 5.27 5.28 5.29 5.29 5.38 5.39 5.42

Chapter 6 Variation of Shareholders’ Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 6.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 6.2 Overview of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 6.2.1 Companies (Amendment) Act, 2020. . . . . . . . . . . . . . . . . . . . . . . . . 6.1 6.2.2 Additional approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 6.2.3 Wider scope of applicants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 6.3 What are shareholders’ rights? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 6.3.1 Statutory rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 6.3.1.1 Can statutory rights be waived/varied?. . . . . . . . . . . . . . 6.4 6.3.2 Contractual rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 6.4 What constitutes class rights?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 6.5 Nature and Scope of Variation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 6.5.1 What constitutes variation?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 6.5.2 Applicability of these decisions to section 48. . . . . . . . . . . . . . . . . . 6.8 6.5.3 Prohibition in contract – is variation possible?. . . . . . . . . . . . . . . . . 6.9 6.6 When does section 48 become applicable?. . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 6.7 Conditions for Varying Shareholder’s Rights. . . . . . . . . . . . . . . . . . . . . . . . 6.10 6.7.1 Approval for seeking permission to vary. . . . . . . . . . . . . . . . . . . . . 6.10 6.7.1.1 Approval from the concerned class whose rights are varied. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10 6.7.2 Approval of other affected class of shareholders. . . . . . . . . . . . . . . 6.11 6.7.2.1 Deciphering the term “Affect”. . . . . . . . . . . . . . . . . . . . 6.12 6.7.2.2 Manner of approval from affected classes. . . . . . . . . . . 6.13 6.8 Variation by Other Provisions of the Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13 6.8.1 Variation v Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13 lv

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6.9

6.10 6.11

6.12

6.13

6.8.2 Variation v Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Objection to Variation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9.1 In which circumstances can one apply under section 48(2)? . . . . . 6.9.2 Who can apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9.2.1 When to object?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9.2.2 Joint application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9.3 What is the time limit?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9.4 Condonation of delay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9.5 Powers of Tribunal and nature of reliefs. . . . . . . . . . . . . . . . . . . . . 6.9.6 Time limit for completion of proceedings. . . . . . . . . . . . . . . . . . . . Procedure for Objecting to the Variation of Shareholders’ Right. . . . . . . . . Comparison Chart - Variation of Shareholder’s Right . . . . . . . . . . . . . . . . . 6.11.1 Comparison of New Act with Old Act. . . . . . . . . . . . . . . . . . . . . . . 6.11.2 Comparison of Old Act with New Act. . . . . . . . . . . . . . . . . . . . . . . 6.11.3 Comparison of New Rules with Old Rules. . . . . . . . . . . . . . . . . . . 6.11.4 Comparison of Old Rules with New Rules. . . . . . . . . . . . . . . . . . . 6.11.5 Corresponding Forms under New Act & Old Act. . . . . . . . . . . . . . Schedule I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.12.1 Appendix A: Corporate Transactions Requiring Special Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.12.2 Appendix B: Corporate Transactions Requiring Ordinary Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.12.3 Appendix C: 10% Shareholding . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.12.4 Appendix D: Rights of Every Member. . . . . . . . . . . . . . . . . . . . . . Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.15 6.15 6.15 6.16 6.16 6.17 6.17 6.19 6.19 6.19 6.20 6.23 6.23 6.23 6.24 6.24 6.25 6.25 6.26 6.28 6.30 6.31 6.32

Chapter 7 Transfer and Transmission of Securities. . . . . . . . . . . . . . . . . . . . . 7.1 7.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 7.2 Overview of changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 7.2.1 Scope and applicability of section 58 and section 59 have changed.7.1 7.2.2 Changes in timelines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 7.2.3 Contract or arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 7.2.4 Companies (Amendment) Act, 2020. . . . . . . . . . . . . . . . . . . . . . . . . 7.2 7.2.5 Significant change in scope of power of Tribunal. . . . . . . . . . . . . . . 7.2 7.3 Appeal against Refusal to Transfer/Transmit . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 7.3.1 Distinction between remedy under section 58 and section 59. . . . . 7.3 7.3.2 Securities of a private company (Section 58(1)). . . . . . . . . . . . . . . . 7.4 7.3.2.1 Restrictions on transfer/transmission of shares. . . . . . . . 7.4 7.3.2.2 Restrictions on other securities. . . . . . . . . . . . . . . . . . . . 7.4 7.3.2.3 Interest of member: a grey area. . . . . . . . . . . . . . . . . . . . 7.5 7.3.2.4 Who can challenge?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5 lvi

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7.3.2.5 Time limits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 Securities of a public company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 7.3.3.1 Reasons for refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8 7.3.3.2 Timelines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9 7.3.4 Reliefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9 7.3.5 Interim reliefs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9 7.3.5.1 Can interim reliefs other than those specified in rules be granted?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 7.3.6 Penalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 Rectification of register of members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 7.4.1 Rectification of register of members under section 59(1). . . . . . . . 7.12 7.4.1.1 Which registers can be rectified?. . . . . . . . . . . . . . . . . . 7.12 7.4.1.2 Under what circumstances?. . . . . . . . . . . . . . . . . . . . . . 7.12 7.4.1.3 Who can file an appeal for rectification?. . . . . . . . . . . . 7.13 7.4.1.4 To whom does the appeal lie?. . . . . . . . . . . . . . . . . . . . 7.13 7.4.1.5 Nature of reliefs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.13 7.4.1.6 Interim reliefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.13 7.4.2 Rectification where transfers are in violation of law under section 59(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.14 7.4.2.1 Which register?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.14 7.4.2.2 Under what circumstances?. . . . . . . . . . . . . . . . . . . . . . 7.14 7.4.2.3 Who can make an application?. . . . . . . . . . . . . . . . . . . 7.15 7.4.2.4 Relief. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.15 7.4.3 Difference between rectification sought under section 59(1) and section 59(4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.15 7.4.4 Time limit for filing application for rectification. . . . . . . . . . . . . . . 7.15 7.4.5 Penalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.15 Case Laws and their Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.16 7.5.1 Part I: Case laws related to nature and scope of sections 111 and 111A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.16 7.5.1.1 Case 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.16 7.5.1.2 Case 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.17 7.5.1.3 Case 3: Jurisdiction is exclusive. . . . . . . . . . . . . . . . . . 7.18 7.5.1.4 Case 4: Composite Petition. . . . . . . . . . . . . . . . . . . . . . 7.18 7.5.1.5 Case 5: Complicated Question . . . . . . . . . . . . . . . . . . . 7.18 7.5.1.6 Case 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.19 7.5.1.7 Case 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.20 7.5.2 Part II: Case laws related to refusal to transfer and transmission of securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.21 7.5.2.1 Where refusal to transfer and transmission is valid:. . . 7.21 7.5.2.2 Where refusal to transfer and transmission is invalid. . 7.22 7.3.3

7.4

7.5

lvii

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7.6

7.7 7.8

7.9

Procedure for Refusal to Transfer or Transmit Securities. . . . . . . . . . . . . . . 7.6.1 Company Law Board (CLB). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6.2 National company law tribunal (NCLT). . . . . . . . . . . . . . . . . . . . . Free Transferability of Share of Public Company. . . . . . . . . . . . . . . . . . . . . Comparison chart — refusal to transfer or transmit securities. . . . . . . . . . . 7.8.1 Comparison of New Act with Old Act. . . . . . . . . . . . . . . . . . . . . . . 7.8.2 Comparison of Old Act with New Act. . . . . . . . . . . . . . . . . . . . . . . Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.55 7.55 7.55 7.56 7.70 7.70 7.73 7.76

Chapter 8 Reduction of capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 8.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 8.2 Overview of changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 8.2.1 Single procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 8.2.2 Representation of authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 8.2.3 Certificate not a conclusive proof . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 8.2.4 Restrictions on reduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 8.2.5 Removal of the words “and reduced”. . . . . . . . . . . . . . . . . . . . . . . . 8.2 8.2.6 Articles irrelevant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 8.2.7 Companies (Amendment) Act, 2020. . . . . . . . . . . . . . . . . . . . . . . . . 8.2 8.3 Meaning and scope of Reduction of Capital. . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 8.3.1 Meaning of reduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 8.3.2 Applicability/non applicability of section 66 . . . . . . . . . . . . . . . . . . 8.5 8.3.2.1 Only share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 8.3.2.2 No application in mergers. . . . . . . . . . . . . . . . . . . . . . . . 8.5 8.3.2.3 Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 8.3.2.4 Court directed purchase in oppression and mismanagement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5 8.3.2.5 Securities premium account. . . . . . . . . . . . . . . . . . . . . . 8.6 8.3.2.6 Cancellation of unissued shares. . . . . . . . . . . . . . . . . . . . 8.6 8.3.3 Companies who can reduce capital. . . . . . . . . . . . . . . . . . . . . . . . . . 8.6 8.3.4 Manner of reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6 8.3.4.1 Whether we will be able to reduce the share capital in the same manner, as we were able to reduce it earlier? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6 8.3.4.2 Are there any new ways of reducing capital contemplated in the Act?. . . . . . . . . . . . . . . . . . . . . . . . . 8.7 8.3.4.3 Can we take benefit of the decisions under the old Act?.8.7 8.3.4.4 Types of reduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8 8.4 Restrictions/Conditions for reduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.19 8.4.1 Default in payment of deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.19 8.4.2 Notice to authorities (Section 66(2)). . . . . . . . . . . . . . . . . . . . . . . . 8.19 lviii

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8.5

8.6 8.7 8.8 8.9

8.10

8.11

8.4.3 Auditors certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Approvals for Reduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5.1 Approval from shareholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.5.2 Approval from Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liability of Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6.1 Unpaid creditors-liability of members. . . . . . . . . . . . . . . . . . . . . . . Fraud on creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Procedure for Reduction of Share Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . Additional important details. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9.1 Role of Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9.2 What does the list of creditor contain? . . . . . . . . . . . . . . . . . . . . . . 8.9.3 Contents of petition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9.4 Contents of minutes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparison Chart on Reduction of Share Capital . . . . . . . . . . . . . . . . . . . . 8.10.1 Comparison of New Act (Companies Act, 2013) with Old Act (Companies Act, 1956). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.10.2 Comparison of Old Act with New Act. . . . . . . . . . . . . . . . . . . . . . . 8.10.3 Comparison of New Rules with Old Rules. . . . . . . . . . . . . . . . . . . 8.10.4 Comparison of Old Rules with New Rules. . . . . . . . . . . . . . . . . . . 8.10.5 Corresponding forms as per New Act. . . . . . . . . . . . . . . . . . . . . . . Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8.19 8.20 8.20 8.20 8.21 8.21 8.21 8.21 8.25 8.25 8.25 8.25 8.26 8.27 8.27 8.28 8.30 8.30 8.30 8.31

Chapter 9 Deposits: Delays and Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 9.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 9.2 Overview of changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 9.2.1 The Banning of Unregulated Deposit Schemes Act, 2019 . . . . . . . . 9.1 9.2.2 Bar on acceptance of deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 9.2.3 Provisions discontinued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 9.2.4 Acceptance from members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 9.2.5 Default in payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 9.2.6 Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 9.2.7 Class action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 9.3 Overview of law on deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 9.4 Definition of deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 9.4.1 Definition under section 2(31). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 9.4.2 Items excluded from deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 9.4.3 Definition of deposits for purpose of section 74. . . . . . . . . . . . . . . 9.10 9.5 Applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.13 9.5.1 Non applicability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.13 9.6 Permissibility to Accept/Invite/Retain Deposits. . . . . . . . . . . . . . . . . . . . . . 9.14 9.6.1 Who can accept/invite deposits and from whom?. . . . . . . . . . . . . . 9.14 lix

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9.6.2

9.7 9.8 9.9

9.10

9.11 9.12

Retaining deposits under the Companies Act, 1956 . . . . . . . . . . . . 9.6.2.1 Deposits which are not matured . . . . . . . . . . . . . . . . . . 9.6.2.2 Deposits remaining unpaid at the time of commencement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remedies for Depositors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restrictions on Defaulting Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Application to Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9.1 Application in case of non- repayment of new deposits. . . . . . . . . 9.9.1.1 Who can apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9.1.2 Depositor of which company?. . . . . . . . . . . . . . . . . . . . 9.9.1.3 Under what circumstances?. . . . . . . . . . . . . . . . . . . . . . 9.9.1.4 What reliefs?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9.1.5 Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9.2 Application for extension of time for company. . . . . . . . . . . . . . . . 9.9.2.1 Which companies can apply? . . . . . . . . . . . . . . . . . . . . Deposits under the Companies Act, 1956. . . . . . . . . . . . . . . . . . . . Deposits under 2013 Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9.2.2 To which forum will the application lie?. . . . . . . . . . . . 9.9.2.3 Under what circumstances?. . . . . . . . . . . . . . . . . . . . . . Case Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10.1 Case laws under section 73 and 74 of the Companies Act, 2013 decided by CLB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10.2 Some case laws on deposits under the Companies Act, 1956. . . . . Procedure under Chapter V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.11.1 Procedure under NCLT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.14 9.14 9.15 9.16 9.18 9.19 9.19 9.19 9.19 9.20 9.20 9.20 9.20 9.20 9.20 9.21 9.21 9.21 9.22 9.22 9.24 9.37 9.37 9.39

Chapter 10 Tribunal Convened General Meetings. . . . . . . . . . . . . . . . . . . . . . 10.1 10.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 10.2 Tribunal convened AGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 10.2.1 Highlights of section 97. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2 10.3 Tribunal convened EOGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2 10.3.1 Highlights of section 98. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 10.4 Applicability of old case laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3 10.4.1 Analysis of case laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4 10.5 Procedure for tribunal convened general meetings. . . . . . . . . . . . . . . . . . . 10.13 10.6 Comparison Chart - Holding of Annual and General Meeting of Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.14 10.6.1 Comparison of New Act (Companies Act, 2013) with Old Act (Companies Act, 1956). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.14 10.6.2 Comparison of Old Act with New Act. . . . . . . . . . . . . . . . . . . . . . 10.15 lx

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10.7

10.6.3 Comparison of New Rules with Old Rules. . . . . . . . . . . . . . . . . . 10.15 Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.15

Chapter 11 Reopening of Accounts and Revision of Financial Statements . . 11.1 11.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 11.2 Historical triggers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 11.2.1 Satyam case. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 11.2.2 Reebok. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 11.3 Reopening of accounts by Court’s or Tribunal’s Orders. . . . . . . . . . . . . . . . 11.2 11.3.1 Similar provisions under the UK law . . . . . . . . . . . . . . . . . . . . . . . 11.3 11.3.2 Bar on reopening. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3 11.3.2.1 Applicability to books maintained under the Companies Act, 1956. . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3 11.3.3 Application by authorities or any person concerned. . . . . . . . . . . . 11.4 11.3.3.1 Meaning of ‘person concerned’. . . . . . . . . . . . . . . . . . . 11.4 11.3.4 Court/Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4 11.3.5 Circumstances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5 11.3.5.1 Account prepared in fraudulent manner . . . . . . . . . . . . 11.5 11.3.5.2 Mismanagement of affairs. . . . . . . . . . . . . . . . . . . . . . . 11.7 11.3.6 In which event can one apply for reopening?. . . . . . . . . . . . . . . . . 11.7 11.3.7 At what point of time?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.8 11.3.8 Notice to whom?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.8 11.3.9 Implication of order reopening/recasting. . . . . . . . . . . . . . . . . . . . . 11.8 11.3.10 Who should be heard?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.8 11.3.11 Pros and cons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.8 Case digest for reopening of accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.9 11.4 Voluntary revision of financial statements or Board’s report.. . . . . . . . . . . 11.14 11.4.1 Comparison with UK Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.15 11.4.2 Exception. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.15 11.4.3 Which documents?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.15 11.4.4 Which event?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.16 11.4.5 For which period is the revision permissible?. . . . . . . . . . . . . . . . 11.16 11.4.6 Prior approval of tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.16 11.4.7 Right to be heard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.16 11.4.8 Finality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.16 11.4.9 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.17 11.4.10 Impact of this provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.17 Case digest for Revision of Financial Statements. . . . . . . . . . . . . . . . . . . . 11.17 11.5 Procedure for reopening of books of accounts. . . . . . . . . . . . . . . . . . . . . . 11.22 11.6 Procedure for voluntary revision of Financial Statements or Board’s report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.22 lxi

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11.7

Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.24

Chapter 12 Tribunal directed investigations. . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 12.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 12.2 Overview of changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 12.2.1 Dilution of eligibility criteria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 12.2.2 Power to freeze assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 12.2.3 Restriction of securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 12.2.4 Constitution of SFIO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 12.2.5 Application for investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 12.2.6 Scope of investigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 12.2.7 Investigation order in CIRP process . . . . . . . . . . . . . . . . . . . . . . . . 12.2 12.2.8 Penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 12.3 Power of the Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 12.3.1 Investigation by the tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 12.3.1.1 Who can apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 12.3.1.2 Who will be notified? . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4 12.3.1.3 Order of investigation (Section 213). . . . . . . . . . . . . . . 12.5 12.3.1.4 Security for costs (Section 214). . . . . . . . . . . . . . . . . . 12.5 12.3.2 Investigation into ownership of a company. . . . . . . . . . . . . . . . . . . 12.5 12.3.3 Freezing of assets of company on inquiry and investigation (Section 221). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6 12.3.3.1 Who can apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6 12.3.3.2 Under what circumstances?. . . . . . . . . . . . . . . . . . . . . . 12.7 12.3.3.3 Nature of order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.7 12.3.3.4 Penalty for contravening the order of the Tribunal. . . . 12.7 12.3.4 Imposition of restrictions upon securities (Section 222). . . . . . . . . 12.7 12.3.4.1 Who can impose restriction?. . . . . . . . . . . . . . . . . . . . . 12.7 12.3.4.2 Who can apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.8 12.3.4.3 Under what circumstances?. . . . . . . . . . . . . . . . . . . . . . 12.8 12.3.4.4 Nature of order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.8 12.3.4.5 Penalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.8 12.4 Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.9 12.4.1 Who can be an inspector? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.9 12.4.2 Powers of inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.9 12.4.2.1 Calling for information and documents from officers, employees and agents . . . . . . . . . . . . . . . . . . . 12.9 12.4.2.2 Seeking information and documents from others. . . . 12.10 12.4.2.3 Custody of books and papers. . . . . . . . . . . . . . . . . . . . 12.10 12.4.2.4 Examination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.11 12.4.2.5 Powers of the civil court . . . . . . . . . . . . . . . . . . . . . . . 12.11 lxii

Table of contents

12.5

12.6

12.4.2.6 Penalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4.2.7 Assistance from other authorities . . . . . . . . . . . . . . . . 12.4.2.8 Assistance from foreign governments. . . . . . . . . . . . . 12.4.2.9 Assistance from foreign courts . . . . . . . . . . . . . . . . . . 12.4.2.10 Investigation into the affairs of related entities. . . . . . 12.4.2.11 Seizure of documents by inspector (Section 220). . . . 12.4.3 Report by inspector (Section 223). . . . . . . . . . . . . . . . . . . . . . . . . 12.4.4 Actions on the basis of report . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4.4.1 Action by Central Government/Tribunal. . . . . . . . . . . 12.4.4.2 Prosecution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4.4.3 Winding up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4.4.4 Application for disgorgement. . . . . . . . . . . . . . . . . . . 12.4.4.5 Actions by the Tribunal. . . . . . . . . . . . . . . . . . . . . . . . 12.4.4.6 Actions by members . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4.4.7 Actions by others. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4.4.8 Prosecution for fraud. . . . . . . . . . . . . . . . . . . . . . . . . . Other provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5.1 Protection to employees (Section 218) . . . . . . . . . . . . . . . . . . . . . 12.5.1.1 To whom is it available? . . . . . . . . . . . . . . . . . . . . . . . 12.5.1.2 During what period? . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5.1.3 Against what? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5.1.4 Under what circumstances can action be taken?. . . . . 12.5.2 Protection for whistleblowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5.3 Investigation during the pendency of other proceedings (Section 226). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.5.4 Investigation of foreign companies (Section 228). . . . . . . . . . . . . 12.5.5 Expenses for investigation (Section 225) . . . . . . . . . . . . . . . . . . . Serious Fraud Investigation Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6.1 Organization structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6.1.1 Director. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6.1.2 Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6.2 Exclusive jurisdiction to investigate . . . . . . . . . . . . . . . . . . . . . . . 12.6.3 What cases can be investigated by SFIO?. . . . . . . . . . . . . . . . . . . 12.6.3.1 Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6.3.2 Special resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6.3.3 Public interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6.3.4 Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6.4 Can an investor complain to SFIO?. . . . . . . . . . . . . . . . . . . . . . . . 12.6.5 Can SFIO investigate only companies?. . . . . . . . . . . . . . . . . . . . . 12.6.6 Powers of SFIO. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6.6.1 Power of arrest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12.11 12.12 12.12 12.12 12.12 12.13 12.13 12.14 12.14 12.14 12.14 12.15 12.15 12.15 12.16 12.16 12.16 12.16 12.16 12.16 12.17 12.17 12.17 12.17 12.18 12.18 12.18 12.19 12.19 12.19 12.20 12.20 12.20 12.20 12.20 12.20 12.20 12.21 12.21 12.21 lxiii

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12.7 12.8

12.9

12.6.6.2 Power to prosecute. . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6.6.3 Powers of investigator. . . . . . . . . . . . . . . . . . . . . . . . . 12.6.7 Coordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6.8 Police report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6.9 Obligation of company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6.10 Problem areas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparison chart Inspection, Inquiry and Investigation . . . . . . . . . . . . . . 12.8.1 Comparison of the Companies Act, 2013 (New Act) with the Companies Act, 1956 (Old Act). . . . . . . . . . . . . . . . . . . . . . . . 12.8.2 Comparison of Old Act with New Act. . . . . . . . . . . . . . . . . . . . . . Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12.21 12.21 12.21 12.22 12.22 12.22 12.33 12.33 12.33 12.42 12.49

Chapter 13 Compromises and Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 13.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 13.2 Overview of changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 13.2.1 Contractual mergers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 13.2.2 Deemed approval. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 13.2.3 Cross border mergers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 13.2.4 Scope of powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2 13.2.5 Intimation to authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2 13.2.6 Valuation of shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2 13.2.7 Squeeze out rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2 13.2.8 Merger of a listed company with an unlisted company. . . . . . . . . . 13.2 13.2.9 Disclosure requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2 13.2.10 Dispensation of creditors meeting. . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 13.2.11 Definition of “company”. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 13.2.12 Scope of section 233 (contractual mergers) enlarged . . . . . . . . . . . 13.3 13.2.13 Provision of takeover in merger and amalgamation . . . . . . . . . . . . 13.3 13.2.14 Concessions for start ups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 13.2.15 Companies (Amendment) Act, 2020. . . . . . . . . . . . . . . . . . . . . . . . 13.3 13.3 Overview of Chapter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.4 Part I: Tribunal Approved Mergers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.4 13.4 Chapter XV: A Complete Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.5 13.4.1 Whether the chapter on compromise and arrangement provides a complete code?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.5 13.4.1.1 Law under Companies Act, 1956 . . . . . . . . . . . . . . . . . 13.5 13.4.1.2 Analysis of the position in the Companies Act, 2013. . 13.5 13.4.2 Scope of sections 230 and 232. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6 13.5 Compromise and Arrangement (Section 230). . . . . . . . . . . . . . . . . . . . . . . . 13.6 13.5.1.1 Meaning of “compromise” . . . . . . . . . . . . . . . . . . . . . 13.10 lxiv

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13.5.1.2 13.5.1.3 13.5.1.4 13.5.1.5 13.5.1.6 13.5.1.7 13.5.1.8 13.5.1.9 13.5.1.11 13.5.1.12

Meaning of the term “arrangement”. . . . . . . . . . . . . . Meaning of the term “company”. . . . . . . . . . . . . . . . . Class of shareholders or creditors. . . . . . . . . . . . . . . . Who can enter into a compromise or arrangement? . . Eligibility to apply. . . . . . . . . . . . . . . . . . . . . . . . . . . . What are the disclosures in application?. . . . . . . . . . . Analysis of the extent of disclosures. . . . . . . . . . . . . . Meeting of members and creditors . . . . . . . . . . . . . . . Publication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inspection and photocopying documents (2nd Proviso to sec 230) . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.5.1.13 Sanction of scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6 Special Provisions for Mergers/Demergers (Section 232) . . . . . . . . . . . . . 13.6.1 Which arrangements are included under section 232? . . . . . . . . . 13.6.1.1 Mergers and amalgamations. . . . . . . . . . . . . . . . . . . . 13.6.1.2 Demergers (Section 232 read with Explanation). . . . . 13.6.2 Distinction between section 232 of the Companies Act, 2013 and section 394 of the Companies Act, 1956. . . . . . . . . . . . 13.6.3 Applicability of section 230 to schemes under mergers and demergers under section 232. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6.4 The scheme of mergers or demergers . . . . . . . . . . . . . . . . . . . . . . 13.6.4.1 Appointed date in scheme [Section 232(6) with Section 232(5)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6.4.2 Filing draft scheme [Section 232(2)(b)] . . . . . . . . . . . 13.6.4.3 Sanction of the scheme . . . . . . . . . . . . . . . . . . . . . . . . 13.6.4.4 Powers of Tribunal while sanctioning the scheme . . . 13.6.4.5 Restrictions on scheme: treasury stocks . . . . . . . . . . . 13.6.4.6 Effect of sanctioning of the scheme. . . . . . . . . . . . . . . 13.6.5 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6.5.1 Notices calling meeting (Section 232(2)). . . . . . . . . . 13.6.5.2 Post sanction compliances. . . . . . . . . . . . . . . . . . . . . . 13.6.5.3 Mergers and compromise and arrangement. . . . . . . . . 13.6.5.4 Penalty [Section 232(8)] . . . . . . . . . . . . . . . . . . . . . . . 13.7 Buying Minority Shareholding Holding. . . . . . . . . . . . . . . . . . . . . . . . . . . 13.7.1 Purchase of minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.7.2 Power to acquire shares of dissenting shareholders [Section 235]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.7.3 Mandatory purchase of minority shareholding [Section 236]. . . . 13.7.4 Applicability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II: Contractual Mergers/Fast Track Mergers (Section 233). . . . . . . . . . . . . . . . 13.8 Under what circumstances can the Section 33 route be used?. . . . . . . . . .

13.10 13.12 13.12 13.13 13.13 13.13 13.14 13.15 13.21 13.21 13.22 13.28 13.32 13.32 13.33 13.33 13.33 13.33 13.33 13.34 13.34 13.34 13.35 13.36 13.36 13.36 13.37 13.38 13.39 13.39 13.39 13.41 13.41 13.43 13.46 13.49 lxv

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13.8.1 Nature of companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.49 13.8.2 Applicability to listed companies . . . . . . . . . . . . . . . . . . . . . . . . . 13.51 13.8.3 Types of schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.51 13.8.4 Registered office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.52 13.8.5 Financial position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.52 13.8.6 Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.52 13.9 Can companies opt out of section 233?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.52 13.10 What are the conditions to be fulfilled for using section 233 route?. . . . . . 13.53 13.10.1 Notice to ROC/OL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.54 13.10.2 Person affected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.54 13.10.3 Consideration of objections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.54 13.10.4 Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.54 13.10.5 Declaration of solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.55 13.10.6 Creditors’ approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.55 13.10.7 Approvals and sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.56 13.11 Application to Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.57 13.11.1 Who can apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.57 13.11.2 Discretion of Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.57 13.11.3 Order to be registered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.57 13.12 Scheme under section 233. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.92 13.12.1 Nature and scope of schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.92 13.12.2 Effect of registration of scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . 13.92 13.13 Distinction between sections 230 to 232 with section 233. . . . . . . . . . . . . 13.92 13.13.1 Sanction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.92 13.13.2 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.93 13.13.3 Type of schemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.93 13.13.4 Authorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.93 13.13.5 Time limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.93 13.13.6 Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.93 13.13.7 Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.93 Part III: Cross Border Mergers (Section 234). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.93 13.14 Meaning of Company in Section 234. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.94 13.15 Meaning of Foreign Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.95 13.15.1 Which type of scheme?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.101 13.15.2 Applicability of Chapter XV. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.102 Part IV: Central Government Approved Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 13.103 13.16 Scope of section 237. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.104 13.17 Challenges to constitutionality of section 396 of 1956 Act. . . . . . . . . . . 13.105 13.18 Scheme under section 237. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.106 13.18.1 Impact on property and liabilities . . . . . . . . . . . . . . . . . . . . . . . . 13.106 13.18.2 Legal proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.106 lxvi

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13.18.3 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.18.3.1 Challenge in Tribunal . . . . . . . . . . . . . . . . . . . . . . . . 13.18.4 Consideration before finalization of order. . . . . . . . . . . . . . . . . . 13.19 Procedures under Chapter XV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.20 Procedure for Compromise and Arrangement (Section 230) . . . . . . . . . . 13.21 Procedure under Merger and Demerger (Section 232). . . . . . . . . . . . . . . 13.22 Procedure for Fast Track Mergers under section 233. . . . . . . . . . . . . . . . 13.23 Procedure under section 237 of amalgamation of companies by central government in public interest under section 237. . . . . . . . . . . . . . 13.24 Comparison Chart Compromise, Arrangement and Amalgamation. . . . . 13.24.1 Comparison of New Act with Old Act. . . . . . . . . . . . . . . . . . . . . 13.24.2 Comparison of Old Act with New Act. . . . . . . . . . . . . . . . . . . . . 13.24.3 Comparison of New Rules with Old Rules. . . . . . . . . . . . . . . . . 13.24.4 Comparison of Old Rules with New Rules. . . . . . . . . . . . . . . . . 13.25 Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure – Foreign Exchange Management (Cross Border Merger) Regulations, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13.106 13.107 13.107 13.107 13.107 13.118 13.127 13.131 13.132 13.132 13.135 13.139 13.142 13.145 13.145

Chapter 14 Oppression and Mismanagement. . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 14.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 14.2 Overview of changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 14.2.1 Reducing the bar set for oppression. . . . . . . . . . . . . . . . . . . . . . . . . 14.1 14.2.2 Increasing the bar for mismanagement. . . . . . . . . . . . . . . . . . . . . . 14.2 14.2.3 Composite petition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.2 14.2.4 Dilution of eligibility criteria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.2 14.3 The Remedy under section 241. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.2 14.4 Oppression. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5 14.4.1 Meaning of oppression and scope of the remedy . . . . . . . . . . . . . . 14.5 14.4.1.1 Dictionary meaning. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5 14.4.1.2 Meaning as analysed by case laws . . . . . . . . . . . . . . . . 14.6 14.4.2 Is there any change in the meaning and scope of oppression? . . . 14.14 14.4.2.1 Past and concluded acts. . . . . . . . . . . . . . . . . . . . . . . . 14.14 14.4.2.2 Prejudicial to members . . . . . . . . . . . . . . . . . . . . . . . . 14.15 14.4.2.3 Old case laws analysed in new light. . . . . . . . . . . . . . 14.16 14.4.2.4 Applicability of case laws under the Companies Act, 1956. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.18 14.5 Mismanagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.18 14.5.1 Meaning and scope of mismanagement under the Companies Act, 1956. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.18 14.5.1.1 Dictionary meaning. . . . . . . . . . . . . . . . . . . . . . . . . . . 14.18 14.5.1.2 Meaning as analysed by case laws . . . . . . . . . . . . . . . 14.19 lxvii

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14.6

14.7

14.8

14.9 lxviii

14.5.2 Change in nature and scope of mismanagement. . . . . . . . . . . . . . 14.5.2.1 Analysis of changes. . . . . . . . . . . . . . . . . . . . . . . . . . . Impact of changes in other provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6.1 Overview of changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6.1.1 Additional powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6.1.2 Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6.1.3 Effective participation. . . . . . . . . . . . . . . . . . . . . . . . . 14.6.1.4 Additional rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6.1.5 Additional remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6.1.6 Strong corporate governance framework . . . . . . . . . . 14.6.1.7 Additional norms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6.2 Exploring plural remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6.3 Impact and interplay of other remedies. . . . . . . . . . . . . . . . . . . . . 14.6.3.1 De-registration and oppression and mismanagement(O&M). . . . . . . . . . . . . . . . . . . . . . . . 14.6.3.2 Class action and O&M . . . . . . . . . . . . . . . . . . . . . . . . 14.6.3.3 Investigation and O&M. . . . . . . . . . . . . . . . . . . . . . . . 14.6.3.4 Reopening and oppression and mismanagement. . . . . 14.6.3.5 Compensation from auditor and O&M. . . . . . . . . . . . 14.6.3.6 Refusal to transfer and transmit and O&M. . . . . . . . . 14.6.3.7 Exit route and O&M . . . . . . . . . . . . . . . . . . . . . . . . . . Eligibility to apply for Prevention of Oppression and Mismanagement. . . 14.7.1 Eligibility of members to apply. . . . . . . . . . . . . . . . . . . . . . . . . . . 14.7.1.1 Who can apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.7.1.2 What is the eligibility criteria? . . . . . . . . . . . . . . . . . . 14.7.1.3 Can the Tribunal waive the conditions? . . . . . . . . . . . 14.7.1.4 Comparison with section 399 of 1956 Act . . . . . . . . . 14.7.1.5 Analysis of important case laws under section 399 and their applicability to section 244. . . . . . . . . . 14.7.2 Power of central government to apply. . . . . . . . . . . . . . . . . . . . . . Nature and scope of powers of Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8.1 Wide power to make order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8.2 Tests for granting reliefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8.3 Principles laid down under the Companies Act, 1956. . . . . . . . . . 14.8.3.1 Examples: two examples are given here to elucidate this aspect. . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8.4 Power specified under section 242(2). . . . . . . . . . . . . . . . . . . . . . 14.8.4.1 Existing powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8.4.2 New/modified powers. . . . . . . . . . . . . . . . . . . . . . . . . 14.8.5 Power to grant stay/injunction [section 242(4)] . . . . . . . . . . . . . . Application of certain provisions to proceedings under section 241 . . . . .

14.20 14.21 14.22 14.22 14.22 14.23 14.23 14.23 14.24 14.24 14.24 14.25 14.25 14.25 14.26 14.26 14.26 14.26 14.26 14.26 14.26 14.27 14.27 14.27 14.28 14.28 14.28 14.29 14.30 14.33 14.34 14.35 14.35 14.36 14.36 14.36 14.37 14.39

Table of contents

14.10 14.11 14.12 14.13

Removal of certain provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Limitation of this remedy - A case for class action. . . . . . . . . . . . . . . . . . . Procedure for seeking relief against oppression and mismanagement. . . . Comparison Chart - Oppression and Mismanagement. . . . . . . . . . . . . . . . 14.13.1 Comparison of New Act with Old Act. . . . . . . . . . . . . . . . . . . . . . 14.13.2 Comparison of Old Act with New Act. . . . . . . . . . . . . . . . . . . . . . 14.14 Appendix A : Extracts of Bennett Coleman Case. . . . . . . . . . . . . . . . . . . . 14.15 Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14.39 14.39 14.41 14.43 14.43 14.44 14.46 14.57

Chapter 15 Class actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1 15.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1 15.2 The new-age of investor protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1 15.3 Class action - Meaning, concept & scope. . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2 15.3.1 Advantages of class action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.3 15.3.2 Nature of class action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.4 15.3.3 Class actions worldwide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.4 15.3.4 Class action in India. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5 15.3.5 What is the importance of class action suits in the Indian context?.15.5 15.3.6 Class action under the new Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5 15.3.7 Applicability to companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.8 15.3.8 Who can file a class action suit? . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9 15.3.8.1 Eligibility criteria for members. . . . . . . . . . . . . . . . . . . 15.9 15.3.8.2 Eligibility criteria for depositors. . . . . . . . . . . . . . . . . 15.10 15.3.9 Representative person or association. . . . . . . . . . . . . . . . . . . . . . . 15.12 15.3.10 Guidelines for considering applications under section 245. . . . . . 15.12 15.4 Public notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.15 15.5 Bar on future class action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.16 15.6 When can the class action be filed?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.17 15.7 Nature of orders and their impact. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.19 15.7.1 Non-compliance with orders [Section 245(7) read with section 425]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.19 15.7.2 Vexatious application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.19 15.7.3 Reimbursement of expenses in class action. . . . . . . . . . . . . . . . . . 15.20 15.7.4 Plural remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.20 15.7.5 Application of certain provisions to proceedings (Section 245). . 15.20 15.8 Challenges in class action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.20 15.9 Future of class action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.21 15.10 Institutional shareholder. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.21 15.11 Procedure for class action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.23

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Chapter 16 Revival and Rehabilitation of Sick Companies Chapter XIX – Section 253 to 269 of Companies Act, 2013 has been omitted by the Insolvency and Bankruptcy Code, 2016. Companies in financial distress can take recourse to the provisions of Insolvency and Bankruptcy Code for resolving the insolvency. For academic purpose, Chapter 16 is provided on http://bit.ly/NCLT7e. . . . . . . 16.1 Chapter 17 Winding up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.2 Overview of changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.2.1 Change in grounds for winding up . . . . . . . . . . . . . . . . . . . . . . . . . 17.2.2 Concept of private liquidator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.2.3 Summary involuntary winding up procedure . . . . . . . . . . . . . . . . . 17.2.4 Custody of property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.2.5 Statement of affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.2.6 Overview of changes brought about by Insolvency and Bankruptcy Code, 2016 (IBC). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.2.6.1 Change in grounds for winding up . . . . . . . . . . . . . . . . 17.2.6.2 Provisions for voluntary winding up omitted . . . . . . . . 17.2.6.3 Qualification of Company Liquidators . . . . . . . . . . . . . 17.2.6.4 No stay on winding up for exploring revival. . . . . . . . . 17.2.6.5 Priority of payouts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.2.6.6 Insolvency Rules inapplicable. . . . . . . . . . . . . . . . . . . . 17.3 Types of winding up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.4 Winding up and Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.5 Winding up by Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6 Grounds for winding up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.1 Analysis of the grounds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.2 Applicability of principles under Companies Act, 2013. . . . . . . . . 17.6.3 What will be the status of pending cases?. . . . . . . . . . . . . . . . . . . . 17.6.4 Who can file a winding up petition? . . . . . . . . . . . . . . . . . . . . . . . . 17.7 Order in winding up proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.7.1 Decision of tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.7.2 Timeline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.8 Effect of Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.8.1 Impact on creditors and shareholders [Section 278]. . . . . . . . . . . . 17.8.2 Impact on litigation [Section 279]. . . . . . . . . . . . . . . . . . . . . . . . . . 17.8.3 Impact on officers [Section 277(3)]. . . . . . . . . . . . . . . . . . . . . . . . . 17.8.4 Impact on company property [Section 283(2)]. . . . . . . . . . . . . . . . 17.9 Important aspects in winding up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.9.1 Provisional liquidator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . lxx

17.1 17.1 17.1 17.1 17.2 17.2 17.2 17.2 17.2 17.2 17.3 17.3 17.3 17.3 17.4 17.4 17.5 17.5 17.5 17.6 17.7 17.7 17.7 17.8 17.8 17.9 17.9 17.9 17.9 17.9 17.9 17.9 17.9

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17.9.1.1 17.9.1.2 17.9.1.3 17.9.1.4 17.9.1.5

Who can be a provisional liquidator? . . . . . . . . . . . . . 17.10 Can an official liquidator be a provisional liquidator?.17.10 When is a provisional liquidator appointed?. . . . . . . . 17.10 Right of a company to oppose appointment . . . . . . . . 17.10 When does a provisional liquidator cease to hold his position?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.10 17.9.1.6 What are the powers of provisional liquidator?. . . . . . 17.11 17.9.1.7 How is a provisional liquidator remunerated?. . . . . . . 17.11 17.9.1.8 Who pays for his remuneration?. . . . . . . . . . . . . . . . . 17.11 17.10 Company Liquidator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.11 17.10.1 Who can be a company liquidator?. . . . . . . . . . . . . . . . . . . . . . . . 17.11 17.10.2 Can an official liquidator be a company liquidator?. . . . . . . . . . . 17.11 17.10.3 Can company liquidator/provisional liquidator be removed/ replaced? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.11 17.10.4 Remuneration of company liquidator . . . . . . . . . . . . . . . . . . . . . . 17.12 17.10.5 Powers of company liquidator. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.12 17.10.6 Appeal against the decision of company liquidator [Section 292(4)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.13 17.10.7 Other provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.14 17.11 Official liquidator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.14 17.11.1 Appointment of official liquidator [Section 359]. . . . . . . . . . . . . 17.14 17.11.2 Power and functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.14 17.12 Procedure of winding up by Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.14 17.12.1 Procedure of winding up by Tribunal . . . . . . . . . . . . . . . . . . . . . . 17.15 17.12.1.1 Application to vacate stay on other proceedings. . . . . 17.25 17.12.2 Role of advisory committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.26 17.12.3 Procedure to be followed at the meetings of advisory committee.17.26 17.12.4 Rights of creditor and contributories. . . . . . . . . . . . . . . . . . . . . . . 17.26 17.12.5 Meeting of members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.26 17.12.6 Meeting of creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.28 17.12.6.1 Limitation on voting rights of creditors. . . . . . . . . . . . 17.29 17.13 Provisions applicable to involuntary winding up . . . . . . . . . . . . . 17.29 17.13.1 Section 324: Debts of all descriptions to be admitted to proof. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.30 17.13.2 Section 325: Application of insolvency rules in winding up of insolvent companies. . . . . . . . . . . . . . . 17.30 17.13.3 Section 326: Overriding preferential payments. . . . . . 17.30 17.13.4 Section 327: Preferential payments. . . . . . . . . . . . . . . 17.33 17.13.5 Section 328: Fraudulent preference. . . . . . . . . . . . . . . 17.35 17.13.6 Section 329: Transfers not in good faith to be void. . . 17.36 17.13.7 Section 330: Certain transfers to be void. . . . . . . . . . 17.36 lxxi

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17.13.8 17.13.9 17.13.10 17.13.11 17.13.12 17.13.13 17.13.14 17.13.15 17.13.16 17.13.17 17.13.18

17.13.19 17.13.20 17.13.21 17.13.22 17.13.23 17.13.24 17.13.25 17.13.26 17.13.27 17.13.28 17.13.29

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Section 331: Liabilities and rights of certain persons fraudulently preferred. . . . . . . . . . . . . . . . . . . Section 332: Effect of floating charge. . . . . . . . . . . . . Section 333: Disclaimer of onerous property . . . . . . . Section 334: Transfers, etc after commencement of winding up to be void . . . . . . . . . . . . . . . . . . . . . . . Section 335: Certain attachments, executions, etc in winding up by Tribunal to be void. . . . . . . . . . . Section 336: Offences by officers of companies in liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 337: Penalty for frauds by officers. . . . . . . . . Section 338: Liability where proper accounts not kept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 339: Liability for fraudulent conduct of business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 340: Power of Tribunal to assess damages against delinquent directors, etc. . . . . . . . . . Section 341: Liability under sections 339 and 340 to extend to partners or directors in firms or companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 342: Prosecution of delinquent officers and members of company. . . . . . . . . . . . . . . . . . . . . . Section 343: Company liquidator to exercise certain powers subject to sanction. . . . . . . . . . . . . . . . Section 344: Statement that company is in liquidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 345: Books and papers of company to be evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 346: Inspection of books and papers by creditors and contributories. . . . . . . . . . . . . . . . . . . . . Section 347: Disposal of books and papers of company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 348: Information as to pending liquidations. . Section 349: Official liquidator to make payments into public account of India. . . . . . . . . . . . . Section 350: Company liquidator to deposit monies into scheduled bank. . . . . . . . . . . . . . . . . . . . . Section 351: Liquidator not to deposit monies into private banking account. . . . . . . . . . . . . . . . . . . . Section 352: Company Liquidation Dividend and Undistributed Assets Account. . . . . . . . . . . . . . . .

17.37 17.37 17.38 17.40 17.40 17.41 17.43 17.44 17.45 17.46

17.47 17.47 17.49 17.50 17.50 17.51 17.51 17.52 17.53 17.54 17.54 17.55

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17.13.30 Section 353: Liquidator to make returns, etc. . . . . . . . 17.13.31 Section 354: Meetings to ascertain wishes of creditors or contributories. . . . . . . . . . . . . . . . . . . . . . 17.13.32 Section 355: Court, tribunal or person, etc., before whom affidavit may be sworn . . . . . . . . . . . . . 17.13.33 Section 356: Powers of Tribunal to declare dissolution of company void. . . . . . . . . . . . . . . . . . . . 17.13.34 Section 357: Commencement of winding up by Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.13.35 Section 358: Exclusion of certain time in computing period of limitation . . . . . . . . . . . . . . . . . . 17.14 Official liquidators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.14.1 Section 359: Appointment of official liquidator . . . . . . . . . . . . . . 17.14.2 Section 360: Powers and functions of official liquidator. . . . . . . . 17.14.3 Section 361: Summary procedure for liquidation. . . . . . . . . . . . . 17.14.4 Section 362: Sale of assets and recovery of debts due to company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.14.5 Section 363: Settlement of claims of creditors by official liquidator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.14.6 Section 364: Appeal by creditor . . . . . . . . . . . . . . . . . . . . . . . . . . 17.14.7 Section 365: Order of dissolution of company . . . . . . . . . . . . . . . 17.15 Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17.57 17.57 17.58 17.58 17.59 17.59 17.60 17.60 17.60 17.61 17.62 17.62 17.63 17.63 17.64

Chapter 18 Compounding of offence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2 Overview of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2.1 Changes by Companies Amendment Act, 2019 and 2020. . . . . . . . 18.2.2 Penalties and Fines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2.3 Changes by Company Amendment Act, 2017. . . . . . . . . . . . . . . . . 18.2.4 Officer who is in default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2.5 Penalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2.6 Adjudication mechanism. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2.7 Trial of offence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2.8 Compounding procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2.9 Grace period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.3 Corporate Criminal Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.4 What is an offence?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.4.1 Who is responsible for the offence?. . . . . . . . . . . . . . . . . . . . . . . . . 18.4.1.1 Analysis of the definition. . . . . . . . . . . . . . . . . . . . . . . . 18.5 What is the penalty? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.5.1 Penalty levels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18.1 18.1 18.1 18.1 18.1 18.2 18.2 18.2 18.2 18.2 18.2 18.2 18.2 18.3 18.3 18.4 18.5 18.5 lxxiii

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18.5.2 Penalties tied to damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.6 18.5.3 Enhanced imprisonment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.6 18.5.4 New imprisonment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.6 18.5.5 Non-executive director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.7 18.5.6 Statutory limits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.7 18.5.7 Distinct penalty for companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.7 18.5.8 Frauds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.7 18.5.9 Provisions for reducing delays. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.7 18.5.10 Technical defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.7 18.5.11 Disclosures of offences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.7 18.5.12 Compulsory filing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.8 18.5.13 Adjudication of penalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.8 18.5.14 Protection to whistle blowers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.8 18.5.15 Trial of offenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.8 18.6 Can offences be compounded? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.8 18.6.1 What offences can be compounded?. . . . . . . . . . . . . . . . . . . . . . . . 18.9 18.6.2 What offences cannot be compounded? . . . . . . . . . . . . . . . . . . . . . 18.9 18.6.3 Who is authorised to compound an offence?. . . . . . . . . . . . . . . . . . 18.9 18.6.4 When can they be compounded?. . . . . . . . . . . . . . . . . . . . . . . . . . 18.10 18.6.5 Quantum of fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.10 18.6.6 Procedure for compounding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.11 18.6.7 Bar on compounding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.11 18.6.8 Effects of compounding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.12 18.6.9 Penalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.12 18.7 Cognizable and Non-Cognizable Offences. . . . . . . . . . . . . . . . . . . . . . . . . 18.12 18.7.1 What are cognizable offences? . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.12 18.7.2 What are non-cognizable offences?. . . . . . . . . . . . . . . . . . . . . . . . 18.13 18.8 Appendix A: Penalties under the Old and New provisions. . . . . . . . . . . . . 18.13 18.9 Appendix B: Imprisonment Increased (Illustrative sample provisions where the quantum of imprisonment has increased). . . . . . . . . 18.58 18.10 Appendix C: New Imprisonment Provisions . . . . . . . . . . . . . . . . . . . . . . . 18.66 18.11 Procedure for Compounding of Offence. . . . . . . . . . . . . . . . . . . . . . . . . . . 18.72 18.12 Comparison Chart Compounding of Offence. . . . . . . . . . . . . . . . . . . . . . . 18.72 18.12.1 Comparison of New Act with Old Act. . . . . . . . . . . . . . . . . . . . . . 18.72 18.12.2 Comparison of Old Act with New Act. . . . . . . . . . . . . . . . . . . . . . 18.73 Chapter 19 Miscellaneous powers of Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . 19.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.2 Change in Financial Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.2.1 Application to Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.2.2 Who can apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . lxxiv

19.1 19.1 19.1 19.2 19.2

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19.3

19.4

19.5

19.6

19.7 19.8

19.2.3 Period of financial year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.3 19.2.4 Procedure for making application under section 2(41). . . . . . . . . . 19.3 Company Conversion (Power Now Transferred to Central Government) . . 19.4 19.3.1 Conversion of companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.4 19.3.1.1 Permissibility of conversion . . . . . . . . . . . . . . . . . . . . . 19.4 19.3.1.2 General process of conversion. . . . . . . . . . . . . . . . . . . . 19.4 19.3.2 Conversion of public company into private company. . . . . . . . . . . 19.5 19.3.2.1 Conditions for conversion. . . . . . . . . . . . . . . . . . . . . . . 19.5 19.3.2.2 Consequential changes . . . . . . . . . . . . . . . . . . . . . . . . . 19.7 19.3.2.3 Impact on debts and contracts. . . . . . . . . . . . . . . . . . . . 19.8 19.3.2.4 Effective date of conversion . . . . . . . . . . . . . . . . . . . . . 19.9 19.3.2.5 Listed companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.9 19.3.2.6 Procedure for conversion of public into private company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.9 Extension of Time for Redemption of Preference Shares. . . . . . . . . . . . . . 19.13 19.4.1 Who can approach?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.15 19.4.2 Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.15 19.4.3 Inability to redeem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.16 19.4.4 Nature of order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.17 19.4.5 Applicability of previous judgments. . . . . . . . . . . . . . . . . . . . . . . 19.17 19.4.6 Usefulness of section 55(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.17 19.4.7 Procedure for seeking extension of time for redemption of preference shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.18 Consolidation of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.19 19.5.1 In what all cases is approval necessary?. . . . . . . . . . . . . . . . . . . . 19.20 19.5.2 Procedure for consolidation of shares under the Act. . . . . . . . . . . 19.21 Rights of debentures holders to seek reliefs. . . . . . . . . . . . . . . . . . . . . . . . 19.23 19.6.1 Application under section 71(9) for interim reliefs. . . . . . . . . . . . 19.25 19.6.1.1 Who can apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.25 19.6.1.2 In which case?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.25 19.6.1.3 Who will be given opportunity of being heard? . . . . . 19.25 19.6.1.4 Nature of reliefs?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.25 19.6.2 Application to Tribunal for seeking repayment. . . . . . . . . . . . . . . 19.25 19.6.3 Penalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.26 19.6.4 Procedure for application under section 71(9) seeking Interim Reliefs by Debenture Trustee. . . . . . . . . . . . . . . . . . . . . . 19.26 19.6.5 Procedure for filing application under section 71(10) for failure to Redeem Debentures [NCLT Rule 73] . . . . . . . . . . . . . . 19.26 Inspection of minutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.27 19.7.1 Procedure for making application for inspection. . . . . . . . . . . . . . 19.28 Injunction on representations by outgoing directors. . . . . . . . . . . . . . . . . . 19.28 lxxv

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19.9

19.8.1 Scope of the application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.8.2 Who can apply?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.8.3 Under which instances?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.8.4 What relief?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.8.5 Procedure for making application under section 169 . . . . . . . . . . Beneficial ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19.30 19.30 19.30 19.31 19.31 19.31

Chapter 20 Powers of Tribunal under other Acts. . . . . . . . . . . . . . . . . . . . . . . 20.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.2 Power under RBI Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.3 Power under Limited Liability Partnership Act, 2008 . . . . . . . . . . . . . . . . . 20.3.1 Power to reduce/waive penalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.3.2 Power to enforce filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.3.3 Investigations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.3.4 Merger and amalgamations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.3.5 Winding up of LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.4 Competition Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20.1 20.1 20.1 20.2 20.2 20.3 20.4 20.5 20.8 20.9

Chapter 21 Appeals, Reviews and Writs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.1 21.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.1 21.2 Appeal from order of NCLT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.1 21.2.1 Section 421 of the Companies Act, 2013. . . . . . . . . . . . . . . . . . . . . 21.1 21.2.2 Section 10F of the Companies Act, 1956 . . . . . . . . . . . . . . . . . . . . 21.2 21.2.3 Section 25 of SICA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.2 21.2.4 Distinction between section 10F of Companies Act, 1956 and section 421 of the Companies Act, 2013 . . . . . . . . . . . . . . . . . 21.3 21.2.5 Similarities/distinction under SICA and Companies Act, 2013. . . 21.3 21.2.6 Applicability of case laws under Companies Act, 1956? . . . . . . . . 21.3 21.2.7 What orders can be appealed against?. . . . . . . . . . . . . . . . . . . . . . . 21.4 21.2.7.1 Dictionary meaning. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.5 21.2.7.2 Case laws on meaning of the term ‘order’. . . . . . . . . . . 21.5 21.2.8 Who can appeal?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.6 21.2.8.1 Dictionary meaning of “person aggrieved”. . . . . . . . . . 21.7 21.2.8.2 Case laws on “person aggrieved” . . . . . . . . . . . . . . . . . 21.7 21.2.8.3 Analysis of the term “person aggrieved” under Companies Act, 2013. . . . . . . . . . . . . . . . . . . . . . . . . . 21.11 21.2.9 Time period for filing an appeal . . . . . . . . . . . . . . . . . . . . . . . . . . 21.12 21.2.10 Sufficient cause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.14 21.2.10.1 Test laid down to determine sufficient cause. . . . . . . . 21.14 21.2.11 Consent orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.19 21.2.12 Grounds of appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20 21.3 Appeal to the Supreme Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.21 lxxvi

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21.4 21.5 21.6

21.3.1 Similar provisions in other Acts . . . . . . . . . . . . . . . . . . . . . . . . . . 21.3.1.1 The Electricity Act, 2003. . . . . . . . . . . . . . . . . . . . . . . 21.3.1.2 The National Green Tribunal Act, 2010 . . . . . . . . . . . 21.3.1.3 The Telecom Regulatory Authority of India Act, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.3.1.4 The Securities and Exchange Board of India Act, 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.3.1.5 The Companies Act, 1956. . . . . . . . . . . . . . . . . . . . . . 21.3.2 Terms used in the section. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.3.3 Period of filing the appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.3.4 Scope of appeal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.3.4.1 Difference between a “questions of law” and “questions of fact. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Power to review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Writ Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21.21 21.22 21.22 21.22 21.23 21.23 21.23 21.23 21.24 21.24 21.26 21.27 21.38

Chapter 22 General practice and procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . 22.1 22.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.1 22.2 General procedure & practice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.1 22.2.1 Territorial jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.1 22.2.2 Filing of petition/application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.2 22.2.2.1 Who can file. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.2 22.2.2.2 Modes of filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.2 22.2.2.3 How to file an application/petition . . . . . . . . . . . . . . . . 22.2 22.2.3 Documents to accompany the petition or application. . . . . . . . . . . 22.3 22.2.4 Scrutiny of application/petition. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.3 22.2.5 Advertisement [Rule 35]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.3 22.2.6 Notice to opposite party [Rule 37]. . . . . . . . . . . . . . . . . . . . . . . . . . 22.4 22.2.7 Filing of affidavit of service/advertisement. . . . . . . . . . . . . . . . . . . 22.4 22.2.8 Service of notice and processes issued by the Tribunal [Rule 38]. 22.5 22.2.9 Filing of reply and other documents by the respondents [Rule 41].22.5 22.2.10 Filing of rejoinder [Rule 42]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.6 22.2.11 Additional pleadings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.6 22.2.12 Framing of Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.6 22.2.13 Admission and denial of documents/discover and production of documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.6 22.2.14 Filing of affidavit of evidence [Rule 39]. . . . . . . . . . . . . . . . . . . . . 22.7 22.2.15 Cross examination of any deponent [Rule 39] . . . . . . . . . . . . . . . . 22.7 22.2.16 Summoning the witness and method of recording evidence [Rule 52] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.8 lxxvii

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22.2.17 Oath to witness [Rule 47] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.9 22.2.18 Hearing of petition or application [Rule 44]. . . . . . . . . . . . . . . . . . 22.9 22.2.19 Action on application for applicants default [Rule 48]. . . . . . . . . 22.10 22.2.20 Ex-parte hearing and disposal of petition or application [Rule 49] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.10 22.2.21 Decision of the Tribunal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.10 22.2.22 Order to be passed and signed [Rule 149 & 150]. . . . . . . . . . . . . 22.11 22.2.23 Filing of order of the Tribunal. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.12 22.2.24 Application for execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.12 22.2.25 Effect of non-compliance [Rule 58] . . . . . . . . . . . . . . . . . . . . . . . 22.12 22.2.26 Procedure for imposition of penalty under the Act [Rule 59] . . . 22.12 22.2.27 Preservation of record [Rule 103]. . . . . . . . . . . . . . . . . . . . . . . . . 22.13 22.2.28 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.13 22.3 Representation before NCLT/NCLAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.13 22.3.1 Authorised representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.14 22.3.1.1 Right to legal representation.. . . . . . . . . . . . . . . . . . . . 22.14 22.3.1.2 Special authorized representatives. . . . . . . . . . . . . . . . 22.15 22.3.1.3 Amicus curiae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.15 22.3.1.4 Dress for the authorised representatives. . . . . . . . . . . 22.15 22.3.2 Dress for and for the parties in person. . . . . . . . . . . . . . . . . . . . . . 22.16 22.3.2.1 Memorandum of appearance. . . . . . . . . . . . . . . . . . . . 22.16 22.3.2.2 Clerk of authorised interns . . . . . . . . . . . . . . . . . . . . . 22.16 22.4 Schedule A: schedule of fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.17 Annexure I – Checklist NCLT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.19 Annexure II – Naming of old matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.22 Chapter 23 Jurisdiction and Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.1 23.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.1 23.1.1 What is jurisdiction? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.1 23.1.2 Why is it relevant?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.1 23.1.3 What are the types of jurisdiction? . . . . . . . . . . . . . . . . . . . . . . . . . 23.1 23.1.3.1 Jurisdiction over the subject-matter. . . . . . . . . . . . . . . . 23.2 23.1.3.2 Territorial jurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . . 23.2 23.1.3.3 Pecuniary jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . 23.2 23.1.3.4 Original or appellate jurisdiction. . . . . . . . . . . . . . . . . . 23.3 23.1.3.5 Division bench & single bench. . . . . . . . . . . . . . . . . . . 23.3 23.1.4 Bar on civil court jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.3 23.1.4.1 Case laws and their applicability. . . . . . . . . . . . . . . . . . 23.4 23.2 Latest Judgements on Jurisdiction of NCLT. . . . . . . . . . . . . . . . . . . . . . . . . 23.9 23.3 Limitation Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.9 23.3.1 Applicability of Limitation Act. . . . . . . . . . . . . . . . . . . . . . . . . . . 23.10 lxxviii

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23.3.1.1 Scope of applicability . . . . . . . . . . . . . . . . . . . . . . . . . 23.3.1.2 Interpretation of the term “as far as may be”. . . . . . . . 23.3.1.3 Calculation of limitation period. . . . . . . . . . . . . . . . . . 23.3.2 General principles of limitation. . . . . . . . . . . . . . . . . . . . . . . . . . . 23.3.2.1 Dismissal of petition/application. . . . . . . . . . . . . . . . . 23.3.2.2 Extension of period. . . . . . . . . . . . . . . . . . . . . . . . . . . 23.3.2.3 Expansion of time on showing sufficient cause. . . . . . 23.3.2.4 Exclusions on account minority etc.. . . . . . . . . . . . . . 23.3.2.5 Continuous running of time. . . . . . . . . . . . . . . . . . . . . 23.3.2.6 Other exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.3.2.7 Manner of computation of time limit . . . . . . . . . . . . . 23.3.2.8 Ownership by prescription. . . . . . . . . . . . . . . . . . . . . 23.3.2.9 Miscellaneous provisions . . . . . . . . . . . . . . . . . . . . . . 23.3.2.10 Schedule I: Limitation period . . . . . . . . . . . . . . . . . . . 23.3.2.11 Enlargement of time by Tribunal [NCLT Rule 153]. . 23.4 Latest Judgements on Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure I – Subject-wise jurisdiction of NCLT. . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure II – State-wise jurisdiction of NCLT. . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure III – Pecuniary jurisdiction of NCLT. . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure IV – Divisional and Single Member bench . . . . . . . . . . . . . . . . . . . . . . . Annexures to the book Annexure 1 National Company Law Tribunal Rules, 2016 . . . . . . . . . . . . . . . . . Annexure 2 National Company Law Appellate Tribunal Rules, 2016. . . . . . . . . Annexure 3 The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annexure 4 The National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016. . . . . . . . . . . Annexure 5 The Companies (Transfer of Pending Proceedings) Rules, 2016 . . . Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23.10 23.12 23.13 23.13 23.13 23.13 23.13 23.14 23.14 23.14 23.14 23.16 23.16 23.16 23.16 23.16 23.21 23.22 23.24 23.25 A1-1 A2-1 A3-1 A4-1 A5-1 B1-1

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Contents provided on the website* The Companies Act 2013 The Companies (Amendment) Act 2017 Companies (Amendment) Ordinance, 2018 IBC (Amendment) Act, 2018 IBC (Second Amendment) Act, 2018 Relevant Notified Rules under Companies Act 1. Companies (Acceptance of Deposit) Rules, 2014 2. NCLT Rules with amendments 3. NCLAT Rules with amendments 4. Companies (Transfer of Pending Proceedings) Rules, 2016 5. The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 6. NCLT (Procedure for Reduction of share capital of Company) Rules, 2016 7. NCLT (Salary, Allowances and other Terms and Conditions of Service of President and other Members) Rules, 2015 8. NCLAT (Salaries and Allowances and other terms and conditions of service of the Chairperson and other Members) Rules, 2015 9. Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 10. Companies (Inspection, Investigation and Inquiry) Rules, 2014 11. Companies (Mediation and Conciliation) Rules, 2016 12. Companies (Management and Administration) Rules, 2014 13. Companies (Meetings of Board and its Powers) Rules, 2014 *

14. Companies (Registered Valuers and Valuation) Rules, 2017 The Insolvency and Bankruptcy Code, 2016 - BLRC Report - Joint Committee Report on Insolvency and Bankruptcy Code 2015 Insolvency Code - Rules and Regulations 1. Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 2. Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 3. Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 4. Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 5. Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 6. Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 7. Insolvency and Bankruptcy Board of India (Insolvency Professional Agencies) Regulations, 2016 8. Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 9. Insolvency and Bankruptcy Board of India (Procedure for Governing Board Meetings) Regulations, 2017 10. Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017

Visit http://bit.ly/NCLT7e for text of Act and Rules.

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11. Insolvency and Bankruptcy Board of India (Inspection and Investigation) Regulations, 2017 12. Insolvency and Bankruptcy Board of India (Advisory Committee) Regulations, 2017 13. Insolvency and Bankruptcy Board of India (Engagement of Research Associates and Consultants) Regulations, 2017 14. Insolvency and Bankruptcy Board of India (Salary, Allowances and other Terms and Conditions of Service of Chairperson and members) Rules, 2016

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15. Insolvency and Bankruptcy Board of India (Grievance and Complaint Handling Procedure) Regulations, 2017 16. Insolvency and Bankruptcy Board of India (Employees’ Service) Regulations, 2017 Other Old Draft Rules for reference 1. Draft Rules on Prevention of Oppression and Mismanagement 2. Rules on Revival and Rehab of Sick Cos 3. Draft Winding up Rules • SICA Repeal Act, 2003 • Chapter 16 Revival and Rehabilitation of Sick Companies

Table of cases 1. Mintri Tea Company Limited., 2.Bhaveh Mintri, 3. Purnima Mintri, Shiwaani Mintri. v Punjab National Bank. Company Appeal (AT) (Insv) No. 237 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-197 63 Moons Technologies Limited v Union of India & ors (NCLAT order dated 9/3/2017-Company Appeal (AT)-3/2017). . . . . . . . . . . . . . . . . . . . . 23.8 A2Z Online Services Private Limited, NCLT/Mum/27.9.2017. . . . . . . . . . . . . . . . . 8.14 ACF Arts and Properties P Limited, NCLT/MUM/ 3.11.2017. . . . . . . . . . . . . . . . . . 8.14 Achenbach Buschhutten GmbH & Co. v Arcotech Ltd. Company Appeal (AT) (Insv) No. 97 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-213 Action Ispat And Power Pvt. Ltd. v Shyam Metalics And Energy Ltd., [Civil Appeal No. 4041 of 2020], SC/Dec20, (15.12.2020). . . . . . . . . . . . . 3.6 AD2PRO Global Creative Solutions P. Ltd v Regional Director, (SER), Ministry of Corporate Affairs and Ors., [2019] 217 Comp Cas 443 (NCLAT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.78 Adata Technology India (P) Limited, CP/80/2017. . . . . . . . . . . . . . . . . . . . . . . . . . . 8.12 Additional Registrar of Companies v Perfect Benefit Fund Ltd. [(1999) 97 Comp. Case 731 (Madras)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.25 Adelaide Electric Co. v Prudential Assurance 1934 A.C. 122. . . . . . . . . . . . . . . . . . . 6.7 Adesh Kaur v Eicher Motors and Ors (2018) 207 Com Cas 144 (NCLT) ND. . . . . . 7.30 Adesh Kaur v Eicher Motors Ltd. and Others, [2018] 210 Comp Cas 719, SC/JULY, 2018/CA, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.32, 7.51 Adi Pherozshah Gandhi v. H.M. Seervai, Advocate General of Maharashtra, Bombay [MANU/SC/0044/1970, AIR1971SC385, (1970)2SCC484, [1971]1SCR863. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.7, 21.10 Aditya Enterprises v. Rajratan Exim Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 335 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-244 Aditya Kumar Jajodia v. Srei Infrastructure Finance Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 292 & 293 of 2018] . . . . . . . . . . . R-254 Aditya Raheja (GStaad Hotels Pvt. Ltd.) v. Heritage Marble Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 248 of 2018] . . . . . . . . . . . . . . . . . R-279 Adroit Trade (P) Ltd. (Struck off) v Registrar of Companies, Chennai, NCLAT Company Appeal (AT) No. 264 of 2018. . . . . . . . . . . . . . . . . 5.17

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Agarwal Coal Corporation Private Limited v Impex Ferro Tech Limited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-127, R-128, 5.23 Ajit Singh v. Union of India(Civil Writ 710-D of 1966) . . . . . . . . . . . . . . . . . . . . 13.104 Akal Spring Ltd and Others v Amrex Marketing P. Ltd, [2020] 218 Comp Cas 623 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.40, 7.49 Alabama New Orleans, Texas & Pacific Junction Railway In re (1981) 1 Ch 213 at 238, 239 (CA). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.22 Alchemist Asset Reconstruction Company Limited v M/s. Hotel Goudavan Pvt. Ltd. and Ors.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-144 Ali Jawab Ameerhasan Rizvi v. Indo French Biotech Enterprise Ltd. [(2000) 25 SCL 272 (Bombay)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.25 Allahabad Bank v. Srei Infrastructure Finance Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 324 of 2017]. . . . . . . . . . . . . . . . . . . . . . . . . . R-255 Allied Media Network Pvt. Ltd. v M/s Sunraa Media Ltd. Company Appeal (AT) (Insv) No. 226 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-163 Aloevera Tradelink P. Ltd. and Ors v Ostwal Physchem, [2019] 216 Comp Cas 217 (NCLAT). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.91 Aloevera Tradelink P. Ltd. and Ors, In re., [2019] 216 Comp Cas 208 (NCLT) . . . 13.91 Alpha & Omega Diagnostics (India) Ltd. v Asset Reconstruction Company of India Ltd. & Ors. Company Appeal (AT) (Insv) No. 116 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-208 Aman Kumar Jain & Mohit Jain v Registrar of Companies (NCT of Delhi and Haryana) and Additional Commissioner of Income Tax, NCLAT/Del/Company Appeal (AT) No. 382 of 2018. . . . . . . . . . . . . . . . . 5.16 Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997). . . . . . . . . . . . . . . . . . . 15.3 Ammonia Supplies Corpn. (P) Ltd. v Modern Plastic Containers (P) Ltd. MANU/SC/0585/1998 : 1998 (7) SCC 105. . . . . . . . . . . . . . . . . . . . . 7.2, 7.18 Ammonia Supplies Corporation P Limited v Modern Plastic Container P Limited (AIR 1998 SC 3153). . . . . . . . . . . . . . . . . . . . . . . . . 7.27, 7.29 Amrex Marketing P Ltd v Akal Spring Ltd. and Others, [2020] 218 Comp Cas 617 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.39, 7.48 Amrit Lal Seth v Seth Hotels Private Limited (2009) 148 Com Cases 651. . . . . . . 14.28 ANG Industries Ltd v. 1. Shah Brothers Ispat Pvt. Ltd. 2. Ashok Leyland Ltd., [Company Appeal (AT) (Insolvency) No. 109 of 2018]. . . . . . R-223 Anil Mahindroo & Anr v Earth Iconioc Infrastructure (P) Limited. Company Appeal (AT) (Insv) No. 74 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-172 Anil.R.Chhabria v Finolex Industries Ltd [2009]99 Comp Cas 168(CLB). . . . . . . . 7.24 lxxxiv

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Annapurna Infrastructure Pvt. Ltd. and Anr. v M/s. SORIL Infra Resources Ltd. Company Appeal (AT) (Insv) No. 32 of 2017. . . . . . . . . . . . . R-215 Ansal Housing and Construction Limited, CP/109/2016/3.10.2016 . . . . . . . . . . . . . 9.37 Ansal Properties and Infrastructure Ltd., [CLB- DEL: CP 25/9/2014] . . . . . . . . . . . 9.24 APC Credit rating P Limited v Registrar of Companies, NCT of Delhi and Haryana, [(2017) 205 Com Cas 492 (NCLAT)]. . . . . . . . . . . . . . . . 21.26 APC Credit Rating P. Ltd v Registrar of Companies, NCT of Delhi and Haryana [2017 SCC OnLines NCLAT 370]. . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 Appasami Odayar v Subromanya Odiyar ILR 12 Mad 26. . . . . . . . . . . . . . . . . . . . 23.12 Archroma India Private Limited, CP/357 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . 8.16 Ardor Global Pvt. Ltd v Nirma Industries Pvt Ltd. Company Appeal (AT) (Insv) No. 137 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-203 ARG Auto Components (P.) Ltd. v Atlas Pet Plas Industries Ltd. MANU/CL/0001/2015 : [2015]126CLA12(CLB) : [2015]130SCL77(CLB). . . 7.20 Arjun Associates Private Limited, CP/355/KB/2017. . . . . . . . . . . . . . . . . . . . . . . . . 8.16 Arunachalam Muthu v. Nafan BV [MANU/MH/1954/2012 : 2013 (2) ALLMR 127 : 2013 (7) Bom CR 407 : [2013] 115 CLA 252 (Bom) : [2013] 179 CompCas 249 (Bom) : [2013] 119 SCL 434 (Bom)],. . . . . 21.5 Ascot Shoes Private Limited v Registrar of Companies, Delhi High Court (2017) 2 CompLJ118 (Del. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.18 Ashish O. Lalpuria v Kumaka Industries Ltd and Others, [2020] 223 Comp Cas 334 (NCLAT). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.87 Asian Natural Resources (India) Ltd v IDBI Bank Limited and Bhatia Global Trading Ltd. v IDBI Bank Ltd. Company Appeal (AT) (Insv) No. 60 of 2017 & Company Appeal (AT) (Insv) No. 62 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-177 Asmitha Microfin Limited v Share Microfin Limited, (2017) 201 Com Cas 360 (T&AP). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.71 Associated Aluminium Industries P Limited v Registrar of Companies, (2018) 208 Com Cas 331 (Bom). . . . . . . . . . . . . . . . . . . . . . . . . . 13.66 Atlas Cycles (Haryana) Limited , NCLT/ND/CP/111. . . . . . . . . . . . . . . . . . . . . . . . . 9.37 Atul Mittal [Director of APS Buildtech Pvt. Ltd. - (Corporate Debtor)] v. Khushal Infratech Pvt. Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 86 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-251 Avenir Finvest and Leasing P. Ltd. and Ors In re., [2019] 213 Comp Cas 174 (NCLT). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.89

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Avenir Finvest and Leasing P. Ltd. and Ors v Regional Dirctor and Anr., [2019] 213 Comp Cas 180 (NCLAT). . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.90 B and A Packaging India Ltd. v.Amrex Marketing P. Ltd. and Ors., [2017] 203 comp cas 454 (NCLT) Kolkata.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.26 B.K. Educational Services Private Limited v Parag Gupta and Associates, 2018 Indlaw SC 991. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.16 Babulal Vardharji Gurjar v Veer Gurjar Aluminium, Civil Appeal No. 6347 of 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.17 Bachan Singh v Dhian Das, AIR 1974 SC 708. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.25 Bagree Cereals (P.) Ltd. and Ors. v Hanuman Prasad Bagri and Ors. [MANU/WB/0256/2000 : [2001]105CompCas465(Cal) : (2001)2CompLJ397(Cal) : 105CWN729]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.19 Bajaj Auto Limited v N.K.Firodia [1971] 41 Comp Cas 1(SC). . . . . . . . . . . . . . . . . 7.22 Bajaj Auto Ltd. v N.K. Firodia MANU/SC/0036/1970 : 1970 (2) SCC 550, 557. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.18 Bajaj Auto Ltd. v Western Maharashtra Development Corporation Ltd MANU/MH/0820/2015 : 2015(4)ARBLR470(Bom) : 2015(4)Bom CR499. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.56 Bangalore Turf Club Ltd. v. Union of India [MANU/KA/3515/2014 : 2015 (2) AKR 82 : (2015) 277 CTR (Kar) 221 : ILR 2015 KARNATAKA 1825 : [2015] 228 TAXMAN 234 (Kar)]. . . . . . . . . . . . . . . . . 21.28 Bank of New York Mellon London Branch v Zenith Infotech Limited [CIVIL APPEAL NO.3055 OF 2017(Arising out of S.L.P.(C) No.1587 of 2015)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.27 Basant Kumar Berlia v ROC, West Bengal, NCLAT Company Appeal 171 of 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.17 Basawaraj & Anor v. Spl. Land Acquisition officer AIR 2014 SC 746 : (2013) 14 SCC 81, Civil Appeal No.6974 of 2013. . . . . . . . . . . . . . . . . . . . . 21.18 Bede Steamship Company Limited [1970] 1 Ch 123 (CA). . . . . . . . . . . . . . . . . . . . 7.23 Bengal Chemists & Druggists Assn. v Kalyan Chowdhury (SCCivil Appeal No. 684 of 2018). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.12 Bennett Coleman and Co. v Union of India and Ors. [MANU/ MH/0054/1977, [1977]47CompCas92(Bom)]. . . . . . . . . . . . . . . . . . . . 14.34, 14.46 Besto Tradelink Pvt. Ltd. v. SAL Steel Ltd. [CP - (IB)94/2017] . . . . . . . . . . . . . . R-275 Bhagavan Das Dhananjaya Das v UOI and ROC, W.P.No.25455 of 2017, In the High Court of Judicature at Madras. . . . . . . . . . . . . . . . . . . . . . . . . 5.30

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Bharamgouda Adgouda Patil and Ors. v Sanjay Founders Pvt. Ltd. and Ors. MANU/MH/1866/2015, CP 17 of 2007 . . . . . . . . . . . . . . . . . . . . . . . . 7.19 Bharti Defence and Infrastructure Limited v Edelweiss Asset Reconstruction Company Limited. Company Appeal (AT) (Insv) No.71 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-184 Bhash Software Labs Pvt. Ltd v M/s Mobme Wireless Solutions Ltd. Company Appeal (AT) (Insv) No. 79 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-221 Billcare Ltd [CLB-Delhi: CP NO. 76 (MB) 2015]. . . . . . . . . . . . . . . . . . . . . . . . . . . 9.22 Bimla Kothari and Ors v Unitech Limited Along with other applications, NCLT/ND/CA 41/2016 & CP 124/2016 & ors. . . . . . . . . . . . . . . . 9.36 Binani Industries Limited v. Mr. Vijay Kumar V. Iyer & Anr. [Contempt Case (AT) No. 04 of 2018 : Company Appeal (AT) (Insolvency) No. 82 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-226, 23.18 Birla Cotsyn India Ltd., [CLB-Mum: CA 5 of 2015]. . . . . . . . . . . . . . . . . . . . . . . . . 9.24 Birla Power Solutions Limited , Application No. 454/MAH/2017/1.12.2017. . . . . . 9.27 Black Pear Hotels Pvt. Ltd v Planet M Retail Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . R-222 Blue Stampings & Forgings Ltd. v. BMM Ispat Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 160 of 2018] . . . . . . . . . . . . . . . . . R-273 Branwell L.J. observed in Robinycn v. Currey [1881] 7 Q. B. D. 465. . . . . . . . . . . . 21.9 Brijesh Kumar Agarwal (Director & Shareholder of M/s Kunj Forgings Pvt. Ltd.) v. Punjab National Bank [Company Appeal (AT) (Insolvency) No. 312 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-246 Brijesh Kumar v State of Haryana & Ors., MANU/SC/0217/2014 : AIR 2014 SC 1612. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.18 British and American Trustee and Financial Corporation Limited v Couper [(1894) A.C. 399 (HL)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.10 Brown Ex. p. Debtor v. Official Receiver, In Re, [1943] Ch. D. D. 177. . . . . . . . . . 21.8 Budhia Swain v Gopinath Deb - (1999) 4 Supreme Court Cases 396. . . . . . . . . . . . . 4.7 Bushell v Faith [1970] AC 1099. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 Byram Pestonji Gariwala v. UBOI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-133 C. Beepathuma v V Shankar Narayana AIR 1965 SC 241. . . . . . . . . . . . . . . . . . . . 23.11 Canara Bank v Deccan Chronicle Holidays Limited Company Appeal (AT) (Insv) No. 147 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-180 Cannanore Whole Body C.T. Scan and Research Centre Pvt.Ltd. and Ors. v Mrs. Saibunnisa S.V. [C.A. No. 129/167/SRB of 1997; MANU/CL/0024/1998]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5

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Chand Khan [Managing Director of CK Infrastructures Ltd.] v. RCI Industries & Technologies Ltd. [Company Appeal (AT) (Insolvency) No. 307 of 2017] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-269 Chand Mall Pincha v. Hathi Mall Pincha (1999) 35 Com Cases 368. . . . . . . . . . . . 21.24 Chander Krishan Gupta v Pannalal Girdhari Lal Pvt. Ltd. and Ors. [MANU/DE/0242/1981 : [1984]55CompCas702(Delhi) : 1982(3)DRJ295]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.17, 14.20, 14.40 Chandu Laxman Chavan v. Union of India & Ors. [Company Appeal (AT) (Insolvency) No. 15 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-231 Cherntex Materials Pvt. Limited, NCLT/AHM /4.7.2017 . . . . . . . . . . . . . . . . . . . . 11.17 China Development Bank Corporation v Reliance Communication, (2017) 205 Com Cas 525 (NCLT) Mumbai. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.64 Chirag Gada v. Bank of Baroda & Anr. [Company Appeal (AT) (Insolvency) No. 71 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-240 Cine & Supply Corpn. (P.) Ltd., In re [2002] 35 SCL 683. . . . . . . . . . . . . . . . . . . . 14.40 CIT v. Scindia Steam Navigation Co. Ltd. AIR 1961 SC 1633 : MANU/SC/0194/1961 : [1961]42 ITR 589 (SC). . . . . . . . . . . . . . . . . . . . . . . 21.26 Cloudcherry Analytics Private Limited, CP/20/66/2017 . . . . . . . . . . . . . . . . . . . . . . 8.17 Col. P.K. Uberoi (Retd.) and Another v Vigneshwara Developwell P. Ltd. and Others, [2020] 220 Comp Cas 262 (Delhi). . . . . . . . . . . . . . . . . . . . . 13.84 Commissioner of Income Tax-8 v Registrar of Companies and Ors (Company Petition 643 of 2014). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 Cumbrian Newspapers Group Ltd v Cumberland & Westmorland Herald Newspaper & Printing Co Ltd [1986] BCLC 286. . . . . . . . . . . . . . . . . . . 6.5 Cyrus Investment P Limited v Tata Sons Limited and Ors. [(2017) 203 Com Cas 14 (NCLAT)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.20 Dadu Dayal Mahasabha v Sukhdev Arya - (1990) 1 Supreme Court Cases 189. . . . . 4.7 Darshan Jewel Tools Private Limited, TCP No. 58/2015. . . . . . . . . . . . . . . . . . . . . . 9.27 Deccan Cements Ltd v Geekay Exim (India) Ltd. [2002]112 Comp cas 616(CLB). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.24 Deepsone Non-Ferrous Rolling Mills Pvt. Ltd. v. Registrar of Companies, NCT of Delhi and Haryana, CP No. 285/2009. . . . . . . . . . . . . . . . 5.13 Della Constructions Pvt Ltd. v MIs Rei Agro Ltd & Anr Company Appeal (AT) (Insv) No. 35 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-177

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Devendra Padamchand Jain (Resolution Professional of VNR Infrastructures Limited - Corporate Debtor) v 1.State Bank of India, 2.State Bank of Hyderabad, 3.Indian Overseas Bank, 4.Punjab National Bank, 5.Bank of India, 6.Bank of Baroda, 7.IFCI Limited, 8.IFCI Factors Limited, 9.VNR Infrastructure Limited, 10.Insolvency and Bankruptcy Board of India,[Company Appeal (AT) (Insolvency) No. 177 of 2017]. . . . . . . . . . . . . R-243 Dinesh Gandhi v Bayer Diagnostics India Limited [2002] 111 Comp Cas 547 (CLB). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.21 Dinesh Vrajlal Lakhani v Parke Davis (India) Ltd. (2003) 47 SCL 80 (Bom): (2005) 124 Comp Cas 728 (Bom). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.22 DLF Ltd and Another v Satya Bhushan Kaura and Another, [2020] 218 Comp Cas 470. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.38, 7.48 Dr. H. N. Nagaraj (shareholder of M/s. Live 100 Hospital Pvt. Ltd.) v. Edelweiss Asset Reconstruction Company Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 210 of 2018] . . . . . . . . . . . . . . . . . R-251 Dr. Subba Rao Pavuluri v Gagan Aerospace Limited, NCLT/HYD/CA73/2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11 Durlum India Pvt. Ltd. v. M/s Sharma Kalypso Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 351 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . R-276 Eicher Motors Ltd v Adesh Kaur and Ors. (2018) 207 Comp Cas 150 (NCLAT). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.31 EITA India Ltd. AIR 1997 Cal 208. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.108 Elder Pharmaceutical Limited [CLB- MUM :CA – 50/2014] . . . . . . . . . . . . . . . . . . 9.22 Elder’s Case, AIR 1952 SC 49. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.17 Elecon Engineering Co. Ltd. v. Ducon Technologies (I) Pvt. Ltd. [I.A. No. 29 of 2018] : [Company Appeal (AT) (Insolvency) No. 14 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-236 Elektrans Shipping Pte Ltd. v Pierre D’silva & Anr., NCLAT Company Appeal (AT) (Insolvency) No. 754 of 2019. . . . . . . . . . . . . . . . . . . . . 5.17 Eley v Positive Government Security Life Assurance Co Ltd, 1 Ex D 88. . . . . . . . . . 6.5 Ellora Paper Mills Limited & Anr v Ajithnath Steels Pvt. Ltd. Company Appeal (AT) (Insv) No 122 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-182 Engenious Engineering Pvt. Ltd. v Onaex Natura Pvt Ltd. Company Appeal (AT) (Insv) No. 249 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-171 Era Infra Engineering Ltd. v Prideco Commercial Projects Pvt. Ltd. Company Appeal (AT) (Insv) No. 31 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-175 lxxxix

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Esha Bhattacharjee v. Managing Committee of Raghunathpur Nafar Academy & Ors., [MANU/SC/0932/2013, 2013 AIR SCW 6158]. . . . . . . . . . 21.14 Esquire Electronics Inc. and Anr. v Netherlands India Communications Enterprises Ltd. and others, 2017 SCC OnLine NCLAT 48. 23.19 Essar Steel Ltd. v Unknown [2006]130CompCas123(Guj) : (2006)5CompLJ83(Guj) : [2005]59SCL457(Guj) : MANU/GJ/0085/2005) . . . . 6.7 Explo Media Pvt. Ltd. v. Ambience Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 20 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-270 Exports Pvt. Ltd. v T.V. Chandran [MANU/KE/0078/1993]. . . . . . . . . . . . . . . . . . 14.17 Eye Foundation Ltd. v Lasik Centre (India) P. Ltd.[MANU/ TN/2220/2012 : (2013) 176 Com. Cases 345 (Mad))]. . . . . . . . . . . . . . . . . . . . . 13.5 Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd., 2019 SCCOnLine SC 87. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4, 23.9 Forech India Pvt. Ltd. v Edelweiss Assets Reconstruction Company Ltd. & Anr. Company Appeal (AT) (Insv) No. 202 of 2017 . . . . . . . . . . . . . . R-197 Foss v Harbottle (1843) 67 ER 189 : (1843) 2 Hare 461. . . . . . . . . . . . . . . . . . . . . . 14.1 Futura Polyesters Ltd. [CLB-MUM: CP – 53/2014] . . . . . . . . . . . . . . . . . . . . . . . . . 9.22 G. Eswara Rao v Stressed Assets Stabilisation Fund, Mumbai and another, 2020 Indlaw NCLAT 44. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.18 G. Vasudevan v Union of India [Madras High Court/2019 . . . . . . . . . . . . . . . . . . . . 5.30 GABS Investments P. Ltd. v Ajanta Pharma Ltd, [2019] 215 Comp Cas 293 (NCLT). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.73 Ganga Bai v Vijay Kumar and Ors. [MANU/SC/0020/1974: (1974) 2 SCC 393]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.8 Gaurav Hargovindbhai Dave v Asset Reconstruction Company, 2019 Indlaw SC 994. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.17 Gaurishankar Neeklanth Kalyani and Ors. v Sulochana Neeklanth Kalyani and Ors. MANU/CL/0020/2015, CLB-Mum. . . . . . . . . . . . . . . . . . . . . 7.17 Gay Printers v. Pawan Buildwell Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 17 & 18 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-267 Ghulam Qadir v. Special Tribunal & Ors., MANU/SC/0608/2001 : (2002) 1 SCC 33. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.11 Girdharlal Nathubhai Dalal v K.C. Agro Pvt. Ltd. and Ors. [MANU/ CL/0038/2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.34, 14.35 Gireesh Kumar Sanghi v Ravi Sanghi, [2019 SCC OnLine NCLAT 474]. . . . . . . . . . 4.2

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Girish Kumar Kharia v Industrial Forge and Engineering Co. Ltd. and Ors. (1999(3)BLJR1755 : [2001]103CompCas150(Patna) : MANU/BH/0057/1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 Gopaldas v Tribhuvan AIR 1921 Bom 40. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.12 Gradient Nirman Private Limited, represented by G. Inna Reddy, Hyderabad and Anr v IFCI Limited, Hyderabad and others, 2020 Indlaw NCLAT 248. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.19 Greenhalgh v Arderne Cinemas [1946] 1 All. E.R 512 CA. . . . . . . . . . . . . . . . . . . . . 6.7 Gulabrai Kalidas Naik And Ors. v Laxmidas Lailubhai Patel MANU/ GJ/0001/1978 : 1978 48 Comp Cas 438 Guj. . . . . . . . . . . . . . . . . . . . . . . . . . . 14.29 Gurdeep Singh Sahani v Berger Paints India Ltd & Ors. Company Appeal (AT) (Insv) No. 294 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-160 Hansberry v Lee, 311 U.S. 32, 41, 61 S.Ct. 115, 118 (1940). . . . . . . . . . . . . . . . . . . 15.2 Hari Sankaran v Union of India Ministry of Corporate Affairs & Ors., Company Appeal (AT) No. 29 of 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . 11.10 Hari Sankaran v. Union of India, Civil Appeal No. 3747 of 2019. . . . . . . . . . . . . . 11.11 Hasmukh Bachubhai Baraiya v Symphomy Limited and Ors (2018) 209 Comp Cas 605 (NCLT) AHM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.29 Hasmukh Bachubhai Baraiya v Symphomy Limited and Ors (2018) 209 Comp Cas 621 (NCLAT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.29 HCL Eagle Ltd and Others., In re, [2020] 222 Comp Cas 187 (NCLT). . . . . . . . . . 13.83 Highway Concession One Private Limited, CP 263/2017. . . . . . . . . . . . . . . . . . . . . 8.11 Hind Motors India Ltd. v Adjudicating Authority NCLT, Chandigarh. Company Appeal (AT) (Insv) No. 11 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-205 Hindustan Lever Employees’ Union v Hindustan Lever Ltd. (1994) 14 CLA 397 (Bom). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.22, 13.24 Hindusthan Commercial Bank Ltd. v Hindusthan General Electrical Corporation Ltd (AIR1960Cal637: 64CWN458 : 64CWN458 : MANU/WB/0172/1960) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13 Hoare and Co. Ltd. and Reduced, In re, ((1910) W. N. 87, Nevile J.,). . . . . . . . . . . 6.15 Hriday Nath Roy v Ram Chandra, (A.I.R. 1921 Cal. 34). . . . . . . . . . . . . . . . . . . . . . 23.1 Hungerford Divestment Trust Ltd., Re v Turner Morrison & Co. Ltd. [1972 (I) Cal, 286]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.4 ICICI Bank Ltd. v. 1. Oceanic Tropical Fruits Pvt. Ltd. 2. State Bank of India 3. Central Bank of India 4. Mr. C. Balasubramanian5. Venkataramana Nagarajan [Company Appeal (AT) (Insolvency) No. 113 & 114 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-227 xci

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ICICI Bank Ltd. v Innoventive Industries Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . . . . R-146 IJM (India) Infrastructure Limited v Swarnandhra IJMII Integrated Township Development Co. Pvt. Limited, 2016 SCC Online NCLT 380. . . . . . 10.8 Iken Solutions Pvt Limited, CA 67/2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.28 Impex Ferro Tech Limited v Agarwal Coal Corporation Private Limited. . . . . . . R-128 IND Swift Limited , NCLT/CHD/CA 8/2016 & CA 39/2017 in CP/27/2/2013/8.12.2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.28 Indiabulls Housing Finance Ltd. v. Shree Ram Urban Infrastructure Ltd. [Company Appeal (AT) (Insolvency) No. 252 of 2018]. . . . . . . . . . . . . . R-272 Indian Bank & Ors. (FC) v. Kadevi Industries Ltd. & Ors.. . . . . . . . . . . . . . . . . . R-249 Indian Bank v Satyam Fibres (India) Pvt. Ltd. (1996) 5 Supreme Court Cases 550. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 Indian Overseas Bank & Ors. v. Kamineni Steel & Power India Pvt. Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 335 of 2017]. . . . . . . . R-231 Indian Overseas Bank vs Mr. Dinkar T. Venkatsubramaniam Resolution Professional for Amtek Auto Ltd. Company Appeal (AT) (Insv) No. 267 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-182 Innoventive Industries Ltd. v ICICI Bank & Anr. . . . . . . . . . . . . . . . . . . . R-147, R-149 Intelenet Global Services Private Limited, CP/227/2017. . . . . . . . . . . . . . . . . . . . . . 8.13 Interport Global Logistics Private Limited v Netzland Wireless India Pvt. Ltd. And Ors., 2016 SCC Online NCLT 408 (MUM) . . . . . . . . . . . . . . . . . 10.6 Iyogi Technical Services P. Ltd., In re., [2020] 218 Comp Cas 176 (Delhi) . . . . . . 13.77 Jai Mahal Hotels P Limited v. Rajkumar Devraj [2015] 193 comp cas 214 (SC). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.27 Jai Mahal Hotels Pvt. Ltd. v Rajkumar Devraj and Ors. 2015(10) SCALE14 : MANU/SC/1059/2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.18 Jai Prakash Associates Limited, NCLT/ALL/ CP 37/2017. . . . . . . . . . . . . . . . . . . . . 9.32 Jai Prakash Associates Limited, NCLT/ALL/ CP 65/2017/28.8.2017. . . . . . . . . . . . 9.34 Jai Prakash Association Ltd. [CLB – DEL: CA 25/10/2015]. . . . . . . . . . . . . . . . . . . 9.24 Jaipur Metals & Electricals Employees Organization v. Jaipur Metals & Electricals Ltd., (2019) 4 SCC 227 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3, 23.9 Jasbhai Motibhai Desai v. Roshan Kumar, Haji Bashir Ahmed & Ors., MANU/SC/0011/1975 : AIR 1976 SC 578. . . . . . . . . . . . . . . . . . . . . . . . 21.10 Jay Chemicals Industries Limited , v ROC, Gujarat, NCLT/AHM /7.2.2018 , CP/222/2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.18

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JEKPL Private Limited v Export Import Bank of India Company Appeal (AT) (Insv) No. 188 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-161 Jennings v. Kelly [174] A. C. 206. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.9 Jignesh Shah and Anr v Union of India, 2019 Indlaw SC 939. . . . . . . . . . . . . . . . . 23.17 JK Jute Mill Mazdoor Morcha v Juggilal Kamlapat Jute Mills Co. Ltd. Company Appeal (AT) (Insv) No. 82 of 2017 . . . . . . . . . . . . . . . . . . . . . R-217 JK Jute Mills Company Limited v M/s Surendra Trading Company.. . . . . . . . . . . R-133 Joint Commissioner of Income Tax v Reliance Jio Infocomm Ltd. and Ors., [2020] 218 Comp Cas 486 (NCLAT). . . . . . . . . . . . . . . . . . . . . . . . . 13.76 Jord Engineers India Ltd. v Valia & Company. Company Appeal (AT) (Insv) No. 158 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-220 Jorhat Tea and Industries (P) Ltd v. State of Meghalaya [(2006) 72 SCL 310 (Gauhati)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.25 Jotun India P. Ltd. v PSL Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.9 Jubilant Clinsys Limited, CA/94/ALL/2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.18 JVA Trading Pvt. Limited and C&S Electric Ltd Company Application No.A.l/PB/2017order dated 13th January 2017 by Principle Bench of NCLT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.17 K. J. Suwresh and Anr v Teamlease Staffing Services P. Ltd and Anr., [2018] 211 Comp Cas 331 (NCLAT). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.81 K. Kishan v Vijay Nirman Company Private Limited. [Civil Appeal No. 21824/2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-157 K. Radhakrishnan v Thirumani Asphalts and Felts (P) Ltd., [MANU/ TN/0129/1998, 1998(1) CTC 682] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.7 K.S. Rangasamy v. State Bank of India & Anr. [Company Appeal (AT) (Insolvency) No. 83 of 2017] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-262 Kabushiki Kaisha Toshiba v. Tosiba Appliances Company & Ors.,MANU/SC/2223/2008 : (2008) 10 SCC 766). . . . . . . . . . . . . . . . . . . . . . 21.11 Kadevi Industries Ltd. (Through Shareholder Mr. Malapaka Purushottam) v. Indian Bank & Ors.(FC) [Company Appeal (AT) (Insolvency) No. 135 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-250 Kailash Singh v. State of U.P. and Ors. [MANU/UP/1196/2015]. . . . . . . . . . . . . . 21.10 Kakku E and P Control Pvt. Ltd. v. The Registrar of Companies, NCT of Delhi and Haryana, CP No. 409/2008. . . . . . . . . . . . . . . . . . . . . . . . . . 5.13 Kaledonia Jute & Fibres Pvt. Ltd. v M/s Axis Nirman & Industries Ltd. & Ors., 2020 SCCOnLine SC 943. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4

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Kaliber Associates Pvt. Ltd. v Tripat Kaur Company Appeal (AT) (Insv) No. 52 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-200 Kamal Dutta v. Anubhuti Aggarwal & anr. [Company Appeal (AT) (Insolvency) No. 329 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-268 Kamal K. Singh v Union of India [Bombay High Court Writ Petition (L) No. 3250 of 2019; 29th November 2019] . . . . . . . . . . . . . . . . . . . . . . . . . . 22.11 Kamal Kumar Kandpal [Ex-Director of Leption Projects (P) Ltd.] v. Sanghvi Movers Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 273 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-271 Kamineni Steel & Power India Pvt. Ltd. v. Indian Bank & Ors. [Company Appeal (AT) (Insolvency) No. 45 of 2018] . . . . . . . . . . . . . . . . . . R-231 Kamlesh Kalidas Shah v State Bank of India (2018) 207 Comp Cas 243 (NCLT) – ND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.32 Kanti Commercial Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 250 of 2018]. . . . . . . . R-247 KArix Mobile P. Ltd and Others, In re., [2020] 223 Comp Cas 277 (NCLT) . . . . . 13.85 Kashinath R. Jhunjhunwala and Ors. v Laxmichand Bhagaji Limited and Ors., (2017) 201 Com Cas 613 (Bom) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.69 Kashinath Rajgharia v Vishnu Properties & Industries P Limited , 2017 SCC Online NCLT 976. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8 Kee Projects Limited v Sharda Rawat Company Appeal (AT) (Insv) No. 139 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-162 Kerala High Court in R. Prakasam v Sree Narayana Dharma Paripalana Yogam [[1980] 50 Comp Cas 611]. . . . . . . . . . . . . . . . . . . . . . . . . . . 10.6 Keshvan v State of Bombay AIR 1951 SC 128 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.11 Khushru Dorab Madan vs Union Of India [Madras High Court/2020. . . . . . . . . . . . 5.29 Killick Nixon Limited v Dhanraj Mills Pvt. Ltd. [1983] 54 Comp Cas 432 (Bom). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.22 Kirusa Software Private Limited v Mobilox Innovations Private Limited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-138, R-215 Kitson, Ex. p. Sugden (Thomas) and Sons Ltd., In Re, [1911] 2 K. B. 109. . . . . . . . 21.8 KKV Naga Prasad v Lanco Infratech Ltd. Company Appeal (AT) (Insv) No. 10 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-221 Kolon Investments Private Limited, CP 33 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . 8.15 Konathala Sriramulu v Board of Revenue (C.T.) - AIR 1965 Andhra Pradesh 395. . . 4.7 Ksheeraabad Constructions PVT Ltd v M/s Vijay Nirman Company Pvt Ltd [Civil Appeal No. 21825 of 2017]. . . . . . . . . . . . . . . . . . . . . . . . . . . . R-157 xciv

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Kumaka Industries Ltd, In re., (2020) 221 Comp Cas 448 (NCLT). . . . . . . . . . . . . 13.86 Kumar Exporters P. Ltd. v Naini Oxygen and Acetylene Gas Ltd. [1986] 60 Comp Cas 984 (All). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.23 Kumar Ispat P. Ltd. and Ors, In re, [2019] 215 Comp Cas 409 (NCLT) . . . . . . . . . 13.74 Kusum Products Ltd. v. Union of India [Company Appeal (AT) (Insolvency) No. 69 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-230 Lagadapati Ramesh v Mrs. Ramanathan Bhuvaneshwari, ‘Company Appeal (AT) (Insolvency) No. 574/2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.27 Lakshmidhar Misra v. Rangalal MANU/PR/0121/1934. . . . . . . . . . . . . . . . . . . . . . 21.25 Lamb Ex., p. Board of Traded, In Re, [1894] 2 Q. B. D. 805 per Lord Esher. . . . . . 21.8 Landeros v Flood, 17 Cal. 3d 399, 551 P.2d 389 97 ALR 3d 324 . . . . . . . . . . . . . . . 15.3 Lanka Venkata Naga Muralidhar v Vestal Educational Services Private Limited and Ors (2018) 206 Com Cas 370 (NCLT) HYD . . . . . . . . . . . 7.33 Leo Duct Engineers & Consultants ltd. v 1. Canara Bank, 2.Standard Chatered Bank Company Appeal (AT) (Insv) No. 100 of 2017 . . R-207 Lokhandwala Kataria Construction Private Ltd v Nisus Finance And Investment managers LLP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-145 Lord Parker C.J. in Baling Corporation v. Jones L. R. [1959] 1 Q. B. D. 384. . . . . . 21.9 Luxmi Tea Co. Limited v Pradip Kumar Sarkar MANU/ SC/0290/1989 : 1989 Supp. (2) SCC 656 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.18 M. Kondappa v Symphony Limited and Ors (2018) 210 Com Cas 25 (NCLAT) . . . 7.30 M. Sampath v AKMN Cylinders Pvt. Ltd. [(1998) 29 CLA 455 (CLB-SB)]. . . . . . . 10.5 M.A. Panjwani v Registrar of Companies and Ors., Delhi High Court (2015) 124 CLA 109 (Delhi). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.18 M.G. Amirthalingam v Gudiyatham Textiles Private Ltd. [1972] 42 Comp Cas 350 (Mad). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.23 M.J. Casting and Others, [2019] 217 Comp Cas 598 (NCLT). . . . . . . . . . . . . . . . . 13.72 M.S.D.C. Radharamanan v M.S.D. Chandrashekhar MANU/ SC/1342/2008 : 2008 (143) Comp.Cases 97 (SC) : 2008 (1) UJ SC 0583 (paras 15 and 17). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.34 M.Srinivas v Ramanathan Bhuvaneshwari, Company Appeal (AT) (Insolvency) No. 498 of 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.25 Mace Platronics Pvt. Ltd. v ROC, (2010) 104 SCL 277(Del) . . . . . . . . . . . . . . . . . . 5.18 Mace v Van Ru Credit Corp., 109 F.3d 388, 344 (7th Cir. 1997). . . . . . . . . . . . . . . . 15.3 Macquarie Bank Limited v Shilpi Cable Technologies Ltd.. . . . . . . . . . . . R-130, R-132

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Madhur Engineers Pvt Ltd. & Anr v Facor Steels Ltd. Company Appeal (AT) (Insv) No. 136 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-204 Madhya Pradesh Industrial Development Corporation Limited, Company Appeal NO. 232 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.35 Madras Bar Association v Union of India (UOI) and Ors., [2015VII AD (S.C.) 229 : [2015]126CLA111(SC) : (2015)3CompLJ1(SC) : (2015)4MLJ184(SC) : 2015(6)SCALE331 : [2015]131SCL26(SC) : MANU/SC/0610/2015]. . . . . . . . . . . . . . . . . . . 1.6, 1.8, 2.8 Mahaamba Investment Limited v IDI Limited (2001) 105 CompCase 16. . . . . . . . . 3.15 Maharaj Singh v. State of Uttar Pradesh & Ors., MANU/ SC/0361/1976 : AIR 1976 SC 2602. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.11 Maharani Lalita Rajya Lakshmi v Indian Motor Company (Hazaribagh) ltd. AIR 1962 Cal 127 : 1962 32 CompCas 207 Cal : 66 CWN 63. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.40 Mahesh Kumar Panwar, (Director of M/s. Mega Soft Infrastructure Pvt. Ltd.) v. Abhishek Anand (Resolution Professional) [Company Appeal (AT) (Insolvency) No. 117 of 2018] . . . . . . . . . . . . . . . . . R-233 Mahesh Kumar Sureka v. SBER Bank & Ors. [Company Appeal (AT) (Insolvency) No. 319 of 2017] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-256 MAIF Investments India P. Ltd v Ind-Barath Power Infra Ltd and Others, [2020] 218 Comp Cas 314. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.36, 7.45 MAIF Investments India P. Ltd v Ind-Barath Power Infra Ltd and Others, [2020] 218 Comp Cas 337. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.37, 7.46 Makson Nutrition Food India Private Limited, NCLT/AHM/ TCP/143/2016, CA/157/2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.35 Manak Overseas Pvt. Limited, TCP/129/2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.28 Mangalore Chemicals and Fertilizers Ltd., In Re, [MANU/ CL/0005/1994 : [1994] 79 CompCas 551 (CLB)] [ CLB(SRB) Company Petition No. 60/80A/SRB/93 dated 08.12.1993]. . . . . . . . . . . . . . . . 19.16 Manibhai Hathibhai Patel v. C.W.E. Arbuthnot [MANU/ MH/0123/1946 : AIR 1947 Bom 413 : 1947(49) BOMLR 454]. . . . . . . . . . . . 21.27 Manohar Lal Chopra v Bahadur Rao Raja Seth Hiralal - MANU/ SC/0056/1961 : AIR 1962 SC 527. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7 Manoharan v. Sivarajan & Ors. [MANU/SC/1192/2013, (2014) 4 SCC 163]. . . . . 21.15 Maruti Udyog Ltd v Pentamedia Graphics Ltd [2002]111Comp Cas 56(CLB). . . . . 7.24 Mascot Engineering Co. Ltd. v Eastern Medikit Ltd., [2019] 216 Comp Cas 227 (Delhi). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.75 xcvi

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Mathew Michael v TEKOY (India) Ltd. [1990] 69 Comp Cas 145 (Ker). . . . . . . . . 7.22 Mayyar Fabrics Ltd., [CLB-MUM-CA 10/2014]. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.23 MCL Global Steel Pvt ltd. v M/s Essar Projects India Ltd. & Anr. Company Appeal (AT) (Insv) No. 26 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-166 Medtech Pharma (India) Pvt. Ltd. v. Registrar of Companies, CP No. 241/2009 . . . 5.13 Meenakshi Mills Co. Ltd. v. CIT, AIR 1957 SC 49. . . . . . . . . . . . . . . . . . . . . . . . . 21.24 Mekaster Valves and Engineering Services Private Limited MANU/ GJ/0354/2008 : [2009] Comp. Cases 593 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.5 Meyer Apparel Ltd & Anr vs M/s Surbhi Body Products Pvt Ltd. Company Appeal (AT) (Insv) No. 33 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-170 Meyer Apparel Ltd & Anr v M/s Godolo & Godolo Exports Pvt Ltd. Company Appeal (AT) (Insv) No. 34 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-170 Meyer’s case, AIR 1965 SC 381. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.17 Miheer H. Mafatlal v Mafatlal Industries Ltd. (1996) 87 Com Cases 792(SC). . . . . . 6.6 Mindtree Exports Private Limited v M/s Ashmita Multitrade Private Limited & Anr Company Appeal (AT) (Insv) No. 98 of 2017. . . . . . . . . . . . . R-203 Mitcon Consultancy & Engineering Services Pvt. Ltd. v. M/s Vitthal Corporations Ltd. [Company Appeal (AT) (Insolvency) No. 101 of 2018]. . . R-274 Mobilox Innovations Private Limited v Kirusa Software Private Limited. . . . . . . R-141 Mohan Paul v. City Hospital P. Ltd. And Ors. [2017] 203 comp cas 516 (NCLT) Chennai. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.27 Mohd. Tariq Siddiqui & Anr. vs U.O.I. Thru Secy. Ministry Of Corporate Affairs [Allahabad High Court/ 2019. . . . . . . . . . . . . . . . . . . . . . . . . 5.29 Mona Pharmachem v Uttara Foods & Feed Private Limited. . . . . . . . . . . . . . . . . R-129 Mother Pride Dairy India Pvt. Ltd v Portrait Advertising & Marketing Pvt. Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-145 , R-146 MRF Ltd. And Ors. v Oriental Insurance Co. Ltd and Ors. [2017] 204 Comp Cas 16 (NCLAT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.28 Mukut Pathak & Ors v Union of India & Anr [High Court of Delhi/Nov/2018. . . . . 5.21 Mysore Cements Limited MANU/KA/0013/2009 : [2009] 150 Comp. Cases 623. . 13.5 N.R. Harikumar v WW Apparels (India) Private Limited and Ors. MANU/TN/0894/2015 : 2015-2-LW987 : (2015)5MLJ422. . . . . . . . . . . . 6.4, 7.16 Nafar Chandra Pal v Shukur (1918) 45 IA 183 at 187 . . . . . . . . . . . . . . . . . . . . . . . 21.26 National Engineering Industries Ltd. v. Cimmco Birla Ltd. [Company Appeal (AT) (Insolvency) No. 151 of 2018] . . . . . . . . . . . . . . . . . R-234 National Insurance Co. Ltd. [MANU/SC/0314/1998 : [1998] 2 SCR 1199]. . . . . . . 23.8 xcvii

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National Multi Commodity Exchange of India Limited, In Re, (2018) 206 Com Cas 501 (NCLT) Ahmedabad. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.68 National Textile Corporation (Uttar Pradesh) Ltd. v Swadeshi Polytex Ltd. and Ors. [Company Petition No. 9/167/97-CLB; MANU/CL/0018/1998]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.4 Needle Industries (India) Ltd. v Needle Industries Newey (India) holdings Limited MANU/SC/0050/1981 : AIR 1981 SC 1298 (paras 171 and 172). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.33 Neel Rajesh Shah v United Spirits Ltd and Others, [2020] 218 Comp Cas 405 . . . . 7.47 Neelkanth Township and Construction Private Limited v Urban Infrastructure Trustees Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-153, R-155 Neeraj Bhatia (Director of M/s. Summit Aviation Pvt. Ltd.) v. Davinder Ahluwalia; Mrs. Mamta Ahluwalia; M/s. Summit Aviation Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 142 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-264 Neeraj Gupta (Suspended Director & Shareholder of M/s Sardhana Papers Pvt. Ltd.) v. M/s Raj Duplex Pvt. Ltd. & Anr. [CA(AT) (Insolvency) No. 247 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-272 Neesa Leisure Limited, NCLT/AHM/CP 2/2017 (sec. 73(3) & CP 11/2016 (74(2)) & Ors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.34 Neo Finance Pvt. Ltd. and Ors. v Rakesh Soni and Ors. MANU/ CL/0040/2015, C.P. No. 15 of 2014(CLB-MUM). . . . . . . . . . . . . . . . . . . . . . . . 7.18 Neptune Overseas Ltd. v National Multi Commodity Exchange of India Ltd. And Anr [2019] 216 Comp Cas 481 (NCLAT). . . . . . . . . . . . . . . . . 13.72 Net 4 India Ltd. [CLB-DEL: CP 10/1/2015] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.23 New India Insurance Co ltd. v Shanti Misra AIR 1976 SC 237. . . . . . . . . . . . . . . . 23.12 Nikhil Mehta & Sons v AMR Infrastructure Ltd. Company Appeal (AT) (Insv) No. 07 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-190 Nisheet Ranjan v. Letstrak Tech Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 350 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-279 Nisheet Ranjan v. Letstrak Tech Pvt. Ltd. [CP- (IB)32/2018] . . . . . . . . . . . . . . . . R-277 NUI Pulp and Paper Industries Pvt. Ltd. v Ms. Roxcel Trading GMBH [Company Appeal (AT) (Insolvency) No. 664 of 2019]. . . . . . . . . . . . . . 4.8 P.K Ores Pvt Limited v Tractors India Private Limited. Company Appeal (AT) (Insv) No. 56 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-211 Pallavi Gems Pvt Ltd & Anr v Haresh N Mataliya & ors (NCLAT order dated 22/3/2017- Company Appeal (AT) No. 73/2017). . . . . . . . . . . . . . 23.11 xcviii

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Palogix Infrastructure Private Limited v ICICI Bank Limited Company Appeal (AT) (Insv) No. 30 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-186 Pancham Hotels Pvt. Ltd. v. Registrar of Companies, CP No. 554/2014. . . . . . . . . . 5.13 Parag Gupta & Associates v B.K. Educational Services Pvt. Ltd.. . . . . . . R-156, R-156 Parameswara Reddy Sura v Union of India Telangana High Court/2019 . . . . . . . . . 5.28 Pawan Kumar Gupta v Savitri Textiles India Pvt. Limited , 2017 SCC Online NCLT 374 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.10 PEC Ltd. Through Shri Indra Vikram Singh v M/s Sree Gangadhar Steels Ltd Company Appeal (AT) (Insv) No. 236 of 2017 . . . . . . . . . . . . . . . R-176 PEC Ltd. Through Shri Indra Vikram Singh v Sree Ramakrishna Alloys Ltd. Company Appeal (AT) (Insv) No. 225 of 2017 . . . . . . . . . . . . . . R-176 PEC Ltd. v M/s Sree Gangadhar Steels Ltd. Company Appeal (AT) (Insv) No. 121 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-178 PEC Ltd. v M/s Sree Ramakrishna Alloys Ltd. Company Appeal (AT) (Insv) No. 120 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-178 Petronet India Limited, CA/2/2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.16 Phadnis Properties Limited , Application No. 416, 573/MAH/2017. . . . . . . . . . . . . 9.26 Philips India Ltd v Goodwill Hospital & Research Centre Ltd. Company Appeal (AT) (Insv) No. 14 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-171 Philips India Ltd v Karina Healthcare Pvt. Ltd. Company Appeal (AT) (Insv) No. 15 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-171 Plethico Pharmaceuticals Limited, NCLT/AHM/CP 47/2017 & Ors. . . . . . . . . . . . . 9.34 PMP Auto Industries Limited, In Re:, MANU/MH/0112/1991 : [1994] 80 Comp. Cases 289. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.5 Poole and Ors v National Bank of China Limited [(1907) A.C. 229 (HL)]. . . . . . . . 8.10 Poorani Nagarajan (Shareholder in M/s Infinitas Energy Solutions Pvt. Ltd. v Indian Bank & Ors. Company Appeal (AT) (Insv) No. 318 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-184 PPI Enterprises Private Limited & Ors. v Registrar of Companies (2015 SCC OnLine Del 13748). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.13 PPN Power Generating Company Limited v PPN (Mauritius) Company A Corporation and Ors. MANU/TN/1125/2004 : 2005(3)ARBLR354(Madras) : [2006]129CompCas849(Mad) : 2004(5)CTC1 : 2005-2-LW389 : (2004)4MLJ434 . . . . . . . . . . . . . . . . . . . . . . 14.37 Pr. Commissioner of Income-tax-7 v. M/s. Modern Terry Towels Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 192 of 2018] . . . . . . . . . . . R-234

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Pradeep Kothari (Director of M/s. Kothari Industrial Corporation Limited) v. Mr. A. Pandian & Anr. [Company Appeal (AT) (Insolvency) No. 11 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-266 Prag Bosini Synthetics Limited v. 3A Capital Limited (NCLAT order 11/7/2016). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.25 Pratibha Industries Ltd., [CLB-Mum :CA - 21/2015]. . . . . . . . . . . . . . . . . . . . . . . . . 9.23 Pratik Gupta (Director & Shareholder of M/s Petrolube India Ltd.) v. M/s Columbia Petro Chem. Pvt. Ltd. M/s Columbia Petro Chem. Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 133 of 2018]. . . . R-280 Prem Anand v Prisha Corporate Services Private Limited , 2016 SCC Online CLB 167. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.7 Premier Limited, CP No. 33 /MAH/2017/25.07/2017 . . . . . . . . . . . . . . . . . . . . . . . . 9.27 Prof M.K.Sanno v State of Kerala Kerala High Court/Ernakulam/2020. . . . . . . . . . 5.27 Punjab National Bank v James Hotels Private Limited , 2017 SCC Online NCLT 11883, NCLT Chandigarh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.10 Purnima Manthena and Ors. v. Renuka Datla and Ors.[ MANU/SC/1121/2015] . . . 21.4 Purushottam Dass v Registrar of Companies, Maharashtra, Bombay High Court (1986) 60 CompCas 154 (Bom). . . . . . . . . . . . . . . . . . . . . . . 5.13, 5.18 R Narayannasamy v The Registrar of the Companies, Tamil Nadu, NCLAT/Del/Company Appeal (AT) No. 171 of 2020. . . . . . . . . . . . . . . . . . . . . 5.16 R. Ajayender v Karvy Computershare P. Ltd And Others, [2019] 217 Comp Cas 378 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.40, 7.49 R. Systems International Limited, (2018) 210 Com Cas 341 (NCLAT) . . . . . . . . . 13.58 R. v London County Keepers of the Peace and Justices [1890] 20 Q. B. D. 357. . . . 21.8 R.B.Synthetics & Anr. v. Bee Ceelene Textile Mills Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 106 of 2018] . . . . . . . . . . . . . . . . . R-245 R.G Shaw & Sons Private Limited & Anr v M/s Naviplast Traders Private Limited & Ors. Company Appeal (AT) (Insv) No. 63 of 2017. . . . . . R-185 Raj Kumar Shivhare vs. Assistant Director, Directorate of Enforcement and another MANU/SC/0249/2010 : (2010) 4 SCC 772. . . . . . . . 21.5 Raj Narain Singh and Another v The Registrar of Companies and Others [Company Appeal (AT) No. 373 of 2018, May 31, 2019; 2019 SCC OnLine NCLAT 312]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 Rajendra Kapoor v Anil Kumar (Interim Reslution Professional & Ors.) Company Appeal (AT) (Insv) No. 198 of 2017 . . . . . . . . . . . . . . . . . . . R-210 Rajesh Kapoor v Tirupati Balaji Hotel P Limited [2017] 204 Comp Cas 303 (NCLT) Allahabad. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.27 c

Table of cases

Rajesh Patil v Moonshine Films Pvt. Ltd. (2008) 141 CompCas 482 CLB : (2006) 6 CompLJ 161 CLB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.29 Rajit Mehra v. Punjab National Bank & Anr. [Company Appeal (AT) (Insolvency) No. 102 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-258 Rajit Mehra v. Punjab National Bank & Anr. [Company Appeal (AT) (Insolvency) No. 83 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-260 Rajmundhry Electricity Corporation v Nageshwar Rao [AIR (1956) SC 213] . . . . 14.28 Rallis India Limited, In Re , [IV (2005) BC 187 : 2005 (3) BomCR 618 : 2005 125 CompCas 268 Bom : (2005) 5 CompLJ 234 Bom : 2005 59 SCL 219 Bom]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.7 Ram Chandra Singh v Savitri Devi - 2004-2-L. W. 70. . . . . . . . . . . . . . . . . . . . . . . . . 4.6 Ramalakshmi v Texline Fabrics India P Limited and Ors. (2018) 206 Com Cas 430 (NCLT) Chennai. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.35 Rampuria Cotton Mills Ltd., In Re, AIR1959Cal253 : 63CWN11 : 63CWN11 : MANU/WB/0063/1959. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.17 Rangpur Tea Associations Limited v Makkanlal Samaddar [1973] 43 Comp Cas 58 (Cal). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.21 Ranjeet Karnal v. Bell Finvest (India) Limited [Company Appeal (AT) (Insolvency) No. 68 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-261 Rattan Lal Garg & Anr v Parmeshwar Buildtech P Limited , NCLT/ ND/CP 211/2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11 Ravalgaon Sugar Farms Ltd., [CLB Mum:CA - 9/2015]. . . . . . . . . . . . . . . . . . . . . . 9.23 Regional Director v Om Shakthy Agencies, (2018) 210 Com Cas 347 (NCLAT), Company Appeal NO. 232 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . 11.21 Regional Director, Southern Region, MCA and Anr v Real Image LLP and Anr., [2020] 218 Comp Cas 521 (NCLAT). . . . . . . . . . . . . . . . . . . . . 13.77 Relisys Medical Devices Ltd v Dr Raju Reddy [2018] 211 Comp Cas 92. . . . 7.44, 7.53 Relisys Medical Devices Ltd v Dr Raju Reddy, [2018] 211 Comp Cas 83 . . . 7.43, 7.53 Renu Yajnik v Kruppa Paints Pvt. Limited & Anr , NCLT/AHM/CP/52/17 . . . . . . 10.12 Resolution Professional Raghu Babu Gunturu v. Kadevi Industries Ltd. & Ors. (Corporate Debtor) [Company Appeal (AT) (Insolvency) No. 129 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-249 Rex v. North: Oakey, Ex parte [1927] 1 K.B. 491 . . . . . . . . . . . . . . . . . . . . . . . . . . 21.27 RHI India Private Limited and Ors., Company Scheme Petition No. 2199 of 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.90 Rishima SA Investments LLC v. Registrar of Companies, West Bengal & ors. (2017 SCC OnLine Cal 350) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.14 ci

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Ritemed Pharma Retail P Limited v Official Liquidator and Anr., (2018) 208 Com Cas 321 (NCLAT). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.66 Royal Twinkle Star Club Limited NCLT/Mum/ 3.11.2017, Appl/576/MAH/2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.26 Royalsoft Services Limited , In re , (2017) 203 Com Cas 430 (NCLT) Chennai. . . 13.63 Rubina Chadha & Anr. v AMR Infrastructure Ltd and Sajive Kanwar v AMR Infrastructure Ltd. Company Appeal (AT) (Insv) No. 8 of 2017 & Company Appeal (AT) (Insv) No. 12 of 2017 . . . . . . . . . . . R-163 S. Ramesh v South Travancore Hindu College Association (2018) 206 Com Cas 415 (NCLT) Chennai. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.35 S. Ravi Srinivas. (SBI) v. M/s Super Agri Seeds Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 124 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . R-237 S3 Electrical & Electronics Private Ltd v Brian Lau Company Appeal (AT) (Insv) No. 186 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-174 Sagar Sharma and Anr v Phoenix Arc Pvt Ltd and Anr., Civil Appeal No. 7673 of 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.17 Sajjan India Ltd. And Ors, In re, [2018] 211 Comp Cas 102 (NCLT). . . . . . . . . . . 13.78 Sajjan India Ltd. and Ors, In re, [2018] 211 Comp Cas 111 (NCLAT) . . . . . . . . . . 13.80 Salgaocar Corporation (P) Ltd., CP 289/66/NCLT/MB/MAH/2017 . . . . . . . . . . . . . 8.11 Sandeep Agarwal & Anr v Union of India & Anr. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.23 Sandeep Kumar Gupta, Resolution Professional v. Stewarts & Lloyds of India Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 263 of 2017] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-241 Sandeep Kumar Gupta, Resolution Professional v. Stewarts & Lloyds of India Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 303 of 2017] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-241 Sandeep Reddy & Anr v Jaycon Infrastructure Ltd. Company Appeal (AT) (Insv) No. 228 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-219 Sandvik Asia Limited v Bharat Kumar Padamsi and Ors. [2009] 92 SCL 272. . . . . . 8.9 Sangeeta Maheshwari v Premsagar Agricultural P. Ltd And Others, [2018] 211 Comp Cas 71. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.43, 7.52 Sangramsinh P. Gaekwad and Ors. v Shantadevi P. Gaekwad (Dead) thr. Lrs. and Ors. [MANU/SC/0052/2005 : AIR 2005 SC 809 : [2005] 123 CompCas 566 (SC) : (2005) 3 CompLJ 385 (SC) : JT 2005 (1) SC 581 : 2005 (2) SCALE 46 : (2005) 11 SCC 314 : [2005] 57 SCL 476 (SC) : [2005] 2 SCR 624 : 2005 (1) UJ 284]. . . . . . . . . . . . 14.7

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Sanjay Mukim v United Spirit Limited and Ors. [MANU/ CL/0046/2015, C.P. No. 7/2014-CB(Mad)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.12 Santaclaus Toys Pvt. Ltd. v. Registrar Of Companies, CP 271/2009. . . . . . . . . . . . . 5.13 Saraswati Packaging Industries Pvt. Ltd., CP/146/Chd/Hry/2017. . . . . . . . . . . . . . . 8.17 Sardar Sarovar Narmada Nigam Ltd. [CLB MUM: CA 7/2015]. . . . . . . . . . . . . . . . 9.23 Satish Mittal v Ozone Builders & Developers Pvt. Ltd. Company Appeal (AT) (Insv) No. 75 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-220 Satyanarayana Rathi v Annamalaiar Textiles Private Limited [1999] 95 Comp Cas 386 (CLB). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.23 Satyaprakash Aggarwal & Ors. v. Vistar Metal Industries Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 136 of 2018] . . . . . . . . . . . . . . . . . R-250 Schweitzer Systemtek India Pvt. Ltd v Phoenix ARC Pvt. Ltd. & Ors. Company Appeal (AT) (Insv) No. 129 of 2017. . . . . . . . . . . . . . . . . . . . R-205 Scottish Co-Operative Wholesale Society Limited v Meyer [1959] AC 324 . . . . . . 14.5 Seal For Life India Pvt Ltd., In re., [2020] 222 Comp Cas 75 (NCLT). . . . . . . . . . 13.82 Secretary of State for India in Council v Rameswaram Devasthanam MANU/PR/0121/1934, (1934) 3 AWR 713, 38CWN533, (1934) ILR 57PR652, 1934-39-LW613, 61M.I.A.163 . . . . . . . . . . . . . . . . . . . . . . . . . 21.25 Seema Gupta v Supreme Infrastructure India Ltd. & Ors. Company Appeal (AT) (Insv) No. 53 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-219 Senthil Kumar Karmegam v 1. Dolphin Offshore Enterprises (Mauritius) Pvt. Ltd, 2. Unison Engineering & Construction Ovt. Ltd. Company Appeal (AT) (Insv) No. 154 of 2017 . . . . . . . . . . . . . . . . . . . . R-212 Serum Institute of India v Inderjit Properties Private Limited (2006) 129 CompCas 757 CLB, 2005 64 SCL 33 CLB . . . . . . . . . . . . . . . . . . . . . . . . 14.29 Seth Thakurdas Khinvraj Rathi v. M/s Cals Refineries Ltd. [Company Appeal (AT) (Insolvency) No. 333 of 2018] . . . . . . . . . . . . . . . . . R-238 Seven Oaks Urban District Council v. Twynham [1929] 2 K. B. 440 . . . . . . . . . . . . 21.9 Sh Sumeet Ahuja v Union Bank of India & Anr. Company Appeal (AT) (Insv) No. 128 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-204 Shailesh Prabhudas Mehta v Calico Dyeing and Printing Mills Limited [1994] 80 Comp Cas 64(SC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.21 Shanti Kumar R. Chanji v Home Insurance Co. of New York, MANU/SC/0017/1974MANU/SC/0017/1974: AIR 1974 SC 1719 . . . . . . . . . 21.11 Shanti Prasad Jain v Kalinga Tubes Ltd. [MANU/SC/0368/1965 : AIR1965SC1535 : [1965]35 CompCas351(SC) : (1965)1CompLJ193(SC) : [1965]2SCR720]. . . . . . . . . . . . . . . . . . . . . 14.16, 14.17 ciii

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Shanti Prasad Jain v Kalings Tubes Limited MANU/SC/0368/1965 : AIR 1965 SC 1535. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.34 Shapoorji Pallonji Finance Limited v Mideast (India) Ltd. [2002] 110 Comp Cas 868 (CLB). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.21 Shashi Prakash Khemka (Dead) By Lrs. v NEPC Micon (Now Called NEPC India (2019) 18 SCC 569 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2, 7.27 Shaw Wallace and Co. Ltd. v Union of India (UOI) MANU/ WB/0376/1998 : 2CWN11 : (1999)ILR 2Cal429 . . . . . . . . . . . . . . . 4.6, 7.10, 13.57 Sheikh Rahim Bux v. Sheikh Muhammad Jamshed Ali [MANU/ WB/0382/1953, (1955) ILR 1Cal25]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.19 Shilpi Cable Technologies Ltd. v Macquarie Bank Limited. . . . . . . . . . . . . . . . . . R-131 Shobha Kirloskar & ors v M/s Ghatge Patil Industries Ltd, CP 106/2014 : CLB(MUM), order dated 25 November 2014. . . . . . . . . . . . . . . . . 14.29 Shravan Kumar Visnoi v. M/s Crown Alba Writing Instrument Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 253 of 2018]. . . . . . . . . . . . . . R-229 Shree Ganesh Jewellery House (I) Ltd. v. Abhishek Stock Broking Services Pvt. Ltd. & Ors.[Company Appeal (AT) (Insolvency) No. 78 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-258 Shree Kumar Mundra v Spell Organics Ltd and Others, [2018] 211 Comp Cas 177 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.44, 7.54 Shree Kumar Mundra v Spell Organics Ltd and Others, [2018] 211 Comp Cas 181 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.45, 7.54 Shreyans Realtors Pvt. Ltd. & Anr. v. Saroj Realtors & Developers Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 311 of 2018. . . . . . . . . . . R-247 Shri D.R. Balakrishna Raja v Indian Bank M/s B.K.R. Hotels & Resorts Pvt Ltd. Company Appeal (AT) (Insv) No. 123 of 2017. . . . . . . . . . . R-189 Shri V.S. Krishnan and Ors. v Westfort Hi-tech Hospital Ltd. and Ors. [MANU/SC/7193/2008 : 2 (2008) CLT 823 : [2008] 142 CompCas 235 (SC) : (2008) 2 Comp LJ1 (SC) : ILR 2008 (2) Kerala 253 : 2008-4-LW356 : (2008) 2 MLJ 1192 (SC) : 2008 (3) SCALE 184 : (2008) 3 SCC 363 : [2008] 83 SCL 44 (SC). . . . . . . . 14.6, 14.17 Shyama Prasad Mudrarka v. Calcutta Stock Exchange Association Ltd. [2002] 108 Comp Cas 703 (CLB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.25 Side-hotham Ex. J. Sidebotham, In Re, (1880) 14 Ch. D. 458 C.A. . . . . . . . . . . . . . 21.7 Sindhri Iron Foundry (P) Ltd., In Re, [l964 (34) C.C.510]. . . . . . . . . . . . . . . . . . . . . 23.4 Sivakumar Spinning Mills Pvt., Ltd. v. Shanmughavelayutham and Ors. [MANU/TN/3760/2009 : 2009 (6) CTC 847]. . . . . . . . . . . . . . . . . . . . . . 21.23 civ

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Smart Timing Steel Ltd. Creditor v National Steel and Agro Industries Ltd. Company Appeal (AT) (Insv) No. 28 of 2017. . . . . . . . . . . . . R-212 Smiti Golyan And Another v Nulon India Ltd and Others, [2019] 214 Comp Cas 576 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.42, 7.51 Smt. Gangabai v Ratankumar - AIR 1983 Bombay 291. . . . . . . . . . . . . . . . . . . . . . . . 4.7 Smt. Pushpa Katoch v Manu Maharani Hotels Ltd. - (2001) 34 SCL 298. . . . . . . . . . 4.6 Sohal Agencies Pvt. Ltd. v. Registrar of Companies, NCT of Delhi and Haryana, CP No. 297/2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.13 Sonali Nimish Arora v Tresorie Traders P Limited , NCLT/MUM/CP/268/2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11 Sovereign Life Assurance Company v Dodd [(1892) 2 QB 573(CA)]. . . . . . . . . . . 13.13 Spindel Fabrik Suessen v Suessen Textile Bearing Limited (1989) 2 CORPT. LA. 202 (BOMBAY), . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 Sree Metalliks Ltd v M/s Srei Equipments Finance Ltd. Company Appeal (AT) (Insv) No. 3 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-161 Sri Ramdas Motor Transport Ltd. v Karedla Suryanarayana and others MANU/AP/0922/2001 : (2002) 110 Comp.Cases 193 (Paragraph 116 onwards). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.34 Sriram Compounds Pvt. Ltd. v. Shiva Drums Pvt. Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 46 of 2018] . . . . . . . . . . . . . . . . . . R-232 SRS Limited, NCLT/CHD/CA 106/2017 & Ors and CP 121/2016 . . . . . . . . . . . . . . 9.31 SRS Limited, NCLT/CHD/CP 21/2017 & Ors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.31 Standard Chartered Bank v Andhra Bank Financial Services Ltd. MANU/SC/2534/2006 : 2006 (6) SCC 94. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.18 Starlog Enterprises Limited v ICICI Bank Ltd. Company Appeal (AT) (Insv) No. 5 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-198 State Bank of India (FC) v. 1. Mr. V. Ramakrishnan 2. M/s Veesons Energy Systems Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 213 of 2017] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-238 State Bank of India v. Debashish Nanda [Company Appeal (AT) (Insolvency) No. 49 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-253 State Bank of India v. SKC Retails Ltd. Through IRP & anr. [Company Appeal (AT) (Insolvency) No. 08 & 43 of 2018] . . . . . . . . . . . . . R-263 State Bank of India v. Tech Magacorp International Pvt. Ltd. Through IRP & anr. [Company Appeal (AT) (Insolvency) No. 09 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-263

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State Bank of India v S. Muthuraju & Ors. Company Appeal (AT) (Insv) No. 105 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-160 State of Karnataka v Mysore Coffee Curing Works Ltd. [19841 55 Comp Cas 70. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.15 State of Rajasthan & Ors. v Union of India & Ors., MANU/ SC/0370/1977MANU/SC/0370/1977 : AIR 1977 SC 1361. . . . . . . . . . . . . . . 21.11 Statesman Ltd. v Emaar MGF Land Ltd and Anr., [2018] 211 Comp Cas 155 (NCLAT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.81 Status Clothing Company Limited, CP No. 141/2016 . . . . . . . . . . . . . . . . . . . . . . . . 9.28 Steamline Industries Ltd. v Tecpro Systems Ltd. & Anr. Company Appeal (AT) (Insv) No. 229 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-176 Steel Konnect (India) Pvt. Ltd. v Hero Fincorp Ltd. Company Appeal (AT) (Insv) No. 51 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-200 Strdiewell Leathers (P) Ltd. v Bhankarpur Simbhaoli Beverages (P) Ltd. [1994 (79) C.C. 139]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.6 Sulochana Amma v Narayanan Nair [MANU/SC/0047/1994 : 1994 ECR 195 (SC)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.8 Sunil Gandhi and Anr v A. N. Buildwell Pvt Ltd., [2020] 219 Comp Cas 411 (NCLT). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.83 Sunil Gandhi v. A N. Buildwell P Limited, (2017) 203 Com Cas 330 (Delhi HC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.58 Sunil Sen v Symphony Limited and Ors. (2018) 209 Comp Cas 624 (NCLAT). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.30 Suprabha Protective Products Pvt. Ltd v. Phoenix Trading & Consulting Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 345 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-274 Surendra Trading Company. v M/s. J.K Jute Mills Company Limited and Others.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-136 Swiss Ribbons Pvt. Ltd. v Union of India, 2019 SCC OnLine SC 73. . . . . . . . . . . . . 4.7 T. Vinayak Ravi Reddi and Others v Deccan Chronicle Holdings Ltd. and Others, [2020] 218 Comp Cas 371. . . . . . . . . . . . . . . . . . . . . . . . . . . 7.37, 7.46 T. Vinayak Ravi Reddy v Canara Bank & Anr. Company Appeal (AT) (Insv) No. 110 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-161 T.R Jawahar & Anr v Edelweiss Asset & Anr. Company Appeal (AT) (Insv) No. 274 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-189 Tarlok Chand Khanna v Raj Kumar Kapoor [1983] 54 Comp Cas 12 (Delhi). . . . . . 7.22

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Teknow Consultants & Engineers Pvt Ltd. v M/s Bharat Heavy Electricals Limited Company Appeal (AT) (Insv) No. 224 of 2017 . . . . . . . . R-159 Thapar Agro Mills Ltd [(1998) 93 Comp. Case (CLB – NB)]. . . . . . . . . . . . . . . . . . 9.25 The Madras High Court in Nungambakkam Dhanarakshaka Saswaiha Nidhi Limited v Registrar of Companies [[1972] 42 Comp Cas 632]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5 The Registrar of Companies Maharashtra Mumbai & Anr. v Shailendrajit Charanjit Rai & Anr. SLP (C) Nos. 18693 – 18703/018, SC. . . . . 5.42 The Securities & Exchange Board of India (SEBI) v Sterlite Industries (India) Ltd MANU/MH/0339/2002 : [2003]113CompCas273(Bom) : [2003]45SCL475(Bom). . . . . . . . . . . . . . . . . . 13.5 The South India Insurance Co., Ltd. v Lakshmi - AIR 1967 MDS 464. . . . . . . . . . . . 4.7 The State Trading Corporation of India Ltd. v. Gandhar Oil Refinery India Ltd. [Company Appeal (AT) (Insolvency) No. 236 of 2018]. . . . . . . . . R-280 Thiruvalluvar Velanmai Kazhagam (P) Ltd. v M.K. Seethai Achi [1988 (64) C.C. 304] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.5 Tomorrows Sales Agency Pvt. Ltd. (Successful Resolution Applicant) v. Rajiv Khurana (Resolution Professional for Power Himalayas Ltd. & Ors.) [Company Appeal (AT) (Insolvency) No. 162 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-239 Transparent Technologies Pvt Ltd. v Multi Trade. Company Appeal (AT) (Insv) No. 207 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-165 Tweak India Future Innovations Pvt Ltd v Registrar of Companies, Punjab and Chandigarh, NCLAT/Del/Company Appeal (AT) No. 300 of 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.16 Ultrafilter (India) Pvt. Ltd. v Ultrafilter GmbH [2002] 38 SCL 573.. . . . . . . . . . . . 14.41 Unigreen Global Private Limited v 1. Punjab National Bank, 2.Corporation Bank., 3. Vijaya Bank, 4.Oriental Bank of Commerce, Company Appeal (AT) (Insv) No. 81 of 2017 . . . . . . . . . . . . . . . R-208 Unimark Remedies Ltd v Ashok Alco Chem Ltd. Company Appeal (AT) (Insv) No. 45 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-164 Union of India (UOI) v Sterlite Industries (India) Ltd. . . . . . . . . . . . . . . . . . . . . . . . 13.6 Union of India v Company Law Board, Mumbai Bench and Others [MANU/MH/2163/2013, 2014(7)BomCR630 : [2013]181CompCas290 (Bom), [2014]123SCL199 (Bom)]. . . . . . . . . . . . . . . 14.34

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Union of India v R. Gandhi, President, Madras Bar Association, [MANU/SC/0378/2010 : (2010)2CompLJ577(SC) : 2010(3) CTC517 : 2010(261)ELT3(S.C.) : JT2010(5)SC553(1) : (2010)4MLJ734(SC) : 2010(5)SCALE514 : (2010)11SCC1 : [2010]100SCL142(SC) : 2010(6)UJ2945]. . . . . . . . . . . . . . . . . . . . . . . . 1.5, 1.8, 2.9 Union of India, MCA - Petitioner v Infrastructure Leasing & Financial Services Ltd - R1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.9 Union of India, Ministry of Corporate Affairs v CG Power & Industrial Solution Ltd Ors, C.P.4127/130/2019. . . . . . . . . . . . . . . . . . . . . . . . 11.13 Union of India. Through Serious Fraud Investigation Office (SFIO) v Maharashtra Tourism Development Corporation & Anr., Company Appeal (AT) (Insolvency) No. 964 of 2019. . . . . . . . . . . . . . . . . . . . 12.24 Unitech Limited, NCLT/ND/CA 1/17 and Ors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.36 Unitech Limited, NCLT/ND/CA/124/2016 & others. . . . . . . . . . . . . . . . . . . . . . . . . 9.36 Unitech Ltd. [CLB- DEL:CP 10/18/2015]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.23 United Bank of India v United India Credit & Development Co. Ltd. 47 CC 689. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.108 United India Insurance Co. Ltd. v Rajendra Singh AIR 2000 Supreme Court 1165. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7 United Seamless Tabulaar Pvt. Ltd. v. Kamineni Steel & Power India Pvt. Ltd. & Ors.[Company Appeal (AT) (Insolvency) No. 23 of 2018] . . . . . R-231 Urban Infrastructure Trustee Limited v Neelkanth Township & Construction Pvt Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-149, R-151 Urenok Software Solutions Private Limited v Registrar of Companies, Hyderabad , NCLT/HYD/ /13.11.2017, CP/79/2017. . . . . . . . . . . 11.20 Uttam Galva Metallics Ltd. v. State Bank of India [Company Appeal (AT) (Insolvency) No. 315 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-248 Uttam Galva Steels Limited v DF Deutsche Forfait AG & Anr. Company Appeal (AT) (Insv) No. 39 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-214 Uttam Value Steels Ltd. v. State Bank of India [Company Appeal (AT) (Insolvency) No. 316 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-248 Uttara Foods And Feeds Private Limited v Mona Pharmachem. . . . . . . . . . . . . . . R-129 V. Balachandran v Union of India and another [1993 (76) C.C.67]. . . . . . . . . . . . . . 23.5 V.B. Rangaraj v V.B. Gopalakrishnan and Ors. MANU/ SC/0076/1992, AIR1992 SC453 : [1992]73Comp Cas201(SC) : JT1991(4)SC430 : (1992)IIMLJ11(SC) : 1991(2)SCALE1135 : (1992)1SCC160 : [1991]Supp3SCR1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.25 cviii

Table of cases

V.G. Peterson v O V Forbes [AIR 1963 SC 692]. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.27 Valecha Engineering Limited , Application No. 336 & 77 & Ors / MAH/2017/6.10/2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.26 Valecha Engineering Limited, IA NO. 17 of 2017 in TCP/5/74(2)/2016. . . . . . . . . . 9.26 Van Gemert v. Boeing Co., 259 F. Supp. 125 (S.D.N.Y. 1966) . . . . . . . . . . . . . . . . . 15.4 Vankamamidi Venkata Subba Rao v Chatlapalli Seetharamaratna Ranganayakamma [MANU/SC/0800/1997: [1997]3SCR530]. . . . . . . . . . . . . . 23.6 Vardhman Publishers Limited v Mathrubhumi Printing and Publishing Company Limited [1991] 71 Comp Cas 1(Ker) . . . . . . . . . . . . . . . . 7.21 Variar Benefit Fund Limited, NCLT/CHd/CA/130/2017. . . . . . . . . . . . . . . . . . . . . . 9.31 Vasant Investment Corporation Limited v Official Liquidator, Colaba Land and Mill Co. Ltd., MANU/MH/0074/1979 : (1981) 51 Comp. Case 20. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.5 Vestal Educational Services P. Ltd v Shri Lanka Venkata Naga Muralidhar and Others, [2018] 211 Comp Cas 764. . . . . . . . . . . . . . 7.34, 7.42, 7.51 Vijay Pal Garg & Ors. (Appellants) v Pooja Bahry (Liquidator in the matter of Gee Ispat Private Limited) (Respondent), (Company Appeal (AT) Insolvency No. 949 of 2019). . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.22 Vikas Jalan v Hyderabad Industries Limited [1997] 88 Comp Cas 551 (CLB). . . . . 7.23 Vikram Jairath and Another v Middleton Hotels P. Ltd and Others, [2019] 216 Comp Cas 235. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.41, 7.50 Vilasini Jayaprakash v. St. Mary’s Finance Ltd. [(2000) 99 Comp. Case (Kerala)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.25 Vivek Jha v Daimler Financial Services India P. Ltd, Company Appeal (AT) Insolvency No. 756 of 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.19 Vivo Mobile India Private Limited, NCLT/CHD/ /14.12.2017, CP/156/2017. . . . . 11.19 Wali Mohammad v. Mohammad Baksh MANU/PR/0054/1949 : AIR 1950 PC 56. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.25 Wali Mohammad v. Mohammad Baksh MANU/PR/0230/1929 : 1930 (32) BOMLR 380. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.24 West Bengal Essential Commodities Supply Corporation Ltd. v Bank of Maharashtra Company Appeal (AT) (Insv) No. 90 of 2017 . . . . . . . . . . . . R-213 Wiki Kids Limited and Anr. v Regional Director, South East region and ors., (2018) 206 Com Cas 147 (NCLAT) . . . . . . . . . . . . . . . . . . . . . . . . . . 13.67 Woods Ex. P. Ditton, In Re, [1879] 40 L. T. 297 C.A. 79. . . . . . . . . . . . . . . . . . . . . 21.8 World Wide Agencies Private Limited v Margarat T. Desor & ors [(1990) 1 SCC 536]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.29 cix

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World Wide Agencies Pvt. Ltd. & Anr. v Mrs. Margarat T. Desor & Ors. MANU/SC/0137/1990 : 1990 1 SCC 536. . . . . . . . . . . . . . . . . . . . . . . . . 14.29 Yashodhara Shroff vs Union of India [High Court of Karnataka/Bengaluru/2017. . . 5.24 Yogendra H. Desai v Spatial Holodynamics (India) (P.) Ltd [Company Application No. 1/167/CLB/WR/2002; MANU/CL/0059/2002. . . . 10.5 Zydus Healthcare Limited, (2017) 203 Com Cas 153 (NCLT) Ahmedabad . . . . . . 13.63

cx

NCLT, NCLAT and Supreme Court Rulings – Table of cases 1. Mintri Tea Company Limited., 2.Bhaveh Mintri, 3. Purnima Mintri, Shiwaani Mintri. v Punjab National Bank. Company Appeal (AT) (Insv) No. 237 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-197 Achenbach Buschhutten GmbH & Co. v Arcotech Ltd. Company Appeal (AT) (Insv) No. 97 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-213 Aditya Enterprises v. Rajratan Exim Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 335 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-244 Aditya Kumar Jajodia v. Srei Infrastructure Finance Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 292 & 293 of 2018] . . . . . . . . . . . R-254 Aditya Raheja (GStaad Hotels Pvt. Ltd.) v. Heritage Marble Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 248 of 2018] . . . . . . . . . . . . . . . . . R-279 Agarwal Coal Corporation Private Limited v Impex Ferro Tech Limited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-127, R-128 Alchemist Asset Reconstruction Company Limited v M/s. Hotel Goudavan Pvt. Ltd. and Ors.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-144 Allahabad Bank v. Srei Infrastructure Finance Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 324 of 2017]. . . . . . . . . . . . . . . . . . . . . . . . . . R-255 Allied Media Network Pvt. Ltd. v M/s Sunraa Media Ltd. Company Appeal (AT) (Insv) No. 226 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-163 Alpha & Omega Diagnostics (India) Ltd. v Asset Reconstruction Company of India Ltd. & Ors. Company Appeal (AT) (Insv) No. 116 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-208 ANG Industries Ltd v. 1. Shah Brothers Ispat Pvt. Ltd. 2. Ashok Leyland Ltd., [Company Appeal (AT) (Insolvency) No. 109 of 2018]. . . . . . R-223 Anil Mahindroo & Anr v Earth Iconioc Infrastructure (P) Limited. Company Appeal (AT) (Insv) No. 74 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-172 Annapurna Infrastructure Pvt. Ltd. and Anr. v M/s. SORIL Infra Resources Ltd. Company Appeal (AT) (Insv) No. 32 of 2017. . . . . . . . . . . . . R-215 Ardor Global Pvt. Ltd v Nirma Industries Pvt Ltd. Company Appeal (AT) (Insv) No. 137 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-203

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Asian Natural Resources (India) Ltd v IDBI Bank Limited and Bhatia Global Trading Ltd. v IDBI Bank Ltd. Company Appeal (AT) (Insv) No. 60 of 2017 & Company Appeal (AT) (Insv) No. 62 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-177 Atul Mittal [Director of APS Buildtech Pvt. Ltd. - (Corporate Debtor)] v. Khushal Infratech Pvt. Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 86 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-251 B.K. Educational Services Pvt. Ltd. v Parag Gupta & Associates. . . . . . . . . . . . . R-156 Bank of New York Mellon London Branch v Zenith Infotech Limited.. . . . . . . . . R-137 Besto Tradelink Pvt. Ltd. v. SAL Steel Ltd. [CP - (IB)94/2017] . . . . . . . . . . . . . . R-275 Bharti Defence and Infrastructure Limited v Edelweiss Asset Reconstruction Company Limited. Company Appeal (AT) (Insv) No.71 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-184 Bhash Software Labs Pvt. Ltd v M/s Mobme Wireless Solutions Ltd. Company Appeal (AT) (Insv) No. 79 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-221 Binani Industries Limited v. Mr. Vijay Kumar V. Iyer & Anr. [Contempt Case (AT) No. 04 of 2018 : Company Appeal (AT) (Insolvency) No. 82 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-226 Black Pear Hotels Pvt. Ltd v Planet M Retail Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . R-222 Blue Stampings & Forgings Ltd. v. BMM Ispat Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 160 of 2018] . . . . . . . . . . . . . . . . . R-273 Brijesh Kumar Agarwal (Director & Shareholder of M/s Kunj Forgings Pvt. Ltd.) v. Punjab National Bank [Company Appeal (AT) (Insolvency) No. 312 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-246 Byram Pestonji Gariwala v. UBOI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-133 Canara Bank v Deccan Chronicle Holidays Limited Company Appeal (AT) (Insv) No. 147 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-180 Chand Khan [Managing Director of CK Infrastructures Ltd.] v. RCI Industries & Technologies Ltd. [Company Appeal (AT) (Insolvency) No. 307 of 2017] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-269 Chandu Laxman Chavan v. Union of India & Ors. [Company Appeal (AT) (Insolvency) No. 15 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-231 Chirag Gada v. Bank of Baroda & Anr. [Company Appeal (AT) (Insolvency) No. 71 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-240 Della Constructions Pvt Ltd. v MIs Rei Agro Ltd & Anr Company Appeal (AT) (Insv) No. 35 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-177

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NCLT, NCLAT and Supreme Court Rulings – Table of cases

Devendra Padamchand Jain (Resolution Professional of VNR Infrastructures Limited - Corporate Debtor) v 1.State Bank of India, 2.State Bank of Hyderabad, 3.Indian Overseas Bank, 4.Punjab National Bank, 5.Bank of India, 6.Bank of Baroda, 7.IFCI Limited, 8.IFCI Factors Limited, 9.VNR Infrastructure Limited, 10.Insolvency and Bankruptcy Board of India,[Company Appeal (AT) (Insolvency) No. 177 of 2017]. . . . . . . . . . . . . R-243 Dr. H. N. Nagaraj (shareholder of M/s. Live 100 Hospital Pvt. Ltd.) v. Edelweiss Asset Reconstruction Company Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 210 of 2018] . . . . . . . . . . . . . . . . . R-251 Durlum India Pvt. Ltd. v. M/s Sharma Kalypso Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 351 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . R-276 Elecon Engineering Co. Ltd. v. Ducon Technologies (I) Pvt. Ltd. [I.A. No. 29 of 2018] : [Company Appeal (AT) (Insolvency) No. 14 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-236 Ellora Paper Mills Limited & Anr v Ajithnath Steels Pvt. Ltd. Company Appeal (AT) (Insv) No 122 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-182 Engenious Engineering Pvt. Ltd. v Onaex Natura Pvt Ltd. Company Appeal (AT) (Insv) No. 249 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-171 Era Infra Engineering Ltd. v Prideco Commercial Projects Pvt. Ltd. Company Appeal (AT) (Insv) No. 31 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-175 Explo Media Pvt. Ltd. v. Ambience Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 20 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-270 Forech India Pvt. Ltd. v Edelweiss Assets Reconstruction Company Ltd. & Anr. Company Appeal (AT) (Insv) No. 202 of 2017 . . . . . . . . . . . . . . R-197 Gay Printers v. Pawan Buildwell Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 17 & 18 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-267 Gurdeep Singh Sahani v Berger Paints India Ltd & Ors. Company Appeal (AT) (Insv) No. 294 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-160 Hind Motors India Ltd. v Adjudicating Authority NCLT, Chandigarh. Company Appeal (AT) (Insv) No. 11 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-205 ICICI Bank Ltd. v. 1. Oceanic Tropical Fruits Pvt. Ltd. 2. State Bank of India 3. Central Bank of India 4. Mr. C. Balasubramanian5. Venkataramana Nagarajan [Company Appeal (AT) (Insolvency) No. 113 & 114 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-227 ICICI Bank Ltd. v Innoventive Industries Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . . . . R-146 Impex Ferro Tech Limited v Agarwal Coal Corporation Private Limited. . . . . . . R-128

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Indiabulls Housing Finance Ltd. v. Shree Ram Urban Infrastructure Ltd. [Company Appeal (AT) (Insolvency) No. 252 of 2018]. . . . . . . . . . . . . . R-272 Indian Bank & Ors. (FC) v. Kadevi Industries Ltd. & Ors.. . . . . . . . . . . . . . . . . . R-249 Indian Overseas Bank & Ors. v. Kamineni Steel & Power India Pvt. Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 335 of 2017]. . . . . . . . R-231 Indian Overseas Bank vs Mr. Dinkar T. Venkatsubramaniam Resolution Professional for Amtek Auto Ltd. Company Appeal (AT) (Insv) No. 267 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-182 Innoventive Industries Ltd. v ICICI Bank & Anr. . . . . . . . . . . . . . . . . . . . R-147 , R-149 JEKPL Private Limited v Export Import Bank of India Company Appeal (AT) (Insv) No. 188 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-161 JK Jute Mill Mazdoor Morcha v Juggilal Kamlapat Jute Mills Co. Ltd. Company Appeal (AT) (Insv) No. 82 of 2017 . . . . . . . . . . . . . . . . . . . . . R-217 JK Jute Mills Company Limited v M/s Surendra Trading Company.. . . . . . . . . . . R-133 Jord Engineers India Ltd. v Valia & Company. Company Appeal (AT) (Insv) No. 158 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-220 K. Kishan v Vijay Nirman Company Private Limited. [Civil Appeal No. 21824/2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-157 K.S. Rangasamy v. State Bank of India & Anr. [Company Appeal (AT) (Insolvency) No. 83 of 2017] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-262 Kadevi Industries Ltd. (Through Shareholder Mr. Malapaka Purushottam) v. Indian Bank & Ors.(FC) [Company Appeal (AT) (Insolvency) No. 135 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-250 Kaliber Associates Pvt. Ltd. v Tripat Kaur Company Appeal (AT) (Insv) No. 52 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-200 Kamal Dutta v. Anubhuti Aggarwal & anr. [Company Appeal (AT) (Insolvency) No. 329 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-268 Kamal Kumar Kandpal [Ex-Director of Leption Projects (P) Ltd.] v. Sanghvi Movers Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 273 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-271 Kamineni Steel & Power India Pvt. Ltd. v. Indian Bank & Ors. [Company Appeal (AT) (Insolvency) No. 45 of 2018] . . . . . . . . . . . . . . . . . . R-231 Kanti Commercial Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 250 of 2018]. . . . . . . . R-247 Kee Projects Limited v Sharda Rawat Company Appeal (AT) (Insv) No. 139 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-162

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NCLT, NCLAT and Supreme Court Rulings – Table of cases

Kirusa Software Private Limited v Mobilox Innovations Private Limited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-138 , R-139 , R-215 KKV Naga Prasad v Lanco Infratech Ltd. Company Appeal (AT) (Insv) No. 10 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-221 Ksheeraabad Constructions PVT Ltd v M/s Vijay Nirman Company Pvt Ltd [Civil Appeal No. 21825 of 2017]. . . . . . . . . . . . . . . . . . . . . . R-156, R-157 Kusum Products Ltd. v. Union of India [Company Appeal (AT) (Insolvency) No. 69 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-230 Leo Duct Engineers & Consultants ltd. v 1. Canara Bank, 2.Standard Chatered Bank Company Appeal (AT) (Insv) No. 100 of 2017 . . R-207 Lokhandwala Kataria Construction Private Ltd v Nisus Finance And Investment managers LLP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-144, R-145 Macquarie Bank Limited v Shilpi Cable Technologies Ltd.. . . . . . . . . . . . R-130, R-132 Madhur Engineers Pvt Ltd. & Anr v Facor Steels Ltd. Company Appeal (AT) (Insv) No. 136 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-204 Mahesh Kumar Panwar, (Director of M/s. Mega Soft Infrastructure Pvt. Ltd.) v. Abhishek Anand (Resolution Professional) [Company Appeal (AT) (Insolvency) No. 117 of 2018] . . . . . . . . . . . . . . . . . R-233 Mahesh Kumar Sureka v. SBER Bank & Ors. [Company Appeal (AT) (Insolvency) No. 319 of 2017] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-256 MCL Global Steel Pvt ltd. v M/s Essar Projects India Ltd. & Anr. Company Appeal (AT) (Insv) No. 26 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-166 Meyer Apparel Ltd & Anr vs M/s Surbhi Body Products Pvt Ltd. Company Appeal (AT) (Insv) No. 33 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-170 Meyer Apparel Ltd & Anr v M/s Godolo & Godolo Exports Pvt Ltd. Company Appeal (AT) (Insv) No. 34 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-170 Mindtree Exports Private Limited v M/s Ashmita Multitrade Private Limited & Anr Company Appeal (AT) (Insv) No. 98 of 2017. . . . . . . . . . . . . R-203 Mitcon Consultancy & Engineering Services Pvt. Ltd. v. M/s Vitthal Corporations Ltd. [Company Appeal (AT) (Insolvency) No. 101 of 2018]. . . R-274 Mobilox Innovations Private Limited v Kirusa Software Private Limited. . . . . . . R-141 Mona Pharmachem v Uttara Foods & Feed Private Limited. . . . . . . . . . . . . . . . . R-129 Mother Pride Dairy India Pvt. Ltd v Portrait Advertising & Marketing Pvt. Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-145 , R-146 National Engineering Industries Ltd. v. Cimmco Birla Ltd. [Company Appeal (AT) (Insolvency) No. 151 of 2018] . . . . . . . . . . . . . . . . . R-234

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Neelkanth Township & Construction Pvt Ltd. v Urban Infrastructure Trustee Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-153 , R-155 Neeraj Bhatia (Director of M/s. Summit Aviation Pvt. Ltd.) v. Davinder Ahluwalia; Mrs. Mamta Ahluwalia; M/s. Summit Aviation Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 142 of 2018]. . R-264 Neeraj Gupta (Suspended Director & Shareholder of M/s Sardhana Papers Pvt. Ltd.) v. M/s Raj Duplex Pvt. Ltd. & Anr. [CA(AT) (Insolvency) No. 247 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-272 Nikhil Mehta & Sons v AMR Infrastructure Ltd. Company Appeal (AT) (Insv) No. 07 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-190 Nisheet Ranjan v. Letstrak Tech Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 350 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-279 Nisheet Ranjan v. Letstrak Tech Pvt. Ltd. [CP- (IB)32/2018] . . . . . . . . . . . . . . . . R-277 P.K Ores Pvt Limited v Tractors India Private Limited. Company Appeal (AT) (Insv) No. 56 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-211 Palogix Infrastructure Private Limited v ICICI Bank Limited Company Appeal (AT) (Insv) No. 30 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-186 Parag Gupta & Associates v B.K. Educational Services Pvt. Ltd.. . . . . . . R-156, R-156 PEC Ltd. Through Shri Indra Vikram Singh v M/s Sree Gangadhar Steels Ltd Company Appeal (AT) (Insv) No. 236 of 2017 . . . . . . . . . . . . . . . R-176 PEC Ltd. Through Shri Indra Vikram Singh v Sree Ramakrishna Alloys Ltd. Company Appeal (AT) (Insv) No. 225 of 2017 . . . . . . . . . . . . . . R-176 PEC Ltd. v M/s Sree Gangadhar Steels Ltd. Company Appeal (AT) (Insv) No. 121 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-178 PEC Ltd. v M/s Sree Ramakrishna Alloys Ltd. Company Appeal (AT) (Insv) No. 120 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-178 Philips India Ltd v Goodwill Hospital & Research Centre Ltd. Company Appeal (AT) (Insv) No. 14 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-171 Philips India Ltd v Karina Healthcare Pvt. Ltd. Company Appeal (AT) (Insv) No. 15 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-171 Poorani Nagarajan (Shareholder in M/s Infinitas Energy Solutions Pvt. Ltd. v Indian Bank & Ors. Company Appeal (AT) (Insv) No. 318 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-184 Pr. Commissioner of Income-tax-7 v. M/s. Modern Terry Towels Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 192 of 2018] . . . . . . . . . . . R-234

cxvi

NCLT, NCLAT and Supreme Court Rulings – Table of cases

Pradeep Kothari (Director of M/s. Kothari Industrial Corporation Limited) v. Mr. A. Pandian & Anr. [Company Appeal (AT) (Insolvency) No. 11 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-266 Pratik Gupta (Director & Shareholder of M/s Petrolube India Ltd.) v. M/s Columbia Petro Chem. Pvt. Ltd. M/s Columbia Petro Chem. Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 133 of 2018]. . . . R-280 R.B.Synthetics & Anr. v. Bee Ceelene Textile Mills Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 106 of 2018] . . . . . . . . . . . . . . . . . R-245 R.G Shaw & Sons Private Limited & Anr v M/s Naviplast Traders Private Limited & Ors. Company Appeal (AT) (Insv) No. 63 of 2017. . . . . . R-185 Rajendra Kapoor v Anil Kumar (Interim Reslution Professional & Ors.) Company Appeal (AT) (Insv) No. 198 of 2017 . . . . . . . . . . . . . . . . . . . R-210 Rajit Mehra v. Punjab National Bank & Anr. [Company Appeal (AT) (Insolvency) No. 102 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-258 Rajit Mehra v. Punjab National Bank & Anr. [Company Appeal (AT) (Insolvency) No. 83 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-260 Ranjeet Karnal v. Bell Finvest (India) Limited [Company Appeal (AT) (Insolvency) No. 68 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-261 Resolution Professional Raghu Babu Gunturu v. Kadevi Industries Ltd. & Ors. (Corporate Debtor) [Company Appeal (AT) (Insolvency) No. 129 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-249 Rubina Chadha & Anr. v AMR Infrastructure Ltd and Sajive Kanwar v AMR Infrastructure Ltd. Company Appeal (AT) (Insv) No. 8 of 2017 & Company Appeal (AT) (Insv) No. 12 of 2017 . . . . . . . . . . . R-163 S. Ravi Srinivas. (SBI) v. M/s Super Agri Seeds Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 124 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . R-237 S3 Electrical & Electronics Private Ltd v Brian Lau Company Appeal (AT) (Insv) No. 186 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-174 Sandeep Kumar Gupta, Resolution Professional v. Stewarts & Lloyds of India Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 263 of 2017] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-241 Sandeep Kumar Gupta, Resolution Professional v. Stewarts & Lloyds of India Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 303 of 2017] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-241 Sandeep Reddy & Anr v Jaycon Infrastructure Ltd. Company Appeal (AT) (Insv) No. 228 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-219 Satish Mittal v Ozone Builders & Developers Pvt. Ltd. Company Appeal (AT) (Insv) No. 75 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-220 cxvii

NCLT and NCLAT Law Practice and Procedure, 7e

Satyaprakash Aggarwal & Ors. v. Vistar Metal Industries Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 136 of 2018] . . . . . . . . . . . . . . . . . R-250 Schweitzer Systemtek India Pvt. Ltd v Phoenix ARC Pvt. Ltd. & Ors. Company Appeal (AT) (Insv) No. 129 of 2017. . . . . . . . . . . . . . . . . . . . R-205 Seema Gupta v Supreme Infrastructure India Ltd. & Ors. Company Appeal (AT) (Insv) No. 53 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-219 Senthil Kumar Karmegam v 1. Dolphin Offshore Enterprises (Mauritius) Pvt. Ltd, 2. Unison Engineering & Construction Ovt. Ltd. Company Appeal (AT) (Insv) No. 154 of 2017 . . . . . . . . . . . . . . . . . . . . R-212 Seth Thakurdas Khinvraj Rathi v. M/s Cals Refineries Ltd. [Company Appeal (AT) (Insolvency) No. 333 of 2018] . . . . . . . . . . . . . . . . . R-238 Sh Sumeet Ahuja v Union Bank of India & Anr. Company Appeal (AT) (Insv) No. 128 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-204 Shilpi Cable Technologies Ltd. v Macquarie Bank Limited. . . . . . . . . . . . . . . . . . R-131 Shravan Kumar Visnoi v. M/s Crown Alba Writing Instrument Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 253 of 2018]. . . . . . . . . . . . . . R-229 Shree Ganesh Jewellery House (I) Ltd. v. Abhishek Stock Broking Services Pvt. Ltd. & Ors.[Company Appeal (AT) (Insolvency) No. 78 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-258 Shreyans Realtors Pvt. Ltd. & Anr. v. Saroj Realtors & Developers Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 311 of 2018. . . . . . . . . . . R-247 Shri D.R. Balakrishna Raja v Indian Bank M/s B.K.R. Hotels & Resorts Pvt Ltd. Company Appeal (AT) (Insv) No. 123 of 2017. . . . . . . . . . . R-189 Smart Timing Steel Ltd. Creditor v National Steel and Agro Industries Ltd. Company Appeal (AT) (Insv) No. 28 of 2017. . . . . . . . . . . . . R-212 Sree Metalliks Ltd v M/s Srei Equipments Finance Ltd. Company Appeal (AT) (Insv) No. 3 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-161 Sriram Compounds Pvt. Ltd. v. Shiva Drums Pvt. Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 46 of 2018] . . . . . . . . . . . . . . . . . . R-232 Starlog Enterprises Limited v ICICI Bank Ltd. Company Appeal (AT) (Insv) No. 5 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-198 State Bank of India (FC) v. 1. Mr. V. Ramakrishnan 2. M/s Veesons Energy Systems Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 213 of 2017] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-238 State Bank of India v. Debashish Nanda [Company Appeal (AT) (Insolvency) No. 49 of 2018]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-253

cxviii

NCLT, NCLAT and Supreme Court Rulings – Table of cases

State Bank of India v. SKC Retails Ltd. Through IRP & anr. [Company Appeal (AT) (Insolvency) No. 08 & 43 of 2018] . . . . . . . . . . . . . R-263 State Bank of India v. Tech Magacorp International Pvt. Ltd. Through IRP & anr. [Company Appeal (AT) (Insolvency) No. 09 of 2018]. . R-263 State Bank of India v S. Muthuraju & Ors. Company Appeal (AT) (Insv) No. 105 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-160 Steamline Industries Ltd. v Tecpro Systems Ltd. & Anr. Company Appeal (AT) (Insv) No. 229 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-176 Steel Konnect (India) Pvt. Ltd. v Hero Fincorp Ltd. Company Appeal (AT) (Insv) No. 51 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-200 Suprabha Protective Products Pvt. Ltd v. Phoenix Trading & Consulting Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 345 of 2018]. R-274 Surendra Trading Company. v M/s. J.K Jute Mills Company Limited and Others..R-136 T. Vinayak Ravi Reddy v Canara Bank & Anr. Company Appeal (AT) (Insv) No. 110 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-161 T.R Jawahar & Anr v Edelweiss Asset & Anr. Company Appeal (AT) (Insv) No. 274 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-189 Teknow Consultants & Engineers Pvt Ltd. v M/s Bharat Heavy Electricals Limited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-158 Teknow Consultants & Engineers Pvt Ltd. v M/s Bharat Heavy Electricals Limited Company Appeal (AT) (Insv) No. 224 of 2017 . . . . . . . . R-159 The State Trading Corporation of India Ltd. v. Gandhar Oil Refinery India Ltd. [Company Appeal (AT) (Insolvency) No. 236 of 2018]. . . . . . . . . R-280 Tomorrows Sales Agency Pvt. Ltd. (Successful Resolution Applicant) v. Rajiv Khurana (Resolution Professional for Power Himalayas Ltd. & Ors.) [Company Appeal (AT) (Insolvency) No. 162 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-239 Transparent Technologies Pvt Ltd. v Multi Trade. Company Appeal (AT) (Insv) No. 207 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-165 Unigreen Global Private Limited v 1. Punjab National Bank, 2.Corporation Bank., 3. Vijaya Bank, 4.Oriental Bank of Commerce, Company Appeal (AT) (Insv) No. 81 of 2017 . . . . . . . . . . . . . . . R-208 Unimark Remedies Ltd v Ashok Alco Chem Ltd. Company Appeal (AT) (Insv) No. 45 of 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-164 United Seamless Tabulaar Pvt. Ltd. v. Kamineni Steel & Power India Pvt. Ltd. & Ors.[Company Appeal (AT) (Insolvency) No. 23 of 2018] . . . . . R-231

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NCLT and NCLAT Law Practice and Procedure, 7e

Urban Infrastructure Trustee Limited v Neelkanth Township & Construction Pvt Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-149, R-151 Uttam Galva Metallics Ltd. v. State Bank of India [Company Appeal (AT) (Insolvency) No. 315 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-248 Uttam Galva Steels Limited v DF Deutsche Forfait AG & Anr. Company Appeal (AT) (Insv) No. 39 of 2017. . . . . . . . . . . . . . . . . . . . . . . . . R-214 Uttam Value Steels Ltd. v. State Bank of India [Company Appeal (AT) (Insolvency) No. 316 of 2018] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R-248 Uttara Foods And Feeds Private Limited v Mona Pharmachem. . . . . . . . . . . . . . . R-129 West Bengal Essential Commodities Supply Corporation Ltd. v Bank of Maharashtra Company Appeal (AT) (Insv) No. 90 of 2017 . . . . . . . . . . . . R-213

cxx

Key to reading this book Readers are requested to take a note of some of the important points before reading the book. Overview of changes Many chapters begin with an overview of changes. This is an executive summary/ snapshot of the changes brought in by Companies Act, 2013 and their impact which are discussed in detail thereafter. In winding up chapter, I have also introduced an overview of changes brought about by the Insolvency and Bankruptcy Code. Decoding the Law “Decoding of Law” provides pertinent question inserted in the form of a box under various topics. They raise issues that are sought to be answered in subsequent paragraphs to better understand and interpret the new law in light of the changes introduced. Applicability Under this section, the author has taken select case laws, analysed them and then tried to test their applicability/relevance to the new provisions in light of the changes introduced. It will help the readers to understand the applicability of old case laws to the new Act. Observation Interpretation of some provisions is tricky and therefore, such provisions have been analysed under “observations” where there is a possibility of multiple interpretations; or interpretation is leading to an absurdity; or constitutionality of a provision is questionable; or its applicability is unclear or the like. Rules The NCLT and related rules published during 2016 and 2017 have been provided either as annexures to this book or in the form of a CD. Each set of Rules is given an abbreviation in the Act; for instance, rules under compromise and arrangement are referred to as M&A Rules. The abbreviations page provides full forms of these rules.

cxxi

NCLT and NCLAT Law Practice and Procedure, 7e

Procedures ● The procedures discussed under each topic in the book are based on the current rules. Only in the winding up chapter are the procedures based on draft rules as these rules are yet to be notified. ● Chapter-22 on “General Practice and Procedure” provides for the general procedure which is a default procedure to be followed under NCLT; unless expressly specified otherwise under the NCLT Rules or other rules or unless it is necessarily implied. ● Only the procedures under the company law have been discussed in this book. Other related compliances under other laws/regulations like LODR are not provided. Further Reading This book provides a perspective of how to read the new law and the changes therein. However, the subjects like oppression and mismanagement etc. are very vast and have thousands of relevant cases and material to refer. In such chapters, a list of relevant reference material under the heading “Further Reading” has been provided, so that when a professional reads this book on the new law, the reader would also get a perspective, as to what all other books/material can be referred to. Reference of Companies Act 2013 Unless expressly or impliedly provided otherwise, all the sections pertain to Companies Act, 2013, with one exception, viz., the chapter on Insolvency and Bankruptcy Code. Comparison charts In addition to the above, comparison charts under the new and old Act have been extensively used in the book to make the readers understand the relevance and applicability of various sections. Where ever possible, questions and answers have been discussed on crucial topics to analyse the new provisions. FAQ Wherever possible, questions and answers have been discussed on crucial topics to analyse new provisions.

cxxii

Abbreviations 1956 Act

Companies Act, 1956

2010 NCLT Case

Order passed on 11 May 2010 in Union of India v R Gandhi

2013 Act

Companies Act, 2013

2015 NCLT case

Madras Bar Association v Union of India (UOI) and Ors.

Apex Court

Supreme Court

Appellate Tribunal

NCLAT

AAIFR

Appellate Authority for Industrial and Financial Reconstruction

AGM

Annual General Meeting

BIFR

Board for Industrial and Financial Reconstruction

BoD

Board of Directors

Board/IBBI

Insolvency and Bankruptcy Board of India

CA

Chartered Accountant

CCI

Competition Commission of India

CDR

Corporate Debt Restructuring

CEO

Chief executive officer

CESTAT

Customs, Excise and Service Tax Appellate Tribunal

CFO

Chief Financial Officer

CG

Central Government

CLB

Company Law Board

CPC

Civil Procedure Code

CrPC

Criminal Procedure Code

CS

Company Secretary

DRT

Debts Recovery Tribunal

DRAT

Debts Recovery Appellate Tribunal

EOGM

Extra Ordinary General Meeting

FEMA

The Foreign Exchange Management Act, 1999

FY

Financial Year

HC

High Court

cxxiii

NCLT and NCLAT Law Practice and Procedure, 7e

IAS

Indian Accounting Standards

IBC

Insolvency and Bankruptcy Code, 2016

ICAI

Institute of Chartered Accountants of India

ICSI

Institute of Company Secretaries of India

IFRS

International Financial Reporting Standards

INV Rules

Inspection, Inquiry and Investigation Draft Rules released in 2013 (No separate final rules notified – NCLT Rules apply which are discussed in relevant Chapter)

INC Rules

Companies (Incorporation) Rules, 2014

IRP

Insolvency Resolution Process

ITAT

Income Tax Appellate Tribunal

KMP

Key Managerial Personnel

Limitation Act

Limitation Act, 1963 (Act 36 of 1963)

LLP

Limited Liability Partnership

MCA

Ministry of Corporate Affairs

MD

Managing Director

MoA

Memorandum of Association

M&A Rules

Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 released on 14th December 2016 and effective on 15th December 2016

NACAS

National Advisory Council on Accounting Standards

NBFC

Non Banking Financial Companies

NCLAT

National Company Law Appellate Tribunal

NCLT

National Company Law Tribunal

NCLAT Rules

National Company Law Appellate Tribunal Rules notified on 21st July 2016

NCLT Rules

National Company Law Tribunal Rules, 2015 notified on 21st July 2016

New Act

Companies Act, 2013

NFRA

National Financial Reporting Authority

O & M

Oppression and Mismanagement

Old Act

Companies Act, 1956

OL

Official Liquidator

cxxiv

Abbreviations

O&M Rules

Draft Companies (Prevention of Oppression and Mismanagement) Rules, 2016 issued in January 2016 (No separate final rules notified – NCLT Rules apply which are discussed in relevant Chapter)

OPC

One Person Company

PAC

Person Acting in Concert

RBI

Reserve of Bank of India

ROC

Registrar of Companies

RD

Regional Director

RSC Rules

National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016 notified on 15th December 2016.

SC

Supreme Court

SEBI

Securities and Exchange Board of India

Section 8 companies Charitable Companies registered under Section 8 of 2013 Act SICA

Sick Industrial Companies (Special Provisions) Act, 1985

SFIO

Serious Fraud Investigation Office

SRR Rules

Draft Companies (Revival and Rehabilitation of Sick Companies) Rules, 2016 (Chapter XIX is omitted).

WOS

Wholly Owned Subsidiary

WTD

Whole Time Director

WUP Rules

Companies (Winding up) Rules

cxxv

Concise Referencer

R

Powers of NCLT: at a glance BIFR

HC

NCLT

CLB

CG

I.

POWERS TRANSFERRED FROM COURT TO NCLT

Section nos. Section nos. Power (1956 Act) (2013 Act) 100 to 104 66(1)00 To confirm reduction of share capital; 107

48(2)

243

224(2)

391

230(1)

392

231(1)

394

232(1)

425

270(1) and 271

Notified Date (“ND”)/ Effective Date (“ED”) ND: 07/12/2016 ED: 15/12/2016 To cancel variation of rights on appeal by ND: 07/12/2016 dissentient shareholders; ED: 15/12/2016 To hear petition for winding up of a ND: 07/12/2016 company presented by Central Government; ED: 15/12/2016 To call meeting of creditors or members ND: 07/12/2016 where compromise or arrangement is ED: 15/12/2016 proposed; To sanction compromises & arrangements; ND: 07/12/2016 ED: 15/12/2016 To call meeting of creditors or members for ND: 07/12/2016 facilitating merger & amalgamation of ED: 15/12/2016 companies; To wind up a company; ND: 07/12/2016 ED: 15/12/2016

R-1

NCLT and NCLAT Law Practice and Procedure, 7e Section nos. Section nos. Power (1956 Act) (2013 Act) 440 306(3)(b) To hear winding up petition where company is being wound up voluntarily

Notified Date (“ND”)/ Effective Date (“ED”) Omitted with effect from 15/11/2016

560

252

ND:26/12/2016 ED:26/12/2016

583

375(3)

587

373

589

377

635-B

218(1)

II.

To restore the name of the company in the register of companies whose name has been struck off Powers regarding winding up of unregistered company; To grant leave to initiate suits etc., after on winding up order has been made; Provisions of Part cumulative;

ND: 07/12/2016 ED: 15/12/2016 ND: 07/12/2016 ED: 15/12/2016 ND: 07/12/2016 ED: 15/12/2016 To grant approval for action proposed ND: 01/06/2016 against any employee during investigation; ED: 01/06/2016

POWERS TRANSFERRED FROM CLB TO NCLT

Section nos. Section nos. Powers (1956 Act) (2013 Act) 58A(9) 73(4) To order the company to make repayment of the matured deposits and loss incurred; 111 58(5) To pass order on appeal against refusal of registration of transfer or transmission; 111A 59(2) To order rectification of register of members; 117C(4) 71(10) To order redemption of debentures forthwith by payment of principal and interest; 117B(4) 71(9) To order restriction to be imposed on the company for incurring further liabilities on application of Debenture Trustee; 186 98(1) To call meetings of members, etc.; 196(4)

119(4)

225(3) proviso

140(4)

R-2

Notified Date(“ND”)/ Effective Date(“ED”) ND: 01/04/2014 ED: 01/04/2014 ND: 12/09/2013 ED: 12/09/2013 ND: 12/09/2013 ED: 12/09/2013 ND: 01/06/2016 ED: 01/06/2016 ND: 01/06/2016 ED: 01/06/2016

ND: 01/06/2016 ED: 01/06/2016 To order inspection of minute books; ND: 01/06/2016 ED: 01/06/2016 To restrict copies of representation of the i. Except second auditor to be removed to be sent out; proviso, ND/ED for all provisions: ND: 01/04/2014 ED: 01/04/2014 ii. ND/ED for second proviso: ND: 01/06/2016 ED: 01/06/2016

Powers of NCLT: at a glance Section nos. Section nos. Powers Notified Date(“ND”)/ (1956 Act) (2013 Act) Effective Date(“ED”) 235 210(2) To order investigation of the affairs of a ND: 01/04/2014 company; ED: 01/04/2014 237(b)

213

To order investigation of company’s affairs in other cases;

ND: 01/06/2016 ED: 01/06/2016

247

216(2)

250

222(1)

284(4) proviso 396(3A)

169(4)

ND: 01/06/2016 ED: 01/06/2016 ND: 01/06/2016 ED: 01/06/2016 ND: 01/06/2016 ED: 01/06/2016 ND: 07/12/2016 ED: 15/12/2016

397, 398

242(1), (2)

To order investigation of ownership of company; To impose restrictions on shares & debentures; To restrict copies of representation of the director to be removed to be sent out; To assess compensation on appeal from assessment of compensation made by prescribed authority; To pass an order for relief in cases of oppression, etc.;

403

242(4)

To pass interim order;

407

243(1)(b)

408

242(2)(k)

621-A

441(1)

637A

459

To grant leave to be appointed as a director, managing director or manager after a person has been terminated under Section 242; To make appointment(s) to prevent ND: 01/06/2016 oppression or mismanagement; ED: 01/06/2016 To compound of certain offences; ND: 01/06/2016 ED: 01/06/2016 To accord approval etc., subject to ND: 12/09/2013 conditions; ED: 12/09/2013 Form in which section 539 to 544 (337 to ND: 09/09/2016 341 of 2013) are to apply to cases where an ED: 09/09/2016 application is made u/s 397,398 (241 and 245 of 2013);

237(4)

Schedule XI 246

III.

i.

Except 242(1), ND/ED for all provisions: ND: 01/04/2014 ED: 01/04/2014 ii. ND/ED for second proviso: ND: 01/06/2016 ED: 01/06/2016 ND: 01/06/2016 ED: 01/06/2016 ND: 01/06/2016 ED: 01/06/2016

POWERS TRANSFERRED FROM BIFR TO NCLT

The Sick Industrial Companies Chapter XIX Power to revive and (Special Provisions) Act, 1985 (2013 Act) rehabilitate companies

Omitted with effect from 15/11/2016

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NCLT and NCLAT Law Practice and Procedure, 7e

IV.

POWERS TRANSFERRED FROM CENTRAL GOVERNMENT TO NCLT

Section nos (1956 Act) Proviso to Section 31(1)

V.

Section nos. Powers (2013 Act) 2nd Proviso Alteration of Articles to convert a public to Section company into a private company. 14(1) This power is re-transferred to Central Government vide Companies (Amendment) Act, 2019 (22 of 2019) w.e.f. 2/11/2018

Notified Date(“ND”)/ Effective Date(“ED”) ND: 01/06/2016 ED: 01/06/2016

NEW POWERS OF NCLT UNDER COMPANIES ACT, 2013

Section Power (2013 Act) 2(41) To allow certain companies to have a different financial Proviso year. This power is transferred to Central Government vide Companies (Amendment) Act, 2019 (22 of 2019) w.e.f. 2/11/2018, w.e.f. 2/11/2018. 7(7) Powers for deregistration of companies incorporated by false representation;

Notified Date(“ND”)/ Effective Date(“ED”) ND: 01/04/2014 ED: 01/04/2014

i.

Except section 7(7)(c) & section 7(7)(d), ND/ED for all provisions: ND: 01/06/2016 ED: 01/06/2016 ii. ND/ED for sec 7(7)(c) & sec 7(7)(d): ND: 07/12/2016 ED: 15/12/2016

8(9)

Powers in case of winding up of Charitable companies to impose conditions on transfer of remaining assets to other similar companies after winding up;

ND: 07/12/2016 ED: 15/12/2016

55(3)

To approve issue of further redeemable preference shares when a company is unable to redeem its existing unredeemed preference shares or to pay dividend thereon; To order forthwith redemption of such preference shares the holder of which have not consented to the issue of further redeemable preference shares; To make an order imposing prohibition on delivery of certificates for the securities issued by a company; To order suspension of voting rights of the holder of securities; To direct a company or depository to set right a contravention of SCRA or SEBI Act or any other law, resulting by a transfer, and rectify its registers and records;

ND: 01/06/2016 ED: 01/06/2016

55(3) Proviso 56(4) 59(3) 59(4)

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ND: 01/06/2016 ED: 01/06/2016 ND: 01/04/2014 ED: 01/04/2014 ND: 12/09/2013 ED: 12/09/2013 ND: 12/09/2013 ED: 12/09/2013

Powers of NCLT: at a glance Section Power (2013 Act) 61(1)(b) To approve consolidation or division of share capital Proviso resulting in a change in voting percentage of shareholders; 125(3)(d) To sanction utilization of Investor Education and Protection Fund for reimbursement of legal expenses incurred on class action suits by members, debenture-holders or depositors; 130(1)

Notified Date(“ND”)/ Effective Date(“ED”) ND: 01/06/2016 ED: 01/06/2016 ND: 05/09/2016 ED: 07/09/2016

To order that the accounts were prepared in a fraudulent manner or the affairs of the company were mismanaged and to require re-opening of books of accounts; 131(1) To approve voluntary revision of financial statements or Board’s Report; 140(5) To order a company to change its auditors on being satisfied that the company’s auditor(s) has acted fraudulently; 218(1) To approve the proposed action to be taken against any employee during the course of any investigation; 218(3) To pass order on appeal from objection by the Tribunal against action to be taken against an employee; 221(1) To order freezing of assets on any inquiry or investigation and to impose restrictions; 222(1) To direct that the securities of a company shall be subject to certain restrictions for a period not exceeding 3 years; 224(2) To entertain petition for winding up in pursuance of inspector’s report; 224(5) To pass orders with regard to disgorgement of asset, property or cash or to hold any person personally liable for any fraud detected in the inspector’s report; 226, To pass orders after inspector’s intimation of pendency of 1st proviso investigation proceedings; 230(6) To sanction compromise or arrangement agreed to at the meeting of creditors/members ordered by the Tribunal; 230(9) To dispense with calling of meeting of members/creditors for approving compromise or arrangement;

ND: 01/06/2016 ED: 01/06/2016

230(12)

To pass orders on an application in the event of any grievance in respect of takeover offer of companies other than listed companies;

234 236(6)

To sanction merger and amalgamations between Indian Companies with Foreign companies Powers in case of fast track merger

245

Class Action

Yet to be notified [It has been notified on 3rd Feb 2020. Author to update it accordingly] ND:13/04/2017 ED: 13/04/2017 ND: 07/12/2016 ED: 15/12/2016 ND: 01/06/2016 ED: 01/06/2016

ND: 01/06/2016 ED: 01/06/2016 ND: 01/06/2016 ED: 01/06/2016 ND: 01/06/2016 ED: 01/06/2016 ND: 01/06/2016 ED: 01/06/2016 ND: 01/06/2016 ED: 01/06/2016 ND: 01/06/2016 ED: 01/06/2016 ND: 07/12/2016 ED: 15/12/2016 ND: 01/06/2016 ED: 01/06/2016 ND: 07/12/2016 ED: 15/12/2016 ND: 07/12/2016 ED: 15/12/2016 ND: 07/12/2016 ED: 15/12/2016

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NCLT and NCLAT Law Practice and Procedure, 7e

VI. Section of IBC

NEW POWERS OF NCLT UNDER IBC Power

Notified Date(“ND”)/ Effective Date(“ED”) Sec. 4 to 32 Power to initiate Corporate Insolvency Resolution Process ND: 30/11/2016 ED: 01/12/2016 Sec. 33 to 54 Power to liquidate corporate person ND: 09/12/2016 ED: 15/12/2016 Section 55 to Power to initiate Fast Track Corporate Insolvency Resolution ND: 14/06/2017 58 Process ED: 14/06/2017 Sec. 59 Voluntary winding-up ND: 30/03/2017 ED: 01/04/2017

VII. NEW POWERS OF NCLT UNDER COMPANIES (AMENDMENT) ACT, 2017 AND AMENDED BY COMPANIES (AMENDMENT) ORDINANCE, 2018 Section of Amendment Act

Power

Notified Date(“ND”)/Effective Date(“ED”) Section 22 (Amended Imposition of Restriction on right of shares ND: 13/06/2018 Section 90 of which owners have not disclosed information ED: 13/06/2018 about significant beneficial owner. Companies Act, 2013) This power is further modified vide Companies (Amendment) Act, 2019 (22 of 2019), w.e.f. 2/11/2018.

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Notified sections under IBC as on 1st July, 20211 Section of IBC

Particulars

PART I – PRELIMINARY Sec 3 (1), (5), (22), (26), (28) & (37) Definitions Sec 3 (2) to (4), (6) to (21), (23) to (25), (27) & (29) to (36)

Definitions

Sec 2(a) to (d) (except with regard to Applicability of Code voluntary liquidation or bankruptcy for which ND: 15/5/2017; ED: 1/4/2017) Sec 2(e) (Only as they relate to personal guarantors to corporate debtors)

Notified Date (“ND”)/ Effective Date (“ED”) ND: 19/08/2016 ED: 19/08/2016 ND: 01/11/2016 ED: 01/11/2016 ND: 30/11/2016 ED: 01/12/2016

ND:15/11/2019 ED: 01/12/2019

PART II - INSOLVENCY RESOLUTION AND LIQUIDATION FOR CORPORATE PERSONS Chapter I - Preliminary Sec. 4 to 5 Power to initiate Corporate ND: 30/11/2016 Insolvency Resolution Process ED: 01/12/2016 Sec 6 to 32

Chapter II - Corporate Insolvency Resolution Process Power to initiate Corporate ND: 17/08/2018 Insolvency Resolution Process ED: 06/06/2018

Sec 10A

ND: 30/11/2016 ED: 01/12/2016

Sec 12A

ND:23/09/2020 ED:05/06/2020

Sec 25A

ND: 17/08/2018 ED: 06/06/2018

Sec 29A

ND: 19/01/2018 ED: 23/11/2017

Sec 32A

ND: 13/03/2020 ED: 28/12/2020

1

Only those Chapters and sections of Part III dealing with individual and partnership that are notified are covered in this table. R-7

NCLT and NCLAT Law Practice and Procedure, 7e Section of IBC

Particulars

Notified Date (“ND”)/ Effective Date (“ED”)

Chapter III - Liquidation Process Power to liquidate corporate ND: 09/12/2016 person ED: 15/12/2016 Chapter IV - Fast Track Corporate Insolvency Resolution Process Sec 55 to 58 Power to initiate Fast Track ND: 14/06/2017 Corporate Insolvency ED: 14/06/2017 Resolution Process Chapter V - Voluntary Liquidation of Corporate Persons Sec 59 Voluntary winding-up ND: 30/03/2017 ED: 01/04/2017 Sec. 33 to 54

Chapter VI & VII - Adjudicating Authority for Corporate Persons and Offences and Penalties Sec 60 to 77 Adjudicating Authority for ND: 30/11/2016 corporate persons and Offences ED: 01/12/2016 and Penalties PART III - INSOLVENCY RESOLUTION AND BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS Chapter I - Preliminary Sec. 78 [only as they relate to Power to initiate Insolvency ND: 15/11/2019 personal guarantors to corporate Resolution Process ED: 01/12/2019 debtors (except with regard to fresh start process) ] Sec 79 [only as far as they relate to personal guarantors to corporate debtors]

ND: 15/11/2019 ED: 01/12/2019

Chapter III – Insolvency Resolution Process Sec 94 to 120 [Only in so far as they Power to initiate Insolvency ND: 15/11/2019 relate to personal guarantors to Resolution Process ED: 01/12/2019 corporate debtors] Chapter IV – Bankruptcy Order for Individuals and Partnership Firms [only in so far as they relate to personal guarantors to corporate debtors] Sec. 121 to 148 [Only in so far as Bankruptcy Orders they relate to personal guarantors to corporate debtors]

ND: 15/11/2019 ED: 01/12/2019

Chapter V – Administration and Distribution of the Estate of the Bankrupt Sec 149 to 178 [Only in so far as they Functions, Duties and Powers of ND: 15/11/2019 relate to personal guarantors to the Bankruptcy Trustee ED: 01/12/2019 corporate debtors] Chapter VI – Adjudicating Authority for Individuals and Partnership Firms Sec 179 to 183 [Only in so far as they Adjudicating Authority for ND: 15/11/2019 relate to personal guarantors to Individuals and Partnership ED: 01/12/2019 corporate debtors] Firms. R-8

Notified Section of IBC as on 31st March, 2018 Section of IBC

Particulars

Chapter VII - Offences and Penalties Sec 184 to 187 [Only in so far as they Punishment for Offences and relate to personal guarantors to Penalties corporate debtors]

Notified Date (“ND”)/ Effective Date (“ED”) ND: 15/11/2019 ED: 01/12/2019

PART IV - REGULATION OF INSOLVENCY PROFESSIONALS, AGENCIES AND INFORMATION UTILITIES Chapter I - The Insolvency and Bankruptcy Board of India Sec 188 to 194 Power under Insolvency ND: 05/08/2016 Professionals, Agencies and ED: 05/08/2016 Information Utilities Sec 196 & 197 Sec 198

Chapter II - Powers and Functions of the Board Power of Board ND: 01/11/2016 ED: 01/11/2016 Power to Condone delay ND: 30/11/2016 ED: 01/12/2016

Chapter III & IV - Insolvency Professional Agencies and Insolvency Professionals Sec 199 to 207, Sec 208(1)(c) & (e) Power Relating to Insolvency ND: 15/11/2016 & 208(2) Professional Agencies and ED: 15/11/2016 Insolvency Professional Chapter V - Information Utilities Sec 209 to 215 & Sec 216(1) Power relating to Information Utilities Sec 217 to 220

Sec 221 to 222 Sec 223

Sec 225 Sec 226 Sec 227

Section 228 & 229

Chapter VI - Inspection and Investigation Power of Investigation and Inspection. Chapter VII - Finance, Accounts and Audit Grants by Central Government and Board’s Fund. Accounts and Audit PART V - MISCELLANEOUS Power of Central Government to issue directions. Power of Central Government to supersede Board. Power of Central Government to notify categories of financial service providers against whom insolvency and liquidation proceedings can be initiated Preparation of Annual Report and Budget by IBBI

ND: 30/03/2017 ED: 01/04/2017 ND: 15/11/2016 ED: 15/11/2016 ND: 19/08/2016 ED: 19/08/2016 ND: 01/11/2016 ED: 01/11/2016 ND: 19/08/2016 ED: 19/08/2016 ND: 19/08/2016 ED: 19/08/2016 ND: 1/05/2018 ED: 1/05/2018

ND: 1/05/2018 ED: 1/05/2018 R-9

NCLT and NCLAT Law Practice and Procedure, 7e Section of IBC

Particulars

Sec 230

Power of Delegation

Sec 231

No civil court shall have jurisdiction in respect of any matter in which the Adjudicating Authority is empowered by, or under, this Code to pass any order Members, officers and employees of Board to the public servants

ND: 30/11/2016 ED: 01/12/2016

Sec 233

Protection of action taken in good faith.

ND: 19/08/2016 ED: 19/08/2016

Sec 234 to 235

Agreements with foreign countries and Letter of request to a country outside India in certain cases Punishment where no specific penalty or punishment is provided Trial of Offence by Special court.

ND: 30/03/2017 ED: 01/04/2017

Sec 238A

Limitation

Sec 239 (1) & (2)(zd)

Power of Central Government to make rules. Power of Central Government to make rules. Power of Central Government to make rules. Power of Central Government to make rules. Power of Central Government to make rules.

ND: 17/08/2018 ED: 06/06/2018 ND: 19/08/2016 ED: 19/08/2016 ND: 30/11/2016 ED: 01/12/2016 ND: 17/08/2018 ED: 06/06/2018 ND: 13/03/2020 ED: 28/12/2020 ND: 15/11/2019 ED: 01/12/2019

Sec 232

Sec 235A Sec 236 to 238

Sec 239(2) (a) to (f) Sec 239(2)(ea) Sec 239(2)(fa)

Notified Date (“ND”)/ Effective Date (“ED”) ND: 19/08/2016 ED: 19/08/2016

ND: 19/08/2016 ED: 19/08/2016

ND: 19/01/2018 ED: 23/11/2017 ND: 30/11/2016 ED: 01/12/2016

Sec 239 (2) (g) to (i) [only in so far as they relate to personal guarantors to corporate debtors] Sec 239 (2) (m) to (zc) [Only in so far Power of Central Government to ND: 15/11/2019 as they relate to personal guarantors make rules. ED: 01/12/2019 to corporate debtors] Sec 239 (2) (ze) to (zh) & (zl) to (zm) Power of Central Government to ND: 01/11/2016 make rules. ED: 01/11/2016 Sec 240(1) & (2) (zt)

R-10

Power to make regulations.

ND: 19/08/2016 ED: 19/08/2016

Notified Section of IBC as on 31st March, 2018 Section of IBC

Particulars

Notified Date (“ND”)/ Effective Date (“ED”) ND: 01/11/2016 ED: 01/11/2016

Sec 240 (2) (a) to (zm) & (zu) to (zzzc)

Power to make regulations.

Sec 240(2)(ia)

Power to make regulations.

ND: 13.03.2020 ED: 28-12-2020

Sec 240(2)(ja)

Power to make regulations.

Sec 240 (2) (na) to (nc)

Power to make regulations.

Sec 240(2)(sa)

Power to make regulations.

Sec 240(2)(wa)

Power to make regulations.

ND: 17-08-2018 ED: 06-06-2018 ND: 17-08-2018 ED: 06-06-2018 ND: 19-01-2018 ED: 23-11-2017 ND: 19-01-2018 ED: 23-11-2017 ND: 15-11-2019 ED: 1-12-2019

Sec 240 (zn) to (zs) [only in so far as Power to make regulations. they relate to personal guarantors to corporate debtors] Sec 240A Application of Code to MSMEs ND: 17-08-2018 ED: 06-06-2018 Sec 241 Rules and regulations to be laid ND: 19/08/2016 before Parliament. ED: 19/08/2016 Sec 242 Power to remove difficulties. ND: 19/08/2016 ED: 19/08/2016 Sec 244, & Sec 246 to 248 Miscellaneous and Transitional ND: 01/11/2016 provisions ED: 01/11/2016 Sec 249 [only in so far as they relate Miscellaneous ND: 15-11-2019 to personal guarantors to corporate ED: 01-12-2019 debtors] Sec 250 & 252 Miscellaneous ND: 01/11/2016 ED: 01/11/2016 Sec 251, 253 to Sec 255 Miscellaneous ND: 15/11/2016 ED: 15/11/2016

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Case Digest: List of important pronouncements under Companies Act

This case digest covers certain important pronouncements of Hon’ble Supreme Court, NCLT and NCLAT upon certain topics under the Companies Act which are all relevant to those appearing before NCLT and other authorities. The details of the abbreviation used in this chart is given at the end of the Table. These cases are also incorporated in the relevant chapters within the book as case digest.

TRANSFER AND TRANSMISSION OF SECURITIES Name of case

Particulars

B and A Packaging India Ltd. v Amrex Marketing P. Ltd. and Ors., [2017] 203 Comp Cas 454 (NCLT) Kolkata.

From the records, the Tribunal held that Petitioner and Respondents admitted that share transfers were effected in violation of Takeover Regulations, 2011. In this case, the Tribunal directed the company to buy back the shares acquired in violation of the Takeover Regulations. It further held that company shall buy-back the shares at the rate prevailing at the time of presentation of petition or at market value, whichever is higher. P.S: This matter was carried in appeal and appeal was dismissed by NCLAT [Amrex Marketing P. Ltd and Ors. v B and A Packing (India) Ltd. [2017] 204 Comp Cas 1 (NCLAT)]. Further, similar order passed in IFB Agro Industries Limited vs. SICGIL India Limited and Ors. (2017) 203 Com Cas 463 (NCLT) Kolkata for violation of Takeover Regulation, 1997 and Insider Trading Regulations, 1992.

Mohan Paul v City Hospital P. Ltd. And Ors. [2017] 203 Comp Cas 516 (NCLT) Chennai

Facts: The son of TMP sought transmission of shares of the TMP on TMP’s death. The company rejected the request to transmit the same on the ground that said shares were subject to an attachment by court as the deceased was an absconding accused. Held: The Tribunal relied on the Apex Court judgement in Mrs. V.G. Peterson v O V Forbes [AIR 1963 SC 692] wherein it was held that attachment subsists only so long as the contemnor is alive. NCLT held that this ratio is applicable in this case. It was held that order of R-13

NCLT and NCLAT Law Practice and Procedure, 7e

Name of case

Particulars attachment under Section 83 of the Cr.PC will be lifted on the death of TMP. In light of the above, the company was ordered to effect transmission of shares. Cost of Rs. 50,000/- was imposed on the Respondent company. P.S.: The order was carried in appeal. The NCLAT upheld the order on merit. However, impugned order was set aside so far it related to the costs imposed. [City Hospital P. Ltd. And Others. v Mohan Paul and Ors.[2017] 205 Comp Cas 3 (NCLAT)]

Rajesh Kapoor v Tirupati Balaji Hotel P Limited [2017] 204 Comp Cas 303 (NCLT) Allahabad

Facts: The Petitioner sought transmission of shares under a will by way of a petition under sec. 111. On that date, a civil suit was pending where the authenticity of the will was under challenge. Held: The NCLT observed that the will in question was not probated by a competent court. It further observed that authenticity and validity of the will was seriously disputed by the respondents and a civil suit for cancellation of the said will was pending in civil court. NCLT relied on judgement of Apex Court in Jai Mahal Hotels P Limited v. Rajkumar Devraj [2015] 193 Comp Cas 214 (SC) and other judgements of high courts and held that present petition is premature.

Shashi Prakash Khemka (Dead) By Lrs. v NEPC Micon (Now Called NEPC India (2019) 18 SCC 569 (on 8 January, 2019)

This is a landmark judgement in which Apex Court has reversed the long standing view taken in Ammonia Supplies Corporation P Limited v Modern Plastic Container P Limited, (AIR 1998 SC 3153). The Supreme Court had observed that if a dispute had emerged after the 2013 Act, the civil suit remedy would be completely barred and the power would be vested with the National Company Law Tribunal under Section 59 of the said Act. Held: The Apex Court held as under “5. The learned counsel has also drawn our attention to Section 430 of the Act, which reads as under: “430. Civil court not to have jurisdiction.—No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal.”

R-14

Case Digest: List of important pronouncements under Companies Act

Name of case

Particulars The effect of the aforesaid provision is that in matters in respect of which power has been conferred on NCLT, the jurisdiction of the civil court is completely barred. 6. It is not in dispute that were a dispute to arise today, the civil suit remedy would be completely barred and the power would be vested with the National Company Law Tribunal (NCLT) under Section 59 of the said Act. We are conscious of the fact that in the present case, the cause of action has arisen at a stage prior to this enactment. However, we are of the view that relegating the parties to civil suit now would not be the appropriate remedy, especially considering the manner in which Section 430 of the Act is widely worded. 7. We are thus of the opinion that in view of the subsequent developments, the appropriate course of action would be to relegate the appellants to remedy before NCLT under the Companies Act, 2013. In view of the lapse of time, we permit the appellants to file a fresh petition within a maximum period of two months from today.

MRF Ltd. and Ors. v Oriental Insurance Co. Ltd and Ors. [2017] 204 Comp Cas 16 (NCLAT)

Facts: Insurance company after settling the claim of insured and being subrogated to the rights in shares filed a petition for rectification of register after a lapse of nearly 19 years. Held: NCLAT observed that Limitation Act, 1963 or Section 433 of Companies Act, 2013 is not applicable to petition filed under Section 59 prior to June 1 2016. However, NCLAT held that the matter cannot be accepted on account of unexplained delay and latches.

Hasmukh Bachubhai Baraiya v Symphomy Limited and Ors (2018) 209 Comp Cas 605 (NCLT) AHM

Facts: There was civil suit pending with respect to the shares which one of the parties claimed had been transferred to him (‘Transferee’). In the meantime, the Transferor has filed an application for issue of duplicate certificate. The Company refused to issue duplicate certificates when the title of the shares was in dispute. It directed both parties to resolve their dispute as regards ownership of shares and send the order of a competent civil court. A petition came to be filed under Section 56, 58 and 59 by the transferor who claimed he had not sold the shares. He filed the case for issue of duplicate share certificates and for release of unclaimed dividends on those shares. Held: Section 58 can be invoked only in case of refusal R-15

NCLT and NCLAT Law Practice and Procedure, 7e

Name of case

Particulars of registration of transfer of shares by the company. The NCLT observed that this was not the case as in this matter there company has not refused to insert the name in the register of members. Section 59 deals with rectification of register if the name of register of members if the name of the person is without sufficient cause entered or removed from register of members or undue delay is caused making entry in the register of member. The case of the petitioner does not fall in any of these categories. The NCLT relied on the judgement of Ammonia Supplies Corporation P Limited v Modern Plastic Container P Limited (AIR 1998 SC 3153). In this case, it was held that issues of rectification will be exclusive dealt with by Tribunal (it was earlier the company court). If there are peripheral issues of title, then such other issues have to be dealt with by civil court. Thus, the NCLT held that title dispute of the shares would have to be decided by the civil court. It further held that there is no specific provision under which a case can be filed for refusal of the company to issue duplicate share certificates. Thus, the Petition was dismissed.

Hasmukh Bachubhai Baraiya v Symphomy Limited and Ors (2018) 209 Comp Cas 621 (NCLAT)

Facts: The appeal against the abovementioned order of Ahmedabad NCLT was filed. Held: The appeal was dismissed. However, NCLAT held that if the suit is decreed in favour of the appellant, the holder/owner of the certificate may move to the company for issue of duplicate share certificate and this will be a fresh cause of action.

Sunil Sen v Symphony Limited and Ors. (2018) 209 Comp Cas 624 (NCLAT)

Facts: The appellant sought rectification of register. The appellants address had changed and hence the revised share certificates which were sent after the share split were returned to the company undelivered. These shares were shown as sold in the records of register and transfer agents. The SEBI had instituted a suo motu proceeding against R3 who was a share transfer agent for R1 company. R3 was suspected to have indulged in illegal activities of transferring and dealing with shares and E&Y was appointed as an auditor to report on suspicious dealings (audit report) of R3. Held: NCLAT held that Appellant was entitled to rectification of register to include his name on the basis

R-16

Case Digest: List of important pronouncements under Companies Act

Name of case

Particulars of following facts: a. The appellant was able to show from the audit report that the transaction pertaining to the transfer of shares of the appellant was shown as suspicious. b. The share transfer form has no signature of transferor and witness and also no distinctive numbers of shares were mentioned. c. share certificate which were undelivered were shown to be handed over to some unidentified person as per the records. d. less stamp duty was paid. Despite all these facts, the shares were allowed to be transferred by the R3. Thus, the NCLAT held that on the basis of these facts, it is evident that Appellant has not transferred his shares and his name was ordered to be inserted on the register of members subject to giving an indemnity bond. P.S.: Also see another case against the same company where rectification was allowed on the basis of similar facts by NCLAT. M. Kondappa v Symphony Limited and Ors (2018) 210 Com Cas 25 (NCLAT)

Adesh Kaur v Eicher Motors and Ors (2018) 207 Com Cas 144 (NCLT) ND

Facts: The Petitioner continued to be in possession of the original share certificates of R1. R-7 an impersonator fraudulently applied for change of address and thereafter asked for issue of duplicate share certificate which he later sold. The Petition was filed under Section 59 for rectification of register to record the Petitioner’s name as shareholder and to recover the entitlement such a dividends, rights, bonus shares or similar entitlements. Petitioner has also filed police complaint as regards the fraud. R-1 denied responsibility and laid the blame squarely on the register and transfer agents and objected to the said petition on the ground that the facts are disputed, complicated and beyond the summary jurisdiction of Tribunal. Held: NCLT held that the share certificates and her oral testimony prove that Petitioner is a shareholder and nothing else is required. It further held that as per SEBI (Registrar to an Issue and Share Transfer Agent) Regulations, 1993 there was no due diligence done at the time of recording the change in address and issue of duplicate share certificate. SEBI guidelines provide that the company is liable for the acts of its agents and thus

R-17

NCLT and NCLAT Law Practice and Procedure, 7e

Name of case

Particulars R1 company cannot shirk their responsibility towards shareholders. It mandates that under such circumstances the respondent company has to make good the loss to the Petitioner. Accordingly, the Tribunal allowed the Petition for rectification of register and also held that Petitioner would get all the benefits and entitlements with respect to those shares.

Eicher Motors Ltd v Adesh Kaur and Ors. (2018) 207 Comp Cas 150 (NCLAT)

Facts: The case referred to above was challenged in the NCLAT. Inter alia the order was objected on following grounds - from records it is clear that it is a case of fraud and forgery - shares are dematerialised so a case of rectification of register of members does not arise - The details of the fraud are before the SEBI and it is also verifying the matter Held: The appeal was allowed. NCLAT held that this was not a fit case for exercise of power under Section 59 by relying on the ratio in Ammonia Supplies Corporation P Limited v Modern Plastic Containers P Limited. It observed that from the records it was evident that certain procedures were not followed and duplicate share certificates were already issued. Police complaint was already filed and pending for forgery and impersonation and matter was also before SEBI. Thus, the order for rectification cannot be ordered on the sole ground that original shareholder is in possession of original share certificates. P.S. Order reversed by SC

Adesh Kaur v Eicher Motors Ltd. and Others, [2018] 210 Comp Cas 719, SC/JULY, 2018/CA, 2013 (Civil Appeals Nos. 19426 and 19427 of 2017)

SC upheld the order of NCLT and rejected the stand taken by NCLAT. It held that NCLT was correct in deciding the matter and not relegating the appellant to any further proceedings as this is an open and shut case of fraud and could be tried by NCLT under section 58/59. SC further observed that procedure contemplated under RTI circular dated May 9 2001 for issuance of supplicate shares was not followed. When duplicate shares were issued, stock exchanges were not informed neither was advertisement issued in newspaper. Thus, the company was directed rectify its register and add the name of the original shareholder who was defrauded. Hence, appeal allowed.

R-18

Case Digest: List of important pronouncements under Companies Act

Name of case

Particulars

Kamlesh Kalidas Shah v State Bank of India (2018) 207 Comp Cas 243 (NCLT) – ND

Facts: The shares transfers were refused to be considered by SBI on account of mismatch of signatures of transferor. Petition came to be filed after 18 years from the year of refusal. The Petitioner however showed that a civil suit as well as a criminal complaint was filed. The case was filed under section 111A the Companies Act, 1956. SBI challenged the maintainability of the petition on the ground that provisions of transfer does not apply to it as it is enacted under the State Bank of India Act, 1955 (SBI Act). This petition came up before the NCLT after the notification of relevant provisions of Companies Act, 2013. Held: The NCLT held that the provisions of the Companies Act, 2013 are applicable to banking companies under Section 1(4)(c). It held that out of the 200 shares on which petition is filed, the proof of lodgement is shown only for 100 shares and thus, only the refusal of 100 shares can be considered. As regards limitation, the NCLT held that the provision of 1956 Act will apply as petition is filed before the commencement of provision of Section 58 and 59 and thus provision of Limitation Act does not apply. Thus, Petition was partly allowed with respect to 100 shares.

Mackintosh Burn Limited v Sarkar and Chowdhury Enterprises P Limited. (2018) 208 Com Cas 209 (SC)

Facts: The shares transfer was refused on the ground that shares were sought to be purchased by the company which was controlled by competitors. This was an appeal against an order of Calcutta High Court under 10F. The original petition was filed under the 1956 Act. Held: The SC set aside the order of Calcutta HC and relegated the matter back to NCLT. It observed that right to refuse registration of transfer on sufficient cause is a question of law and whether the cause shown for refusal is sufficient or not in a given case can be a mixed question of law and facts.

Cheran Properties Limited v Kasturi and Sons Limited and Ors. (2018) 208 Com Cas 496 (SC)

Facts: The appeal arises from an order of NCLAT which upheld the decision of NCLT, Chennai. The issue of ownership of shares with respect to a share purchase agreement was decided by way of an arbitration award. The said award was challenged but was upheld by higher forums. Accordingly, KSL who as per the award was entitled to shares, filed a petition inter alia under sec 111 of the Companies Act, 1956 for rectification of register of SPIL. The order passed in the petition was challenged R-19

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Particulars on various grounds. Held: The Apex Court held that NCLAT was correct to permit effectuating the share transfer as per the award. The recourse of remedy of section 111 was an appropriate remedy. The arbitration award has a character of a decree of a civil court and is capable of being enforced as if it were a decree. Armed with a decree, KSL was entitled to seek rectification. The court rejected the submission that such proceeding was barred under section 42 of Arbitration and Conciliation Act, 1996. It held that as per the award, share certificates were to be handed over to KSL. However, mere transfer of share certificates will not constitute due implementation of the award and thus a proceeding under section 111 of the 1956 Act was appropriate. It further held that under section 36 of the Arbitration and Conciliation Act, 1996, an award has the same legal force and can be enforced in the same manner as a court decree and thus, the remedy under section 111 could be resorted to. Accordingly, the appeal challenging order of NCLAT was dismissed.

Lanka Venkata Naga Muralidhar v Vestal Educational Services Private Limited and Ors (2018) 206 Com Cas 370 (NCLT) HYD

R-20

Facts: The Petitioner claimed that he had lent money which the Respondents has wrongly appropriated towards allotment of shares. He filed for rectification of register as he has not applied for allotment of shares but had given the money as a loan to the company and sought return of money. The company had also belatedly filed PAS-3 showing allotment of shares. Held: The petitioner has correctly approached under section 59 as he has objections to be shown as shareholder with respect to the disputed allotment. It was held that the company as an afterthought had given the “loan” a colour of “share allotment money”. The company was unable to show compliance of the provision of section 62 as regards further allotment of shares. Further, the Petitioner also brought to the notice of the NCLT that action was taken by the ICSI against the company secretary who certified the form of these disputed allotment of shares. It was held that company has not followed the provision of section 62 for issue of impugned allotment of shares and consent of the petitioner was not sought. Thus, the allotment of shares was declared null and void and company was directed to return the loan with interest and rectify its register of

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Particulars members. P.S. This decision was challenged in NCLAT but the appeal was dismissed.

Vestal Educational Services P. Ltd v Shri Lanka Venkata Naga Muralidhar and Others [2018] 211 Comp Cas 764 Company Appeal (At) No. 65 Of 2018 NCLAT/NOVEMBER, 2018/CA, 2013

Issue: The appellant company defaulted in paying instalments as agreed upon on a term loan of Rs. 10 crore from a bank. Later on the bank loan under compromise was settled from Rs. 7.25 crore to Rs. 5.50 crore. The director of the company approached one of the shareholders and erstwhile director to lend amount of Rs. 1.54 crores. Later on, despite of several reminders the amount was not repaid by the company. It was found that the amount lent was converted into equity shares without the knowledge of lending director and without any intimation or authorisation to him. Hence, a petition was filed u/s 59. NCLT allowed the petition, on the ground that the company had not produced any evidence to show the basis on which loan was converted into equity. This order was challenged. Held: NCLAT upheld the order of NCLT holding that there was no material on record to show any consent of the lender to convert the loan into equity. The appellant sought to introduce new documents like resolutions, letter of offer in the NCLAT to show that lender had consent to conversion. However, NCLAT did not allow new documents to be inserted at the stage of appeal especially when the veracity of documents was questionable. For instance, the company was unable to show that the letter of offer was sent to the first respondent by the registered post or speed post or through electronic mode. Also, no documentary evidence that the first respondent consented or rejected such offer. Hence, appeal was dismissed.

S. Ramesh v South Travancore Hindu College Association (2018) 206 Com Cas 415 (NCLT) Chennai

Facts: The Petitioner acquired shares through his parents. He lost the share certificates (1st Certificate) and was issued a duplicate share certificate (2nd certificate). Petitioner lost the 2nd share certificate had asked for and was allotted a new duplicate share certificate (3rd certificate). The petitioner came to know that in the records of the company a person (R3) claimed to have purchased the shares whereas he had not sold the shares. A civil suit and complaint came to be filed initially. The civil courts directed Petitioner to approach the then CLB. The petitioner approached NCLT. During the course of R-21

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Particulars the civil suit, the R3 has sold the shares to another person who was not a party to the case. Held: The NCLT found that the alleged share transfer claimed by R3 was null and void on various grounds which include: 1. The shares transfer was effected on the basis of 2nd certificate. The NCLT held that it is a well settled procedure that once a duplicate share certificate is issued for an earlier share certificate, the earlier certificate is deemed to be cancelled and no share transfer will be entertained on the basis of earlier share certificate. 2. R3 claimed that he had paid the consideration money of 75,000/- for shares in cash which is contrary to the provisions of Income-tax Act and further R3 has not produced any proof of the same. 3. The company failed to produce the share transfer deed by which R3 claimed to have sold shares to a third party and that transfer was also in a short period after the share transfer were challenged by Petitioner and thus company ought to have played a neutral role. The third party never challenged nor sought impleadment in this case which showed that there might to be collusion. On the basis of these facts, the Petition was allowed and register of member was directed to be rectified to delete the name of the third party and include the name of Petitioner with respect to the shares in question.

Ramalakshmi v Texline Fabrics India P Limited and Ors. (2018) 206 Com Cas 430 (NCLT) Chennai

R-22

Facts: The petitioner sent a letter for getting share certificates with respect to her shares in 2014. In response, she was informed that her shares were transferred in 2009. The Petitioner preferred a case under Section 58 and 59 of the Companies Act in 2015. Respondent raised the issue of limitation. Held: NCLT held that petition is maintainable and not barred by limitation. Petitioner became aware that her shares were transferred only in 2014. NCLT further held that the transfer is illegal and ought to be set aside. This was based inter alia on following facts which were noticed by the NCLT: a. company has taken contrary stands as regards share transfer forms. In one letter they claimed they had them and in their reply in NCLT they claimed that

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Particulars transfer deeds were lost by R4. There is no record to show that petitioner was approached for fresh transfer deeds. In the absence of transfer deeds as claimed, the company even failed to confirm from the Petitioner to verify the veracity of the purported transfer of shares. Further, no FIR was produced by R4 to show loss of transfer deeds. b. The company also failed to show any proof that share certificate were ever dispatched to the Petitioner in the first place. On the basis of these facts, the Company was directed to rectify the register in favour of Petitioner and to pay costs of the litigation to Petitioner. Issue: The petitioner and respondent no 13 subscribed to compulsorily convertible debentures of respondent company. The terms of the investment agreement were incorporated in the AOA of the company wherein it was provided that the company should covert the debentures into equity shares upon receipt of written notice by the debenture holders. The petitioner and respondents issued a letter to the promoters and respondents to convert of debentures into equity shares. Later, the petitioner and respondent no 13 informed the respondent company that they were not going ahead with conversion. Despite this the conversion of the debentures into equity shares of respondent no 2 was authorised. The petitioner filed petition u/s 59 of the Act challenging the conversion and seeking rectification of register of the company. Held: Dismissing the petition, 1) it was held that all the contentious issues raised in the petition except examining whether there was sufficient cause to enter the names of petitioner in the register of members of the company was beyond the scope of the Tribunal u/s 59. It was open for petitioner to invoke petition u/s 241 or through Arbitration. 2) The relief of rectification could not be granted unless and until the board resolution is declared invalid. P.S. This order was reversed by NCLAT

MAIF Investments India P. Ltd v IND-Barath Power Infra Ltd and Others [2020] 218 Comp Cas 314 (C. P. No. 248/HDB/2018) NCLT/AUGUST, 2018/Section 59 CA,2013

MAIF Investments India P. Ltd v Ind-Barath Power Infra Ltd and Others, [2020] 218 Comp

Facts: NCLT refused to allow the petition under Section 59 challenging the conversion of debentures into equity. Issue: Can NCLT which exercises the widest possible R-23

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Cas 337 powers in a matter u/s 241 and 242 of the act be treated Comp Cas 314 (NCLT) as unequipped only because the petition is u/s 59 of the reversed. Act? NCLAT/MAY, Held: Allowing the petition, NCLAT held that 2019/Section 59 of 1) that there were no complex questions involved and CA,2013 even if they exist, the NCLT and in an appeal, the Appellate Tribunal, are empowered to consider the entry made in the register of members. 2) The Board meeting was invalid as it required the consent of nominee director of investor which was missing. His consent for conversion was missing. There was recorded opposition to conversion as well. NCLAT held that respondents were not entitled to contend that section 59 could not be resorted to if the equity was cancelled. There was no substance in the argument that cancellation would amount to reduction in capital u/s 66 and hence beyond the scope of Section 59. Directions were given for cancellation of entry of the name of appellant in the register of members of the company against the compulsorily convertible debentures. T. Vinayak Ravi Reddi and Others v Deccan Chronicle Holdings Ltd. and Others [2020] 218 Comp Cas 371 T. P. No. 149/HDB/2016 C.P. No. 4/111/BB/2014 NCLT/JANUARY, 2020/Section 111 of CA,1956

Issue: While the petition filed u/s 111 of CA, 1956 was pending, the company underwent CIRP process and a new promoters (successful resolution applicant) became the shareholders as a result of the CIRP process. Held: Dismissing the petition, NCLT held that the resolution plan was approved in respect of the company. The petitioners ceased to have any interest in the company which had undergone the corporate insolvency resolution process. As a result, the petitioners has no locus standi to continue the proceedings and the relief sought for by the petitioners became infructuous.

Neel Rajesh Shah v United Spirits Ltd and Others [2020] 218 Comp Cas 405 C. P. No. 7 of 2017 NCLT/MARCH, 2019/Section 58 of CA, 2013

Issue: The original shareholder died and there was a dispute in his family about the properties of the deceased. These issues were finally settled and the legatee (Petitioner) filed for transmission of shares in his name. It was found that an imposter claiming to be a shareholder had already taken duplicate shares and dealt with these shares. The company and register and transfer agent refused to acknowledge the legatee as a shareholder and refused to transmit shares. Numerous documents were shown by the legatee to show his entitlement to the shares. Legatee finally filed a petition

R-24

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Particulars under section 58 seeking direction to the respondent company to register the petitioner as the true and lawful owner of the shares in question and to re-issue them to the petitioner in dematerialized form along with all benefits that arose during the period. The respondent contended that the claim of the petitioner was false since the original allottees name and address at the time of allotment of shares differed. Held: Several documents were placed before NCLT to show that the deceased was the original shareholders. The delay in applying for transmission was caused due to internal family dispute about the property of deceased. It was observed that the company and its registrar and transfer agent were liable for illegal issue of duplicate shares to respondent no 3 (as at that time the original shareholder had already expired). NCLT held that they were liable to compensate to persons, whoever had transacted and suffered by way of trading on dematerialised shares of the company. That the succession certificate issued by the High Court became final and none including the respondents had questioned the certificate and thus it was binding on the parties concerned. Company was directed to transfer shares to the petitioner/legatee. The petitioner was held to be entitled to all corporate benefits arising from one year before filing the petition (as he has delayed in applying for transmission of shares the benefit for the entire period was not granted). The court held that company was free to invoke the indemnity bond given by the person who has requested for duplicate shares.

DLF Ltd and Another v Satya Bhushan Kaura and Another, [2020] 218 Comp Cas 470 Company Appeal (AT) No. 14 of 2019 NCLAT/JANUARY, 2020/Section 58 OF CA, 2013

Facts: The original shareholder died intestate in 1987. The deceased held 150 shares which after split and bonus issue then became 6000 shares. In and around September 2007, DLF made a right issue offer where holder of 1 share of DLF was entitled to 2 shares of DLF at the price of Rs. 2 each. The legal heir of the deceased held about the right issue and applied to DLF regarding allotment of 66,000 shares alongwith DD of 1.2 lakh. DLF directed the legal heir to produce order of the court and affidavit cum indemnity bond. the legal heir informed that an application was filed in court for letter of administration. DLF at that time informed the legal heirs that as they had applied to court the final decision on grant of right issue

R-25

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Particulars was subject to court direction. In 2012 a letter of administration were granted. In 2012, DLF refused to transfer the 60,000 right issue but agreed to transfer 6000 shares. The company petition was filed in 2013 as DLF to grant the shares under rights issue to the legal heirs. Issue: The main issue is regarding the entitled on right issue of 60,000 against the shares of 6000 held by the deceased shareholders. Held: The NCLAT held that once DLF directed the legal heirs to adopt a certain course of action for procurement of the shares and once they have in good faith adopted that route, DLF cannot resile back from its stand. It cannot approbate and reprobate. The Tribunal held that DLF without sufficient cause refused to register the transfer of shares entitled under right issue. Legal heirs were entitled to receive right shares. The Tribunal directed the company to register the transfer and respondent were directed to make payment for 60,000 shares at Rs. 2 per shares and execute the transfer deed to the extent of entitlement of respondent no 2 in accordance with the terms of letter of administration. NCLAT further held that when the letter of administration had been issued, it meant that the company was discharged from its liability. By insisting on production of affidavits and indemnity bonds again and again in spite of production of letter of administration clearly established that the company was harassing the poor investors. The act of appellants were liable to pay costs.

Amrex Marketing P Ltd v Akal Spring Ltd. and Others., [2020] 218 Comp Cas 617 C. A. No. 67 of 2017 NCLT/SEPTEMBER, 2019

R-26

Facts: Applicant made his request for transfer of shares in November 2011. There was no response and hence again a request for transfer of shares was made in October 2014. In June 2015, respondent company advised to submit new form of transfer. In June 2016, applicant sent the correct share transfer form but in August 2016 company refused to transfer the shares. Aggrieved by the decision, the applicant approached NCLT on or about 17th March 2017 and filed an application for condonation of delay alongwith the appeal. This application for condonation of delay as per rule 32 and rule 153 of the NCLT rules was filed and the same was challenged by the company.

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Particulars Issue: The respondent company contended that the delay was not bona fide and that there were no valid reasons to condone the delay challenging the refusal to register the transfer the shares in the name of the applicant and an application for condonation of delay in filing the appeal. Held: The delay deserves to be condoned 2016 as the matter needs to be contested on merits and in accordance with the law rather than be disposed of on technicalities and that too at the threshold. The delay can be condoned if valid reasons are shown for the same. The application for condonation of delay was allowed subject to deposit of cost of Rs. 25,000. P.S: Order upheld by NCLAT

Akal Spring Ltd and Others v Amrex Marketing P. Ltd.., [2020] 218 Comp Cas 623 Company Appeal (AT) No. 326 of 2019 NCLAT/NOVEMBER, 2019/CA,1956

Issue: CA, 1956 specifies no time limit in filing an appeal against the refusal by a company. However, CA, 2013 provide a time of 60 days from date of refusal or within 90 days of lodgement of instrument of transfer where there is no response form company. The Adjudicating authority condoned the delay of 186 days in filing the appeal. On appeal, it was contended that the Adjudicating Authority did not possess the power to condone the delay. Held: Dismissing the appeal, that the Tribunal exercised its jurisdiction by allowing the application subject to the deposit of Rs. 25,000 and this was not to be interfered with at this stage in the interest of justice. NCLAT held that Tribunal was within its power to condone delay and allow the application. It held that order did not suffer from any material irregularity or patent illegality in the eye of law.

R. Ajayender v Karvy Computershare P. Ltd And Others, [2019] 217 Comp Cas 378 C. P. No. 419/58/Hdb/2018 NCLT/OCTOBER, 2019/Section 58 of CA, 2013

Facts: The father of the petitioner purchased 100 shares in a company by paying full consideration through a share broker from the first registered joint holder but being ignorant of the procedure, he failed to request the company for transfer of physical shares in its own name. Later he approached the company registrar but the original transfer form and original shares were returned by the company registrar stating it as bad delivery on account of mismatch of the signature. The petition was filed seeking registration of these shares and for allotment of bonus shares and all benefits accruing on these shares to the Petitioner. Held: In the petition u/s 58, it was held that the company R-27

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Particulars registrar and share transfer agent to transfer the share certificate from its first registered holder to the petitioner and further allot bonus shares and all other benefits in favour of the petitioner. The transferor had not lodged any complaint either with the company registrar or the share transfer agent about the loss of share certificate. The company registrar was to transfer the 100 shares in favour of applicant after he submits an indemnity bond.

Vikram Jairath And Another v Middleton Hotels P. Ltd And Others, [2019] 216 Comp Cas 235 G. A. No. 552 of 2019 with C. S. No. 34 of 2019 and G. A. No. 1 of 2019 HC/MARCH, 2019/CA,2013

R-28

Facts: The plaintiff held pledged shares which were to be transferred in Plaintiff’s name if the company failed to repay loan. The company defaulted in loan repayment and further refused to transfer the shares subsequent to invocation of pledge by plaintiff. While this issue had arisen, the capital of the company was sought to be increased by promoters to negate the effect of transfer of pledged shares. A civil suit was filed and interim relief were sought for staying certain resolutions for increasing capital of the company and for allotting further shares. Another application was filed in NCLT for refusal to transfer pledged shares. Issue: Whether the application before NCLT and High Court on the basis of same facts but different cause of actions can be allowed to continue parallelly? Held: During the hearing on interim relief, in the prima facie view of the High Court, considering section 430, section 58 and rule 70(5)(b) of the NCLT rules, NCLT is empowered to decide any question on rectification of shares and pass any interim order and is empowered to decide issues relating to transfer of shares, registration and rectification and transfer of shares under an oral or written contract. High Court does not have the jurisdiction. Further, High Court observed that similar interim reliefs were sought in two different forum which could not be allowed. The powers in relation to section 58 and 59 are provided to NCLT and are extremely wide. The entire philosophy of CA, 2013 is that all matters relating to companies shall be handled by NCLT except certain matters which are not yet transferred as per section 434 of the act. All issues relating to transfer of shares, registration and rectification of register of members and any matter incidental thereto including oppression and mismanagement would be retained by the Tribunal.

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Smiti Golyan And Another v Nulon India Ltd and Others, [2019] 214 Comp Cas 576 Company Appeal (AT) No.222 of 2018 NCLAT/MARCH,2019/C A,1956

Facts: Petition was filed on the grounds that the shares in the name of the petitioner no. 1 were illegally transferred. It was directed by the Tribunal to the company to rectify its register of members as the company failed to show the transfer deed. Held: When the management of the company was under appellants, the company filed returns showing the petitioner as shareholder and then rectified returns showing that the petitioner was no more a shareholder. The appellants had taken different and contradictory defences. First, they claimed that it was in normal and general practice that the shares were transferred. Later, they claimed that shares with transfer forms were handed over. Thereafter, they took a stand that a gift deed was executed Finally, they claimed that, records were lost and took help of a vague first information report. NCLAT noted the change in stands and dismissed the appeal with costs.

Vestal Educational Services P. Ltd v Shri Lanka Venkata Naga Muralidhar and Others [2018] 211 Comp Cas 764 Company Appeal (At) No. 65 Of 2018 NCLAT/NOVEMBER, 2018/CA, 2013

Issue: The appellant company defaulted in paying instalments as agreed upon on a term loan of Rs. 10 crore from a bank. Later on the bank loan under compromise was settled from Rs. 7.25 crore to Rs. 5.50 crore. The director of the company approached one of the shareholders and erstwhile director to lend amount of Rs. 1.54 crores. Later on, despite of several reminders the amount was not repaid by the company. It was found that the amount lent was converted into equity shares without the knowledge of lending director and without any intimation or authorisation to him. Hence, a petition was filed u/s 59. NCLT allowed the petition, on the ground that the company had not produced any evidence to show the basis on which loan was converted into equity. This order was challenged. Held: NCLAT upheld the order of NCLT holding that there was no material on record to show any consent of the lender to convert the loan into equity. The appellant sought to introduce new documents like resolutions, letter of offer in the NCLAT to show that lender had consent to conversion. However, NCLAT did not allow new documents to be inserted at the stage of appeal especially when the veracity of documents was questionable. For instance, the company was unable to show that the letter of offer was sent to the first

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Particulars respondent by the registered post or speed post or through electronic mode. Also, no documentary evidence that the first respondent consented or rejected such offer. Hence, appeal was dismissed. `

Sangeeta Maheshwari v Premsagar Agricultural P. Ltd And Others, [2018] 211 Comp Cas 71 Company Appeal (Atl No. 11 Of 2018 NCLAT/OCTOBER, 2018/CA, 2013

Facts: The appellant was issued shares in the family company of her husband. Subsequently she was divorced in 2001. She was under the impression that after divorce she continued to hold the shares. In 2015, appellant ask company to send her share certificated. When company did not respond, she conducted a search and also filed a complaint with ROC. It was found that her shares were transferred. She filed a petition in NCLT in 2016. During the proceedings, the company was unable to produce the original share transfer form with her signatures to show that she had transferred her shares. However, NCLT dismissed the petition on the sole ground of limitation holding that petition is hit by delay and laches. Issue: Whether the Tribunal erred in dismissing the petition on the ground of limitation? Held: The shares were transferred in the favour of members of Agal family ( in-laws of appellant). NCLAT observed that (i) there was no transfer deed carrying the signature of appellant (ii) company failed to give notice to the appellant that the shares were transferred to third respondent without transfer deed. (iii) The company failed to ask the purported transferee to lodge a FIR intimating that the transfer deed was lost if that was the claim made (iv) company failed to give notice in the newspaper that the shares had been received by the respondent for transfer without a transfer deed (v) company was controlled by Agal family. NCLAT held that Tribunal erred in dismissing the appeal on ground of limitation and held that transfer of shares were held to be illegal. Considering these facts, the appellant was found to be a rightful holder of shares. Order of NCLT was set aside.

Relisys Medical Devices Ltd v Dr Raju Reddy, [2018] 211 Comp Cas 83 C P. No. 35/59/Hdb/2017 NCLT/OCTOBER, 2017/CA, 2013

Facts: The company had inadvertently issued shares at a price less than the fair value which was in violation of FEMA guidelines. When they approached RBI for compounding, RBI directed them either to unwind the excess shares or to bring in additional funds equivalent to the shares allotted. To comply with the RBI order, the company filed an application under Section 59 for

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Particulars rectification of register and for cancellation of excess shares allotted. Issue: Can you seek cancellation of shares as a part of rectification of register of companies or do you have to file a petition for reduction of shares? Held: NCLT dismissed the petition under Section 59. It held that in this case, there is no question of transfer of shares and subsequent registration or cancellation of shares. In this case neither the company nor the shareholders in an aggrieved party and no one has a grievance against the other. It is observed that the company had failed to follow the FEMA regulations. The company did not take actions for reduction of capital as is contemplated in MOA and AOA of the company for reduction of capital. Further, it admitted to the violation of the foreign regulations. Therefore, the petition u/s 59 was not maintainable. P.S: This order was challenged in NCLAT. NCLAT modified the above order.

Relisys Medical Devices Ltd v Dr Raju Reddy [2018] 211 Comp Cas 92 C P. No. 387 Of 2017 NCLAT/MAY, 2018/CA, 2013

Issue: The shares were allotted in excess to the shareholders. RBI advised the company to unwind the excess shares allotted or bring in additional funds equivalent to the shares allotted and there after apply for compounding. The Tribunal dismissed the petition as it held that company had the liberty as per its MOA to apply for reduction of capital. Thus, it held that petition u/s 59 was not maintainable. Hence, appeal. Held: NCLAT observed that such cancellation of shares could be done under Section 59 of the companies act. It directed that the company should take steps to cancel the excess shares allotted and transfer the funds to share premium account. It further directed that company can unwind the excess shares allotted. The balance sheets must be refiled after incorporating entries for cancelation of excess shares. The company was directed to comply with all other legal formalities as per law and CA, 2013. The order of NCLT modified.

Shree Kumar Mundra v Spell Organics Ltd and Others [2018] 211 Comp Cas 177 C. P. No. 15/04/2016 NCLT/MAY,2018/CA,

Issue: The petitioner claimed that his shares held in the respondent company were lost or untraceable since April, 2016 and requested for issue of duplicate share certificates. Since, the company failed to issue duplicate share certificate, the petitioner filed a petition u/s 46 and 56 of the CA, 2013. It was claimed by the respondent that R-31

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the petitioner falsely contended the share certificates were lost or misplaced. In fact, these shares were given by petitioner to the respondent as security for the corporate guarantee for a loan availed by the company in which the petitioner and his wife had substantial interest. Held: It was not equitable to direct the respondents to hand over the share certificates over which they assert their lien without the outstanding liability under corporate guarantee being paid. The entitlement of the respondent to recover their claim is already a subject matter of adjudication. On payment of the guaranteed debt in full, the surety is entitled to all securities assigned to him, which can only be after it adjudicated by a civil court. Case dismissed.

Shree Kumar Mundra v Spell Organics Ltd and Others, [2018] 211 Comp Cas 181 Company Appeal (AT) No. 219 of 2018 NCLAT/OCTOBER, 2018/CA, 2013

Issue: The petitioner falsely claimed that shares held in the respondent company were lost or untraceable since April, 2016 whereas those shares were pledged. NCLT dismissed the claim and this appeal came to be filed. Held: NCLAT dismissed the appeal with costs. It held that appellant had concealed the facts that civil proceedings in the High Court were pending and the disputes regarding pledge need not be entered into in this application. The appellant had failed to make out a case u/s 46 or 56 of the act and had not approached the Tribunal with clean hands. He suppressed the earlier litigation and had claimed that the shares were lost and later claimed theft. The respondents had justifiable reason to show they were in possession of the shares and they should not be directed to hand over the shares. Order of NCLT affirmed.

MAIF Investments India P. Ltd v Ind-Barath Power Infra Ltd and Others, [2020] 218 Comp Cas 314 C. P. No. 248/Hdb/2018 NCLT/AUGUST, 2018/Section 59 of CA, 2013

Issue: The petitioner and respondent no 13 subscribed to compulsorily convertible debentures of respondent company. The terms of the investment agreement were incorporated in the AOA of the company wherein it was provided that the company should covert the debentures into equity shares upon receipt of written notice by the debenture holders. The petitioner and respondents issued a letter to the promoters and respondents to convert debentures into equity shares. Later, the petitioner and respondent no 13 informed the respondent company that they were not going ahead with conversion. Despite this the conversion of the debentures into equity shares of respondent no 2 was authorised. The petitioner filed

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Particulars petition u/s 59 of the Act challenging the conversion and seeking rectification of register of the company. Held: Dismissing the petition, 1) it was held that all the contentious issues raised in the petition except examining whether there was sufficient cause to enter the names of petitioner in the register of members of the company was beyond the scope of the Tribunal u/s 59. It was open for petitioner to invoke petition u/s 241 or through Arbitration. 2) The relief of rectification could not be granted unless and until the board resolution is declared invalid. P.S: This order was reversed by NCLAT

MAIF Investments India P. Ltd v Ind-Barath Power Infra Ltd and Others, [2020] 218 Comp Cas 337 Comp Cas 314 (NCLT) reversed. NCLAT/MAY, 2019/Section 59 of CA,2013

Facts: NCLT refused to allow the petition under Section 59 challenging the conversion of debentures into equity. Issue: Can NCLT which exercises the widest possible powers in a matter u/s 241 and 242 of the act be treated as unequipped only because the petition is u/s 59 of the Act? Held: Allowing the petition, NCLAT held that 1) that there were no complex questions involved and even if they exist, the NCLT and in an appeal, the Appellate Tribunal, are empowered to consider the entry made in the register of members. 2) The Board meeting was invalid as it required the consent of nominee director of investor which was missing. His consent for conversion was missing. There was recorded opposition to conversion as well. NCLAT held that respondents were not entitled to contend that section 59 could not be resorted to if the equity was cancelled. There was no substance in the argument that cancellation would amount to reduction in capital u/s 66 and hence beyond the scope of Section 59. Directions were given for cancellation of entry of the name of appellant in the register of members of the company against the compulsorily convertible debentures.

T. Vinayak Ravi Reddi and Others v Deccan Chronicle Holdings Ltd. and Others, [2020] 218 Comp Cas 371 T. P. No. 149/Hdb/2016

Issue: While the petition filed u/s 111 of CA, 1956 was pending, the company underwent CIRP process and a new promoters (successful resolution applicant) became the shareholders as a result of the CIRP process. Held: Dismissing the petition, NCLT held that the resolution plan was approved in respect of the company. R-33

NCLT and NCLAT Law Practice and Procedure, 7e

Name of case

Particulars

C.P. No. 4/111/Bb/2014 NCLT/January, 2020/Section 111 of CA,1956

The petitioners ceased to have any interest in the company which had undergone the corporate insolvency resolution process. As a result, the petitioners has no locus standi to continue the proceedings and the relief sought for by the petitioners became infructuous.

Neel Rajesh Shah v United Spirits Ltd and Others, [2020] 218 Comp Cas 405 C. P. No. 7 of 2017 NCLT/MARCH, 2019/Section 58 of CA, 2013

Issue: The original shareholder died and there was a dispute in his family about the properties of the deceased. These issues were finally settled and the legatee (Petitioner) filed for transmission of shares in his name. It was found that an imposter claiming to be a shareholder had already taken duplicate shares and dealt with these shares. The company and register and transfer agent refused to acknowledge the legatee as a shareholder and refused to transmit shares. Numerous documents were shown by the legatee to show his entitlement to the shares. Legatee finally filed a petition under section 58 seeking direction to the respondent company to register the petitioner as the true and lawful owner of the shares in question and to re-issue them to the petitioner in dematerialized form along with all benefits that arose during the period. The respondent contended that the claim of the petitioner was false since the original allottee’s name and address at the time of allotment of shares differed. Held: Several documents were placed before NCLT to show that the deceased was the original shareholders. The delay in applying for transmission was caused due to internal family dispute about the property of deceased. It was observed that the company and its registrar and transfer agent were liable for illegal issue of duplicate shares to respondent no 3( as at that time the original shareholder had already expired). NCLT held that they were liable to compensate to persons, whoever had transacted and suffered by way of trading on dematerialised shares of the company. That the succession certificate issued by the High Court became final and none including the respondents had questioned the certificate and thus it was binding on the parties concerned. Company was directed to transfer shares to the petitioner/legatee. The petitioner was held to be entitled to all corporate benefits arising from one year before filing the petition ( as he has delayed in applying for transmission of shares the benefit for the entire period

R-34

Case Digest: List of important pronouncements under Companies Act

Name of case

Particulars was not granted). The court held that company was free to invoke the indemnity bond given by the person who has requested for duplicate shares.

DLF Ltd and Another v Satya Bhushan Kaura and Another, [2020] 218 Comp Cas 470 Company Appeal (AT) No. 14 of 2019 NCLAT/JANUARY, 2020/Section 58 OF CA, 2013

Facts: The original shareholder died intestate in 1987. The deceased held 150 shares which after split and bonus issue then became 6000 shares. In and around September 2007, DLF made a right issue offer where holder of 1 share of DLF was entitled to 2 shares of DLF at the price of Rs. 2 each. The legal heir of the deceased held about the right issue and applied to DLF regarding allotment of 66,000 shares alongwith DD of 1.2 lakh. DLF directed the legal heir to produce order of the court and affidavit cum indemnity bond. The legal heir informed that an application was filed in court for letter of administration. DLF at that time informed the legal heirs that as they had applied to court the final decision on grant of right issue was subject to court direction. In 2012 a letter of administration were granted. In 2012, DLF refused to transfer the 60,000 right issue but agreed to transfer 6000 shares. The company petition was filed in 2013 as DLF to grant the shares under rights issue to the legal heirs. Issue: The main issue is regarding the entitled on right issue of 60,000 against the shares of 6000 held by the deceased shareholders. Held: The NCLAT held that once DLF directed the legal heirs to adopt a certain course of action for procurement of the shares and once they have in good faith adopted that route, DLF cannot resile back from its stand. It cannot approbate and reprobate. The Tribunal held that DLF without sufficient cause refused to register the transfer of shares entitled under right issue. Legal heirs were entitled to receive right shares. The Tribunal directed the company to register the transfer and respondent were directed to make payment for 60,000 shares at Rs. 2 per shares and execute the transfer deed to the extent of entitlement of respondent no 2 in accordance with the terms of letter of administration. NCLAT further held that when the letter of administration had been issued, it meant that the company was discharged from its liability. By insisting on production of affidavits and indemnity bonds again and again in spite of production of letter of

R-35

NCLT and NCLAT Law Practice and Procedure, 7e

Name of case

Particulars administration clearly established that the company was harassing the poor investors. The act of appellants were liable to pay costs.

Amrex Marketing P Ltd v Akal Spring Ltd. and Others, [2020] 218 Comp Cas 617 C. A. No. 67 of 2017 NCLT/SEPTEMBER, 2019

Facts: Applicant made his request for transfer of shares in November 2011. There was no response and hence again a request for transfer of shares was made in October 2014. In June 2015, respondent company advised to submit new form of transfer. In June 2016, applicant sent the correct share transfer form but in August 2016 company refused to transfer the shares. Aggrieved by the decision, the applicant approached NCLT on or about 17th March 2017 and filed an application for condonation of delay alongwith the appeal. This application for condonation of delay as per rule 32 and rule 153 of the NCLT rules was filed and the same was challenged by the company. Issue: The respondent company contended that the delay was not bona fide and that there were no valid reasons to condone the delay challenging the refusal to register the transfer the shares in the name of the applicant and an application for condonation of delay in filing the appeal. Held: The delay deserves to be condoned 2016 as the matter needs to be contested on merits and in accordance with the law rather than be disposed of on technicalities and that too at the threshold. The delay can be condoned if valid reasons are shown for the same. The application for condonation of delay was allowed subject to deposit of cost of Rs. 25,000. P.S: Order upheld in NCLAT

Akal Spring Ltd and Others v Amrex Marketing P. Ltd, [2020] 218 Comp Cas 623 Company Appeal (AT) No. 326 of 2019 NCLAT/NOVEMBER, 2019/CA,1956

Issue: CA, 1956 specifies no time limit in filing an appeal against the refusal by a company. However, CA, 2013 provide a time of 60 days from date of refusal or within 90 days of lodgement of instrument of transfer where there is no response form company. The Adjudicating authority condoned the delay of 186 days in filing the appeal. On appeal, it was contended that the Adjudicating Authority did not possess the power to condone the delay. Held: Dismissing the appeal, that the Tribunal exercised its jurisdiction by allowing the application subject to the deposit of Rs. 25,000 and this was not to be interfered with at this stage in the interest of justice. NCLAT held that Tribunal was within its power to condone delay and

R-36

Case Digest: List of important pronouncements under Companies Act

Name of case

Particulars allow the application. It held that order did not suffer from any material irregularity or patent illegality in the eye of law.

R. Ajayender v Karvy Computershare P. Ltd and Others [2019] 217 Comp Cas 378 C. P. No. 419/58/Hdb/2018\ NCLT/October, 2019/Section 58 of CA, 2013

Facts: The father of the petitioner purchased 100 shares in a company by paying full consideration through a share broker from the first registered joint holder but being ignorant of the procedure, he failed to request the company for transfer of physical shares in its own name. Later he approached the company registrar but the original transfer form and original shares were returned by the company registrar stating it as bad delivery on account of mismatch of the signature. The petition was filed seeking registration of these shares and for allotment of bonus shares and all benefits accruing on these shares to the Petitioner. Held: In the petition u/s 58, it was held that the company registrar and share transfer agent to transfer the share certificate from its first registered holder to the petitioner and further allot bonus shares and all other benefits in favour of the petitioner. The transferor had not lodged any complaint either with the company registrar or the share transfer agent about the loss of share certificate. The company registrar was to transfer the 100 shares in favour of applicant after he submits an indemnity bond.

Vikram Jairath and Another v Middleton Hotels P. Ltd and Others, [2019] 216 Comp Cas 235 G. A. No. 552 of 2019 with C. S. No. 34 of 2019 and G. A. No. 1 of 2019 HC/MARCH, 2019/CA,2013

Facts: The plaintiff held pledged shares which were to be transferred in Plaintiff’s name if the company failed to repay loan. The company defaulted in loan repayment and further refused to transfer the shares subsequent to invocation of pledge by plaintiff. While this issue had arisen, the capital of the company was sought to be increased by promoters to negate the effect of transfer of pledged shares. A civil suit was filed and interim relief were sought for staying certain resolutions for increasing capital of the company and for allotting further shares. Another application was filed in NCLT for refusal to transfer pledged shares. Issue: Whether the application before NCLT and High Court on the basis of same facts but different cause of actions can be allowed to continue parallelly? Held: During the hearing on interim relief, in the prima facie view of the High Court, considering section 430, section 58 and rule 70(5)(b) of the NCLT rules, NCLT is empowered to decide any question on rectification of R-37

NCLT and NCLAT Law Practice and Procedure, 7e

Name of case

Particulars shares and pass any interim order and is empowered to decide issues relating to transfer of shares, registration and rectification and transfer of shares under an oral or written contract. High Court does not have the jurisdiction. Further, High Court observed that similar interim reliefs were sought in two different forum which could not be allowed. The powers in relation to section 58 and 59 are provided to NCLT and are extremely wide. The entire philosophy of CA, 2013 is that all matters relating to companies shall be handled by NCLT except certain matters which are not yet transferred as per section 434 of the act. All issues relating to transfer of shares, registration and rectification of register of members and any matter incidental thereto including oppression and mismanagement would be retained by the Tribunal.

Smiti Golyan and Another v Nulon India Ltd and Others, [2019] 214 Comp Cas 576 Company Appeal (At) No.222 Of 2018 NCLAT/March,2019/Ca, 1956

Facts: Petition was filed on the grounds that the shares in the name of the petitioner no. 1 were illegally transferred. It was directed by the Tribunal to the company to rectify its register of members as the company failed to show the transfer deed. Held: When the management of the company was under appellants, the company filed returns showing the petitioner as shareholder and then rectified returns showing that the petitioner was no more a shareholder. The appellants had taken different and contradictory defences. First, they claimed that it was in normal and general practice that the shares were transferred. Later, they claimed that shares with transfer forms were handed over. Thereafter, they took a stand that a gift deed was executed Finally, they claimed that, records were lost and took help of a vague first information report. NCLAT noted the change in stands and dismissed the appeal with costs.

Adesh Kaur v Eicher Motors Ltd. and Others, [2018] 210 Comp Cas 719 Civil Appeals Nos. 19426 and 19427 of 2017 SC/JULY, 2018/CA, 2013

SC upheld the order of NCLT and rejected the stand taken by NCLAT. It held that NCLT was correct in deciding the matter and not relegating the appellant to any further proceedings as this is an open and shut case of fraud and could be tried by NCLT under Section 58/59. SC further observed that procedure contemplated under RTI circular dated May 9 2001 for issuance of supplicate shares was not followed. When duplicate shares were issued, stock exchanges were not informed

R-38

Case Digest: List of important pronouncements under Companies Act

Name of case

Particulars neither was advertisement issued in newspaper. Thus, the company was directed rectify its register and add the name of the original shareholder who was defrauded. Hence, appeal allowed.

Vestal Educational Services P. Ltd v Shri Lanka Venkata Naga Muralidhar and Others, [2018] 211 Comp Cas 764 Company Appeal (AT) No. 65 of 2018 NCLAT/NOVEMBER, 2018/CA, 2013

Issue: The appellant company defaulted in paying instalments as agreed upon on a term loan of Rs. 10 crore from a bank. Later on the bank loan under compromise was settled from Rs. 7.25 crore to Rs. 5.50 crore. The director of the company approached one of the shareholders and erstwhile director to lend amount of Rs. 1.54 crores. Later on, despite of several reminders the amount was not repaid by the company. It was found that the amount lent was converted into equity shares without the knowledge of lending director and without any intimation or authorisation to him. Hence, a petition was filed u/s 59. NCLT allowed the petition, on the ground that the company had not produced any evidence to show the basis on which loan was converted into equity. This order was challenged. Held: NCLAT upheld the order of NCLT holding that there was no material on record to show any consent of the lender to convert the loan into equity. The appellant sought to introduce new documents like resolutions, letter of offer in the NCLAT to show that lender had consent to conversion. However, NCLAT did not allow new documents to be inserted at the stage of appeal especially when the veracity of documents was questionable. For instance, the company was unable to show that the letter of offer was sent to the first respondent by the registered post or speed post or through electronic mode. Also, no documentary evidence that the first respondent consented or rejected such offer. Hence, appeal was dismissed. `

Sangeeta Maheshwari v Premsagar Agricultural P. Ltd and Others, [2018] 211 Comp Cas 71 Company Appeal (ATL No. 11 of 2018 NCLAT/OCTOBER, 2018/CA, 2013

Facts: The appellant was issued shares in the family company of her husband. Subsequently she was divorced in 2001. She was under the impression that after divorce she continued to hold the shares. In 2015, appellant ask company to send her share certificated. When company did not respond, she conducted a search and also filed a complaint with ROC. It was found that her shares were transferred. She filed a petition in NCLT in 2016. During the proceedings, the company was unable to produce the original share transfer form with her signatures to show R-39

NCLT and NCLAT Law Practice and Procedure, 7e

Name of case

Particulars that she had transferred her shares. However, NCLT dismissed the petition on the sole ground of limitation holding that petition is hit by delay and laches. Issue: Whether the Tribunal erred in dismissing the petition on the ground of limitation? Held: The shares were transferred in the favour of members of Agal family (in-laws of appellant). NCLAT observed that (i) there was no transfer deed carrying the signature of appellant (ii) company failed to give notice to the appellant that the shares were transferred to third respondent without transfer deed. (iii) The company failed to ask the purported transferee to lodge a FIR intimating that the transfer deed was lost if that was the claim made (iv) company failed to give notice in the newspaper that the shares had been received by the respondent for transfer without a transfer deed (v) company was controlled by Agal family. NCLAT held that Tribunal erred in dismissing the appeal on ground of limitation and held that transfer of shares were held to be illegal. Considering these facts, the appellant was found to be a rightful holder of shares. Order of NCLT was set aside.

Relisys Medical Devices Ltd v Dr Raju Reddy, [2018] 211 Comp Cas 83 C P. No. 35/59/HDB/2017 NCLT/OCTOBER, 2017/CA, 2013

R-40

Facts: The company had inadvertently issued shares at a price less than the fair value which was in violation of FEMA guidelines. When they approached RBI for compounding, RBI directed them either to unwind the excess shares or to bring in additional funds equivalent to the shares allotted. To comply with the RBI order, the company filed an application under Section 59 for rectification of register and for cancellation of excess shares allotted. Issue: Can you seek cancellation of shares as a part of rectification of register of companies or do you have to file a petition for reduction of shares? Held: NCLT dismissed the petition under Section 59. It held that in this case, there is no question of transfer of shares and subsequent registration or cancellation of shares. In this case neither the company nor the shareholders in an aggrieved party and no one has a grievance against the other. It is observed that the company had failed to follow the FEMA regulations. The company did not take actions for reduction of capital as is contemplated in MOA and AOA

Case Digest: List of important pronouncements under Companies Act

Name of case

Particulars of the company for reduction of capital. Further, it admitted to the violation of the foreign regulations. Therefore, the petition u/s 59 was not maintainable. P.S: This order was challenged in NCLAT. NCLAT modified the above order.

Relisys Medical Devices Ltd v Dr Raju Reddy, [2018] 211 Comp Cas 92 C p. No. 387 of 2017 NCLAT/MAY, 2018/CA, 2013

Issue: The shares were allotted in excess to the shareholders. RBI advised the company to unwind the excess shares allotted or bring in additional funds equivalent to the shares allotted and there after apply for compounding. The Tribunal dismissed the petition as it held that company had the liberty as per its MOA to apply for reduction of capital. Thus, it held that petition u/s 59 was not maintainable. Hence, appeal. Held: NCLAT observed that such cancellation of shares could be done under Section 59 of the companies act. It directed that the company should take steps to cancel the excess shares allotted and transfer the funds to share premium account. It further directed that company can unwind the excess shares allotted. The balance sheets must be refiled after incorporating entries for cancelation of excess shares. The company was directed to comply with all other legal formalities as per law and CA, 2013. The order of NCLT modified.

Shree Kumar Mundra v Spell Organics Ltd and Others, [2018] 211 Comp Cas 177 C. P. No. 15/04/2016 NCLT/MAY,2018/CA, 2013

Issue: The petitioner claimed that his shares held in the respondent company were lost or untraceable since April, 2016 and reuested for issue of duplicate share certificates. Since, the company failed to issue duplicate share certificate, the petitioner filed a petition u/s 46 and 56 of the CA, 2013. It was claimed by the respondent that the petitioner falsely contended the share certificates were lost or misplaced. In fact, these shares were given by petitioner to the respondent as security for the corporate guarantee for a loan availed by the company in which the petitioner and his wife had substantial interest. Held: It was not equitable to direct the respondents to hand over the share certificates over which they assert their lien without the outstanding liability under corporate guarantee being paid. The entitlement of the respondent to recover their claim is already a subject matter of adjudication. On payment of the guaranteed debt in full, the surety is entitled to all securities assigned to him, which can only be after it adjudicated by a civil court. Case dismissed. R-41

NCLT and NCLAT Law Practice and Procedure, 7e

Name of case

Particulars P.S. This order was upheld by NCLAT

Shree Kumar Mundra v Spell Organics Ltd and Others, [2018] 211 Comp Cas 181 Company Appeal (At) No. 219 Of 2018 NCLAT/October, 2018/Ca, 2013

Issue: The petitioner falsely claimed that shares held in the respondent company were lost or untraceable since April, 2016 whereas those shares were pledged. NCLT dismissed the claim and this appeal came to be filed. Held: NCLAT dismissed the appeal with costs. It held that appellant had concealed the facts that civil proceedings in the High Court were pending and the disputes regarding pledge need not be entered into in this application. The appellant had failed to make out a case u/s 46 or 56 of the act and had not approached the Tribunal with clean hands. He suppressed the earlier litigation and had claimed that the shares were lost and later claimed theft. The respondents had justifiable reason to show they were in possession of the shares and they should not be directed to hand over the shares. Order of NCLT affirmed.

REDUCTION OF CAPITAL Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered NCLT/Mum/ 12.12.2017

Name of case

Salgaocar Corporation (P) Ltd., CP 289/66/NCLT/MB/ Disproportionat e reduction of MAH/2017 share capital

NCLT/MUM/ 6.12.2017

R-42

Particulars

Petitioner was a closely held family company. In this case, there was a family settlement arrived at in pursuance of which it was agreed to selectively reduce shares of certain shareholders within the family. Thus, the Tribunal allowed reduction of a part of the issued, subscribed and paid up shares belonging to specified shareholders without consideration. The said cancellation of share capital was in accordance with the family settlement and consent terms which were arrived at between the family members in the Bombay High Court.

Highway In this case the Tribunal approved reduction Concession One in the amount of share capital as per the Private Limited, CP special resolution. The special resolution

Case Digest: List of important pronouncements under Companies Act

Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered

Name of case

Particulars

CP/263/2017

263/2017

NCLT/Mum/ 6.12.2017

Adata Technology In this case the issued, subscribed and paid India (P) Limited, up share capital of the Petitioner Company CP/80/2017 being Rs. 27,54,05,500/- (consisting of 2,75,40,550 Equity Shares of INR l0 each fully paid-up) was allowed to be reduced to Rs. 2,04,05,500 consisting of 20,40,550

CP/80/2017

provided reduction from Rupees Fifty Four Crores Fifty Lakhs Fifteen Thousand and Thirty Rupees only consisting of 5,45,01,503 (Five crores Forty Five Lakhs one Thousand Five Hundred and Three) Equity shares of Rs.l0 (Rupees Ten) each fully paid up to Rs 45,73,55,250/- (Rupees Forty Five Crores Seventy Three Lakhs Fifty Five Thousand Two Hundred and Fifty only) comprising of 4,57,35,525 (Four Crores Fifty Seven Lakhs Thirty Five Thousand Five Hundred and Twenty Five) Equity shares of Rs. 10 (Rupees Ten) each fully paid up. Further, there will be reduction in the securities premium account not exceeding Rs. 33,82,91,431 and payment of cash to the shareholders amounting to Rs. 42,58,51,211/-. The regional director had raised several objections which were duly responded by the Petitioner by giving necessary undertakings. For instance, as there were non-resident shareholder, the company undertook to compliance of FEMA Regulations and filing of Form FC-TRS pertaining to pay-out to foreign shareholders with RBI. In the special resolution an approximate value of reduction of Securities premium was mentioned which was a upper limit. It was clarified that in the minutes to order, the exact amount of utilisation of securities premium account was specified.

R-43

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered

Name of case

Equity Shares of INR 10 each fully paid up) on account of cancellation of Equity Share Capital by paying off excess capital. The regional director had raised several objections which were duly responded by the Petitioner by giving necessary undertakings. For instance, in this case undertaking was given to comply with provisions of Income Tax Act. In this case both the director were Chinese Residents and the Petitioner Company undertook to comply with applicable provisions of Companies Act, 2013. The RD also questions the source of paying of the share capital to which the Petitioner company indicated, that it will be done from existing cash and cash equivalent.

Paying off excess capital

NCLT/MUM/ 16.11.2017 CP/227/2017 Reduction equity shares held by one shareholder

R-44

Particulars

Intelenet Global Services Private Limited, CP/227/2017

In this case application was filed for confirmation of the special resolution for proposed reduction of share capital which would result in return of capital in excess of the requirements of the petitioner Company and would result in restructuring of its Balance Sheet. The reduction of capital in the manner proposed would enable the Petitioner Company to have a rational capital structure which is commensurate with its business and assets. Thus, in this case, reduction was approved to reduce the Issued, Subscribed and paid-up Equity Share Capital of the Company by cancellation / reduction of 2,299,379 (Twenty Two Lacs Ninety Nine Thousand Three Hundred and Seventy Nine) Equity Shares of Rs. 10/- each held by Indianet Bidco Pte Limited at a premium of Rs. 430.90 per share and the company would pay a sum of 1,013,796,201.10 (Rupees One Hundred One Crore and Thirty Seven Lacs

Case Digest: List of important pronouncements under Companies Act

Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered

Name of case

Particulars

Ninety Six Thousand Two Hundred One and paise Ten only ) to Indianet Bidco Pte. Limited for the aforesaid reduction of capital Thus, resultantly, the issued, subscribed and paid share capital of the Petitioner Company was reduced from Rs. 930,333,040/- to Rs. 907,339,250/- (divided into 90,733,925 Equity Shares of Rs. 10/- each) on account of cancellation of Equity Share Capital. Further, the Securities Premium Account of the Petitioner Company was reduced to Rs. 6,935,588,688.90/- from Rs. 7,926,391,100/-. NCLT/MUM/ 3.11.2017

ACF Arts Properties Limited, NCLT/MUM/ 3.11.2017

and In this case, it was decided by the P shareholders to reduce share capital from Rs.10,80,000/- (Rupees Ten Lakhs Eighty Thousand only) consisting of fully paid up 10,800 Equity shares of Rs. 100/ (Rupees Hundred) each to Rs. 42,000/- (Rupees Forty-Two Thousand only) consisting of fully paid up 420 Equity shares of Rs. 100/(Rupees Hundred) each, without making any payment to equity shareholders for the equity shares so cancelled and extinguished. The shareholders whose shares are cancelled shall be those whose names appear in the register of members of the Company, as on 31st March, 2016 and shall specifically exclude those shares that are issued and allotted post 31st March, 2016. The amount equivalent to the amount of share capital so reduced shall be credited to the Capital Reserve Account. It is observed that the cancelled shares belong to individuals of the same family and it's their decision to reduce the Share Capital. Thus, in this case the Tribunal allowed selective extinguishment and cancellation of 10,380 (Ten Thousands Three Hundred and eighty) fully paid up R-45

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered

Name of case

Particulars

equity shares of a 100/ - (Rupees Hundred) each held by Ajit Singh, Jasjit Singh and Jasjit Singh HUF having an aggregate paid up value of Rs. 10,38,000/- (Rupees Ten Lakhs Thirty-Eight Thousand). The amount of share capital so reduced would be credited to capital reserve in the books of the company at the time of giving effect to the capital reduction. NCLT/Mum/ 27.9.2017

A2Z Online Services Private Limited, NCLT/Mum/27.9.20 of 17

Reduction selective shareholding held by shareholder who have acquired shares before a particular date

NCLT/MUM/ 23.8.2017 CP 33 of 2017

R-46

In this case, the Petitioner company wanted to cancel upto a maximum of 1,030,000 equity shares of Rs. 10/- each out of the existing paid up equity share capital of Rs. 10,420,730/divided into 1,042,073/- equity shares of Rs. 10 each and such reduction was proposed to be effected by cancellation of equity share capital without making any payment to equity shareholders against the equity shares so cancelled and extinguished. The shareholders who were entitled to such cancellation were those whose names appeared in the register of member of the company on the date prior to 31st March 2017. It however specifically excluded shares held by Premsagar Infra Realty Pvt Limited and those shares which are issued and allotted post 31st March 2017. The amount equivalent to the share capital so reduced was to be credited to Capital Reserve Account. The said reduction was allowed.

Kolon Investments In this case, it was proposed to reduce paid up Private Limited, CP equity share capital of the company of 33 of 2017 Rs. 1,52,00,000/- not by way of diminution in the par value per share but by way of cancellation of equity shares held by the equity shareholders as enlisted in Annexure 1 of that Petition and pursuant to receipt of their respective consents for cancellation of equity

Case Digest: List of important pronouncements under Companies Act

Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered

Name of case

Particulars

shares; against each shares cancelled by the Petitioner Company, it was proposed to provide the respective shareholders with debt receipts as per terms provided in Annexure – 2 of the Petition. Such capital reduction will be adjusted against the profit and loss account and consequently issued, subscribed and paid up capital of the company is hereby reduced from 2,77,60,000 divided into 27,76,000 equity shares of Rs. 10/- each fully paid to rs.1,25,60,000/- divided into 12,56,000 equity shares of Rs. 10/- fully paid. The Tribunal allowed the said reduction whereby paid-up equity share capital consisting of 15,20,000 equity shares of Rs.10/- each of the Company was reduced by providing debt receipt equivalent to 2% of face value of equity shares that were to be cancelled. NCLT/MUM/ Archroma India Tribunal allowed the company to reduce its 16.8.2017 Private Limited, capital from 2,68,035 comprising of 2,68,035 shares of Rs. 1/- each to Rs.1,84,015/CP/357 of 2017 CP/357 of 2017 divided into 1,84,015 equity shares of Rs. 1 each. The securities premium account amounting to Rs. 49,99,19,000/- pursuant to capital reduction. Thus, pursuant to capital reduction there would be a payment of cash amounting to Rs. 50,00,03,020 to the shareholders of the company. NCLT/Mum/ 22.6.2017 CA/2/2017

Petronet India In this case the share capital of the company Limited, CA/2/2017 was reduced from 100 crore divided into 10 crore shares of 10 rupees each to 1 crore rupees share divided into 10 crore equity shares of RS. 0.1/- each. The reduction is effected by paying off/returning paid up share capital to the extent of Rs. 9.90/- per share.

NCLT/CAL/ 11.1.2018

Arjun Private

Associates In this case, one of the shareholders (NK) Limited, had purchased shares at a premium for R-47

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered

Name of case

CP/355/KB/2017 CP/355/KB/201 7

Particulars

consideration other than cash (being paintings and sculptures). In a settlement arrived by the shareholder with the Income Tax Settlement Commission he had agreed to cancel the said share purchase transaction and treat the transaction as null and void. The company also consented to the cancellation of shares of NK. Thus, it was decided the approach the Tribunal (a) for reduction of capital by cancellation of the said share capital held by NK (b) reduction in the amount of securities premium account to the extent of the premium considered for this share transaction of NK. Thus, in accordance with the direction of the Income Tax Settlement Commission, the application was filed for seeking approval of the Tribunal for reduction of capital and the same was confirmed.

Saraswati Packaging Industries Pvt. Ltd., CP/146/Chd/Hr CP/146/Chd/Hry/20 17 y/2017

In this case, the Applicant-company was a Private Limited Company with an authorised share capital of ₹75 lakhs divided into 75000 equity share of ₹100/- each. The company proposed to reduce the fully paid up equity share capital of the company from ₹55,96,000/- (Rupees Fifty Five Lacs Ninety Six Thousands) divided into 55960 equity shares of ₹ 100/- each to ₹26,01,000/(Rupees Twenty Six Lacs One Thousand Only) divided into 26010 equity shares of ₹100/- each fully paid and simultaneously issue equivalent to 6% non-cumulative redeemable preference shares of ₹100/- each to the holder of equity share capital by the amount of which their capital has been issued. The said reduction was confirmed.

NCLT/Mad/

In this case, the Petitioner company sought

NCLT/Chd/ 17.1.2018

R-48

Cloudcherry

Case Digest: List of important pronouncements under Companies Act

Court/Month. Name of case Particulars Year of Case/Relevant Provision (date of the decision) Brief law point covered 12.1.2018 Analytics Private reduction/cancellation of Compulsorily Limited, Convertible Preference Shares of Rs.100/each held by the CCPS holders at a premium CP/20/66/2017 CP/20/66/2017 of INR 10,539.77 per share and the company shall pay a consideration of INR 4,45,48,717/at a price of INR 10,639.77. per share which included a premium of INR 10,539.77 per share to the CCPS holders for the aforesaid reduction of capital subject to the payment of taxes as may be applicable. In this case, RD had raised several objection which were duly responded. One of the objection was that CCPS can be converted into equity shares and that it cannot be redeemed at a premium and thus the RD contended that this scheme is against the terms of agreement which were framed at the time of issuance of CCPS. However, it was argued that as all the shareholders have agreed for this reduction, there cannot be any valid objection to their misusing their right to modify the terms of the issuance of the CCPS. Another objection was raised with respect to the premium which was being paid on the CCPS. However, the Petitioner company had clarified that the premium per share was the same as was received from CCPS holders at the time of their issuance. The company further clarified that no creditors have raised any objection to the said scheme and other shareholders have also approved the reduction. Thus, this objections was also duly responded by the Petitioner Company. Accordingly, NCLT approved the reduction.

R-49

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered

Name of case

NCLT/ALL/ Jubilant Clinsys 7.7.2017 Limited, CA/94/ALL/20 CA/94/ALL/2016 16

Particulars

In this case the Petitioner company has two types of optionally convertible noncumulative redeemable preference shares. The company wanted to reduce the share capital by extinguishing these preference shares. The same was to be effected by making payment to the preference shareholders. In this RD had raised objections. One of the objections was as regards compliance of FEMA/RBI guidelines as applicant company was WOS of a foreign company. Company gave an undertaking to this effect. In this case, NCLT considered a series of high court judgements like Elpro International Ltd (Bom HC), Hindustan Commercial Bank Ltd (Cal HC), Panruti Industrial Co. Limited (Mad HC), Reckitt Benckiser (India) Ltd (Del HC) as regards approval of reduction of capital. NCLT approved the reduction wherein all the preference share capital of the company was cancelled by paying of the preference shareholders.

DEPOSITS: DELAYS AND DEFAULTS Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) NCLT/Mum/ Royal Twinkle Insolvency Resolution Process was initiated 3.11.2017 Star Club Limited against the company which had defaulted to pay depositors. The application was Appl/576/MAH/20 NCLT/Mum/ dismissed, and the depositors were given 3.11.2017, 17 Appl/576/MAH/2 liberty to approach the Insolvency Resolution Section 73(4) Professional with their claim. 017 Section 73(4) R-50

Case Digest: List of important pronouncements under Companies Act

Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Application No. Phadnis CIRP was initiated against the company. The 416, Properties Limited Application under Section 73 was dismissed Application No. with the liberty to the Applicant- Depositor to 573/MAH/2017 416, appear before the IRP with their claims. Section 73(4) 573/MAH/2017 Application No. Valecha Time of one and a half month was given to 336 & 77 & Ors Engineering the company to repay 57 depositors. /MAH/2017/6.10/2 Limited , Application No. 017 Section 73(4) & 74 336 & 77 & Ors /MAH/2017/6.10/ 2017 IA NO. 17 of 2017 Valecha The petition was filed on 17.4.2015 for in Engineering extension of time before CLB. It came up for TCP/5/74(2)/2016, Limited, IA NO. hearing on 21.1.2016 where company was Section 74(2) 17 of 2017 in asked to provide a plan for repayment. The TCP/5/74(2)/2016 matter again came up on 22.2.2016 where company agreed to pay starting from the month of March 2016. On 17th October 2016, 2 depositors filed an application under Section 73 and they were repaid. The NCLT asked the company to submit the details of payment as per the order in Section 74 petition. It was noticed that only 5% of the total amount outstanding was paid. Thus, CP/5/2016 for extension of time was dismissed for non-compliance of order dated 20/2/2016. The dismissal was challenged in the NCLAT. In the NCLAT the appeal was withdrawn as the company asked for liberty to seek modification of the NCLT order under Section 420(2). Accordingly, company had filed an application under Section 420(2) read with Rule 11 of NCLT Rules for seeking modification/clarification of the order dated 22.2.2016 and 20.12.2016. The NCLT held that Section 74 orders are like execution orders and an application could be filed in a changed situation or filed for further compliance depending on the facts of the case. In this case, the company has paid a further R-51

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

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amount but the NCLT felt that the amount was not enough to give further time to the company. Thus, application for extension of time for repayment was dismissed. Application No. Birla Power As the respondent company has gone into 454/MAH/2017/ Solutions Limited , liquidation, the Petition was dismissed with Application No. liberty to the Petitioner- Depositors to 1.12.2017 454/MAH/2017/1. proceed with their claims before the Section 73(4) 12.2017 liquidator. CP No. 33 Premier Limited, On 1.5.2017, an order was passed directing /MAH/2017/25.07 CP No. 33 the company to pay principle amount /MAH/2017/25.07 alongwith interest on or before 9.6.2017. The /2017 /2017 company paid the deposits which were Section 74(2) claimed. As regards unclaimed deposits, the amount was kept in a separate bank account with the amount of deposit payable as per the contractual terms. In view of the above, the petition was disposed of with a direction not to withdraw monies from the separate bank account maintained for the depositors until all the unclaimed deposits are cleared. TCP No. 58/2015 Darshan Jewel The company was a private limited company Section 74(2) Tools Private and has accepted deposits from its Limited, TCP No. shareholders other than directors prior to 1st 58/2015 April 2014. Pursuant to the un-amended Section 74(2) the company had sought time to repay the said deposits on their due dates rather than within one year as the section 74 required. Subsequently, Government issued a circular where it was clarified that deposits accepted by private limited companies prior to 1st April 2014 from their members and directors and their relatives shall not be treated as deposits under the Companies Act, 2013 subject to certain disclosures. In light of the said circular, the petition was withdrawn as the amount due to members was no longer considered as deposits. P.S.: Similar order in Khemka Klothings Private Limited (TCP/51/2015)

R-52

Case Digest: List of important pronouncements under Companies Act

Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) CP No. 141/2016 Status Clothing The company has filed an application for Section 74(2) Company Limited extension of time to repay its depositors. The , CP No. 141/2016 company also filed consent letter from the depositor which mentioned the due date of repayment. In terms of the agreement, the extension of time for repayment was allowed. CA 67/2016 Iken Solutions Pvt Compounding of Section 75(1) was permitted Section 75 Limited, CA under Section 621A. 67/2016 TCP/129/2016 Manak Overseas Time was granted for repayment of depositors Section 74(2) Pvt. Limited, based on no objection certificate produced TCP/129/2016 from depositors. NCLT/CHD/CA IND Swift Limited Facts: The company had filed a company 8/2016 & CA , NCLT/CHD/CA petition under Section 58AA of the 1956 Act 39/2017 in 8/2016 & CA for extension of time to repay small 39/2017 in depositors. The company law board on 30th CP/27/2/2013/ CP/27/2/2013/8.1 September 2013 allowed the scheme of 8.12.2017 repayment proposed by the company with 2.2017 certain terms and conditions. The company was inter alia asked to pay a nominal interest rate 8% from the date of maturity to the date of repayment alongwith the contracted rate of interest till the date of maturity. The company in 2016 filed an application seeking further extension of time for repayment of deposits. Under Section 74 read with Rule 11, 15 and 73 of the NCLT Rules read with Section 58AA of 1956 Act. In its application, it showed the cheques that were issued monthly to the depositors. When the application came up for hearing, direction were issued to publish advertisement and making the list of depositors available for public. Some of the depositors filed their objections. In this case ROC was given notice and ROC office filed their objection to extension of time. During the course of the matter, another CA 39/2017 came to be filed where the company gave a fresh scheme for rescheduling the outstanding payment.

R-53

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

Particulars

The NCLT noticed that the losses of this company have increased since 2013. The applicant company stated that fixed deposits had come down from 99 crore in 2012 to 29 crore in 2016. Issue: Can the applicant company now be permitted to implement the order of the year 2013 w.e.f. from the date of order passed by this Tribunal? Whether this miscellaneous application filed in CP No.27/02/2013 is at all maintainable in view of the circumstances of the case? Held: The court observed that section 74 is a stringent provision and has to be interpreted in the light of the objective of safeguarding the interests of the fixed deposit holders. When once the company had sought the sanction of the scheme from the Company Law Board by bringing its financial position to its notice at the relevant time in the year 2013 and got the relief of long extension, there is no reason to accept the plea for further extension, especially as prayed in the latest application undertaking to abide by the original scheme, but with effect from the date of order of this Tribunal. The Company Law Board while sanctioning the scheme of payment in the year 2013, directed the company to file the affidavit once in three months on the state of repayment of deposits i.e. on 01.01.2014 with the Company Law Board with copy to the Registrar of Companies. It was also directed that failure to comply with the order shall attract the penal provisions contained in Section 58A (10) and Section 274 (1) (g) of 1956 Act. Tribunal held that financial position of the company should not be the only consideration, but the Tribunal must safeguard the interest of the deposit holders, who have already suffered such a huge delay.

R-54

Case Digest: List of important pronouncements under Companies Act

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

Particulars

CLB has granted a liberal time limit and thus there is no question of another extension. The legislature has laid down severe punishment in case of failure of the company to make the payments to the deposit holders within the extended time and this provision has to be implemented in letter and spirit. Further Tribunal held that second application for further extension of time is not permissible. Several judgements were cited. For instance, In “Autolite India Limited” CA No.179/2013 in File No.15/56/97-CLB, decided on 02.06.2014 by the CLB after initially fixing the scheme of repayment, on application had extended the time further. Again the Hon’ble Calcutta High Court in “Assambrook Ltd. v Manju Devi Singhania” (2011) 166 Comp Cas 7, decided on 21.06.2011. In that case also the company applied to the Company Law Board under Section 58A (9) of 1956 Act seeking repayments. The company was directed to make payments as per the order with interest at the rate of 10% per annum beyond the date of maturity. Two applications for extension of time were allowed by CLB in that case. The Tribunal however held that the judgements were irrelevant as the ratio of this case was different. The Applicant also cited the case “Jaiprakash Associates Ltd.” CA 01/2016 in CA No.25/10/2014, decided on 17.06.2016, wherein it was noticed that the company had paid an amount of ₹208.85 crores from the date of last order of the Company Law Board dated 22.12.2015. It was alleged that the company had been trying hard to dispose of the assets namely 10 Cement Plants at various locations, but the process was not completed and further time was granted by the Board upto 31.03.2017 to repay the dues aggregating ₹1079.31 crores.

R-55

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

Particulars

The Tribunal found that these judgements were not relevant and held that applicant company does not deserve any further extension of time even on facts. The company was directed to pay the arrears which remain pending till date to the depositors within a period of two months from the date of this order and was asked to keep on paying the rest of the amount strictly in terms of the order dated 30.09.2013 of the Company Law Board. NCLT/CHd/CA/13 Variar Benefit Applications were filed by numerous 0/ 2017 Fund Limited, depositors under Section 73(4), The NCLT/CHd/CA/1 defaulting company was a Nidhi company 18.12.2017 and it did not appear in the matters. The 30/2017 Section 73(4) NCLT held that respondent company was to repay deposits within the time specified in the order and further directed ROC to take appropriate action against the company and defaulting directors. NCLT/CHD/CP SRS Limited , At the time when this application was filed 21/2017 & Ors/ NCLT/CHD/CP already an order was passed in the Section 74(2) petition granting time to the company to 20.12.2017 21/2017 & Ors repay deposits. As time was extended by the Section 73(4) Tribunal and the time had not expired on the date of the hearing, the petitioner was disposed with liberty to approach the Tribunal again if need be. NCLT/CHD/CA SRS Limited, The petition under Section 74(2) came to be 106/2017 & Ors NCLT/CHD/CA filed in NCLT, New Delhi as the registered and CP 121/2016 106/2017 & Ors office of the company was in Haryana which and CP 121/2016 originally came in NCLT, New Delhi. The Section 74(2) company was a listed company which suffered losses on account of change in policies and other factors. The Board of directors devised a revised payment plan for depositors and the same was advertised. The application was thereafter filed in NCLT. The Tribunal asked the company to improve the repayment plan and finally on 20th October 2016 approved the extension of time. At that

R-56

Case Digest: List of important pronouncements under Companies Act

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

NCLT/ALL/ 37/2017 Section 74(2)

Particulars

time a hardship committee was also formed to enable early payment in hardship cases. The matter was to be listed quarterly for monitoring of payment. The company filed an application seeking relaxation is the interest component of two quarters after the demonitisation which was allowed on 2nd February 2017. The matter was transferred to Chandigarh NCLT due to the change in jurisdiction. The Company moved an application seeking further time. The court gave a detailed order on 20.12.2017 wherein it refused to grant further time inter alia holding that second extension is not permissible. It held that no further time be allowed to the company and asked the company to follow the schedule allowed by NCLT. It further directed ROC to launch prosecution on failure of the company to comply with the repayment plan. CP Jai Prakash Facts: In the earlier petition NCLT, Delhi has Associates granted extension of time for repayment upto 31st March 2017 and in the interim extension Limited, NCLT/ALL/ CP was granted by NCLT. The said order was 37/2017 taken in appeal and NCLAT had observed that no further extension be granted. The order of NCLAT was challenged in SC which had granted stay on order of SC. While the stay was pending another petition was moved in the NCLT seeking extension of time beyond 31st March 2017. During the time significant deposits had been paid. Issue: a. Whether a second petition is maintainable in light of the NCLAT order? b. Whether a fresh petition on similar grounds and circumstances for seeking further extension of time is maintainable or whether it operates as res judicata? Arguments: a. The company has paid a substantial R-57

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

Particulars

amount from 2014 to March 2017. Even after March 2017 till September 2017 a significant portion of O/S was paid. Only, few lakh rupees remained to be paid when the petition came up for hearing and they were withheld only due to lack of clearances from authorities. b. The reasons for delay in the previous company petition and this company petition were different. c. in the earlier company petition extension was requested only till 31st March 2017 whereas the prayer and the reasons in this company petition were different. Thus, principles of res judicata does not apply. d. The delay was caused due to delay in getting approvals in the scheme of arrangement for sale of unit. e. stay of the NCLAT order nullifies the order and acts as a plenary eclipse. Thus, the NCLAT order was due to the stay by SC not operative. [Smt Indira Gandhi vs, Raj Narain AIR 1975 SC 1590] f. the petitioner under sec 421 and 423 can only challenge the NCLT order. An application for further extension cannot be filed before appellate authorities. The order of NCLT is confined to extension till 31.3.2017. There is no reference of not granting any further extension. g. The ROC was also sent a notice and they observed that the matter can be considered on merits. Held: on the basis of the above submission, the payments which were made by the company between March 2017 and September 2017 were regularised by granting extension upto 13.9.2017. Further, the balance payments were asked to be deposited in a separate bank account with certain terms and conditions.

R-58

Case Digest: List of important pronouncements under Companies Act

Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) NCLT/ALL/ CP Jai Prakash An application was filed by the depositor. 65/2017/28.8.2017 Associates The depositor claimed the maturity amount Section 74(2) (principle plus interest) plus interest at the Limited, NCLT/ALL/ CP rate of 12.5% per annum till realisation of 65/2017/28.8.2017 amount. The NCLT at the date of hearing observed that time was extension under Section 74(2) for repayment. It further observed that the maturity amount has been paid, Thus, petition was disposed of with liberty to the depositor to approach appropriate court for seeking interest after the maturity period. NCLT/AHM/CP Plethico Facts: Several depositors filed applications 47/2017 & Ors. Pharmaceuticals under Section 73(4). The NCLT noticed that payments were not made for several years. At Section 73 Limited, NCLT/AHM/CP the time when these petitions under Section 73(4) were filed, a petition for winding up 47/2017 & Ors. was admitted by Madhya Pradesh High court and a provisional liquidator was appointed. Further, an order was also passed under the State’s Relief Act wherein it was noticed that no coercive actions were to be taken against the company. Held: NCLT held that Section 446 of the Companies Act, 1956 is operative as provisional liquidator has been appointed. Thus, no suit or legal proceedings can be initiated without the leave of the High Court which was not taken in case of these applications. Thus, in view of the above it was held that applications cannot be proceeded with. Depositor Applicants were given liberty to approach HC for refund of deposit amount. NCLT/AHM/CP Neesa Leisure Facts: The company has earlier approached 2/2017 (sec. 73(3) Limited, CLB for extension of time for repayment & CP 11/2016 NCLT/AHM/CP which was rejected. A fresh company petition (74(2)) & Ors. 2/2017 (sec. 73(3) under Section 74 was filed in NCLT. The & CP 11/2016 company had hardly paid any depositor despite some orders of CLB under Section 73 17th January 2018 (74(2)) & Ors Section 73 and 74 wherein deposits were directed to be paid. R-59

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

Particulars

Several applications were filed under Section 73 by depositors wherein the company requested that these matters should be stayed till the Section 74 is decided. No concrete plan for repayment was produced. Issue: a. Whether the remedy to approach NCLT under Section 73(4) is applicable for deposits accepted prior to coming into force of Section 73 and 74? b. Whether pendency of Section 7 application under IBC will affect the applications under Section 73 and 74? Held: The company petition under Section 74 was rejected. NCLT held that depositors can file application under Section 73(4) even for deposits accepted prior to the coming in force of Companies Act, 2013. The pendency of Section 7 petition of IBC where no order has been passed will not affect the present application. Company was directed to repay the deposit amounts within 30 days. NCLT/AHM/TCP/ Madhya Pradesh A scheme for repayment of depositors was 143/2016 Industrial filed in MP HC. It was decided that company was ready to pay 75% of the principal. The CA/157/2016 C Development company agreed to pay the deposits holder 17.1.2018 Corporation Section 74(2) Limited, Company who approved the scheme as per the decision Appeal NO. 232 namely 75 % of the principal. Further, as of 2017 regards those who challenged the scheme. HC has directed petitioner to pay 40% of the principal amount as an interim measure. The company agreed to pay this amount. The other depositors who had challenged the scheme were directed to challenge the scheme approved by pursuing the writ petition already filed. NCLT/AHM/ CA Makson Nutrition Petition was filed to seek extension of time 69/2015 Food India for repayment of one deposit of 6 crores from Private Limited, one depositor. This deposit was accepted 16.5.2017 NCLT/AHM/TCP under the old act and as per the Section 74 Section 74(2) /143/2016, was repayable by March 2015. The company R-60

Case Digest: List of important pronouncements under Companies Act

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) CA/157/2016

Particulars

showed the expansion plans and investment and showed that it was unable to make payment within that time and requested for extension for till 31st March 2016. The time was extended. NCLT/ND/CA Bimla Kothari and Facts: There were more than 300 applications 41/2016 & CP Ors v Unitech which were received under Section 73(4) 124/2016 & ors Limited Along which were considered. The company had with other initially approached CLB for extension of 6.10.2016 applications, time which was rejected. Section 73(4) NCLT/ND/CA Issue: Whether the remedy under Section 41/2016 & CP 73(4) is closed for deposits accepted prior to 124/2016 & ors the notification of Companies Act, 2013? Whether these depositors now have to approach civil court? Held: Depositor under old Act can also approach NCLT under Section 73(4). Rule 9 of the Companies (Acceptance of Deposits) Rules, 2014 clarifies the applicability of the provisions of Section 73 and Section 74 to deposits accepted prior to coming into force of the Companies Act, 2013. The Tribunal accepted the undertaking of the Company to sell certain parcels of land and use the proceeds exclusively to liquidate the liability towards the present applicants. However, it held that this would not prejudice the rights of the applicant to recover their dues from any other tangible assets of the R1 company. The depositors had also raised concerns about directors absconding and siphoning of funds. The Tribunal held that these issues are beyond the scope of this matter. NCLT/ND/CA Unitech Limited, All the applications were allowed and 1/17 and NCLT/ND/CA directions were given to repay depositors. 1/17 and Ors Ors./2.11.2017 Depositors were given liberty to recover their amount with up to date interest. ROC was Section 73(4) directed to initiate prosecution against the respondent company and its directors. NCLT/ND/CA/124 Unitech Limited, The present set of petitions were allowed and

R-61

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) / 2016 & others NCLT/ND/CA/12 depositors were given liberty to pursue /24.4.2017 4/2016 & others remedies for recovery of the amount. Section 73(4) NCLT/ND/CP/111/ Atlas Cycles The application for extension of time was 2016/7.11.2016 (Haryana) Limited allowed subject to the condition that there , would be strict adherence with the time lines. Section 74(2) NCLT/ND/CP/111 The company was required to submit a compliance report every succeeding month for compliance with terms of repayment. This matter was subsequently transferred to Chandigarh Bench. CP/109/2016/ Ansal Housing The Company filed petition with a proposal 3.10.2016 and Construction for repayment which did not find favour with Limited, the bench. Thus, a revised repayment Section 74(2) was provided. Newspaper CP/109/2016/3.10. schedule advertisements were given and objections 2016 were called for. The company showed its track records where it had not defaulted in the repayment of depositors in the past. The company also offered an additional rate of interest of 0.5% on account of delayed payment. Considering the facts of the case, the period was extended in a phased manner over 24 months. Provision was also directed to be made in Hardship cases.

TRIBUNAL CONVENED GENERAL MEETINGS Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered 2016 SCC Online Interport Global Facts: The company had two shareholders. NCLT 408 (MUM) Logistics Private Petitioner held 49% and Respondent NO. 2 Limited v held 51%. Each had one representative Netzland Wireless director. The company was incorporated India Pvt. Ltd. based on a JV agreement between the parties And Ors., 2016 and the same was terminated. The SCC Online Respondent NO. 2 was a German company NCLT 408 and they failed to cooperate despite several R-62

Case Digest: List of important pronouncements under Companies Act

Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered (MUM) notices. They also failed to appear in the Section 186 & 98 matter despite notices. The petitioner showed that there was complete deadlock in the company and Petitioner prayed that an order may be passed to call a general meeting of the shareholders to appoint a director to enable the board to complete necessary compliance and hold AGM for finalization of accounts. Held: NCLT held that it was impracticable to call a meeting and observed that ordinary business of the company had paralysed. It has become impracticable from a reasonable point of view to convene a meeting thus compelling the Petitioner to invoke the provisions of Section 186. Tribunal is statutorily required to intervene when there is a deadlock. Thus, the proposed director was authorized to convene a meeting and it was held that the director so nominated in the petition shall be deemed to constitute a quorum for the meeting so held and the meeting so held under Section 98 be deemed to be duly called, held and conducted. The NCLT also directed that agenda for the meeting should be placed before the NCLT and after obtaining the approval the meeting could be conducted within 15 days. 2016 SCC Online Prem Anand v Facts: This matter was filed in CLB and then CLB 167 Prisha Corporate transferred to NCLT. A petitioner and R2 Services Private were the only shareholders. They was no Limited , 2016 dispute between them. The main contention SCC Online CLB of the Petitioner was that R3 and 4 who were 167 the directors have resigned and the company is Board less. As the company has no board it Section 186 is not possible to convene an EOGM. This was objected to by R3 and R4. According to them even though a company is boardless a meeting can be called by requisition of members. As btween the members they are R-63

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holding requisite number of shareholding for calling EOGM, it is possible for them to hold an EOGM by requisition of members. Thus, the criteria of Section 186 of 1956 Act / 98 of the 2013 Act that it is impracticable to hold the meeting, is incorrect and Tribunal need not exercise powers under Section 186. Held: NCLT held that as it is possible for the member to convene a meeting by requisition and Section 168(3) of Companies Act, 2013 also empowers the promoter shareholder to appoint directors and there is no dispute between them. NCLT also referred to the Articles of Association which empowered members to call EOGM. Thus it held that it is not impracticable to hold a EOGM as law allows these members to hold meeting. Hence, this petition was dismissed. 2017 SCC Online Kashinath Facts: The Petitioner was holding 30% NCLT 976 Rajgharia v shareholding. An oppression and Section 167(1) of Vishnu Properties mismanagement case was filed in 2012 1956 Act; Section & Industries P which was disposed of in terms of the 97(1) of 2013 Act Limited , 2017 consent terms in 2016. Due to the pendency SCC Online of litigation, no AGMs were held and no NCLT 976 annual accounts were prepared. The Petitioner claimed that after the disposal of the CP, the respondent company ought to have completed the pending annual accounts and held AGMs. IN these circumstances, a petition was filed under Section 97 of Companies Act, 2013 to issue directions to call annual general meetings Held: The Petitioner was allowed and respondent company was directed to call AGM for 5 years for approval of the Annual Accounts and other financial Reports. 2016 SCC Online IJM (India) Facts: Petitioner and R-2 has jointly NCLT 380 Infrastructure promoted SITCO and R-1 company and held Section 167 of Limited v 51% and 49% respectively. There were Companies Act, Swarnandhra difference between the parties as regards R-64

Case Digest: List of important pronouncements under Companies Act

Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered 1956 IJMII Integrated certain expenditures for the year 2011-12. Township Due to the same, Andhra Pradesh Housing Development Co. Board (R-2) who is the only other Pvt. Limited, 2016 shareholders failed to adopt the accounts in SCC Online the AGM for 2011-12 and the said AGM was NCLT 380 adjourned and subsequently sought to be held Section 167 of on 30th September 2014. At the adjourned Companies Act, meeting, R-2 was not present and meeting 1956 was dissolved. R-2 appointed auditors for conducting an audit in accounts since inception and special audit report was made available to the R-1 company. Nominee directors of R-2 also failed to attend board meeting which were finally held. APHB informed that after the creation of state of Telangana certain internal changed were taking place and new nominee directors were to be appointed. It stated in a letter that annual accounts can be adopted only thereafter. The company informed them about the necessity for timely adoption of accounts. Applicant further pleaded that unless the meeting are allowed to be held for 31st March 2012 the accounts for later years are also held up. The petition was filed in 2014. The petitioner also stated that directors will face disqualification unless the accounts are adopted and filing are done. Issue: Whether NCLT has jurisdiction to entertain the petition? Whether Applicant was justified for not conducting board meetings/AGMs? Whether APHB is justified in not attending the board meetings/AGMs of SITCO? Whether Telangana Housing board is a necessary party? Held: NCLT held that it was empowered to direct holding of AGM. It was not justified for APHB to hold up the adoption of annual accounts. The applicant have shown their

R-65

NCLT and NCLAT Law Practice and Procedure, 7e

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bona fide in trying to hold AGM/Board meeting. It further looked at the law on the creation of new state and companies act and held that Telanga Housing board was not a necessary party. NCLT excused the default in holding 9TH AGM and directed the R-1 company to hold 9th AGM after serving statutory notice on both the shareholders for adopting accounts for year ended 31st march 2012. The Telangana board which is successor to APHB is directed to depute nominee directors to the said proposed AGM of SITCO so as to fulfill the required quorum The meeting shall be chaired by such person as provided in the articles. 2017 SCC Online Pawan Kumar Facts: The Petition was filed in 2016. The NCLT 374 Gupta v Savitri Respondent company held AGM in 2014 but Textiles India Pvt. failed to hold AGM in 2015. Petitioner was Section 167 Limited, 2017 originally one of the two director of the SCC Online company. CG who was the other director and NCLT 374 shareholders had filed an oppression and mismanagement case before CLB in 2015 which came to be dismissed by the CLB vide order dated 11th December 2015. Against the order of the CLB an appeal was filed in 2015. The dispute inter alia was pertaining to the audit of the accounts. A settlement was reached in the appeal and accordingly CG resigned as a director. Thus, consequently petitioner who left as the only director and he filed under Section 167 praying for an order directing holding of AGM. Held: AGM was directed to be held within 30 days on receipt of the order. A compliance report was to be submitted to the concerned ROC. NCLT observed that it is paramount as well as the intension of Companies Act to protect the functioning as well as the interest of the company. R-66

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Therefore it is always desirable to convene and call all the meetings as prescribed under the Act so that company should not infringe the provision of the act or to be treated to be under default. Holding of AGM is a statutory obligation. 2017 SCC Online Punjab National Facts: The financial creditor filed an NCLT 11883 Bank v James application under Section 60 claiming that Private time for holding an AGM should be allowed NCLT, Chandigarh Hotels Section 60 of Limited , 2017 to be extended due to several factors Insolvency and SCC Online including the fact that there were more than bankruptcy code NCLT 11883, 3000 shareholders and the details of NCLT Chandigarh transactions were proving difficult to compile and the suspended board of directors were not cooperating. Held: The NCLT allowed time for holding the AGM by exercising powers under Section 60 (5)(c) of the Code. NCLT/ND/CP Rattan Lal Garg Facts: Petitioners held 100% shares. They 211/2017 & Anr v claimed that they resigned as directors and Parmeshwar appointed other directors who were not Section 98 Buildtech P communicating and not cooperating for Limited, holding an EOGM. Hence this application NCLT/ND/CP was filed. 211/2017 Held: NCLT observed that shareholders are two in number and hold 100% of the share capital. Thus, under Section 100(4) and 1000(5), they can validly requisition a general meeting and a petition for this purpose is not required. The quorum is also fulfilled. Thus, Petition was dismissed as it was not impracticable to call a meeting. NCLT/MUM/CP/2 Sonali Nimish Facts: Petitioner and R-2 are the only 68/2017 Arora v Tresorie shareholder. Petitioner is holding around Traders P Limited 99% shares. She is also a director. She is Section 97 , seeking to hold a AGM for year 201, 2015 NCLT/MUM/CP/ and 2016. R2 despite receiving notices has remain absent for AGMs. One more prayer 268/2017 was that until the decision if the testamentary

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suit, the Petitioner be deemed to constitute a valid quorum for holding AGM. Held: Prayer for holding AGM was allowed based on the consent of both parties. Petitioner was allowed to attend in person or by proxy. It was recorded that consent by R2 to hold AGM would not prejudice his rights in respect of any suit or claim. Further, it is further observed that no concession be considered as granted in respect of any allegation in any legal proceeding. NCLT/HYD/CA73/ Dr. Subba Rao Facts: The petitioner and his group holds 2016 Pavuluri v Gagan 50% shareholding. The company application Aerospace was filed under Section 97 to appoint any Section 97 Limited, firm of chartered accounts as a statutory NCLT/HYD/CA7 auditors and to furnish their report to the shareholders for the years 2013-14, 2014-15 3/2016 and 2015-16. The application further prayed for R2 to 3 to extend full co-operation for holding AGM and for appointment of Independent Advocate Commissioner as a Chairperson for conducting the AGM. Petitioner claimed that respondent have tried to thwart every attempt to get the account audited. AGM also could not be conducted due to non- cooperation of Respondents. Held: The NCLT allowed the Petition. It appointed an auditor for auditing the accounts and a chairperson for conducting AGM. Respondent were directed to extend full cooperation. Auditor was directed to take up auditing the accounts and all parties were directed to provide necessary documents. The process was directed to be completed in three months. NCLT/AHM/CP/52 Renu Yajnik v Facts: The Petitioner is a daughter of IS. The /17 Kruppa Paints Pvt. R2 is a step mother of Petitioner. The Limited & Anr, petitioner is holding 96% of the shares. IS Section 98 NCLT/AHM/CP/5 and R2 were directors of the company and 24.08.2017 2/17 after IS died R2 was the only director. The R-68

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petitioner without following the procedure sought to appoint herself and her husband as directors. The same was challenged by R2 by writing to MCA. The petitioner filed this petition praying to conduct general meeting for purpose of appointing the Petitioner as a director and with a further direction that one Member shall constitute quorum. Held: The Petitioner ought to have sent a requisition to hold general meeting to R2 under Section 100(2). This would have necessitated R-2 to act under Section 174(2). However, Petitioner approached the NCLT without giving such requisition under the assumption that there is no valid board. Section 174(2) enable the continuing directors to act notwithstanding any vacancy. Thus, after the death of IS, R-2 is entitled to increase the number of director or summon a general meeting. Petitioner failed to send a valid requisition under Section 100(2). Further, it observed that conduct of Petitioner is questionable as it has approached the Tribunal after R2 filed a complaint against them in MCA. On the basis of these reasons, Petition was dismissed.

REOPENING OF ACCOUNTS Court/Month. Year Name of Case Particulars of Case/Relevant Provision; (date of the decision) Brief law point covered NCLT/Jan 19/SEC Union of India, Facts: The Petition has been filed by Union 130/ (01.01.2019) MCA - Petitioner v of India, MCA through Regional Director, Infrastructure Western Region, against Infrastructure Leasing & Leasing and Financial Services Limited, Financial Services IL&FS Financial Services Limited and Ltd - R1 IL&FS Transportation Networks Ltd under IL&FS Financial Section 130(1) of the Companies Act, 2013 R-69

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Court/Month. Year Name of Case Particulars of Case/Relevant Provision; (date of the decision) Brief law point covered Services Limited - seeking permission for: R2 1. Re-opening of the Books of account and re-casting thereof including financial IL&FS statements of the Respondents for the Transportation past five Financial Years viz. from Networks Ltd - R3, CP 4506/2018 Financial Year 2012-2013 to Financial Year 2017-2018. 2. Appointing such person/firm of Chartered Accountants to recast the accounts/financial statement of the Respondents for the past five Financial Years viz. from Financial Year 20122013 to Financial Year 2017-2018. 3. It was also requested to pass the order under Section 130 relating to the reopening of the accounts of the Respondent Companies on the basis of Preliminary report of ICAI and the report of SFIO. This application was opposed by the exdirectors and auditors of ILFS companies. They sought permission to file reply. Their preliminary grievance was that investigation proceedings against the companies are still pending and thus it cannot be concluded that accounts of the company are prepared in a fraudulent manner. Issue: Whether for invoking powers under Section 130, it is a precondition to hold that accounts were prepared in a fraudulent manner? Held: NCLT held that on perusal of Section 130 it is not necessary to opine that accounts were prepared in fraudulent manner. There are two pre-conditions for re-opening and even if one is satisfied, the Tribunal is empowered to reopen accounts. NCLT further observed that at this stage no opinion is being made on allegations against the auditors and this order without prejudice to

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their rights. It would not affect the proceedings against auditor that were ongoing in ICAI and that matter could be decided on its own merits. The petition filed under Section 130 of the Companies Act, 2013 for re-opening the books of accounts and recasting the financial statements of the Respondents for the past five financial years, viz. from Financial Year 2012-13 to Financial Year 2017-2018 has been allowed and Central Government was directed to appoint Chartered Accountants to recast the accounts/financial statements of all the three companies. It further held that an order for recasting the accounts will have no bearing on the main Company petition which is pending under Section 241-242 of the Companies Act, 2013. P.S: This order was challenged in NCLAT and SC. However, the order was upheld. NCLAT/ Jan19/ Hari Sankaran v Issue: Due to mis-management of Sec 130/ Union of India ‘Infrastructure Leasing & Financial Services (31.01.2019) Ministry of Limited’, ‘IL&FS Financial Services Corporate Affairs Limited’ and ‘IL&FS Transportation & Ors., Company Networks Limited’ (1st, 2nd and 3rd Appeal (AT) No. Respondents respectively), the Union of 29 of 2019 India, Ministry of Corporate Affairs filed petition u/s 133 of Companies Act, 2013 before the NCLT, Mumbai Bench (hereinafter referred to as ‘Tribunal’) wherein the Tribunal passed order dated 1st January, 2019, now the appellant who was the former vice-president and Director of IL&FS, challenged the order of NCLT (1.01.2019) on the ground that the impugned order was passed ex-parte through notice, and the Appellant sought time to file reply, but NCLT went ahead with the impugned order. Held: NCLAT held that even if the R-71

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Appellant wanted to file reply-affidavit, there is no ground on which the impugned order could be said to be illegal and hence refused to remand the matter to NCLT. P.S: This order was challenged in SC and was upheld. From the orders that were found by the author, it is observed that the auditors did not challenge the NCLT. This is understandable as the NCLT has expressly reserved their rights and permitted them raise their pleas in the proceedings pending before ICAI. SC/June19/Sec 130/ Hari Sankaran v. SC while upholding the order of NCLT and (04.06.2019) Union of India, NCLAT observed as follows: Civil Appeal No. “10. … At this stage, it is required to be 3747 of 2019 noted that as per Section 130 of the Act, the Tribunal may pass an order of reopening of accounts if the Tribunal is of the opinion that (i) the relevant earlier accounts were prepared in a fraudulent manner; OR (ii) the affairs of the company were mismanaged during the relevant period casting a doubt on the reliability of the financial statements. Therefore, the word used is “OR”. Therefore, if either of the conditions precedent is satisfied, the Tribunal would be justified in passing the order under Section 130 of the Act. Considering the order passed by the Tribunal passed under Section 130 of the Companies Act, it appears that the learned Tribunal has passed the order on being satisfied with respect to the second part of Section 130 of the Companies Act. It is also required to be noted that the learned Tribunal has also taken note of the preliminary report submitted by the ICAI with respect to the earlier accounts were being prepared in a fraudulent manner. On a fair reading of Section 130 of the Companies Act, if the Tribunal is satisfied R-72

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that either of the conditions precedent is satisfied, the Tribunal would be justified in passing the order under Section 130 of the Companies Act. 11. Considering the facts narrated hereinabove and the preliminary reports of SFIO and ICAI which came to be considered by the learned Tribunal and considering the specific observations made by the learned Tribunal while passing the order under Section 241/242 of the Companies Act and considering the fact that the Central Government has entrusted the investigation of the affairs of the company to SFIO in exercise of powers under Section 242 of the Companies Act, it cannot be said that the conditions precedent while invoking the powers under Section 130 of the Act are not satisfied. We are more than satisfied that in the facts and circumstances of the case, narrated hereinabove, and also in the larger public interest and when thousands of crores of public money is involved, the Tribunal is justified in allowing the application under Section 130 of the Companies Act, which was submitted by the Central Government as provided under Section 130 of the Companies Act.” Union of India, Facts: The allegations against C G Power Ministry of initially came to light when the auditors of Corporate Affairs v CG Power, M/s. Chaturvedi & Shah, CG Power & Chartered Accountant resigned before the Industrial Solution expiry of their tenure leaving a casual Ltd Ors, vacancy and therefore the said Company C.P.4127/130/2019 appointed Respondent No. 14 — M/s. K.K. 05.03.2020 Mankeshwar & Co., as statutory auditor. There was management dispute in CG Power. The then management caused an inquiry to be made through a law firm and filed a complaint about financial R-73

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irregularities with SEBI. Further, RD issued instructions to ROC to initiate inquiry under Section 206(1) of the Companies Act, 2013 against the Respondent No. 1 Company. The Petitioner submitted that the ROC after completion of the inquiry, submitted its report dated 05.11.2018 under section 208 of the Companies Act, 2013 and found various discrepancies. Central Government also ordered investigation of affairs of company and its subsidiary through SFIO on 6.11.2019. While all these investigation and inquiry proceedings were pending, a company petition was been filed under Section 130 of the Companies Act, 2013, by Union of India(UOI) and Ministry of Corporate affairs(MCA) seeking re-opening of the books of account and recasting of financial statements of CG Power and Industrial Solutions Limited (Respondent No. 1 Company) and its subsidiary companies for the past 5 (Five) Financial Years viz. from Financial Year 2014-2015 and also to permit the Central Government to appoint such person/firm of Chartered Accountants for the said purpose. Held: Company Petition was allowed. NCLT held that the law provides that even if there a doubt on the fairness of the financial statement, this is enough to order reopening of accounts. The Tribunal observed that the management of the company itself has reported irregularities. Tribunal observed that management has conducted its own investigation but this should not be sole basis for Central Government to take any action, the CG should conduct its own investigations in an impartial manner. Based on the outcome of investigating Agency’s Report due action be initiated against the

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erring/defaulting individuals found involved in fraud and irregularities committed by them while conducting the affairs of the Respondent No. 1 Company and its subsidiary companies. Thus, NCLT allowed the prayer and ordered reopening of the books of account and re-casting of financial statements of CG Power and Industrial Solutions Limited and its subsidiary companies for 5 (Five) years ended as on 31st March 2019.

REVISION OF FINANCIAL STATEMENTS Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered NCLT/AHM Cherntex Materials Facts: The company sought revision of /4.7.2017 Pvt. Limited, Director’s Report dated 12.8.2015 for the NCLT/AHM financial year ended 31.3.2015 in order to CP/66/2017 comply with the provisions of section /4.7.2017 Section 131 134(3). Copy of the Board resolution alongwith draft of the revised report was attached to the petition. The company contended that due to accidental and inadvertent mistake there was a noncompliance with the provisions of Section 134(3) of the Companies Act, 2013. The affidavit of proof of service on the RD, Income Tax and Auditor was filed. None appeared. Publication was made and filed. Held: NCLT allowed the petition. It observed that as per provision of Section 131 of the Companies Act, 2013 revised financial statements or revised report in respect of any of these preceding financial years can be filed by the Board of Directors of the Company to revise the report of the R-75

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NCLT/AHM /7.2.2018 CP/222/2017 Section 131

NCLT/CHD/ /14.12.2017 CP/156/2017 Section 131

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Board if it does not comply with the provision of Section 129 or 134 of the Companies Act, 2013. Jay Chemicals Facts: The company filed a petition in Industries Limited , 2017. It sought revision of the Board report v ROC, Gujarat, for the year ended 31.3.2015 for the reason NCLT/AHM that there was an omission in the Board /7.2.2018 , report in respect of reasons for not spending CP/222/2017 full amount on Corporate Social Responsibility. In the Board report the company had given details of the amount spent and amount unspent for the FY 201415. Only the reasons for not spending the entire amount were not mentioned. The ROC had issue a show cause notice dated 4.10.2016 to the company as to why the company and its officers should not be prosecuted for the violation of Section 134(8) of the Companies Act, 2013. The company replied to this letter. Notice of the petition was given to Auditor, Income Tax department and Regional Director and notice was published in the newspaper. The auditor sent a no objection letter. Held: The NCLT allowed the petition and directed the company to place the revised report before the General Meeting of the Company. It further held that this order permitting the revision of Board report for the year ending 31.3.2015 will not come in the way of prosecution against the company and its officer under Section 134(8) of the Companies Act, 2013. Vivo Mobile India Facts: The company sought revision of Private Limited, financial statements for the financial year NCLT/CHD/ ended 31.3.2016. The company after filing its financial statement for year ended /14.12.2017, 31.3.2016 found that an error had crept in CP/156/2017 the financial statement with regard to the

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recognition of the purchases made by the company during the financial year 2015-16 having been made with in line with the Accounting Statement (AS) 2 as notified in accordance with law. The cost of purchases should as per law exclude refundable taxes but accidently it was wrongly booked for FY 2015-16 including refundable taxes. This resulted in non-presentation of the true and fair view of the financial statements. The board took note of this in their meeting held on 1st June 2017. The proposed copy of the financial statement after revision of the financial year 2015-16 and resolution were annexed to the petition. The financial statement for the year ended 31.3.2016 and the revised financial statement was audited by the same auditor. Before the matter was listed the notice of the hearing was published and notice of the petition was directed to be served on Regional director and Income Tax department (IT). IT and RD did not objected to the petition. Held: The petition was allowed. The petitioner company was permitted to file the revised financial statement for the year 2015-16 in the manner prayed for and the petitioner was ordered to deliver the copy of the order to the ROC. Revised financial statements were directed to be filed with ROC within one month. Urenok Software Facts: The company had entered into a Solutions Private transaction with its related party (Soham Limited v Registrar Online). This transaction was such that of Companies, compliance of Section 188 of the Act was Hyderabad , not required. As per section 134(h) r/w Rule NCLT/HYD/ 8 of the Companies (Accounts) Rules, /13.11.2017, 2014, it is required that company should disclose the details of material related party CP/79/2017 transactions whether the transaction are R-77

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within /not within the arm length in the Board report of the company in form AOC2. The company had disclosed all the other related party transactions except the related party transaction entered into with Sohan Online. Therefore, the Board of Director decided to rectify the disclosures in AOC-2 for the financial year 2014-15 to ensure the compliance by the board resolution passed dated 7th August 2017. The revision is restricted to the directors’ report of the company. The proposed board report does not affect the interest/rights of any stake holders. The company published general notice as per rule 35 of the NCLT rules. The ROC in their letter observed that matter may be decided on merits and the applicant company shall be directed to file revised directors’ report after the confirmation of NCLT. Applicant company and ROC confirmed that company wants to revise its board report for the FY 2014-15 for complying the related party transaction in AOC-2 and further confirm that there is no revision in financial statement of the Applicant company and the proposed revision does not affect the Interest/rights of shareholders. Held: NCLT allowed the prayer for revision. It observed that the revision in the board report is to make proper disclosure about the related party transaction and to reflect transparency to the all the stakeholders. Thus, the present applications to permit revision of board report of the company for financial year 2014-15 for disclosing the related party transaction in form of AOC-2 was allowed with a direction to file revised form AOC-4 for the

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financial year 2014-15 with the registrar of companies with modified board report within one month from the date of receipt of the copy of the order. Further, the application company was directed to ensure full compliance with Rule 77 of NCLT Rules especially sub rule 7, 8 and 9. (2018) 210 Com Regional Director v Facts: The company sought revision of Cas 347 (NCLAT) Om Shakthy financial statements. The company made Agencies, (2018) regional director southern region, the roc 210 Com Cas 347 and income tax respondents. None of them 6.8.2018 Company Appeal (NCLAT), filed their objection and hence the right to NO. 232 of 2017 Company Appeal file reply/objections was forfeited. NO. 232 of 2017 However, company did not implead Central Section 131 Government as a party. A appeal came to be filed in this matter. Held: NCLAT allowed the appeal. It held that Central Government has not delegated the powers under Section 131 to regional director and hence central government is a necessary party. Direction was given to implead Central Government through its secretary, Ministry of Corporate Affairs, 5th Floor, A wing, Shastri Bhavan, Dr. R.P. Road, new Delhi as a party respondent.

TRIBUNAL DIRECTED INVESTIGATION Court/Month. Year Name of Case Particulars of Case/Relevant Provision; (date of the decision) Brief law point covered NCLAT/Feb20/ Vijay Pal Garg & Facts: An application was filed by the Sec 213/ Ors. (Appellants) v resolution professional under IBC for 04.02.2020 Pooja Bahry various frauds discovered by him. NCLT, (Liquidator in the observed that it held summary jurisdiction matter of Gee Ispat and it was not possible to peruse the Private Limited) voluminous documents submitted by

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Court/Month. Year Name of Case Particulars of Case/Relevant Provision; (date of the decision) Brief law point covered (Respondent), parties. In those IBC proceedings, NCLT (Company Appeal suo motu invoked powers under Companies (AT) Insolvency Act and directed an investigation to be No. 949 of 2019) conduct by central government. Issue: Whether Adjudicating Authority had incorrectly invoked section 210(2) of the Companies Act, 2013 while exercising jurisdiction under the provisions of 'I&B' Code? Held: NCLAT dismissed the appeal with certain important observations: Adjudicating authority under IBC is in fact NCLT under section 408 with respect to corporate person. Tribunal is a judicial body but it does not have trapping of a court. Resolution professional can file an application by pointing out his hardships /obstacles to the adjudicating authority. Investigation is not order on mere assumptions, presumptions, conjectures or surmises. Tribunal before issuing an investigation must give an opportunity to heard to the person who will be affected by such order and follow the principles of natural justice. Section 210 deals with two situations where central government can initiation investigation. It can initiate it at its own discretion. Or it must investigation is order to do so by NCLT. Under section 213 the NCLT can direct the central government to investigation and in such situation the central government does not have any discretion to refuse such investigation. However, the decision whether to refer the matter to SFIO is with the central government. NCLT has concurrent jurisdiction under IBC and Companies Act, 2013 and is

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competent to order investigation. If an investigating authority after completion of investigation comes to a conclusion that any offence punishable in terms of Section 213 read with 447 of Companies Act or under Section 68,69,70,71,72,73 of the IBC Code is/are made out then, the Central Government, may refer the matter to the ‘Special Court’ itself or may even require the ‘Insolvency and Bankruptcy Board of India’ or to authorise any person as per sec 236(2) of the I&B Code to file a complaint. Order of NCLT was upheld with few variations. NCLAT/Dec19/ Union of India. Facts: Two different applications were filed Sec 213/ Through Serious by the ‘Resolution Professional’ in respect 02.12.2019 Fraud Investigation of investigation into the affairs of the Office (SFIO) v ‘Luxury Train Pvt. Ltd.’ and ‘Zynke Maharashtra Exports Pvt. Ltd. NCLT in an IBC proceeding, directed the SFIO to investigate Tourism into allegations of siphoning of funds in Development Corporation & respect of public money which was noticed Anr., Company by the Adjudicating Authority by its earlier Appeal (AT) orders. Appeals were preferred by ‘Union (Insolvency) No. of India(SFIO)’ against the orders dated 964 of 2019 24th July, 2019 and 26th July, 2019 passed by the Adjudicating Authority, Principal Bench, New Delhi. Issue: Whether NCLT has jurisdiction to direct the SFIO directly to investigate about the fraud or siphoning of funds, if any, committed by the Company (Corporate Debtor)? Held: NCLT cannot directly direct SFIO to investigation into the affairs of the company. NCLT can direct central government to investigate. It is the prerogative of Central Government whether to assign the investigation to SFIO or other R-81

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investigation officers appointed by it. The decision was based on Appellate Tribunal’s decision in ‘Mr. Lagadapati Ramesh vs. Mrs. Ramanathan Bhuvaneshwari’’. Based on this decision, the order of NCLT was modified and Central Government was directed to conduct investigation. NCLAT/July19/Sec M.Srinivas v Facts: In the ‘Corporate Insolvency 213/24.07.2019 Ramanathan Resolution Process’ against M/s. Bhuvana Infra Projects’, the ‘Resolution Bhuvaneshwari, Company Appeal Professional’ brought to the notice of the (AT) (Insolvency) Adjudicating Authority (NCLT), Bengaluru No. 498 of 2019 Bench that the promoters of the ‘Corporate Debtor’ and its company defrauded a on 24 July, 2019 number of creditors of more than crores of rupees. The Adjudicating Authority by impugned judgment dated 16th April, 2019 dispose of Interlocutory Application in exercising of power conferred u/s 213 of the Companies Act, 2013, with following directions: In the result by exercising powers conferred on this Adjudicating Authority, which being NCLT, U/s 213 of Companies Act, 2013, I.A. No. 446/2018 in C.P. (IB) No. 122/BB/2017 is disposed with the following directions: 1) Learned Resolution Professional is directed to forward all material documents, which is connected to the present case including the Forensic Audit Report dated 14.12.2018, the Central Government, within a period of three weeks from the receipt of the copy of the order. 2) Learned Resolution Professional is also directed to furnish all the documents forwarded to the Central Government, to all parties/other side duly following principles of natural justice. R-82

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3) The Central Government is directed to refer the matter to the SFIO for further investigation into the Affairs of the Corporate Debtor, Bank of Maharashtra and other related Companies including Director of Companies of Corporate Debtor & related Companies and officials of Bank of Maharashtra basing on the Report of Forensic Audit Report, as expeditiously as possible. 4) Bank of Maharashtra is also directed to extend full assistance to the SFIO to complete the investigation as expeditiously as possible. 5) The parties are liberty to take appropriate legal course of action basing on the ultimate findings given by the SFIO in this case. 6) The prayer as sought for the application stand disposed of in the light of above directions. 7) No order as to costs.” The Appellant – ‘M. Srinivas’, majority shareholder of the ‘Corporate Debtor’ undergoing CIRP process, challenged the order dated 16th April, 2019 on the ground that the Adjudicating Authority has no jurisdiction to pass order u/s 213 of the Companies Act, 2013. Whether the ‘Adjudicating Issue: Authority’ which is ‘National Company Law Tribunal’ having dual jurisdiction under the ‘Companies Act, 2013’ and the’ Insolvency and Bankruptcy Code, 2016’ can direct the Central Government to refer the matter to the ‘Serious Fraud Investigation Office’ (SFIO) for further investigation into the affairs of the ‘Corporate Debtor’, Bank of Maharashtra

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NCLAT/Sept 19/Sec213/ R-84

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and other group of companies including the Directors of the companies of Corporate Debtor and group companies and officials of Bank of Maharashtra basing it on the ‘Forensic Audit Report? Held: Appeal was dismissed. NCLAT held In the case of “Y. Shivram Prasad Vs. S. Dhanapal & Ors.” - Company Appeal (AT) (Insolvency) No. 224 of 2018 etc.” disposed of on 27th February, 2019 the Appellate Tribunal held that the Adjudicating Authority has dual role of ‘Adjudicating Authority’ and ‘National Company Law Tribunal’ for the purpose of ‘I&B Code’. From Clause (b) of Section 213 of the Companies Act, 2013, it is clear that on an application made to it ‘by any other person’ or ‘otherwise’, if Tribunal/Adjudicating Authority is satisfied that there are circumstances suggesting that the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in a manner oppressive to any of its members, or that the company was formed for any fraudulent or unlawful purpose. Apart from the power conferred by Section 213 of the Companies Act, 2013, the ‘National Company Law Tribunal’ has inherent powers under Rule 11 of National Company Law Tribunal Rules, 2016. Therefore, in public interest, it is always open to the ‘National Company Law Tribunal’ after giving a reasonable opportunity of being heard to the parties concerned refer the matter to the Central Government for investigation’ Lagadapati Ramesh In this case again the question of inter play v Mrs. Ramanathan of IBC and Companies Act, 2013 were

Case Digest: List of important pronouncements under Companies Act

Court/Month. Year Name of Case Particulars of Case/Relevant Provision; (date of the decision) Brief law point covered 20.09.2019 Bhuvaneshwari, under consideration. Company Appeal NCLAT made following observations: (AT) (Insolvency) “27. The ‘offences and penalties’ as No. 574/2019 prescribed and dealt with in Chapter VII of 20th September, IBC and appropriate order of punishment 2019 can be passed only by way of trial of offences by a Special Court in terms of Section 236 of the ‘I&B Code’. However, no such Court can take cognizance of any offence punishable under the Act, save on a complaint made by the ‘Insolvency and Bankruptcy Board of India’ (IBBI) or the Central Government or any person authorised by the Central Government in this behalf. …… 28. Normally, the ‘IBBI’ or the ‘Central Government’ are not party to a ‘Corporate Insolvency Resolution Process’. Even if the matter is referred to ‘IBBI’, it cannot file straightaway a compliant before the Special Court without any investigation and only if a prima facie case is made out. Therefore, the question arises as to how in such cases the matter can be referred to by the ‘Adjudicating Authority’ to the ‘IBBI’ or the ‘Central Government’ for trial of offences by Special Court under Section 236 of the ‘I&B Code’. 29. In terms of sub-section (1) of Section 60, the ‘National Company Law Tribunal’ is the ‘Adjudicating Authority’ for the purpose of ‘I&B Code’. It is having concurrent jurisdiction as the ‘National Company Law Tribunal’ under the Companies Act, as also as the Adjudicating Authority under the ‘I&B Code’. 30. Section 212 of the Companies Act, 2013 though relates to ‘investigation into the affairs of company by Serious Fraud Investigation Office’ and such investigation

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can be made only if the Central Government is of the opinion that it is necessary to investigate into the affairs of a company by the ‘Serious Fraud Investigation Office’, ….. 31. From bare perusal of Section 212 of the Companies Act, 2013, it will be evident that such investigation into affairs of company can be made only on receipt of a report of the Registrar or Inspector under Section 208 of the Companies Act, 2013 or on intimation of a special resolution passed by a company that its affairs are required to be investigated; or in the public interest; or on request from any Department of the Central Government or a State Government. 32. Section 212 does not empower the National Company Law Tribunal or the Adjudicating Authority to refer the matter to the Central Government for investigation by the ‘Serious Fraud Investigation Office’ even if it notices the affairs of the Company of defrauding the creditors and others. 33. However, investigation into affairs of company at the instance of the Tribunal has been prescribed under Section 213 … 34. In terms of clause (b) of Section 213, on an application made to it by any other person (‘Resolution Professional’) or otherwise (suo motu), if the National Company Law Tribunal is satisfied that there are circumstances suggesting that (i) the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the company was formed for any fraudulent or unlawful purpose as alleged by the ‘Resolution

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Professional’ in the present case and or by; (ii) persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members etc., (which is also the allegation made by the ‘Resolution Professional’), in such case, the Tribunal after giving a “reasonable opportunity” of being heard to the parties concerned, that the affairs of the company ought to be investigated by an ‘Inspector’ or ‘Inspectors’ appointed by the Central Government and where such an order is passed, in such case, the Central Government is bound to appoint one or more competent persons as Inspectors to investigate into the affairs of the company in respect of such matters and to report thereupon to it in such manner as the Central Government may direct. 35. If after investigation it is proved that (i) the business of the company is being conducted with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose; or (ii) any person concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, then, every officer of the company who is in default and the person or persons concerned in the formation of the company or the management of its affairs shall be punishable for fraud in the manner as provided in section 447. 36. For punishment of fraud in a manner as prescribed in Section 447 of the Companies

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Act, 2013, the matter is required to be tried by a Special Court as established under Section 435 which requires speedy trial for offences under the Companies Act, 2013. The same Court i.e. Special Court established under Section 435 is the Court empowered under Section 236 of the ‘I&B Code’ for trial of such offence under the ‘I&B Code’ also. 37. In view of the aforesaid position of law, we hold that the Tribunal/ Adjudicating Authority, on receipt of application/complaint of alleged violation of the aforesaid provisions and on such consideration and being satisfied that there are circumstances suggesting that defraud etc. has been committed, may refer the matter to the Central Government for investigation by an Inspector or Inspectors as may be appointed by the Central Government. On such investigation, if the investigating authority reports that a person has committed any offence punishable under Section 213 read with Section 447 of the Companies Act, 2013 or Sections 68, 69, 70, 71, 72 and 73 of the ‘I&B Code’, in such case, the Central Government is competent to refer the matter to the Special Court itself or may ask the Insolvency and Bankruptcy Board of India or may authorise any person in terms of sub-section (2) of Section 236 of the ‘I&B Code’ to file complaint. 38. The National Company Law Tribunal is the Adjudicating Authority under Part-II of the ‘I&B Code’ in terms of sub-section (1) of Section 60, which reads as follows: …. 39. The Civil Procedure Code is not applicable for any proceeding before the Tribunal and in terms of Section 424, the

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Tribunal is guided by principle of natural justice and subject to other provisions under the Companies Act, 2013 or the ‘I&B Code’ or any Rule made thereunder. The Tribunal and the Adjudicating Authority have also been empowered to regulate their own procedure. 40. In view of the aforesaid position of law also, the procedure laid down under Section 213 of the Companies Act, 2013 can be exercised by the Tribunal/ Adjudicating Authority, as held above. 41. Further, after the investigation by the Inspector, if case is made out and the Central Government feels that the matter also requires investigation by the ‘Serious Fraud Investigation Office’ under Section 212 of the Companies Act, 2013, it is open to the Central Government to decide whether in such case the matter may be referred to the ‘Serious Fraud Investigation Office’ or not. This will depend on the gravity of charges as may be found during the investigation by the Inspector. 42. In view of the aforesaid position of law, we are of the view that the Adjudicating Authority was not competent to straight away direct any investigation to be conducted by the ‘Serious Fraud Investigation Office’. However, the Adjudicating Authority (Tribunal) being competent to pass order under Section 213 of the Companies Act, 2013, it was always open to the Adjudicating Authority/Tribunal to give a notice with regard to the aforesaid charges to the Promoters and others, including the Appellants herein and after following the procedure as laid down in Section 213, if prima facie case was made out, it could refer the matter to the Central

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Government for investigation by the Inspector or Inspectors and on such investigation, if any, actionable material is made out and if the Central Government feels that the matter requires investigation through the ‘Serious Fraud Investigation’, it can proceed in accordance with the provisions as discussed above. Impugned order shows parties have been heard on the charges claimed by the ‘Resolution Professional’.”

COMPROMISE AND ARRANGEMENT Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered (2018) 210 Com R. Systems Facts: A company application was filed for Cas 341 (NCLAT) International seeking direction of the court for a scheme Limited, (2018) 210 which contemplated reduction of share Com Cas 341 capital. The said scheme was rejected by 16.7.2018 Company Appeal (NCLAT) the NCLT on the ground that there is a No. 416 of 2017 separate section that is provided in the Companies Act which contemplated reduction of capital. The said order was Section 230 and 232 under appeal. Held: The NCLAT allowed the appeal. It held that Tribunal ought to have considered the explanation to Section 230 which provides that provisions of Section 66 does not apply. The NCLAT also observed the judgement under section 391 of Companies Act, 1956 viz. Investment Corporation of India Limited (1987) 61 Com Cas 92(Bom); Gujarat Ambuja Exports Limited, In re (2004) 118 Com Cas 265 (Guj); Panasonic Appliances India Co. Limited (CP 331/2013- Madras High R-90

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Court); Jyoti Inraventures Limited (Company Petition 263 of 2013- Andhra Pradesh High Court). It held that in light of the insertion of explanation it is not necessary to consider the judgement. Order of Tribunal was set aside and case was remitted to Tribunal. (2017) 203 Com Sunil Gandhi v A N. Facts: The company was in winding up Cas 330 (Delhi HC) Buildwell P Limited, and a scheme of compromise was pending. (2017) 203 Com The question should the compromise and Cas 330 (Delhi HC) arrangement be transferred to NCLT in view of the new rules of transfer, Or will it 15.3.2017 Company Appl NO. continue to be dealt with by High Court as 115 of 2016 & 2615 this company was in liquidation. Held: DHC held that the matter will not be of 2016 Section 391 read transferred and will be dealt with by High with Section 446 Court. The following is the ratio of the case: “27. On a conspectus of the above decisions, the following legal position emerges: (i) That the expression 'proceedings relating to winding up' is of the widest amplitude and content. (ii) The expression 'relating to' which is used synonymously with the expression 'pertaining to' is an expression of expansion and not of contraction. (iii) The expression 'relating to the winding up' is much wider and much more expansive than the expression 'arising out of'. (iv) That the argument, that subsequent to the subject notification coming into force on 15.12.2016, an application under section 391 of the Companies Act, 1956, would stand transferred to the NCLT automatically, even in the circumstance that a winding up petition against the same company has R-91

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been admitted by the company court, is fallacious, and nothing stands in the way of the Company Court from exercising jurisdiction and considering, a revival scheme proposed in relation to a company ordered to be wound up. The Company Court has powers vested in it under the Companies Act, 1956 to accept a scheme for revival of a company including a company that is being wound up until the ultimate step is taken or before the assets are disposed of, pursuant to liquidation. (v) Section 446 of the Companies Act, 1956 is wide in its scope and under the provisions of section 446(2), the Company Court, by virtue of a non obstante clause has the jurisdiction to entertain and dispose of an application under section 391 proposing a scheme in respect of the company, whether such application has been filed before or after the order of winding up has been made. (vi) 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. This manifestly indicates that in case of a company which has been ordered to be wound up by the Company Court, a scheme proposed for its revival, would be exclusively dealt with by the Company Court itself.

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(vii) All pending proceedings in relation to the revival of a Company in provisional liquidation, as in the present case, will continue to be dealt with by the Company Court under the applicable provisions of the Companies Act, 1956 including Section 446 of the Companies Act, 1956. (viii) The expression employed in clause 3 of the subject notification, 'other than proceedings relating to winding up' would operate as an exception to the subject notification. The rules of interpretation qua an exception require a strict construction in terms of the legislative intention. However, once the ambiguity or doubt about the applicability has been lifted, then the exception has to be given a wide and liberal construction. 28. Coming to the solitary submission made on behalf of the petitioners, in relation to the legislative intent qua the proceedings relating to revival of the Respondent Company, it would be pertinent to observe as follows: i. The winding up petition has been admitted and Provisional Liquidator has been appointed in terms of the order of this Court dated 08.03.2016. ii. Pursuant to the order dated 08.03.2016, the Official Liquidator has complied with the directions contained in the said order and taken over the possession of the assets, books, records etc., of the Respondent Company in provisional liquidation. iii. Applications being Company Application No. 2615 of 2016 and

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Company Application (Main) 115 of 2016, for revival of the Respondent Company have been pending adjudication before this Court, prior to coming into effect of the subject notification. iv. A bare reading of the subject notification itself and in particular Clause 5 thereof, shows that where the respondent has been served, the proceedings shall be retained by the Company Court and would not be transferred to the National Company Law Tribunal. v. Most significantly, the proceedings that are subject to transfer, within the meaning of the subject notification, would be independent proceedings relating to arbitration, compromise, arrangement and reconstruction, other than proceedings relating to winding up under the Companies Act, 1956. vi. In the proceedings relating to winding up, as in the present case, applications under the provisions of section 391 of the Companies Act, 1956, for the revival of the company in provisional liquidation, would constitute an exception, and would a fortiori fall outside the purview of independent proceedings which ought to be transferred to the National Company Law Tribunal, under clause 3 of the subject notification. 29. It would also be pertinent to observe that even otherwise, nothing that has been brought to the notice of this Court that requires proceedings in relation to a company that has been admitted to be wound up, and revival applications in

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relation thereto, to be transferred to the National Company Law Tribunal. In my view, it could not have been the intention of the Legislature in its infinite wisdom, to create a situation where, the scheme relating to the revival of company in provisional liquidation, pending consideration before the Company Court would be required to be transferred to and dealt with by the National Company Law Tribunal; leading to multiplicity of proceedings with the real possibility of conflicting decisions on the dissolution/winding up and/or revival of the respondent company. 30. In view of the foregoing, the issue that arose for consideration before this Court, is answered in the affirmative. The Company Court would exercise exclusive jurisdiction for adjudicating applications, in relation to the revival of the Company in provisional liquidation.” (2017) 203 Com Royalsoft Services Facts: A company petition for sanction of Cas 430 (NCLT) Limited, In re, scheme was filed. The RD has raised several Chennai (2017) 203 Com observation. One of the important Cas 430 (NCLT) observation was that to convert the company Chennai from public into private the procedure as 7.6.2017 required under 2013 Act should be TCP/30/CAA/2017 Section 391 read followed. Second, submission was that the with Section 100 to scheme contemplated selective reduction. 104 The shareholder is given a right to choose whether he wants to remain in the company. If the person does not choose, then he will be deemed to have accepted to opt out of the company. In this case, 90% consent of creditors was on record. Held: The scheme was sanctioned. The company gave a undertaking to comply with companies act to convert public company into private. Further, undertaking R-95

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was given as regards unclaimed amounts going to IEPF. (2017) 203 Com Zydus Healthcare The company proposed a scheme of Cas 153 (NCLT) Limited, (2017) 203 arrangement between Zydus Healthcare Ahmedabad Com Cas 153 Limited (ZHL) and Cadila Healthcare (NCLT) Limited (CHL). Under this scheme, it was proposed to transfer the India Human Ahmedabad 15.2.2017 Formulations Undertaking of CHL to ZHL. CAA/6/2017 Section 391 read CHL was listed and ZHL was unlisted. with Section 100 to ZHL was a subsidiary of CHL 104 Issue: Whether Section 233 is applicable? Whether shareholders meeting can be dispensed with? Whether creditors meeting can be dispensed with? Held: a. Section 233(14) gives an option to the company to use Section 232 Thus, Tribunal is empowered to exercise jurisdiction under section 232. b. As regards dispensation of shareholders meeting, the Tribunal did not go into the permissibility of dispensation. It held that there is another scheme and the present scheme is going to take effect only after sanctioning the scheme of a company namely BPIL with transferee company. In the consent letter shown of shareholders there is no reference that they are aware of these other scheme. Thus, the consent letter were not relied upon and Company was directed to hold shareholder’s meeting. c. It further held that as this scheme is based on sanctioning of other scheme with BPIL, it is not desirable to dispense with meetings of creditors. (2017) 205 Com China Development A composite scheme of arrangement was Cas 525 (NCLT) Bank Corporation v proposed between RCL, RTIL, Aircel R-96

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Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered Mumbai Reliance Limited, DWL, DDNL and SACPL. Communication, Initially, as the stage of company scheme (2017) 205 Com application, the company sought directions 14.8.2017 CSA/264/2017 & Cas 525 (NCLT) for holding only shareholders meeting. CSP/376A, 377, Mumbai Thus, at the first stage of application for 378, 379, 380 and directions, directions were given by the 381 of 2017 Tribunal to give notice to the creditors and to hold shareholders meeting. After the Section 230 to 232 compliance with the first stage, a company scheme petition came to filed and the same came up for hearing for admission. At the stage of admission, some of the creditors which were less than 5% in value of the total outstanding debt in aggregate and separately objected to the scheme. Held: a. Whether objections can be raised at the stage of admission of the petition? Objections can be raised by creditors at the stage of admission. There is no bar in the law. b. Whether it is imperative to hold shareholders meeting and creditors meeting without an application for holding shareholders as well as creditors meeting? Section 230(1) gives discretion to the Tribunal to decide kind of meetings are to be held and also gives it discretion to decide how the meeting are to held. While section 230(1) without any threshold limit allows a creditors also to file an application. This clause however cannot be construed to allow creditors to file objections without any threshold limit in view of Section 230(4). c. Is the company under an obligation to hold a creditors’ meeting as well or not? Whether objections can be raised

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without a threshold limited as provided in proviso to Section 230(4)? As regards the decision about which meetings to hold, The Tribunal will go by the application filed unless it finds any shortfall in procedure or any fraudulent element. Section 230(4) provides that a person who has received notice can vote at the meeting. This clause has to be read with Section 230(1) and only the category whose meeting is called can vote at that meeting. d. Whether the Tribunal has discretion to direct the company to hold members/creditors meetings other than the meeting as sought in the application filed by any of the categories mentioned in Section 230(1) or the 2013Act? Tribunal held “we do not say that Tribunal has no discretion to order creditors meeting as well” but in this case there the facts do not warrant calling of such meeting. The bench further held that as the objectors were less than 5%, the creditor-objectors have no locus. (2018) 208 Com Ritemed Pharma Facts: The Scheme of amalgamation was Cas 321 (NCLAT) Retail P Limited v rejected by NCLT on the ground that Official Liquidator Scheme of appellant (which is private and Anr., (2018) limited company) provides for allotment of 3.5.2018 Company Appeal 208 Com Cas 321 shares at a premium which is not No. 60/2018 (NCLAT) contemplated in Section 230 to 232.The company had argued that it is a prerogative Section 232 of the company to issue shares at a premium. Various judgement were cited. NCLT rejected the judgements by distinguishing them as they were all related to listed company. Held: The court relied on Miheer H R-98

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Mafatlal v Mafatlal Industries Limited (1996) 87 Com Cas 792(SC) and allowed the appeal. The NCLAT observed that Section 232(3)(j) which is a section giving power to the Tribunal to decide ancillary, incidental and supplementary matters in relation to merger and amalgamations. There is no bar to issue shares at a premium and Section 52 contemplates it. It is further held to be a prerogative of the company. (2018) 208 Com Associated A scheme was sanction in 2013 investment Cas 331 (Bom) Aluminium business and windmill business for Industries P Limited transferred from one company to another. v Registrar of The company after few years realised that 26.2.2018 Com App/580 and Companies, (2018) it was not entitled to the tax benefits for the 581/2016 in CP 292 208 Com Cas 331 windmill business due to the demerger of and 293 of 2013 (Bom) the winding mill business and sought to modify the scheme so that windmill Section 392 business would be retained by the transferor and remaining undertakings would be transferred to continue as per the scheme. Section 232 gives empowers the court to supervise the carrying out of compromise and arrangement and to make modifications for proper working Held: A order sanctioning a scheme is an order in rem. The said order sanctioning a scheme affects rights of several persons includes creditors, investors etc. and also creates liabilities in favour od person like income tax department. The transferee company has started earning revenue from the windmill business and it is more than 3 years since the scheme was allowed and the company has filed IT returns and thus created rights and liabilities towards income tax authorities. The permission to modify the scheme is not a mere technically change but goes to the essence R-99

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of the scheme. It would amount to recall of the scheme. Just because tax benefits cannot be taken does not mean that scheme is unworkable, On this ground the application for modification of scheme was rejected. (2018) 206 Com Wiki Kids Limited Facts: The scheme of amalgamation was Cas 147 (NCLAT) and Anr. v Regional rejected by the Tribunal. The scheme was Director, South East not objected by the authorities or by the region and Ors., shareholders or creditors. However, NCLT 21.12.2017 Com Appeal 285 of (2018) 206 Com observed that the scheme was for merger of 2017 6/2017 Cas 147 (NCLAT) a company held by promoter of Avantel Limited (Wiki Kids Ltd -WKL) with Avantel Limited a listed company. The value of WKL was only 22 lakh and as per the share exchange ratio, the value of the shares offered to shareholders of transferor company worked out to Rs. 5.05 crore. Thus, the Tribunal held that this scheme would only benefit the promoters of Avantel and was prejudicial to the public interest. The Tribunal further observed that material details like common directors, list of shareholders were not disclosed in the scheme. The Appellant counsel in appeal showed that the decision to merger was not opposed by any party or authority. Thus, the principle in Miheer Mafatlal vs. Mafatlal Industries Limited should be considered and Tribunal ought not to sit in appeal over the commercial wisdom of the shareholders and creditors. Held: The Tribunal has been constituted of judicial and technical members. The Tribunal has enough expertise to look into the scheme of amalgamation and can also see whether it is not just and fair to all shareholders. It has duty to act in public interest and needs to consider the overall interest of the shareholders. It is not R-100

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desirable to look into mathematical details but take a broad look at the scheme. Tribunal has the expertise to look so that unfair advantage does not flow does not flow to a group of shareholders. On the facts shown above, the NCLAT held that Tribunal was justified in rejecting the scheme. (2018) 206 Com National Multi Facts: A merger was proposed between Cas 501 (NCLT) Commodity National Multi-Commodity Exchange of Ahmedabad Exchange of India India Limited (NMCE) with Indian Limited, In Re, Commodity Exchange Limited. An (2018) 206 Com application was filed for seeking directions 31.1.2018 Cas 501 (NCLT) from court for holding/dispensing with CAA 97/2017 Ahmedabad meetings of shareholders/creditors. At that stage, Neptune Overseas Limited (NOL) objected to the scheme. NOL, the objector contended that it held 30.18% shares. There were several disputed pending pertaining to these shares and there were criminal and civil court’s orders pertaining to the said shares. There was also an order of confiscation of these shares. NOL however showed that the merger was not beneficial as inter alia the scheme entailed merger a merger of a asset rich, financially sound company NMCE with a company ICEX which was finically weak with excessive case outflows. Held: Tribunal relied on the judgement of Rainbow Denim Limited v Rama Petrochemical Limited (2002) 10 SCC 498. It allowed the companies to go ahead with the meetings of shareholders and creditors. NOL was given liberty to object at the stage of filing the petition before the scheme was approved. It further relied on Section 230(4) which has a proviso which does not allow any shareholders below 10% of the total shareholding to object to R-101

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the scheme and held that Section 230(4) is applicable even to merger and amalgamation under section 232 by virtue of Section 232(1) Section 232(1) provides that Section 230(3) to (6) shall also apply mutatis mutandis. It held that though the shareholding is in dispute, the Apex Court where the dispute as regards shares in pending had given MOL liberty to raise its objections and thus, they can raise the objections at the appropriate stage. (2017) 201 Com Kashinath R. Facts: A scheme came to be filed in Cas 613 (Bom) Jhunjhunwala and Bombay HC for sanction of a scheme of Ors. v Laxmichand compromise and arrangement between Bhagaji Limited and Respondent NO. 2 and its depositors. HC 22.3.2017 CA 85/2014 in CP Ors., (2017) 201 approved the scheme as per the scheme 76/1991 Com Cas 613 appointed a R1 to sell the property and (Bom) implement the scheme. R3 has successfully bid and acquired one of the properties of Section 392 R2 company. Appellant had made a rival claim of ownership with respect to the property sold to R3 and filed an application under section 392 of Companies Act, 1956 (This section allows companies to approach the court after the compromise or arrangement is allowed for seeking directions for effective working of the approved scheme). Applicants inter alia prayed for injunction on the property in dispute. Held: The HC dismissed the company application under section 392. It relied on the judgement of R. R. Rajendra Menon v Cochin Stock Exchange Limited where it was held that only such matters as are specified in the Companies Act, 1956 and its rules can be dealt with by the Company court. Only to that extent is the jurisdiction of company court barred. The HC held that the application could not R-102

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be considered for the following reasons a. reliefs do not relate to the scheme sanction by the court but seeks declaration of civil rights as regards title of the property. b. reliefs relate to property purchased by an action purchaser and does not relate to a company incorporated under Companies Act, 1956 c. the applicants are not interested in the affairs of the respondent No. 2 company or in the scheme of the company. d. the application is not made for the purpose of carrying out the scheme. (2017) 201 Com Asmitha Microfin Facts: There was a scheme of arrangement Cas 360 (T&AP) Limited v Share the company SHARE and Asmitha. The Microfin Limited, scheme involved demerger of certain (2017) 201 Com business from each company into the other 3.2.2017 CP 200 & 201 of Cas 360 (T&AP) company. As a part of the scheme 2016 Optionally Convertible Cumulative redeemable preference shares held by bankers were to be converted into ordinary shares and further provided for reduction in number of equity shares. In the company application direction were given to hold shareholders and creditors meeting. The creditors meeting were duly held. HDFC bank which was a objector to the scheme has received the notice of the meeting but inadvertently did not attend it. It filed a company application subsequently challenging the scheme. Held: The Tribunal has raised an issue whether a creditors who did not participate in the creditors meeting can later object to the scheme. The Tribunal however, allowed the bank to object considering the nature and extent of interest of the bank. NCLT observed that the company had R-103

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achieved the technical compliance of getting requisite majority from creditors. However, it held that Tribunal cannot go merely by technicalities but it has to cautiously examine the tenability of the objections especially when creditors are bankers who are entrusted with public money. The Tribunal held that the court has no expertise to evaluate risk of the scheme. The company was under the CDR mechanism and has entered into requisite agreements with bankers under the CDR scheme. The Tribunal held that the scheme of arrangement was allowed subject to the approval of the scheme by CDREG as it felt that the bankers would be in a better position to evaluate the risk of the scheme. NCLT, New M.J. Casting and Facts: In the Application (first stage) inter Delhi/Oct 2019/ Sec Others, [2019] 217 alia directions were sought by Applicant 230 to 232 of Comp Cas 598 Companies for the purpose of obtaining Companies (NCLT) direction to dispense with conducting of C.A. (CAA) meetings of secured and unsecured Act,2013 133/(ND)/2019 creditors. All the Transferor Companies connected with CA and Transferee Company have made their No. 1906 (PB) of submissions and documents were duly 2019 filed. Issue: Can a meeting of creditors be dispensed with if consent-affidavits are not obtained? Held: It was held by the NCLT that the convening and holding of meetings of shareholders and creditors were dispensed with whose consent-affidavits were placed on record and in the absence of consents obtained from certain class of creditors, the meeting had to be convened. A meeting of creditors cannot be dispensed with if consent-affidavits are not obtained from them. Various directions are proposed and compliance of the same was made strict. R-104

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The Application stands allowed as per the mentioned terms and disposed of accordingly. NCLAT, New Delhi Neptune Overseas Facts: The scheme of amalgamation (July 1, 2019) Ltd. v National between two stock exchanges. During the Multi Commodity pendency of first motion for seeking Exchange of India directions, the appellant has raised his Ltd. And Anr. objections. The appellant is the largest [2019] 216 Comp shareholder of one of the stock exchange. Cas 481 (NCLAT) Its objections inter alia were that merger Company Appeal would pre-emptively foreclose its (AT) Nos. 90,91 legitimate claims against lost opportunity and 324 of 2018 to dilute its stake at a proper offer and that the scheme was not in the interest of the shareholders. However, the shares of appellant were subjected to certain restrictions by FMC. Held:. The NCLAT held that the objector did not have any voting rights in respect of the shares held by it. Hence there was no reason to interfere with the order of the NCLT and order of the NCLT was affirmed. The regulator FMC in its order has inter alia had barred Appellant from exercising any voting rights. Thus, NCLAT held “The shares held by the Appellant in Respondent No.1 Company have been under eclipse since the Order passed by FMC on 23.07.2011 and the same were under eclipse when the shareholders meeting took place and the Impugned Orders were passed and the position remained the same when final hearing of this Company Appeals (AT) Nos.90-91 of 2018 and 324 of 2018 Appeal took place. In the period after we reserved this matter for Judgement, the parties have not moved us to say that any Orders in favour of the Appellant have been passed in the R-105

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litigations pending. The Third Impugned Order dated 27.08.2018 shows that when in NCLT, Judgement was reserved by Order dated 02.07.2018 (see para - 32) and some Order came to be passed by the Appellate Tribunal - PMLA, the Appellant had moved NCLT and sought and received rehearing. No such Motion has been brought before us and as such, we presume that the position regarding eclipse to the rights of Appellant and Kailash Gupta is still there.” NCLT, Mumbai GABS Investments Facts: Transferor company was a group (August 30, 2018) P. Ltd. v Ajanta holding company of several companies Pharma Ltd, [2019] which included transferee company. A 215 Comp Cas 293 merger was proposed which would result in (NCLT) promoter group directly holding shares in transferee company (rather than through C.S.P. Nos. 995 and group holding company). The transferor 996 of 2017 in C. S. company would be merged in transferee A. Nos. 791and 792 company where the net effect would be of 2017 that after the merger the promoter would directly holding shares in transferee company. In this scheme, income tax raised their objections. Held: NCLT held that the proposed scheme was only devised to benefit the four shareholders of GABS who are also the promoters of transferor and transferee company. The scheme was a façade to avoid huge tax liability and was not in compliance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. A private company is a separate legal entity and its assets can only be transferred and distributed by paying DDT at the applicable rate. The scheme did not propose any benefit to the thousands of shareholders of Ajanta Pharma Ltd. The scheme being unfair, unreasonable and R-106

Case Digest: List of important pronouncements under Companies Act

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against the public interest, the scheme was not sanctioned by the Bench. NCLT, Allahabad Kumar Ispat P. Ltd. Facts: This is the first stage application for (January 28, 2019) and Ors, In re, seeking directions with respect to ten [2019] 215 Comp transferor companies and 1 transferee Cas 409 (NCLT) company. The Applicant companies were seeking directions to convene separate meetings of Company Application No. shareholders and certain class of creditors C.A. (CAA) No. and dispensing with the requirement of 392/ALD/2018 convening meetings of certain class of shareholders and creditors. Issue: Can meeting of certain classes of creditors be dispensed with? Held: In cases where shareholders has given consents, the requirement of holdings shareholders meetings were dispensed with. In cases where companies were able to procure consents from more than more than 90% in value from creditors of a class, the meetings for that class were dispensed with. Delhi High Court Mascot Engineering Facts: An application is filed praying to (March 20, 2019) Co. Ltd. v Eastern recall the winding up order and to approve Medikit Ltd., [2019] revival of the company M/s. Eastern 216 Comp Cas 227 Medikit Limited (EML) under the revival (Delhi) scheme. This application was filed by Company Petition Eastern Medikit Ltd. Employees Welfare No. 516 of 2012. Munch (Regd.) and was supported by EML Workers Trade Union (Registered).The scheme broadly provided that workers will takeover the company and the shares of promoter and run the company. The application was made under section 391 of Companies Act, 1956 before high court. Held: The application seeking revival of company was dismissed. The HC made following observations: - the background of the entity filing application was not known. R-107

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-

NCLAT, (December 2019)

R-108

Full disclosures as regards to the financial statements and other relevant information were not made which is a mandatory requirement for filing a scheme. - The scheme sought to replace present management by reducing their share capital and allotting shares to workers and creditors. - HC noticed that the applicants essentially sought to take over the assets and management of the respondent Company. - HC observed that it is empowered to pierce the veil of apparent purpose underlying the scheme and can judiciously X-ray the same, to ascertain the real purpose underlying the scheme with a view to be satisfied as regards the fairness of the scheme. - Company Court must to satisfy itself that the Members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith. - In the facts of this case, HC held that there was nothing to show that the applicant represents the majority of the Ex. workers of the respondent company. HC thus rejected the scheme as it found the scheme to be unjust, unfair, unreasonable and lacking in bona fide. Delhi Joint Commissioner Facts: A joint petition was filed for 20, of Income Tax v seeking sanction of the composite scheme Reliance Jio of arrangement amongst the companies. It Infocomm Ltd. and was approved by the NCLT. An appeal was Ors., [2020] 218 filed against the NCLT’s order by the IT Comp Cas 486 Department contending that the scheme (NCLAT) would result in reduction of tax liability.

Case Digest: List of important pronouncements under Companies Act

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“The main thrust of the argument was that Company Appeal by scheme of arrangement, the transferor (AT) Nos. 113 and company has sought to convert the 114 of 2019. redeemable preference shares into loans i.e. conversion of equity into debt which is not only contrary to the well settled principles of company law as well as Section 55 of the Companies Act, 2013 but also would reduce the profitability or the net total income of the transferor company causing a huge loss of revenue to the Income Tax Department.” Issue: Can a scheme be sanctioned if it results in reduction of tax liability? Held: NCLAT dismissed the appeal. It relied on the judgement of decision of the Apex Court in “Department of Income Tax v. Vodafone Essar Gujarat Limited and Another”. It held that if it was found that the scheme resulted in tax avoidance or was not in accordance with the demerger provisions of the IT At, the IT department will be at liberty to initiate appropriate course of action as per law. The NCLT’s order of approval of scheme was upheld by the NCLAT. Delhi High Court Iyogi Technical A scheme proposed by the company (March 20, 2019) Services P. Ltd., In received approval only from 70 percent of re., [2020] 218 the value of unsecured creditors and hence Comp Cas 176 did not meet the threshold of approval i.e.“ (Delhi) three fourths of the value of creditors”. CA (M) No. 135 of Hence, a modified scheme was proposed 2016. and thus a fresh meeting was ordered to be called of secured and unsecured creditors to vote afresh on the modified scheme. NCLAT, New Delhi Regional Director, Facts: The scheme of amalgamation Southern Region, provided for merger of LLP with company. MCA and Anr v Transferor company was an LLP that Real Image LLP sought approval to a scheme of and Anr., [2020] amalgamation for merger with a transferee R-109

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered 218 Comp Cas 521 company which was a private company. (NCLAT) Initially, the petition filed fo amalgamation Company Appeal of LLP and Pvt Ltd Company was allowed (AT) No. 352 of by the NCLT by applying the principle of 2018. Casus Omissus Issue: Can principle of Casus Omissus be invoked when different statutes are governing Companies and LLPs exists? Held: Appeal against this order was filed by the RD and ROC in NCLAT and it was held, that these corporate bodies are governed by their own respective acts and not Companies Act, 1956. Thus, there was no occasion to apply the principle of Casus Omissus as provisions for conversion of LLP into a company and vice versa was already provided by the Companies Act, 2013 and LLP Act, 2008 respectively. The order of NCLT was set aside. NCLAT, New Delhi AD2PRO Global Facts: The scheme of arrangement was (September 25, Creative Solutions sanctioned by the NCLT subject to a pre2019) P. Ltd v Regional condition of transferor company paying the Director, (SER), entire tax liability outstanding to the IT Ministry of department and Service Tax authorities. Corporate Affairs However, the amount of liability was and Ors., [2019] challenged and under dispute by the 217 Comp Cas 443 company before the concerned authorities (NCLAT) and the final amount was yet to be determined. The NCLT order was Company Appeal challenged on this limited aspect. (AT) No. 98 and 99 Issue: Whether the Tribunal could impose of 2019 a precondition to make payment of alleged tax liabilities when the same is under dispute between transferor company and the concerned authorities for sanctioning of scheme of amalgamation? Held: On appeal to the NCLAT it was held, that the scheme had been approved and the rights of tax authorities had been lawfully protected as the appellants had R-110

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undertaken to satisfy the tax liabilities by the transferee company as determined by the competent forum. The condition imposed could not be sustained and the order of NCLT stands modified. NCLT, Mumbai Sajjan India Ltd. Facts: The sanction was sought for a (June 12, 2018) And Ors, In re, scheme providing for merger by absorption [2018] 211 Comp of three wholly owned subsidiaries Cas 102 (NCLT) transferor companies with the transferee C.S.P. No. company. During the hearing, the NCLT 1099/230observed that all the transferor companies 232/NCLT/MB/MA had either returned their lease hold to their lessor or has transferred their rights over H/2017 their lands to the third parties. For the transfer of rights, the transferor companies have received certain amounts as consideration after the proposed appointed date. Issue: What are the tax implication of consideration (for transfer of rights over lease hold property) that is received by transferor companies after the proposed appointed date? Held: The scheme of amalgamation was sanctioned by the NCLT. However, the scheme under consideration had proposed April 1, 2017 as appointed date of the scheme but NCLT observed that the transfer of rights over lease hold lands were executed after April 1, 2017. Since the consideration was received by the transferor companies after the appointed date, NCLT modified the appointed date by one year from 1 April 2017 to 1st April 2018 in order not to dilute the rights of the income tax authorities in calculating tax liabilities. The rest of the scheme was not altered. Following were the reasons assigned by for altering the appointed date: R-111

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“Further, it is also noticed that, the scheme under consideration has proposed April 1, 2017 as appointed date of the scheme. That means after the appointed date of the scheme by this Bench the transferor companies will be dissolved with effect from April 1, 2017. But interestingly, it has come to knowledge that the said transfer of the rights over lease hold lands are executed after the appointed date of the scheme, i.e., April 1, 2017. Since, the transferor companies have received the said consideration after the proposed appointed date from the transaction; it may be out of the purview of the income-tax authorities. As the appointed date which is proposed is April 1, 2017 and transactions have occurred after this date, hence, in my humble opinion, sanctioning of this scheme with the same appointed date, will deter the income-tax authorities to scrutinize the tax liabilities of the transferor companies.” P.S: The order of NCLT was modified and the said decision of changing the appointed date was set aside by NCLAT. NCLAT, New Delhi Sajjan India Ltd. Facts: In the order approving the scheme (August 20, 2018) and Ors, In re, of merger by absorption of three wholly [2018] 211 Comp owned subsidiaries transferor companies Cas 111 (NCLAT) with the transferee company, the appointed date was changed. NCLT ordered change Company Appeal in appointed date of the proposed scheme (AT) No. 244 of from April 1, 2017 to April 1, 2018 in 2018 order not to dilute the rights of the IT authorities in calculating tax liabilities. This modification was challenged in NCLAT under an appeal Issue: Can the appointed date be modified unilaterally? What is the status of consideration for transfer of rights over lease hold property that is received after R-112

Case Digest: List of important pronouncements under Companies Act

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proposed appointed date by transferor company? Held: It was held, that the transferee company had undertaken to satisfy whatever were the liabilities of transferor companies, including tax liabilities arising out of the transfer of lease hold rights. The contention was accepted by the NCLAT and appointed date of scheme was allowed to remain April 1, 2017 as proposed by the appellants in the scheme. NCLAT clarified that income tax authorities would be at liberty to proceed against the transferee company for the income tax liabilities, irrespective of the appointed date of the scheme. Order of the NCLT was modified. NCLAT, New Delhi Statesman Ltd. v Facts: The Appellant challenged the (August 8, 2018) Emaar MGF Land demerger. Firstly, it claimed that no notice Ltd and Anr., [2018] of the First Motion or the Second Motion 211 Comp Cas 155 was issued to the Appellant. It is stated that (NCLAT) Appellant was Judgement Creditor and Company Appeal entitle to Notice. The Appellant became (AT) No. 63 of Judgement Creditor on 12.05.2016. 2018 Secondly, it claimed that neither of the two resulting companies had undertaken to take over such liabilities, and that the dues couldn’t be recovered. Held: The appeal was dismissed with costs. NCLAT held that appellant had failed to raise any objections in response to public notice and hence cannot be heard in proceedings for sanction of scheme. It was also held, that there was no substance in objector’s contention that there would be no entity left to recover its dues as both demerged and resultant companies would be in existence. NCLAT, New Delhi K. J. Suwresh and Facts: The scheme of amalgamation was (October 24, 2018) Anr v Teamlease sanctioned by the NCLT, Mumbai and Staffing Services P. Chennai on applications made by the R-113

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Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered Ltd and Anr., [2018] transferor and transferee companies. The 211 Comp Cas 331 appellants claimed that they were directors (NCLAT) and shareholders holding 100% equity Company Appeal shareholders in one of the transferor (AT) Nos. 30 and company. They sought to challenge the 167 of 2018 amalgamation on the ground that no notice of amalgamation was ever served on them. Issue: Can a scheme of amalgamation be sanctioned without serving the notice to the shareholder? Is it enough to show that the appellants were privy to the amalgamation? Held: The appeal was dismissed by the NCLAT. Appellants had executed consent affidavits in their capacity as creditor of the companies which was placed on record proving that they had knowledge regarding the scheme of amalgamation and had also given their no objections in the capacity of a director of the creditor companies. The appellants handed over their shares and resigned as directors after signing share purchase agreement. Later, the same agreement was under dispute before arbitration. The objection raised by the appellants had no merit and the order of NCLT was upheld. NCLAT observed as follows: “What appears after going through such documents is that the Appellants were clearly aware of the proceedings relating to the scheme of amalgamation and had no difficulties initially but it appears that, as their transaction based on SPA landed in difficulties and so, now they want to raise grievances to the scheme of amalgamation on the plea that Notice to them also was necessary. Going through the material on record, we do not find that there is any substance in the grievance raised by the Appellants. Dispute relating to SPA is

R-114

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before Arbitration and Transferee Company is facing it. If Appellants had difficulty, they never went before NCLT to raise Objections although they knew about the amalgamation process going on. This being so, we are proceeding to reject both the Appeals.” NCLT, Ahmedabad Seal For Life India Facts: Application inter alia requested for (July 1, 2020) Pvt Ltd., In re., dispensation with the requirement of [2020] 222 Comp convening of meeting of class of creditors. Cas 75 (NCLT) Consent letters were obtained from such C.A. (CAA) No. class of creditors. 41/230Issue: Can the requirement of convening a 232/NCLT/AHM/2 meeting of creditors and shareholders be dispensed with when consent letters are 020 obtained? Held: NCLT held that meetings of equity shareholders of transferor and transferee company were to be dispensed with based on the consent affidavits placed on record and that the meeting of unsecured creditors of the transferor company was to be convened as no consent affidavits were placed on record. NCLT, Bengaluru HCL Eagle Ltd and The scheme of amalgamation provided for (June 24, 2020) Others., In re, merger of 4 transferor companies (which [2020] 222 Comp were wholly owned subsidiaries of Cas 187 (NCLT) Transferee companies) with transferee C.P. (CAA) No. company. Out of these five companies, 2 01/BB/2020 were based out of Bengaluru and rest three were in the jurisdiction of NCLT, Delhi. The approval for the scheme of amalgamation was given by NCLT, Bengalore with respect to the companies situated within its jurisdiction. While permitting the scheme, they considered the observations made by RD as inter alia provided as follows: - Liabilities arising out of non compliances section 135 shall be R-115

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transferred to transferee company FEA/RBI guidelines are to be complied - Tax liabilities and dues are liable to be paid by transferee company Transferor companies will hand over records of the company to transferee company for the purpose of section 239. High Court, Delhi Sunil Gandhi and A scheme was proposed for revival of a (February 17, 2020) Anr v A. N. company that was ordered to be would up Buildwell Pvt Ltd., by high court. This petition was filed under [2020] 219 Comp sections 391, 392 and 393 of the Cas 411 (NCLT) Companies Act, 1956. HC allowed the Company Petition scheme for revival of the company. It held No. 6 of 2019 that when a company is ordered to be wound up, the assets of it are put in possession of the Official Liquidator. The assets become custodia legis. The followup, in the absence of a revival of the company, is the realisation of the assets of the company by the Official Liquidator and distribution of the proceeds to the creditors, workers and contributories of the company ultimately resulting in the death of the company by an order under section 481 of the Act, being passed. But, nothing stands in the way of the Company Court, before the ultimate step is taken or before the assets are disposed of, to accept a scheme or proposal for revival of the Company. In that context, the court has necessarily to see whether the scheme contemplates revival of the business of the company, makes provisions for paying off creditors or for satisfying their claims as agreed to by them and for meeting the liability of the workers in terms of Section 529 and Section 529-A of the Act. In this case as scheme was approved by above 75 per cent majority of creditors and hence, scheme -

R-116

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was sanctioned. A commissioner was appointed to supervise the implementation of the scheme. High Court, Delhi Col. P.K. Uberoi Facts: In 2016, winding up petitions were (January7, 2020) (Retd.) and Another admitted by High Court against two v Vigneshwara companies Vigneshwara Developers Developwell P. Ltd. Private Limited and Vigneshwara and Others, [2020] Developwell Private Limited and 220 Comp Cas 262 provisional liquidator was appointed. The (Delhi) ex management engaged in mediation with C.A. No. 509 of several creditors and entered into 2018 in C.P. No. settlement with more than 80% of the 885 of 2015 creditors. The ex-management of the company in this backdrop filed an application under sections 391, 392 and 393 of the Companies Act, 1956(as compromise was proposed in a winding up petition in High Court). Many objections were raised as regards the financial capacity of the promoter to mobilise funds for the proposed project. Questions were raised about legality of the scheme. Held: HC held that scheme has approval of requisite number of creditor and in that event the HC will not interfere with the commercial wisdom of the creditors. It further held that even though the promoters had less funds than what was claimed by them, they were able to show unsold inventory of assets and may be in a position to mobilise resources based on unsold inventory and to generate funds once the scheme was approved by the court. The court also concluded that the scheme received approval of three fourth value of creditors which is the requisite majority and hence, scheme is approved. NCLT, Hyderabad KArix Mobile P. Ltd This is a joint application filed by the (June 30, 2020) and Others, In re., transferor companies and transferee [2020] 223 Comp company. The RD filed detailed R-117

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered Cas 277 (NCLT) observations. RD inter alia sought change C. P. (CAA) No. in the appointed date. It observed that the 157/230/HBD/2020 transferee company was not a holding connected with C.A. company of transferor company as on (CAA) No. appointed date. It became a holding 237/230/HDB/2019 company only subsequently. The scheme provided that as the transferee company is a holding company no shares will be issued to it. Thus, based on this submission it suggested change in the appointed date. NCLT allowed the scheme without modifying the appointed date. It held that scheme was in compliance with the statutory provisions and it would be effective from the appointed date as contemplated in the scheme. NCLT, Mumbai Kumaka Industries Facts: The company was a listed company. Ltd, In re., (2020) Certain conversion of partly paid shares 221 Comp Cas 448 into fully paid shares were objected by (NCLT) BSE and hence a scheme was proposed for ratification of changes in the shares that has taken place. The Scheme broadly provided as follows: (a) Ratification of reduction of 18,09,750 shares by conversion of 24,13,000 partly paid up shares to 6,03,250 fully paid up shares. (b) Reduction of share capital by cancellation and extinguishment of 10375 fully paid up shares allotted to 406 shareholders and transfer of fully paid up 10375 by the promoters at the rate of 0.005 paise per share to restore the rights of the said 406 shareholders. (c) Rearranging and numbering the distinctive numbers of shares to reconcile the same with the paidup share capital. (d) Issue and allotment of 21,04,865 fully paid up shares as bonus shares to the public shareholders of the company other than promoters. This scheme was objected to by the RD R-118

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and one sold shareholders holding 0.00012% of paid up capital. Issue: Two questions arose viz. does this scheme constitute a scheme of arrangement as contemplated by Section 230-232 and whether a shareholders holding less than 10% of the share capital can object to the scheme in light of Section 230(4) of Companies Act, 2013. Held: The NCLT allowed the application and held that said scheme was an arrangement. It observed that “That the term ‘arrangement’ envisaged by sections 391-394 of the Companies Act, 1956 as also sections 230-232 of the Companies Act, 2013, is a term capable of the widest import, is not res integra. The legislature, in its infinite wisdom, deliberately did not get down to the task of marking delimiters to the term ‘arrangement,’ aware as it was that arrangements can take on multiple hues and a bewildering assortment of forms. It is limited only by human ingenuity in finding solutions to corporate problems. Therefore, to make it conform to set parameters would be to do injustice to the statutory provisions, and this is certainly not what the lawmakers intended.” The objections of objectors was rejected on grounds that it was below the threshold limits and also due to lack of merits. P.S: This order was set aside by NCLT on 20th October 2020.

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Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered NCLAT, Delhi Ashish O. Lalpuria Facts: The order discussed above is (October 20, 2020) v Kumaka challenged in NCLAT by the single Industries Ltd and shareholder who objected to the scheme in Others, [2020] 223 NCLT. Comp Cas 334 Held: NCLAT allowed the appeal of the (NCLAT) objector though he held 0.00012%. It set Company appeal aside the order of NCLT where it has (AT) No. 136 of allowed the scheme of amalgamation. It 2020 observed as follows: “27. …The proposed scheme of compromise and arrangement should not be violative of any provisions of law and is not contrary to public policy. It is apparent from the records that there were irregularities and non-compliances from a very long time due to which Stock Exchange took action against the Respondent No. 1 Company and suspended the trading of its securities in the year 2002. Nothing has been brought on record that the Respondent No. 1 Company have taken any serious actions to make the requisite compliances so that trading of the shares of the company can be resumed. Non action of the Respondent No. 1 Company have serious impact on the investors who have invested their hard money in the company. These noncompliances and irregularities or any illegal act already committed cannot be ratified under the umbrella of “scheme” as envisaged under section 230-232 of Companies Act, 2013…. 30. …It is pertinent to note under section 230 (5) provides that a notice have to be given to authorities… The basic intent behind this provisions of law is that these authorities plays a vital role in the overall legal structure and should work harmoniously with the Tribunal in order to

R-120

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ensure that the proposed scheme is not violative of any provision of law and is also not against the public policy.’ 31. NCLT has overruled the objections raised by the Regional Director on the ground that the objections are mere on the procedural aspects and do not raise any illegality in the scheme or that it is against public policy. Even if the objections are procedural but it is the jurisdiction of the Tribunal that such procedural aspects need to be duly complied with before sanctioning of the scheme, as it would lay down a wrong precedent which would allow companies to do whatever acts without the compliances and confirmation of the Court and other sectoral and regulatory authorities and thereafter get it ratified by the Court under the Umbrella of “scheme”. It should have been contemplated that compliance of law in itself is a part of public policy. It is the duty of the Tribunal or any court that their Orders should encourage compliances and not defaults. 32. The Scheme under section 230 of Companies Act, 2013 cannot be used as a method of rectification of the actions already taken. Before the scheme gets approved, the company must be in compliance with all the public authorities and should come out clean. There must be no actions pending against the company by the public authorities before sanctioning of a scheme under section 230 of the Companies Act, 2013.” (August Avenir Finvest and Facts: The petition was filed for merger of Leasing P. Ltd. and 3 companies into one transferee company. Ors In re., [2019] RD inter alia raised an objection that 213 Comp Cas 174 transferee company was an NBFC and R-121

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered (NCLT) permission of RBI was required for C. P. No. 1152 of approval of any scheme of acquisition or 2016 transfer of control. The company claimed that it is not a NBFC and did not require registration as NBFC. RD has sent a letter to RBI and its response was placed before the NCLT. RBI claimed that the transferee company was illegally carrying on NBFC activities without the permission of RBI. Issue: Can a scheme of amalgamation be sanctioned if approval from statutory authorities is not obtained for conducting of business prior to amalgamation? Held: NCLT dismissed the petition in light of the response from RBI. It observed that the Tribunal cannot be an accomplice to illegality. It observed that approval of RBI is a must before proceeding further with the consideration of the scheme. P.S.: This order was appeal against by the companies. The appeal was dismissed. NCLAT (November Avenir Finvest and Facts: The scheme was disallowed by 8, 2017) Leasing P. Ltd. and NCLT as objections was taken by RD and Ors v Regional ROC to the scheme inter alia observing Dirctor and Anr., that approval of RBI was required as [2019] 213 Comp transferee company was an NBFC. The Cas 180 (NCLAT) transferee company disputed the fact that it Company Appeal was an NBFC. (AT) No. 323 of Held: On an appeal, NCLAT held that it 2017 was clear from letter of RBI that the transferee company was carrying on activities of NBFC illegally as no permission of RBI had been taken. This was brought before the NCLT by both the ROC and the RD. In view of the specific plea taken by RBI, the appeal was dismissed by NCLAT and the order of NCLT was affirmed. NCLT Mumbai RHI India Private NCLT rejected the scheme on following Limited and Ors., ground: R-122

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Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered Company Scheme “Considering the above factual details, the Petition No. 2199 of profit earning capacity and other 2019 financials of the Transferor-I and Transferor-II Companies, the share exchange ratio as per the valuation given by the Auditor and the Fairness Opinion given by the Merchant Banker appears to be too high which results in undue advantage/ enrichment to the shareholders of both the Transferor Companies and to the shareholders of the ultimate holding Company RHI Magnesita. Therefore, we are of the considered view that the Scheme is devised/ designed majorly to benefit the Two shareholders of Transferor CompanyI and few shareholders of Transferor Company-II which in turn the undue advantage ultimately flows to the shareholders/ holding Company, i.e. RHI Magnesita. In view of the above analysis, we are of the considered view that the Scheme appears to benefit only a few shareholders of Transferor Company to be unfair and unreasonable and contrary to the public policy, public shareholders of the listed Company therefore, we deem it fit not to sanction/ approve the proposed Scheme of Amalgamation.” NCLT, Jaipur (June Aloevera Tradelink Facts: An application was filed by 10 7, 2019) P. Ltd. and Ors, In transferor companies. Inter alia the re., [2019] 216 application sought dispensation from Comp Cas 208 convening and conducting of the meetings (NCLT) of shareholders and secured and unsecured C.A. No. 1/230-232/ creditors of the applicant companies. JPR/2019. Held: NCLT held that the applicant companies had failed to file individual consent affidavits of all the equity shareholders and hence applicant companies were required to hold a meeting of the equity shareholders. The meetings of the secured R-123

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and unsecured creditors were dispensed with in case of companies where consent affidavit of more than 90% in value of the creditors were provided. The application was allowed on the aforesaid terms. NCLAT, New Delhi Aloevera Tradelink Facts: NCLT, Jaipur did not dispense with (August 6, 2019) P. Ltd. and Ors v meeting of shareholders. The application Ostwal Physchem, was first filed in NCLT and it directed the [2019] 216 Comp companies to convene the meetings of Cas 217 (NCLAT) equity shareholders on their failure to file Company Appeal consent affidavits. (AT) No. 178 of Held: On appeal, NCLAT held, that the 2019. companies were able to show that it had filed consent affidavits of more than 90 percent of the shareholders expressing their “no objection” for amalgamation of the companies and had complied with the requirements to consider and approve the amalgamation scheme and hence convening of shareholders’ meetings was to be dispensed with. The meetings of creditors was already dispensed with by the NCLT. The order of NCLT was modified by NCLAT in appeal.

Abbreviations AAA Rules: Insolvency and Bankruptcy (Application to Adjudicating Authority) Rule, 2016 SC: Hon’ble Supreme Court NCLAT: Hon’ble National Company Law Appellate Tribunal NCLT: Adjudicating Authority IBC: Insolvency and Bankruptcy Code, 2016 Sec 7 Application: Application filed under sec. 7 of IBC by a financial creditor for initiating Corporate Insolvency Resolution Process against the corporate debtor. Sec 9 Application: Application filed under sec 9 of IBC by an operational creditor for initiating Corporate Insolvency Resolution Process against the corporate debtor. Sec 10 Application: Application filed under sec 10 of IBC by a corporate applicant for initiating Corporate Insolvency Resolution Process against the corporate debtor.

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Supreme Court Cases (with brief history) .................................................... R-127 National Company Law Appellate Tribunal.................................................. R-158

This case digest covers certain important cases of Hon’ble Supreme Court (hereinafter referred to as ‘Supreme Court’ or ‘Apex Court’ or ‘SC’) and NCLAT. In case of Supreme Court cases and NCLAT wherever deemed fit, the author has given a snapshot of the original case which was appealed against. In certain cases where the matter is remanded back from Supreme Court, the details of subsequent orders are also given. The details of the abbreviation used in this chart is given at the end of the Table.

SUPREME COURT CASES (WITH BRIEF HISTORY) This section covers cases that reached the Supreme Court. We start with a background of the order passed by NCLAT or the Adjudicating Authority (hereinafter referred to as ‘NCLT’) wherever the author feels that a background is needed to understand the final decision of the Supreme Court. Further, in certain cases where the matter is remanded back from Supreme Court, if available, the subsequent decision of NCLT/NCLAT is also provided in this chart. Court/Month. Name of case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

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NCLAT/Nov1 Agarwal Coal 7/IBC/sec. 9 Corporation Private Limited v Impex Ferro (24.11.17) Tech Limited

Issue: The operational creditor & corporate debtor jointly filed an application on 17.11.17 to withdraw the petition on account of settlement between the parties.

Rule 8 of the AAA Rules.

Held: The appeal was disallowed. By virtue of Rule 8 of Insolvency & Bankruptcy (Application to Adjudicating R-127

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Authority) Rules, 2016, withdrawal of the application after admission was not permitted. Extract of Rule 8 is reproduced below: Withdrawal of application—The Adjudicating Authority may permit withdrawal of the application made under rules 4, 6 or 7, as the case may be, on a request made by the applicant before its admission. NCLT held that, since the application was already admitted on 09.11.2017 and that only the communication with IBBI was pending for appointment of IRP – application for withdrawal cannot be admitted. SC/Dec17/IBC Impex Ferro Tech / sec. 9 Limited v Agarwal (11.12.17) Coal Corporation Private Limited

Issue: The operational creditor & corporate debtor aggrieved by the order of NCLT, Kolkata appealed the SC.

NCLT/Kol/Dec Agarwal Coal 17/IBC/sec. 9 Corporation Private (18.12.17) Limited v Impex Ferro Tech Limited

Issue: The corporate debtor submitted the order dated 11.12.17 of SC whereby the Hon’ble SC exercised the powers under Art.142 of Constitution of India.

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Held: SC exercised its powers under Art.142 of Constitution of India to put quietus to the matter. The terms of settlement entered by the parties on 17.11.17 were taken on record & SLP was disposed off. It was further held that, the judgment of NCLT will accordingly be substituted by the present order.

Held: The order passed by NCLT was substituted by the order of the Hon’ble SC. Accordingly the insolvency proceeding was closed & order for initiation of insolvency resolution process was withdrawn. IRP was directed to submit the bill, so that the operational creditors could make the

Case Digest: List of important judgments under IBC

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payment. NCLT/Mum/Ju Mona Pharmachem v l17/IBC/ Uttara Foods & Feed sections 8&9 Private Limited (19.07.2017)

Issue: Operational creditor filed an application under sec. 9 of IBC against Uttara Foods & Feeds Pvt Ltd. claiming a debt of INR. 22,26,672/- and successfully proved that the corporate debtors had defaulted in the payment. Held: Application u/sec. 9 was admitted. NCLT, Mumbai being satisfied with the application, which is in compliance with the provisions of IBC admitted the application & declared moratorium accordingly.

SC/Nov17/IBC Uttara Foods And /sections 8&9 Feeds Private (13.11.17) Limited v Mona Pharmachem Rule 8 of the AAA Rules read with Rule 11 of the NCLAT Rules, and Article 142 of the Constitution of India

Issue: The operational creditor & corporate debtor sought leave to withdraw the matter already admitted since the matter was amicably settled between them.

NCLT/PRN/

Issue: On filing of an application to initiate

Macquarie Bank

Held: Leave was granted. The Hon’ble SC took on record the settlement terms between the parties & annulled the order passed by NCLAT. Further, SC observed that in view of Rule 8 of AAA Rules, NCLAT prima facie cannot avail the inherent powers recognized by Rule 11 of the National Law Appellate Tribunal Rules, 2016, to allow a compromise to take effect after admission of the insolvency petition. Hence, instead of such orders coming to the SC as only the Supreme Court may utilize its powers under Article 142 of the Constitution of India, the Hon’ble SC ordered the competent authorities to amend the relevant Rules so as to include the inherent powers with NCLAT.

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Court/Month. Name of case Year of Case/Relevant Provision; (date of the decision) Brief law point covered May17/sec. 9 Limited v Shilpi Cable (24.05.17) Technologies Ltd. (IB)-64(PB)/ 2017 (IB)-65 (PB)/2017

Particulars

the corporate insolvency resolution process under sec. 9 of the code, the respondents raised the following issues: 1. The applicant is not an operational creditor, because neither any goods have been supplied by the applicant nor any service is rendered by him. 2. The Arbitration Proceedings have been deemed to commence and hence application cannot be admitted. 3. Lastly, the respondent pointed out that the applicants should have filled up the name & address of the Power of Attorney in Col.No.6 instead of details of the Legal Firm. Held: The Application was admitted. 1. NCLT held that, the 1st issue raised by the respondent is baseless, as sec. 5(20) of IBC define an operational creditor as : 20. “Operational Creditor” means a person to whom an operational debt is owned and includes any person to whom such debt has been legally assigned or transferred.” 2. The 2nd argument was also rejected by NCLT. It was held that by virtue if sec. 8(2)(a) of IBC, the corporate debtor is required to bring to the notice of the operational creditor within a period of 10 days of receipt of demand notice. In the present case, the operational debt, nor the arbitration was disputed. Also, there was no dispute regarding the quality & quantity. Hence, no merit was found. 3. The Last argument was also rejected on the basis that it was an insignificant error

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& a condonable default. It cannot be a basis to reject the application. NCLAT/Aug1 Shilpi Cable 7/IBC/sec. 9 Technologies Ltd. v Macquarie (01.08.2017) Bank Limited

Issue: The corporate debtors question the admission of Application preferred by the respondent (Macquarie Bank) under sec. 9 on the grounds that, the application was not complete. Held: NCLAT declared the admission of application under/sec. 9 as illegal & NCLAT set-aside the order passed by NCLT, Principal Bench. NCLAT observed that the respondent has not enclosed any certificate from “financial institution” as defined under sec. 3(14) & further held that Section 8 notice cannot be sent by lawyer. In view of the above facts, NCLAT observed that similar issue was decided in the case of Macquarie Bank Ltd. v Uttam Galva Metallics Limited, and it was held that: 10. We thereby, hold that ‘Macquarie Bank’, Australia not being a ‘financial institution’ within the meaning of subsection (14) of Section 3 of the I & B Code, any certificate given by the said bank cannot be relied upon, to decide default of debt. 19. In the present case, as the notice has been given by an advocate/lawyer and there is nothing on the record to suggest that the lawyer was authorized by the appellant, and as there is nothing on the record to suggest that the said lawyer/ advocate holds any position with or in relation to the appellant company, we hold that the notice issued by the advocate/ lawyer on behalf of the appellant cannot be treated as notice under R-131

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Section 8 of the I & B Code. And for the said reason also the petition under Section 9 at the instance of the appellant against the respondent was not maintainable. SC/Dec17/IBC Macquarie Bank (15.12.17) Limited v Shilpi Cable sec. 9(3)(c) & Technologies Ltd. sec. 8(1) read with Forms 3 and 5 of AAA Rules.

Issue: The respondent appealed against the order passed by NCLAT and sought restoration of the NCLT order admitting the petition. Two questions of law were involved: (a) Whether the provisions of providing bank certificate (under sec. 9(3)(c)) for filing petition for a operational creditor is mandatory? (b) Whether a demand notice of an unpaid operational debt can be issued by a lawyer? Held: Appeal is allowed and application is admitted. (a) Bank certificate is not a mandatory requirement. The true construction of sec. 9(3)(c) is that it is a procedural provision, which is directory in nature, as the AAA Rules read with the Code clearly demonstrate. It is not a condition precedent to the allowing of an application filed under sec. 9(1). The Important condition precedent is an occurrence of “default”, which can be proved by means of other documentary evidence. Therefore, the facts of this case show that the so called condition precedent, cannot be put as a threshold bar to the processing of an application under sec. 9. (b) With respect to the 2nd issue, it was held that lawyer can send a notice under

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sec. 8. Reliance was placed on Byram Pestonji Gariwala v. UBOI, & at para.47-48 it was held that : “any appearance, application or act in or to any court, required or authorized by law to be made or done by a party in such court, may except where otherwise expressly provided by any law for the time being in force, be made or done by the party in person, or by his recognized agent, or by a pleader, appearing, applying or acting as the case may be, on his behalf: Provided that any such appearance shall, if the court so directs, be made by the party in person.” Hence, the expression “an operational creditor may on the occurrence of a default deliver a demand notice....” under sec. 8 of IBC must be read as including an operational creditor’s authorized agent and lawyer, as has been set out in Forms 3 and 5 appended to the AAA Rules. NCLAT/May1/ JK Jute Mills sec. 9 Company Limited v M/s Surendra Trading Company.

Issue: Whether the time limit prescribed in IBC for admitting or rejecting a petition or initiation of insolvency resolution process is mandatory? Held: The appeal is allowed. NCLAT was of the opinion that, to decide this question, it is desirable to notice different time limits prescribed under IBC. I. The time limit prescribed u/sec.33 II. Provisions contained in sec. 7(5) or sec. 9(5) & sec. 10(4). III. The 7 days period for rectification of defects.

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IV. Sec. 12 is a time limit for completion of insolvency resolution process. V. Term allowed to “IRP” under sec. 16. After a detailed observation of different time limits prescribed under IBC, it was concluded that time is the essence of IBC, but it is seen that on failure to do so, the adjudicating authority is competent to pass appropriate order. I. In case resolution process is not completed within the time prescribed u/sec. 33 it would lead to initiation of liquidation proceedings, which may affect the corporate debtor, which otherwise was not required to be initiated. In the present scenario, the IBC does not bar or render Adjudicating Authority powerless to admit or reject an application. II. Further, nature of provisions contained in sec. 7(5) or sec. 9(5) & sec. 10(4) like order VIII, Rule 1 being procedural in nature cannot be treated to be a mandate of law. In the present scenario, the IBC does not bar or render Adjudicating Authority powerless to admit or reject an application. The object behind the time period is to prevent the delay in hearing the disposal of cases. The adjudicating authority cannot ignore the provisions, but record the reasons for delay and admit or reject the application after the prescribed time limit. Thus, NCLAT held that the mandate of sec. 7(5), sec. 9(5) or sec. 10(4) is procedural in nature, a tool of aid in R-134

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expeditious dispensation of justice & is directory. III. However, the 7 days period for rectification of defects is mandatory and if the corporate debtor failed to comply within 7 days his application is liable to be rejected. IV. Sec. 12 is a time limit for completion of insolvency resolution process which is to be completed within 180 days from the date of admission of the application. An extension of the time period of corporate insolvency resolution process can be granted by the adjudicating authority but it cannot exceed 90 days &cannot be granted more than once. The resultant effect of non-compliance of insolvency resolution process within the time limit of 180 days + extended period of 90 days (total: 270 days) will result into initiation of liquidation proceedings under sec. 33 as the end result of resolution process is approval of resolution plan or initiation of liquidation of proceedings, we hold the time granted under sec. 12 of the code is mandatory. V. Similarly, term allowed to “IRP” is 30 days. Thereby “IRP” cannot exceed 30 days from the date of his appointment as per sec. 16(5). However, as the regular RP starts functioning on completion of period of IRP, the performance of the duties of IRP cannot be held to be mandatory, though the period is required to be counted for completion of the interim resolution process i.e. 180 days and in appropriate case another 90 days can be granted i.e. maximum 270 days which is mandatory.

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With respect to the case in hand, it was found that the adjudicating authority has unnecessarily adjourned the case from time to time which is against the essence of the code. Further, NCLAT found out that the application preferred was defective. Even if it is presumed that 7 additional days’ time was to be granted to the operational creditor, they failed to comply with the extended time limit. Hence, it was held that the petition filed by respondent (Operational Creditor) being incomplete was fit to be rejected. SC/Sept17/IBC M/s. Surendra Trading Issue: The operational creditors (M/s. (19.09.17) Company. v M/s. J.K Surendra Trading Company) filled an Jute Mills Company application to initiate Corporate Insolvency Limited and Others. Resolution Process against M/s. J.K Jute Mills Company Limited and Others, which was rejected by NCLAT on the grounds of being time barred & incomplete. Held: Appeal is allowed. Apex court held that, the period for rectification of defect is directory and not mandatory. Period for removal of defect provided under sec. 7(5), section 9(5) and sec. 10(4) is also directory. However, the SC also gave a caveat. It observed that sometimes applicants or their counsel may show laxity by not removing the objections within the time given and may take it for granted. Also, there may be cases where such applications are frivolous in nature which would be filed for some oblique motives and the applicants may want those applications to remain pending and, therefore, would not remove the defects. R-136

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In order to take care of such cases, a balanced approach is needed. Thus, while interpreting the provisions to be directory in nature, at the same time, it can be laid down that if the objections are not removed within seven days, the applicant while refilling the application after removing the objections, file an application in writing showing sufficient case as to why the applicant could not remove the objections within seven days. When such an application comes up for admission/order before the adjudicating authority, it would be for the adjudicating authority to decide as to whether sufficient cause is shown in not removing the defects beyond the period of seven days. Once the adjudicating authority is satisfied that such a case is shown, only then it would entertain the application on merits, otherwise it will have right to dismiss the application. SC/Feb17/IBC Bank of New York Mellon London SICA Repeal Branch v Zenith Act read with Infotech Limited. IBC

Issue: 1. Whether dismissal of the application for Reference by the Registrar, Secretary & Chairman of the Board was within the jurisdiction of the said authorities. 2. If there was to be a positive answer to the first, whether in view of the order of winding up passed by the Company Court and affirmed by the division Bench of the Bombay High Court, there is any further scope for registration of the reference sought for by the Respondent No.1 company under the provisions of SICA if the order declining registration by the aforesaid authorities is to be R-137

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understood non-est. Held: Leave is granted. The Hon’ble Apex Court held that the High Court, was correct in coming to the conclusion that the refusal of registration of the reference sought by the respondent company by the Registrar, Secretary/Chairman of the Board was non-est in law. The reference must, therefore, be understood to be pending before the Board on the relevant date attracting the provisions of sec. 252 of the Insolvency and Bankruptcy Code. Respondent company was allowed to seek its remedies under the provisions of sec. 252 of the Code read with what is laid down in sections 13, 14, 20 and 25 of IBC. NCLT/Mum/Ja Kirusa Software n17/sec.9 Private (27.01.17) Limited v Mobilox Innovations Private Limited

R-138

Issue: Application under sec. 9 preferred by operational creditor (Kirusa Software Private Limited) was rejected by NCLT on the ground that notice of dispute has been received by the operational creditor u/sec. 9(5)(ii)(d). On perusal of this notice dated 27.12.2016 disputing the debt allegedly owed to the petitioner, NCLT looking at the corporate debtor disputing the claim raised by the Petitioner in this CP held that the default payment was disputed by the corporate debtor. The petitioner in his petition admitted that the notice of dispute dated 27th December, 2016 had been received by the operational creditor. Thus, the claim was rejected as it was hit by sec. (9)(5)(ii)(d) of The Insolvency and Bankruptcy Code.

Case Digest: List of important judgments under IBC

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NCLAT/May1 Kirusa Software 7/sec. 9 Private Ltd. v Mobilox Innovations Private Mere disputing Ltd. a claim of default of debt cannot be a ground to reject the application under sec. 9 of IBC, till the corporate Debtor refers to any dispute as pending.

Issue: Whether the claim made by the applicant is hit by sec. (9)(5)(ii)(d) (notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility). What does “dispute” & “existence of dispute” mean for the purpose of determination of a petition under sec.9 of IBC? Held: The Appeal is allowed and NCLAT has directed NCLT, Mumbai to reconsider the matter for admission of application under sec. 9. The plea taken by the appellant is that mere disputing a claim of default of debt cannot be a ground to reject the application under Section 9 of IBC, till the corporate debtor refers to any dispute as pending. For clarifications on “dispute” & “existence of dispute” for the purpose of sec.9 -NCLAT thought fit to analyse sections 7, 8 & 9 of IBC. It was observed that: Though the words ‘prima facie’ are missing in Sections 8 and 9 of the Code, yet the Adjudicating Authority would examine whether notice of dispute in fact raises the dispute and that too within the parameters of two definitions - ‘debt’ and ‘default’ and then it has to reject the application if it apparently finds that the notice of dispute does really raise a dispute and no other factual ascertainment is required. It was further observed that, once the term “dispute” is given its natural and ordinary meaning, upon reading of the Code as a whole,

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the width of “dispute” should cover all disputes on debt, default etc. and not be limited to only two ways of disputing a demand made by the operational creditor, i.e. either by showing a record of pending suit or by showing a record of a pending arbitration. The intent of the Legislature, as evident from the definition of the term “dispute”, is that it wanted the same to be illustrative (and not exhaustive). If the intent of the Legislature was that a demand by an operational creditor can be disputed only by showing a record of a suit or arbitration proceeding, the definition of dispute would have simply said dispute means a dispute pending in Arbitration or a suit. The statutory requirement in sub-sec. (2) of sec. 8 of the I & B Code is that the dispute has to be brought to the notice of the operational creditor. It emerges both from the object and purpose of the I & B Code and the context in which the expression is used, that disputes raised in the notice sent by the corporate debtor to the operational creditor would get covered within sub-sec. (2) of sec. 8 of the I & B Code. The respondent-corporate debtor has not raised any dispute within the meaning of sub-sec. (6) of sec. 5 or sub-sec. (2) of sec. 8 of I&B Code, 2016 and in that view of the matter, merely on some or other account the respondent has disputed to pay the amount, cannot be termed to be dispute to reject the application under sec. 9 of the I&B Code, 2016 as was preferred by appellant-operational creditor. In the present case the adjudicating authority has acted mechanically and rejected the application under sub-sec. (5)(ii)(d) of sec. 9 R-140

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without examining and discussing the aforesaid issue. If the adjudicating authority would have noticed the provisions as discussed above and what constitute and as to what constitute ‘dispute’ in relation to services provided by operational creditor then would have come to a conclusion that condition of demand notice under sub-sec. (2) of sec. 8 has not been fulfilled by the corporate debtor and the defence claiming dispute was not only vague, got up and motivated to evade the liability. SC/Sep17/IBC/ Mobilox Innovations 8&9 Private Limited v Kirusa Meaning of Software Private disputes with Limited respect to operational debtors.

Issue: NCLAT admitted the application. Held: Hon’ble Supreme Court sets aside the order passed by NCLAT. Brief facts: The sec. 8 notice was replied and the amount claimed was disputed. The corporate debtor had a claim in the form of unliquidated damages and the period for filing a case for the same had not elapsed at the time when the proceedings under IBC were initiated by the operational creditor. However, no proceedings were initiated by either parties for last 2 years before filing the sec. 9 petition. The Apex Court in went into the details of what constitute “existence of dispute”. It held that without going into the merit of the dispute if a party has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence, the defense is not spurious or mere bluster, plainly frivolous or vexatious, a dispute does exist between the parties which may or may not ultimately succeed. In this R-141

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case it was held that it was incorrect to hold the defense as vague, got up or vague and motivated to evade liability. SC/Nov17/IBC Chitra Sharma and Jaiprakash Ors. v Union of India Associates and Ors Limited Interim reliefs to safeguard interest of customers.

Facts: On or about 9th August 2017, the NCLT passed an order in IDBI Bank v JayPee Infratech Limited (CP(IB) No. 77/ALD/2017) admitting the petition u/s 7 and initiating the corporate insolvency resolution process. This matter reached the Apex Court, where several writ petitions, intervention applications had been filed against Jaypee Infratech Limited. Many intervention applications were filed by home buyers who had invested their life earnings with Jaypee Infratech Limited and its holding company Jai Prakash Associates Limited and were awaiting allotment of flats which were to be developed by the two companies. They sought protection of their interest. The Apex Court stayed the order passed by the NCLT, Allahabad wherein inter alia the insolvency process was initiated against it and an Interim Resolution Professional was appointed. The Attorney General for India sought vacation of the stay on the NCLT order which would in effect result in the management vesting back in the original board of directors of the company. The Apex Court for protecting the interest of Stakeholders passed an interim order. The case is still pending and several development have taken place. Held: The following interim order was passed by the Apex court: (a) The IRP shall forthwith take over the Management of JIL. The IRP shall formulate and submit an interim

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(b)

(c)

(d)

(e)

Resolution Plan within 45 days before this Court. The Interim Resolution Plan shall make all necessary provisions to protect the interests of the home buyers; Mr.Shekhar Naphade, learned senior counsel along with Ms.Shubhangi Tuli, Advocate-on-Record, shall participate in the meetings of the Committee of Creditors under sec. 21 of the Insolvency and Bankruptcy Code, 2016 to espouse the cause of the home buyers and protect their interests; The Managing Director and the Directors of JIL and JAL shall not leave India without the prior permission of this Court; JAL which is not a party to the insolvency proceedings, shall deposit a sum of INR. 2,000 crores (Rupees two thousand crores) before this Court on or before 27.10.2017. For the said purpose, if any assets or property of JAL have to be sold, that should be done after obtaining prior approval of this Court. Any person who was a director or managing director of JIL or JAL on the date of the institution of the insolvency proceedings against JIL as well as the present directors/Managing director shall also not leave the country without prior permission of this Court. The foregoing restraint shall not apply to nominee directors of lending institutions (IDBI/ICICI/SBI); All suits and proceeding instituted against JIL shall in terms of sec. 14(1)(a) remain stayed as we have directed the

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IRP to remain in management. There have been several subsequent orders. Time to deposit the money was extended. A part of the money has already been deposited. The Apex Court has passed directions regarding the usage of these funds and further directed the IRP to finalise a resolution plan in terms of the direction passed by Apex Court. A web-portal is being created to enable home buyers to give their details. JAL and JIL were asked to provide details of the home buyers and housing projects. The directors of Jaiprakash Associated Limited were also asked to remain present on some dates. In the meantime, RBI sought intervention to seek permission of the Apex Court to initiate CIRP process against Jai Prakash Associates Limited. SC/Oct17/IBC/ Alchemist Asset sec 14 Reconstruction (23.10.17) Company Limited v M/s. Hotel Impact of Goudavan Pvt. Ltd. Moratorium on and Ors. arbitration proceedings

Held: Appeal Allowed. Arbitration Appeal filed under sec. 37 of the Arbitration and Conciliation Act after the imposition of moratorium under sec 14 of IBC is non est in law. In this case malicious criminal proceedings to impede the IRP process were quashed.

NCLAT/Jul17/ sec7 read with Rule 11 of National Company Law Appellate Tribunal Rules, 2016 (13.07.17)

Issue: Appellants pleaded to withdraw the application under sec. 7 on the grounds of settlement between the parties after admission of petition.

R-144

Lokhandwala Kataria Construction Pvt. Ltd v Nisus Finance & Investment Manager LLP

Held: The appeal was dismissed, by virtue of Rule 8 of AAA Rules. NCLAT also refused to adopt the inherent power conferred under Rule 11 of National Company Law Appellate Tribunal Rules, 2016. It was further clarified

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that for the purpose of IBC, only Rules 20 to 26 have been adopted in absence of any specific inherent power and where there is no merit, the question of exercising inherent power does not arise.

NCLAT to not exercise its inherent power, where there is no merit. SC/July17/IBC Lokhandwala Kataria Construction Private / sec 14 Ltd v Nisus Finance And Investment Exercise of managers LLP Power conferred under Art. 142 of the Constitution Of India.

Issue: The operational creditor & corporate debtor aggrieved by the order of NCLAT to not withdraw the application, appealed the SC to utilise its power under Article 142 of Constitution of India and allow the withdrawal.

NCLAT/Jul17/ sec.9 (13.07.17) (27.06.17/ NCLT, Principal Bench)

Issue: Appellants pleaded to withdraw the application under sec. 9 on the grounds of settlement between the parties before admission of petition, but the application is admitted and Moratorium has been ordered.

The settlement terms before or after admission of the application is not in dispute, application cannot be withdrawn once admitted.

Mother Pride Dairy India Pvt. Ltd v Portrait Advertising & Marketing Pvt. Ltd.

Held: SC decided to utilise its powers under Art.142 of Constitution of India to put quietus to the matter. The terms of settlement entered by the parties were taken on record.

Held: The appeal was dismissed. NCLAT held that the settlement is reached after admission of the application is not in dispute. In view of Rule 8 of Insolvency & Bankruptcy (Adjudicating Authority) Rules, 2016, it was open to the operational creditor to withdraw the application under sec. 9 before its admission but once it was admitted, it cannot be withdrawn even by the operational creditor, as other creditors are entitled to raise claim pursuant to public announcement under sec. 15 read with sec. 18 of the I&B Code, 2016. Further, leave was granted to the appellants, if

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they satisfied the claim of other creditors, to bring the matter to the notice of NCLT for closure of the resolution process. SC/July17/IBC Mothers Pride Dairy India Private Exercise of Ltd v Portrait Power Advertising and conferred Marketing Pvt Ltd under Art. 142 of the Constitution Of India.

Held: Pending Proceedings have been disposed of. SC exercising its power conferred under Article 142 of the constitution accepted the settlement between the parties and terminated the IBC proceedings.

NCLT/Mum/Ja ICICI Bank n17/IBC/sec. 7 Ltd. v Innoventive read with Industries Ltd. Rule 4 of AAA Rules (17.01.17)

Background: The applicant company (ICICI Bank) filed an application u/sec. 7 of IBC stating that the corporate debtor (Innoventive Industries Ltd.) owed a total amount of INR. 1,019,177,034/- and is liable to pay the amount together with interest cost, expenses & other moneys which accrued on a contractual rate. The corporate debtor by a written application stated that the debts said to have been existing against the corporate debtor- have been suspended under Maharashtra Relief Undertaking (Special Provisions) Act (MRU) on 18.07.16. The corporate debtor is of the view that this financial creditor could not have invoked this relief on the ground that default occurred in relation to the debt owed to the creditor ignoring the order passed by the said Department declaring all liabilities & the reliefs thereof has been suspended until 21.07.17. Issue: 1. It is evident that non obstante clause is

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2.

present in both MRU & IBC, The point to be decided is whether an order could be passed u/sec. 7 of the code? The corporate debtor was not given any notice before admission of petition by NCLT.

Held: The Application made by the financial creditor is admitted & the averments of the corporate debtor was rejected. The objective under MRU Act, is to prevent unemployment of the existing employees of an industry which is recognized as relief undertaking. But by passing an order u/sec 7, it will not cause any obstruction to their employment until next 180 days. Even if the company goes into liquidation, then also the rights of the employees are protected to the extent mentioned under IBC, therefore, the corporate debtor cannot have an argument saying that passing an order u/s 7 will be against the interest of the employees. NCLT Mumbai held that the application filed by the corporate debtor does not hold any merit and hence it was rejected and the petition u/sec 7 was subsequently admitted. NCLAT/May1 M/s Innoventive 7/sec. 7 Industries Ltd. v ICICI (15th May,17) Bank & Anr. (17.01.17 & 23.01.17 – NCLT, Mumbai)

Background: These appeals have been preferred by the applicant (corporate debtorInnoventive Industries Ltd.) against the order admitting the insolvency petition u/sec. 7 of IBC. Issues: (i) Whether a notice is required to be given to the corporate debtor for initiation of Corporate Insolvency Resolution Process under I&B Code, 2016 and if so, at what R-147

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stage and for what purpose? (ii) Whether ‘Maharashtra Relief Undertaking (Special Provisions) Act (Bombay Act XCVI of 1958)’ (hereinafter referred to as MRU Act 1958) shall prevail over I&B Code 2016. In other words, whether a corporate debtor who is enjoying the benefit of MRU Act, can be subjected to I&B Code 2016? and (iii) Whether in a case where Joint Lender Forum (JLF) have reached agreement and granted permission to the corporate debtor prior consent of JLF is required by financial creditor, before filing of an application under sec. 7 of the I&B Code 2016? Answer to issue 1: NCLAT observed that no notice was given before admission of the case but the company had intervened before the admission of the case and all objections raised by it had been noticed, discussed and considered by NCLT. Therefore merely on the ground that the company was not given notice before admission of the case was not rendered illegal as the company has already been heard. However, it observed that it will be imperative for the NCLT to adopt a cautious approach in admitting an insolvency application by ensuring adherence to the principles of natural justice. Answer to issue 2: It held that there is no repugnancy between MRU and IBC and they operate in different fields. IBC has a non obstante clause and will prevail. The corporate debtor was not entitled to derive any advantage from the MRU Act to stall R-148

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insolvency resolution process under sec. 7 of IBC. Answer to issue 3: The corporate debtors cannot absolve itself from paying previous dues which are due to financial creditors. He was not allowed to take advantage of the Master Restructuring Agreement. The NCLT has to look into only three things: (i) default existed (ii) application was complete (iii) there was no disciplinary proceeding pending against the insolvency resolution professional. NCLT need not go into the fact whether or not permission or consent of the Joint Lenders Forum. Thus, the orders of NCLT was affirmed. SC/Aug17/IBC M/s. Innoventive (31.08.2017) Industries Ltd. v ICICI Bank & Anr. IBC has an overriding effect over MRUA.

Held: Appeal is dismissed. SC held that by virtue of sec. 238 of the code, the provisions of this code shall have effects, notwithstanding anything inconsistent therewith contained in any other law. In paragraph 20, SC elaborates the scope of sec. 7 and the constitutional principles surrounding repugnancy between central and state laws in context of Art. 254 of the constitution.

NCLT/Mum/M ar17/IBC/sec. 7 read with Rule 4 of AAA Rules (01.03.17)

(Urban Background: The applicant Infrastructure Trustees Ltd.) filed against the corporate debtor (Neelkant) u/sec. 7 of IBC on the grounds that the corporate debtor failed to redeem the Debenture Certificates issued by him on 26.12.2007, 15.02.2008 & 30.03.2009. The total money invested by the petitioner in all these debentures have come to INR. 51 Crores. A redemption clause was inserted in

Urban Infrastructure Trustee Limited v Neelkanth Township & Construction Pvt Ltd.

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the terms & conditions of the debentures certificate saying that in the event the debentures are not converted within a period of 60 months, the company shall redeem the same together with interest. Issue: The applicant submitted that though principal & interest come to INR. 226,16,79,437/- since the default occurred to the principal amount of INR. 51 Crores. But in the form that has been filed by the Petitioner, in Column no.2 of part 3, the Petitioner has categorically mentioned the amount claimed to be in default is INR. 226,16,79,437/- making an annexure showing principal amount as INR. 51 Crores & principal amount along with interest of INR 226,16,79,437/- as claim amount in default. Held: The petition is rejected on the grounds that the applicant failed to specify the exact amount of default occurred. NCLT held that the amount claimed to be in default & the occurrence of default cannot be different to each other, both have to be one & same. Because the words “the default occurred” is in reference to “the amount claimed to be in default” Thereby the Petitioner cannot split the amount claimed to be in default in two & show one amount as default occurred & remaining as default not occurred. It was further held that, the default has occurred with respect to INR. 51 Crores only, and hence the petitioner ought to have show default amount as INR. 51 Crores only & not INR. 226,16,79,437/- . R-150

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NCLT/Mum/ Apr17/sec. 7/ (21.04.17)

Background: In pursuance of the liberty the financial creditor (applicant) refiled the application limiting its claim to INR 51Crores.

Urban Infrastructure Trustee Limited v Neelkanth Township & Construction Pvt Ltd.

Issues: 1. Whether enough evidence as mandated u/sec. 7 of the code has been placed by the applicant for admission of this company application or not? 2. Whether deficiency of stamp duty will invalidate the debenture certificates or not? 3. Whether the debt is time barred or not? 4. Whether the pendency of arbitration proceeding between the parties will have any bearing on adjudication of this application or not? 5. Whether the applicant herein can file this application as a financial creditor is continuing as one of the shareholders of the company. Held: I. NCLT making reference to reg 8 of IBC, clarified that the financial creditor had produced the debenture certificates showing financial contract and thereafter financial statements of the company reflecting the payment as remained overdue till date of filing this company application. In view of that evidence by the financial creditor, NCLT held that the record placed by the financial creditors was sufficient enough to prove that the corporate debtor had defaulted in repayment of the aggregate principal amount of INR. 51 crores.

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II. With respect to the 2nd issue, it was observed that the corporate debtor company is a private limited company and thus its debentures cannot be called as marketable security attracting stamp duty. Further, the corporate debtor has already defaulted in making repayment. Thus, after the maturity date it can’t in any way be considered as a security demanding stamp duty. Hence NCLT rejected the issue raised by the corporate debtor. III. The admission appearing in the financial statement of the company was an acknowledgement covered by sec. 18 of the Limitation Act. If such a debt is shown as due in the financial statements which are Rem in nature, it is to be construed as an acknowledgement of default. Since, there had been express admission that the corporate debtor had defaulted the repayment of Principal towards the money received by issuing debenture certificates, it cannot be called as time barred debt. IV. With reference to the fourth issue raised by the respondents, NCLT relied on sections 63 & 231, 238 of IBC. On perusal of these sections, it was evident that no civil court shall have jurisdiction in respect of any matter in which the NCLT is empowered by or under this court to pass any order, thereby it is clear that pendency of any proceedings initiated before any court will not have any bearing on the proceedings initiated

R-152

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under this code provided that dispute is covered under the respective section of the code. Since this is covered u/sec. 7, pendency of sec. 21 proceedings under Arbitration Act will not have bearing on this case. V. As regards 5th issue NCLT held that there is no bar on a shareholder initiating insolvency resolution process in the capacity of financial creditor. It was further observed that that the financial creditor has provided nearly 90% of the funding. Thus, the objection of corporate debtor were rejected and the petition u/sec 7 admitted. NCLAT/Aug1 7/sec. 7/ (11.08.2017) (21.04.2017/ Mumbai Bench)

Neelkanth Township & Construction Pvt Ltd. v Urban Infrastructure Trustee Limited

This appeal was preferred by the applicant (corporate debtor) against the order of admission of application u/sec. 7 of IBC The issues raised by the corporate debtor in this appeal were: 1. The Application filed by the respondent (Urban Infra) u/sec. 7 is defective and not complete as it was not accompanying the documents as mandated u/sec. 7(3). 2. The application is time barred as the debt claimed related to the years 2011, 2012, 2013. 3. That the “default of debt” as claimed by the respondent had not been admitted by the corporate debtor. 4. That the respondent is not covered under the definition of “financial creditor” but an investor. Held: NCLAT dismissed the appeal & held that the application was complete and was in accordance with the code. R-153

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1.

NCLAT held that a procedural provision cannot override or affect the substantive obligation of the adjudicating authority to deal with applications under sec. 7 merely on the ground that Board has not stipulated or framed Regulations with regard to sub-sec. 3(a) of sec. 7. It was further held that – as Form - C’ was attached to the Regulation, it relates to proof of claim of ‘financial creditor’ where under Serial No. 10, the ‘financial creditor’ is supposed to refer the list of documents in proof of claim in order to prove the existence and non-payment of claim dues to the ‘operational creditor’ 2. Rejecting the second issue, NCLAT clarified that Limitation Act, 2013 was not applicable to IBC. Also the applicants failed to prove that the provisions of IBC suggest that Limitation Act is applicable to any of the provisions. Further, NCLAT clarified that IBC is not an Act for recovery of money claim, but related to initiation of Corporate Insolvency Resolution Process. Further elaborating the explanation it held that - “If there is a debt which includes interest and there is default of debt and having continuous course of action, the argument that the claim of money by Respondent is barred by Limitation cannot be accepted”. 3. To clarify the 3rd & 4th issue: reliance was placed on various definitions specified in sec.5 of IBC. On keen observation of definitions

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specified u/sections 5(7) & (8) it was concluded that clause (c) of sec. 5(8): (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; Included “debentures” & hence is covered within the meaning of “financial debt” As the applicants admitted that they were debenture holders, from the relevant fact it was noticed that the corporate debtor had a liability & obligation in respect of the amount which was due to the debenture holders from the applicant, including the amount due of maturity. Further it was also observed that the appellant were to disbursed against consideration for time value of the money. Therefore, it cannot be stated that debentures on maturity do not come within the meaning of “debt” as under IBC. The appeal was dismissed and the order of NCLT was upheld. SC/Aug17/IBC /sections 8&9/ (23.08.17) (NCLAT 11.08.17) Applicability of Limitation Act is kept open

Neelkanth Township and Construction Private Limited v Urban Infrastructure Trustees Limited

NCLT/Apr10/I Parag Gupta & BC/sec. 7 Associates v B.K.

Facts: The NCLAT order was challenged. Held: Appeal was dismissed as there was no merit in the facts of the appeal. The question of law on applicability of Limitation Act to IBC proceedings was kept open.

NCLT held that majority of the amount of loan claimed in the sec 7 petition was barred by limitation on the date when the petition R-155

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Court/Month. Name of case Particulars Year of Case/Relevant Provision; (date of the decision) Brief law point covered (25.04.17) Educational Services was filed. It further observed that the amount Pvt. Ltd. of loans were not specified in the financial statements of the corporate debtor which could be construed as an admission of debt. On this ground, the amount which were barred by limitation could not be considered. As the corporate debtor was ready to pay the amount which were not barred by limitation, NCLT rejected the Sec. 7 petition. NCLAT/Nov1 Parag Gupta & 7/IBC/sec.7 Associates v B.K. (07.09.17) Educational Services Pvt. Ltd.

Issue: Whether Limitation Act, 1963 is applicable for triggering the corporate insolvency resolution process under IBC.

SC/Jan10/IBC/ sec. 7 (10.01.18) (NCLAT_07.0 9.17)

The remand of the matter back to NCLT is stayed. This matter is pending with the Apex Court. The order of remand of the matter to NCLT passed by NCLAT is stayed.

B.K. Educational Services Pvt. Ltd. v Parag Gupta & Associates

NCLAT/Nov1 M/s Ksheerbad 7/sec 9 Construction Pvt. (20.11.2017) Ltd v Vijay Nirman Company Pvt. Ltd.

R-156

Held: NCLAT held that Limitation Act was not applicable to Corporate Insolvency Resolution Process. It further held that Doctrine of Limitation and Prescription is necessary to be looked into for determining the question whether the application under sec. 7 or sec. 9 can be entertained after long delay amounting to laches and thereby the person forfeited his claim. On the basis of the above, NCLAT allowed the appeal and remanded the matter back to NCLT to consider the application without going into the question of limitation.

Issue: Whether pendency of a case before a court under sec 34 of the Arbitration and Conciliation Act, 1996 can be termed to be a dispute in existence for the purpose of sec. 6(5) of IBC.

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Held: No person can take advantage of pendency of a case u/sec 34 of the Arbitration and Conciliation Act, 1996 to stall corporate insolvency resolution process under sec. 9 of the IB. This case is tagged with K. Kishan v Vijay SC/Dec17/sec9 M/s Ksheeraabad Nirman Company Private Limited. Constructions PVT Ltd v M/s Vijay Nirman Company Pvt Ltd [Civil Appeal No. 21825 of 2017] NCLAT/Nov1 K. Kishan v Vijay 7/Sec 9 Nirman Company Private Limited.

Held: Appeal is dismissed as according to the NCLAT this case is covered by decision in Ksheerbad Construction Pvt. Ltd v Vijay Nirman Company Pvt. Ltd. The issue in this case and Ksheerbad case were the same. The issue is the same namely ‘No person can take advantage of pendency of a case u/s 34 of the Arbitration and Conciliation Act, 1996 to stall corporate insolvency resolution process under Sec. 9 of the IB’.

SC/Dec17/Sec K. Kishan v Vijay 9 Nirman Company Private Limited. [Civil Appeal No. 21824/2017)

The following order is passed in this case : “Issue notice. There will be a stay of the impugned orders on the bank guarantee for the said amount of Rs. 1.72 crores being kept alive during the pendency of the petition in this court.”

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NCLT/DEL/ Aug17/sec. 9 (31.08.17)

Issue: Operational creditors prayed for initiation of resolution process against corporate debtor (BHEL). The operational creditors claimed that the corporate debtor had withheld the debt amount as security for necessary adjustments / Counter Recoveries for the work done. Since the Award for the payment under the contract was upheld by the High Court of Delhi vide its order dt.16.03.17 – there was no justification in further withholding the payment for the job work executed. This being a debt, they were entitled to seek insolvency proceedings against the corporate debtor.

M/s. Teknow Consultants & Engineers Pvt Ltd. v M/s Bharat Heavy Electricals Limited

Held: The application u/sec. 9 of IBC was rejected being vehemently resisted on the grounds of pre-existing dispute & failure to disclosure of material facts. It was contended that there was a preexisting dispute between the parties not only in respect of the quantum of the amount claimed but also in respect to their right to withhold the payments due under the Risk and cost clause. In terms of the conditions stipulated in the job orders, pursuant to which the operational creditors undertook the work, the corporate debtor reserved its right to withhold the amounts due to the contractor (operational creditor) and was also not liable to pay any interest thereon. The corporate debtor had therefore exercised its lien and withheld the amounts. Further, it was observed that though the operational creditor had an award in its R-158

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favor, an appeal u/sec. 37 of Arbitration Act is still pending (and it is well settled that proceedings u/sec. 37 of the Arbitration Act are a continuation of the Arbitration Proceedings) and therefore cannot be said that the same has achieved finality. The operational creditor has failed to disclose the filing of the petition under sec. 37 by the respondent corporate debtor. In view of the settled law on this proposition that a sec. 37 petition is a continuation of the arbitration proceeding and the filing of the appeal u/sec 37 was prior to the issuance of notice u/sec. 8 of IBC, it cannot be said that the dispute had been put to rest. Under such circumstances, having come to the conclusion that there is an existence of dispute with respect of the liability to pay interest, the insolvency resolution process against the corporate debtor cannot be admitted. The Petition is therefore rejected. NCLAT/Dec17 / sec. 9 (15.12.2017)

M/s. Teknow Consultants & Engineers Pvt Ltd. v M/s Bharat Heavy Electricals Limited Company Appeal (AT) (Insv) No. 224 of 2017

NCLAT/Nov17 Gurdeep Singh Sahani v Berger Paints India Ltd & Ors. Company Appeal

Issue: Operational creditors and corporate debtor agreed to settle their dispute and in those terms operation creditor sought leave to withdraw the appeal with liberty to revive the appeal in case the cheque is bounced. The prayer made by the appellant was allowed. P.S. No appeal is found by the author. The voting right offered to L&T Finance in the Committee of Creditors was challenged by appellant who is a promoter of the corporate debtor. It was held that ‘Appellant is a promoter/director of the

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Court/Month. Case Particulars Year of Case/Relevant Provision; (date of the decision) Brief law point covered (AT) (Insv) No. 294 of Corporate Debtor, we are of the view that 2017 appellant has no locus standi to challenge the voting rights of any of the financial creditors, the promoter having no such voting rights under the IBC.’ P.S. No appeal is found by the author. NCLAT/Aug17 State Bank of India v S. Muthuraju Powers of an & Ors. IRP Company Appeal (AT) (Insv) No. 105 of 2017

Issue: NCLT directed the financial creditor to handover the assets to IRP and provide information to IRP. IRP does not recognize the debt. Held: As regards the question of recognition of the debt, the NCLAT leaves open the question of whether or not an Interim Resolution Professional is empowered to decide the quantum of debt due to creditors. Further, in the said order, the issue of whether land in possession of financial creditor is to be handed back is also left open with liberty to NCLT to decide the said issue, if it is raised by any of the concerned persons. There is a passing observation that IRP is to act in accordance with law. If more than 30 days have passed after appointment of IRP, NCLT will take steps to appoint Resolution Professional. And if so required may allow Insolvency Resolution Professional to function as Insolvency Resolution Professional. P.S. No appeal is found by the author.

NCLAT/Sept17 JEKPL Private Limited v Export Challenge to Import Bank of India Company Appeal (AT) induction of

R-160

Issue: The Resolution Professional had raised an objection to the induction of Axis Bank and Exim Bank on the Committee of Creditors. The representation of Axis Bank was resolved at the stage of NCLT.

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However, the NCLT allowed Exim Bank to continue to remain a part of Committee of Creditors till its application against allowing it to be a part of committee of creditor was considered. This order was challenged by the Resolution Professional though the company wherein he was opposing the continuity of Exim Bank as one of the creditors. Held: The NCLAT held that corporate debtor does not have a right to challenge the induction of third part as a creditor. It is the resolution professional who can oppose such induction. It held that as the application of whether Exim Bank should be allowed to remain in Committee of Creditor was under consideration, the NCLAT did not intervene at this stage. However, NCLT was directed to decide the said issue expeditiously. P.S: No appeal is found by the author.

NCLAT/Feb17 Sree Metalliks Ltd v M/s Srei Objections Equipments Finance relating to Ltd. Company Appeal Appointment of (AT) (Insv) No. 3 of IRP 2017

Issue: The appointment respondents.

appellant objected to of IRP nominated

the by

Held: The respondent agreed to nominate another IRP. Thus, appeal was disposed of. P.S: No appeal against this order is found by the author.

NCLAT/Nov17 Mr. T. Vinayak Ravi (15.11.2017) Reddy v Canara Bank & Anr. Company Application for Appeal (AT) (Insv) substitution of No. 110 of 2017 Appellant.

Facts: The Apex Court in Innoventive Industries had held that promoter of the company after insolvency proceedings have started cannot file an appeal in the name of the corporate debtor. Thus, in this appeal that was pending in the NCLAT, an application was made to substitute the name of the R-161

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shareholder and director of corporate debtor (Deccan Chronicle Holding Ltd) instead of the corporate debtor and to further transpose corporate debtor as a second respondent. Held: The said application was allowed. P.S: No appeal against this order is found by the author. NCLAT/Sept17 Kee Projects / IBC/sec 9 Limited v Sharda (1.9.2017) Rawat Company Appeal (AT) (Insv) Violation of No. 139 of 2017 Rules of Natural Justice.

Issue: Order under sec 9 of IBC passed without notice to corporate debtor. Held: NCLT order set aside on the ground that it was passed in violation of Rules of Natural Justice. The principle of natural justice laid down in Innoventive Industries Ltd vs ICICI Bank & Anr. case were reiterated namely: “53. In view of the discussion above, we are of the view and hold that the Adjudicating Authority is bound to issue a limited notice to the corporate debtor before admitting a case for ascertainment of existence of default based on material submitted by the corporate debtor and to find out whether the application is complete and or there is any other defect required to be removed. Adherence to Principles of natural justice would not mean that in every situation the adjudicating authority is required to afford reasonable opportunity of hearing to the Corporate debtor before passing its order.” Further, there was also a settlement reached between the operation creditor and corporate debtor. P.S: No appeal against this order is found by

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the author. NCLAT/Oct17/ Allied Media Network Pvt. Ltd. v M/s Sunraa IBC Media Ltd. Company (18.10.2017) Appeal (AT) (Insv) No. 226 of 2017 Fresh application to be filed in case of lapse of time limit under code.

Issue: The winding up petition was transferred to NCLT pursuant to Rule 5 of Companies (Transfer of Pending Proceedings) Rules, 2016. However, the same was abated as documents requisite under sec. 9 were filed beyond the time limit i.e. 15.07.17. Held: NCLAT disposed the appeal. It refused to set aside the NCLT order as it would not provide any relief to the appellant. However, allowed the appellant to file a fresh application under IBC. P.S: No appeal against this order is found by the author.

NCLAT/July17 Rubina Chadha & Anr. v AMR / IBC Infrastructure Ltd and (21.1.2017) Sajive Kanwar v AMR Infrastructure Ltd. Whether Company Appeal (AT) ‘Financial (Insv) No. 8 of 2017 & Creditor’ or ‘Operational Company Appeal (AT) Creditor’ or (Insv) No. 12 of 2017 ‘Secured Creditor’ or ‘Unsecured Creditor’, if claimed to be creditors-are now entitled to file their claims before IRP.

Issue: The appellants in a transferred petition (which was filed under the erstwhile sec. 433(e) of Companies Act, 1956) could not satisfy the NCLT that, they come within the meaning of “financial creditor” or “operational creditor” and the Petition was accordingly dismissed. Held: NCLAT disposed of the said matter by observing that a matter against the same company was filed and is currently being decided by NCLT. Once the said matter is admitted, the appellant whether they are financial or operational creditors or secured or unsecured creditor could file their claim before the IRP. The NCLAT further observed that if the appeal by another creditors which was discussed in the case was not successful, the appellant herein could challenge that order.

R-163

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In light of this discussion, extract of judgment passed in the case of Nikhil Mehta & sons was considered “27. For the reasons aforesaid, we set aside the impugned judgment dated 23rd January 2017 passed by the learned Adjudicating Authority in C.P. No. (ISB)03(PB)/201 7 and remit the matter to Adjudicating Authority to admit the application preferred by appellants and pass appropriate order, if the application under Section 7 of the I & B Code is otherwise complete. In case it is found to be not complete, the appellants should be given seven days’ time to complete the application as per proviso to Section 7 of the ‘I & B Code.” NCLAT further held that as this application preferred by Nikhil Mehta is yet to be admitted, in case it is incomplete or if they fail to complete the defect, if any, NCLAT gives liberty to the appellants to file an ‘interlocutory applications’ in the present appeals for recall of this order. P.S: No appeal against this order is found by the author. NCLAT/July17 / (Mum bench) (21.7.2017) Companies (Transfer of Pending Proceedings)

R-164

Unimark Remedies Ltd v Ashok Alco Chem Ltd. Company Appeal (AT) (Insv) No. 45 of 2017

Issue: Validity of the notification dated 07.12.16 issued by Central Government & extent of its power to frame rules u/sec. 239 of IBC. Held: The order passed by NCLT, Mumbai was set aside. The earlier Rule 5 was substituted by amended Rule 5 vide Notification dt.29.06.17. The matter was not remanded back as it was settled. However in

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this order, NCLAT made following observations: ‘We are also of the prima facie view that the petition under section 433(e) of the Companies Act, 1956 on transfer under sub-section 434(1) and (2) of the Companies Act, 2013 cannot be treated to be an application u/s 7,9 or 10 of the IBC as sub-section (1) of section 239 of the IBC relates to framing of rules by the Central Government with regards to the IBC to the extent empowered therein and the Central Government has not been empowered to transfer cases under the said provision except under Section 434 of the Companies Act, 2013’ In this case, Companies (Transfer of Pending Proceedings) Rules, 2017 with its amendments were considered. P.S: No appeal against this order is found by the author.

NCLAT/Oct17 Transparent Technologies Pvt Reply filed to Ltd. v Multi Trade. notice Company Appeal (AT) u/sec 434 of (Insv) No. 207 of 2017 Companies Act,1956 cannot be treated as an application u/sec. 9 of IBC

Issue: NCLT, Mumbai treated the reply filed by Transparent Technologies Pvt. Ltd. (appellant/ corporate debtor) pursuant to notice u/sec. 434 (Company when deemed unable to pay debts) as an Application for initiation of corporate insolvency resolution process under sec. 9 of IBC. Held: Appeal was allowed and appellant company was released from the rigour of law and is allowed to function independently. Also, NCLAT declared the appointment of IRP, declaration of moratorium, freezing of accounts by NCLT and the advertisement published in the newspaper by IRP as illegal and invalid. P.S: No appeal against this order is found by the author. R-165

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NCLAT/May17 / sec. 8(2)&sec. 5(6)

Issue: NCLT admitted application preferred by the operational creditor (respondents) u/sections 8 and 9 of IBC : i. Without prior intimation to the corporate debtor against the rules of natural justice. ii. NCLT failed to notice the existence of dispute between the parties. iii. Operational creditors concealed the material facts of “existence of dispute”

MCL Global Steel Pvt ltd. v M/s Essar Projects India Ltd. & Anr. Company Appeal (AT) (Insv) No. 26 of Principle of 2017 natural justice applicable in IBC petitions

Held: The Appeal is allowed. In para 19 to 22 of the order, the appellants successfully proved their case and established the existence of dispute. Hence, order passed by NCLT without notice to the appellant in violation of natural justice was set aside. NCLAT while deciding this case referred to one Sree Metaliks Limited & Ann moved before the Hon’ble Calcutta High Court in Writ Petition 7144 (W) of 2017 assailing the vires of sec. 7 of the Code, 2016 and the relevant rules under the Insolvency & Bankruptcy (Application to the Adjudicating Authority) Rules, 2016 (hereinafter referred to as I&B Rules, 2016). The challenge was premised upon the contention that the Code, 2016 does not afford any opportunity of hearing to a corporate debtor in a petition under sec. 7 of I&B Code, 2016. The Hon’ble High Court noted relevant provision of sec. 7 of the I&B Code 2016, the definition of ‘adjudicating authority’ as defined under sec. 5(1), sec. 61 of the I&B Code, 2016 relating to appeal and amended sec. 424 of the Companies Act, 2013 and by judgment dated 7th April, 2017 held as follows: R-166

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“However, it is to apply the principles of natural justice in the proceedings before it. It can regulate its own procedure, however, subject to the other provisions of the Act of 2013 or the Insolvency and Bankruptcy Code of 2016 and any Rules made thereunder. The Code of 2016 read with the Rules 2016 is silent on the procedure to be adopted at the hearing of an application under section 7 presented before the NCLT, that is to say, it is silent whether a party respondent has a right of hearing before the adjudicating authority or not. Section 424 of the Companies Act, 2013 requires the NCLT and NCLAT to adhere to the principles of the natural justice above anything else. It also allows the NCLT and NCLAT the power to regulate their own procedure. Fetters of the Code of Civil Procedure, 1908 does not bind it. However, it is required to apply its principles. Principles of natural justice require an authority to hear the other party. In an application under Section 7 of 10 the Code of 2016, the financial creditor is the applicant while the corporate debtor is the respondent. A proceeding for declaration of insolvency of a company has drastic consequences for a company. Such proceeding may end up in its liquidation. A person cannot be condemned unheard. Where a statute is silent on the right of hearing and it does not in express terms, oust the principles of natural justice, the same can and should be read into in. When the NCLT receives an application under Section 7 of the Code of 20 16, therefore, it R-167

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must afford a reasonable opportunity of hearing to the corporate debtor as Section 424 of the Companies Act, 2013 mandates it to ascertain the existence of default as claimed by the financial creditor in the application. The NCLT is, therefore, obliged to afford a reasonable opportunity to the financial debtor to contest such claim of default by filing a written objection or any other written document as the NCLT may direct and provide a reasonable opportunity of hearing to the corporate debtor prior to admitting the petition filed under Section 7 of the Code of 2016. Section 7(4) of the Code of 2016 requires the NCLT to ascertain the default of the corporate debtor. Such ascertainment of default must necessarily involve the consideration of the documentary claim of the financial creditor. This statutory requirement of ascertainment of default brings within its wake the extension of a reasonable opportunity to the corporate debtor to substantiate by document or otherwise, that there does not exist a default as claimed against it. The proceedings before the NCLT are adversarial in nature. Both the sides are, therefore, entitled to a reasonable opportunity of hearing. The requirement of NCLT and NCLAT to adhere to the principles of natural justice and the fact that, the principles of natural justice are not ousted by the Code of 2016 can be found from Section 7(4) of the Code of 2016 and Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating R-168

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Authority) Rules, 2016. Rule 4 deals with an application made by a financial creditor under Section 7 of the Code of 2016. Subrule (3) of Rule 4 requires such financial creditor to dispatch a copy of the application filed with the adjudicating authority, by registered post or speed post to the registered office of the corporate debtor. 12 Rule 10 of the Rules of 2016 states that, till such time the Rules of procedure for conduct of proceedings under the Code of 2016 are notified, an application made under Sub-section (1) of Section 7 of the Code of 2017 is required to be filed before the adjudicating authority in accordance with Rules 20, 21, 22, 23, 24 and 26 or Part-Ill of the National Company Law Tribunal Rules, 2016. Adherence to the principles of natural justice by NCLT or NCLAT would not mean that in every situation, NCLT or NCLAT is required to afford a reasonable opportunity of hearing to the respondent before passing its order. In a given case, a situation may arise which may require NCLT to pass an ex-parte ad interim order against a respondent. Therefore, in such situation NCLT, it may proceed to pass an ex-parte ad interim order, however, after recording the reasons for grant of such an order and why it has chosen not to adhere to the principles of natural justice at that stage. It must, thereafter proceed to afford the party respondent an opportunity of hearing before confirming such ex-parte ad interim order. R-169

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In the facts of the present case, the learned senior advocate for the petitioner submits that, orders have been passed by the NCLT without adherence to the principles of natural justice. The respondent was not heard by the NCLT before passing the order. It would be open to the parties to agitate their respective grievances with regard to any order of NCLT or NCLAT as the case may be in accordance with law. It is also open to the parties to point out that the NCLT and the NCLAT are bound to follow the principles of natural justice while disposing of proceedings before them. In such circumstances, the challenge to the vires to Section 7 of the Code of 2016 fails.” P.S: No appeal against this order is found by the author. NCLAT/May17 M/s. Meyer Apparel / sec 9 Ltd & Anr vs M/s (31.5.2017) Surbhi Body Products Pvt Ltd. Company Appeal (AT) (Insv) No. 33 of 2017 Along with M/s. Meyer Apparel Ltd & Anr v M/s Godolo & Godolo Exports Pvt Ltd. Company Appeal (AT) (Insv) No. 34 of 2017

R-170

Facts: At the time of hearing of the appeal, debts of operational creditors in both the matters were settled. However, the order was passed on merit and the agreement / settlement arrived at was not considered as it was post admission of the petition u/sec. 9. Another creditor who has lodged his claims with Interim Resolution Professional sought intervention in the matter. Held: The admission of the Petition was set aside as existence of disputes which were raised was noted. NCLAT further observed that once a petition u/sec. 7 or 9 of IBC is initiated, the NCLT has no jurisdiction to initiate another corporate insolvency resolution process against the same corporate debtor though it may allow

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the financial/operational creditors to file claim pursuant to the advertisement issued before the IRP. P.S: No appeal against this order is found by the author. It was held that objections raised by NCLAT/May17 Philips India / sec.8(2)(a) & Ltd v Goodwill Hospital corporate debtor, were not raised for the & Research Centre Ltd. first time while replying to the notice sec.5(6) Company Appeal (AT) issued by operational creditor u/sec. 8 of (Insv) No. 14 of 2017 IBC. The objections cannot be called to be mere objections raising a dispute for the Along with Philips sake of dispute and/or unrelated to the India Ltd v Karina clause (a) or (b) or (c) of sub-sec. 6 of Healthcare Pvt. Ltd. Company Appeal (AT) sec. 5 of IBC. For the said reasons, if the (Insv) No. 15 of 2017 NCLT has refused to entertain the application u/sec. 9 of the IBC, no ground is made out to interfere with such order. P.S: No appeal against this order is found by the author. NCLAT/Nov17 Engenious / sec. 7 Engineering Pvt. Ltd. v Onaex Natura Amount of debt Pvt Ltd. Company shown in the Appeal (AT) (Insv) records of No. 249 of 2017 Company, does not suffice the definition of a “Financial Creditor”

Facts: In NCLT the appellant filed a case claiming to be a financial creditor. The appellant was allotted shares which were cancelled in an oppression and mismanagement case. Thus, the amount which it had paid for the shares was shown as a debt in the books of the corporate debtor. Issue: Whether the appellant is a “financial creditor”? Held: The appeal was dismissed. NCLAT pronounced that nothing on the record suggested that the appellant came within the meaning of “financial creditor” under sec. 5(8) read with sec. 5(9) of IBC. Further,

R-171

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NCLAT clarified that merely an entry of the amount of debt in the records of the company does not mean that the appellant is a “financial creditor”. P.S: No appeal against this order is found by the author. NCLAT/Aug18 Anil Mahindroo & / sec 7 Anr v Earth Iconioc Infrastructure (P) Definition of Limited. Company “Debt” & Appeal (AT) (Insv) “Financial No. 74 of 2017 Debt”

Facts: The appellant has entered into a MOU, allotment letter with corporate debtor for allotment of a flat. The MOU contained an express promise for guaranteed return on investment. The amount so received were reflected in balance sheet in other current liabilities. NCLT rejected the application on the ground that it was not a financial debt. Issue: Whether the debt is a financial debt and application u/sec. 7 of IBC is maintainable? Held: Appeal is allowed by placing reliance on the Nikhil Mehta and Sons v AMR Infrastructure Ltd. judgment. In the present case, the respondent has not taken any plea that the appellants failed to pay the balance amount on due date or any of the cheque has been bounced on account of any reasons. The respondent did not deny the allegation that a “commitment amount” mentioned in the MOU has not been paid month to month and there is a default. ‘12. From the agreement/ Memorandum of Understanding, we find that the appellants are also “investors” and have chosen “committed return plan” like “Nikhil Mehta and Sons v. AMR Infrastructure Ltd”. Thereby we hold that the amount as is due to the appellants, come within the

R-172

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meaning of “debt” as defined in Section 3(11) of the I & B Code. 13. The Balance Sheet has been enclosed by the appellants, wherein the amount deposited by ‘persons’, including the appellants as shown also suggest that the Respondent ‘Corporate Debtor’ treated the appellants as ‘investors’ and borrowed the amount pursuant to sale purchase agreement for their ‘commercial purpose’ treating the amount at par with ‘loan’ in their return. Thereby, the amount invested by appellants come within the meaning of ‘Financial Debt’, as defined in Section 5(8)(f) of I & B Code, 2016, subject to satisfaction as to whether such disbursement against the consideration is for time value of money. 14. “Disbursed against the consideration for the time value of money”, as mentioned in the opening line of Section 5 has been rightly highlighted and considered by the Ld. Adjudicating Authority in “Nikhil Mehta and Sons v. AMR Infrastructure Ltd”, but the Appellate Tribunal while agreed with such findings but disagreed with the other part of findings in the said case. 15. In the present case, we find that no case has been made out by the respondent that the construction was stopped or delayed on account of factors beyond its control. It has also not been disputed that the respondent failed to pay monthly committed returns which was to be paid month to month till, the completion of the project apartment. Thereby we find and hold that the R-173

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appellants in this case have also successfully proved that the money disbursed by them is against the consideration for the time value of money and for all purpose, they come within the meaning of ‘Financial Creditor’ as defined in Section 5(7) of the ‘l & B Code’. 16. For the reasons aforesaid, NCLAT sets aside the impugned judgment dt. 8th March, 2017 passed by the Ld. Adjudicating Authority in C.P.No. (IB)16(PB)/2017 and remit the matter to Adjudicating Authority to admit the application preferred by appellants and pass appropriate order, if the application under Section 7 of the I & B Code is otherwise complete. In case it is found to be not complete, the appellants should be given seven days’ time to complete the application as per proviso to Section 7 of the I & B Code. P.S: No appeal against this order is found by the author. NCLAT/Aug17 S3 Electrical & / sec 7 Electronics Private (2.8.2017) Ltd v Brian Lau Company Appeal (AT) Natural Justice (Insv) No. 186 of 2017

R-174

Facts: The corporate debtor challenged an order of NCLT admitting the Section 7 petition on following grounds: a. Order passed without notice, in violation natural justice. b. Respondent does not come within definition of financial creditors c. Respondents failed to produce any record of default or such other evidence of default as specified in IBC. d. Section 8 notice was issued by his lawyer which is not permissible. Further, the matter was settled between the

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parties but NCLAT decided the case on merits. Held: Appeal is allowed and admission of the Petition u/sec. 7 is set aside on the ground that no notice was issued before admission of the application and order was passed in violation of principles of natural justice. Subsequent Developments: The case was remanded back of NCLT for purpose of deciding the fees of Interim Resolution Professional for the period he had acted as such. The fees were challenged by a subsequent appeal in NCLAT, NCLAT refused to interfere. P.S: No appeal against this order is found by the author. However, there is a challenge to another order by the corporate debtor. NCLAT/May17 Era Infra Engineering Ltd. v Prideco / sec 9 Commercial Projects (3.5.2017) Pvt. Ltd. Company Sec. 8 notice is Appeal (AT) (Insv) mandatory and No. 31 of 2017 a pre-condition to initiate application u/s sec 9 of IBC

Issue: corporate debtor challenged initiation of Insolvency Resolution process done by admitting the operational creditor’s incomplete application u/sec. 9. Issue: Can an application u/sec. 9 be admitted in the absence of a Section 8 notice and can a notice u/sec. 271 of the Companies Act, 2013 suffice for the purpose of filing a Section 9 petition. Held: Appeal is allowed and admission of the Section 9 petition is set aside. It held that Section 8 notice is a mandatory provision of law. The application u/sec. 9 is incomplete without a Section 8 notice and the said defect is not curable. It held that insolvency resolution by an operational creditor can be initiated only on occurrence of a default which is to be followed by a demand notice R-175

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for unpaid dues by operational debtor as stipulated u/sec. 8(1) of IBC. The application u/sec. 9 of IBC can be filed only after expiry of the period of 10 days from the date of delivery of notice or invoice demanding payment as provided under sec. 9(1). P.S: No appeal against this order is found by the author. NCLAT/Aug17 PEC Ltd. Through / sections 7 & 9 Shri Indra Vikram (4.8.2017) Singh v Sree Ramakrishna Alloys Expeditious Ltd. Company Appeal disposal of (AT) (Insv) No. 225 of sec 7 2017 Along with PEC application Ltd. Through Shri Indra Vikram Singh v M/s Sree Gangadhar Steels Ltd Company Appeal (AT) (Insv) No. 236 of 2017

Issue: The matter was adjourned by NCLT a few times on the assurance of “corporate debtors” that they intend to provide a repayment schedule of the amount due to appellant as otherwise admission of the case may affect a large number of employees. The financial creditors challenged the order granting further time to the corporate debtor. Held: Appeal was disposed of. NCLAT refuses to interfere with the order passed by NCLT. However, it directed not to grant further time to the corporate debtors as there is a time frame within which admission of the matters is to be decided. P.S: No appeal against this order is found by the author.

NCLAT/Dec17 Steamline Industries / sec. 7 Ltd. v Tecpro Systems Ltd. & Anr. Company Moratorium - Appeal (AT) (Insv) provisions of No. 229 of 2017 IBC override provisions of “Commercial Court Act”

R-176

Issue: The appellant filed an application before NCLT to permit him to pursue the suit filed against the corporate debtor under Commercial Court Act. The said request was rejected with costs. This appeal was filed against the said decision. Held: The appeal was rejected. NCLAT held that provisions of IBC will prevail over provisions of Commercial Court Act and

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hence the moratorium u/sec. 14(1)(a) will apply. It however permitted the appellant to submit its claim before Resolution Professional and Committee of Creditors and directed them to consider the said claim along with other claims. P.S: No appeal against this order is found by the author. NCLAT/May17 M/s Della / sec. 9 Constructions Pvt (9.5.2017) Ltd. v MIs Rei Agro Ltd & Anr Company Admission of Appeal (AT) (Insv) sec 9 petition No. 35 of 2017 challenged by other creditors.

Facts: NCLT admitted a Section 9 application. The said decision was challenged by a third party (another creditor). The main grievance was that due to the admission of the Section 9 petition, his recovery proceedings were stayed by virtue of sec. 14 of IBC. Held: The appeal was dismissed. Liberty was given to the appellant creditor to raise his claims before the Interim resolution professional. P.S: No appeal against this order is found by the author.

NCLAT/Aug17 Asian Natural Resources (India) / Ltd v IDBI Bank (11.8.2017) Limited and Bhatia Receipts of the Global Trading Speed Post(s) Ltd. v IDBI Bank Ltd. & Delivery Company Appeal (AT) serve as an (Insv) No. 60 of 2017 evidence under & Company Appeal Rule 4(3) (AT) (Insv) No. 62 of 2017

Issue: The appellants challenged the order on following grounds: (i) order passed in violation of natural justice, without giving any notice to the corporate debtors. (ii) the financial creditor have signed an inter se agreement and a part of a consortium of banker where SBI is appointed as a Lead Bank and thus have waived its rights in favour of the lead bank. Held: The Appeal was rejected. Respondents submitted that the appellants were misleading the court. It showed proof that the application as well as the dates of hearing R-177

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were conveyed to the corporate debtor. It further held that inter se agreement between bankers is not binding in nature, the corporate debtor not being signatory cannot take advantage of such inter se agreement. Section 7 allows financial creditors to file application singly or jointly and the inter se agreement between financial creditors cannot override the said provision of the code nor can it take away the right of the financial institution to file an application under sec. 7 of IBC. P.S: No appeal against this order is found by the author. NCLAT/Dec17 PEC Ltd. v M/s Sree / sections 7 & 9 Ramakrishna Alloys (13.12.2017) Ltd. Company Appeal (AT) (Insv) No. 120 of 2017 Application under sec.7 PEC Ltd. v M/s Sree cannot be Gangadhar Steels Ltd. treated as an Company Appeal (AT) application (Insv) No. 121 of 2017 under sec. 9.

R-178

Issue: The appellant filed an application under sec. 7 but at the request of the respondent (corporate debtor), the application had been treated as an application under sec. 9 of the Code and the application was admitted. The grievance of the appellant is that they are treated as an operational creditor and thus are not allowed to be a part of the Committee of Creditors. Held: The Appeal was partly allowed. The order of admission of petition was retained but the order of NCLT was modified to the extent that where the appellant was treated as an operational creditor, the NCLAT restored the status of the appellant to a financial creditor and allowed it to participate in committee of creditors. The agreement of the parties was dealt with in detail and the NCLT reached a conclusion that the terms for granting an Inland Letter of Creditor indicated that M/s. PEC Ltd. had

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disbursed the amount to corporate debtors against the consideration for the time value of money. The agreement also indicated that corporate debtor had borrowed money from the appellant against the payment of interest. It provided a clause that if amount was not paid by corporate debtor, then it will have to pay interest for delay beyond the stipulated period. Thus, the appellant-M/s. PEC Ltd. come within the meaning of ‘financial creditor’ and is eligible to file an application under sec. 7 of the I&B Code there being a debt and default on the part of the respondent. It observed that if an application is filed by a person under sec. 7 of IBC and in case the NCLT comes to the conclusion that the applicant is not a financial creditor, in such case the NCLT has jurisdiction to reject the application under sec. 7 of IBC. However, NCLT cannot treat the format of the application under sec. 7 of IBC (Form 1) as the application under sec. 9 of IBC. Further, it cannot treat such a person as an operational creditor in absence of any claim made under sec. 9 of IBC. Further, as the information required to be given in Form 1 varies from the information as required to be given in Form 5 (Sec. 9) and also the instructions made below the requisite forms are different, no application filed under sec. 7 can be treated as application under sec 9 of IBC. P.S: No appeal against this order is found by the author. NCLAT/Sept17 Canara

Facts: The NCLT while admitting the application under sec. 7 of IBC and declaring R-179

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Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered / sec. 14 Bank v Deccan (14.9.2017) Chronicle Holidays Limited Company Clarification on Appeal (AT) (Insv) sec.14(1)(a) - No. 147 of 2017 Moratorium

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moratorium changed the nature and scope of moratorium. It declared moratorium under sec. 14(a) in following words ‘The institution of suits or continuation of pending suits or proceedings except before the Hon’ble High Court (s) and Hon’ble Supreme Court of India, against the Corporate Debtor including execution of any judgement, decree or order in any court of law, Tribunal, arbitration panel or other authority’ (emphasis supplied. Issue: Appellant submitted that NCLT cannot exclude any court from the purview of Moratorium for the purpose of recovery of amount or execution of any judgment or decree, including the proceeding, if any, pending before the Hon’ble High Courts and Hon’ble Supreme Court of India against a ‘corporate debtor’. Held: The NCLAT analysed the nature and scope of sec. 14(1)(a) in para 6 and 7. Which read as follows: ‘6. From clause (a) of sub-Section (1) of Section 14, it is clear that institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order by any court of law, tribunal, arbitration panel or other authority come within the purview of ‘moratorium. The said provision specifically do not exclude any Court, including the Hon’ble High Courts or Hon’ble Supreme Court of India. 7. There is no provision to file any money suit or suit for recovery before the Hon’ble

R-180

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Supreme Court except under Article 131 of the Constitution of India where dispute between Government of India and one or more States or between the Government of India and any State or States on one side and one or two or more States is filed. Some High Courts have original jurisdiction to entertain the suits, which may include money suit or suit for recovery of money. The Hon’ble Supreme Court has power under Article 32 of the Constitution of India and Hon’ble High Court under Article 226 of Constitution of India which power cannot be curtailed by any provision of an Act or a Court. In view of the aforesaid provision of law, we make it clear that ‘moratorium’ will not affect any suit or case pending before the Hon’ble Supreme Court under Article 32 of the Constitution of India or where an order is passed under Article 136 of Constitution of India. ‘Moratorium’ will also not affect the power of the High Court under Article 226 of Constitution of India. However, so far as suit, if filed before any High Court under original jurisdiction which is a money suit or suit for recovery, against the ‘corporate debtor’ such suit cannot proceed after declaration of ‘moratorium, under Section 14 of the I&B Code. Thus, the order of NCLT stood clarified by virtue of this order. P.S: No appeal against this order is found by the author. NCLAT/Dec17 Ellora Paper Mills

Facts: The admission of a sec 7 application is challenged by the corporate debtor. The R-181

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Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered (15.11.2017) Limited & Anr v Ajithnath Steels Discussion of Pvt. Ltd. Company Applicability of Appeal (AT) (Insv) No Limitation Act. 122 of 2017

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respondent claimed that amount was required to be paid back by the appellant within specified period and in case of default, interest was payable. As interest accrued every month and there being continuous cause of action there is no latches on part of the respondent. Issue: Application under sec. 7 is barred by Limitation. Held: The appeal was dismissed by replying on M/s. Speculum Plast Pvt. Ltd v PTC Techno Pvt. Ltd Company Appeal (AT) (Ins) No. 47 of 2017. It was held that provision of Limitation Act, 1963 are not applicable. Even assuming that they are applicable, Article 137 of Limitation Act, 1963 provides that the period of limitation is three years from the date ‘Right to Apply’ accrues. In this the right to apply accrues only on 1st December 2016 to a “financial creditor” or “operational creditor” or “corporate debtor”. P.S: Appeal was filed but was dismissed. [Civil Appeal 1752/2018].

NCLAT/Nov17 Indian Overseas Bank / sec. 17(1((d) v Mr. Dinkar T. (15.11.2017) Venkatsubramaniam Resolution Professional for Amtek Once Auto Ltd. Company application u/sec.7 is Appeal (AT) (Insv) admitted, It is No. 267 of 2017 not open to any person to recover any

R-182

Issue: The insolvency petition was admitted and IRP was appointed. The IRP in accordance with sec. 17(1)(d) of IBC is entitled to approach the financial institutions maintaining accounts of the corporate debtor which have to act on instructions of the IRP in relation to such account and furnish all information relating to the corporate debtor available with them to the IRP. The appellant is one of the financial creditors and constitutes 4.08% of the total financial debt. The corporate debtor is maintaining an

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account with the said bank and a large sum of money is available in the said bank account with the appellant. In view of initiation of the IRP process and in terms of sec. 17, the IRP requested the appellant to transfer the amount to another bank account. The appellant refused to do so. It claimed that the amount available in the current account of the corporate debtor is neither a security interest nor an asset of the corporate debtor and therefore, the appellant is not liable to release the amount to the corporate debtor and the amount available in the said account is to be appropriated towards the dues payable to the appellant. This stand was rejected by NCLT and the appellant was directed to transfer the said amount to the concerned bank account requested by IRP. The appeal was filed against this decision. Held: The appeal was rejected. Once the application is admitted under sec. 7 and moratorium is declared, it is not open to any person including financial creditors and the appellant bank to recover any amount from the account of the corporate debtor nor can it appropriate any amount towards its own dues. If the corporate debtor has borrowed some amount from the appellant and the appellant is a financial debtor, then the appellant can only recover its debt by filing its claim before the IRP in adherence to the provisions of the Code. P.S: No appeal against this order is found by the author.

NCLAT/Oct17/ Bharti Defence and sec 7 Infrastructure

Facts: The order of NCLT admitting the Section 7 application was challenged by the corporate debtor. R-183

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered Limited v Edelweiss Non provision Asset Reconstruction of details of Company Limited. default with Company Appeal (AT) information (Insv) No.71 of 2017 utility need not result in rejection of the application under IBC.

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Issue After notification of provisions w.r.t information utility, in the absence of record of default recorded with the information utility, no application can lie before NCLT. Held: NCLAT held that NCLT has rightly admitted the petition. Though the there was nothing in the column dealing with information utility in Form 1 but the details of record of debt and default were complete giving necessary documents and details of the amount, the securities etc. Thus, the appeal was dismissed. P.S: No appeal against this order is found by the author.

NCLAT/Dec17 Ms. Poorani / sec. 7 Nagarajan (18.12.17) (Shareholder in M/s Infinitas Energy Solutions Pvt. Ltd. v Indian Bank & Ors. Company Appeal (AT) (Insv) No. 318 of 2017

Facts: NCLT, Chennai admitted the application u/sec. 7 having noticed that there is a debt & default and the documents filed by the respondents (financial creditor) are complete & in accordance with the Code. On which, the appellants submit that, they had received a letter from the financial creditor asking the corporate debtor to discuss the action plan for recovery of bank dues. Issue: Whether such letter would make the order of NCLT illegal. Held: The Appeal was dismissed. NCLAT found out that the letter was issued by the financial creditor, after notice and hearings by the bench but before passing of the order. It held that this will not render the order illegal. P.S: No appeal against this order is found by the author.

R-184

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NCLAT/Sept17 M/s R.G Shaw & Sons / sec. 7 Private Limited & (20.9.2017) Anr v M/s Naviplast Traders Private Limited & Ors. Company Appeal (AT) (Insv) No. 63 of 2017

Issues: The appellants (corporate debtor) filed an appeal against the order of NCLT initiating CIRP. The main grounds for the appeal were as follows: (a) Respondents suppressed the fact that they have initiated the proceedings under sec. 138 of Negotiable Instruments Act, 1881 on account of dishonor of cheque. (b) Appellants claimed that pursuant to the oral Agreement/understanding between the parties the time of repayment was extended and thus question of default in making re-payment does not arise. (c) Appellants claimed that Form 1 was not in accordance with the provisions of sec. 7. Held: Appeal was rejected. NCLAT upheld that order passed by NCLT. It clarified that non-disclosure/ existence of proceedings initiated due to dishonour of cheque cannot be held as a ground to reject the application where the existence of debt and default is shown. It further held that in absence of an evidence of agreement or understanding for restructuring of loan, such plea cannot be accepted. In the absence of any order is the other proceedings, the Form 1 is complete even if it records “Not applicable” in the column dealing with order passed by Tribunal/Arbitration Panel etc. P.S: No appeal against this order is found by the author.

NCLAT/Sept17 Palogix Infrastructure Issue: 1. Whether The Constituted Attorney

R-185

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Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered / sec. 7 Private Limited v ICICI Bank ‘Power of Limited Company Attorney Appeal (AT) (Insv) Holder’ is not No. 30 of 2017 empowered to file application under section 7 of the ‘I&B Code’, but an authorized person has power to do so. While Counting the period of seven days for removing defects, Holidays such as Saturdays, Sundays and other holidays of the Tribunal to be excluded.

R-186

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2.

authorized can: • File suits and/or proceedings against the company for recovery of the amount; • Filing of plaints cum affidavits and other pleadings in any court of India including NCLT; • File an application for initiation of corporate insolvency process under sec. 7 of the Insolvency and Bankruptcy Code 2016; without having specifically authorized to lodge Application/Petition under IBC 2016. Calculation of 7 days period for removing defects under the code.

Held: The appeal was rejected and admission of application was affirmed. 1. NCLAT held that a company being a juristic person is capable of initiating and defending legal proceedings and, therefore, the Board of Directors is empowered to exercise such rights on behalf of the company or may duly empower ‘Authorized Representative’ to do so on its behalf. 2. Further, for the purpose of counting the period of seven days, it was held that apart from the date of receipt of the order for removal of defects, the holidays such as Saturdays, Sundays and other holidays of the Tribunal are to be excluded. Operative paragraphs of the order: 31. As per sec.7 of IBC an application for initiation ‘Corporate Insolvency Resolution Process’ requires to be filed by Financial

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Creditor’ itself. The form and manner in which an application under section 7 of the ‘I&B Code’ is to be filed by a ‘Financial Creditor’ is provided in ‘Form-l’ of the Adjudicating Authority Rules. Upon perusal of the Adjudicating Authority Rules and Form-1, it may be duly noted that the ‘I&B Code’ and the Adjudicating Authority Rules recognize that a ‘Financial Creditor’ being a juristic person can only act through an “Authorized Representative”. Entry 5 & 6 (Part I) of Form No.1 mandates the ‘Financial Creditor’ to submit “name and address of the person authorized to submit application on its behalf. The authorization letter is to be enclosed. The signature block of the aforementioned Form 1 also provides for the authorized person’s detail is to be inserted and also includes inter alia the position of the authorized person in relation to the ‘Financial Creditor’. Thus, it is clear that only an “authorized person” as distinct from “Power of Attorney Holder” can make an application under section 7 and required to state his position in relation to “Financial Creditor”. 32. The ‘I&B Code’ is a complete Code by itself. The provision of the Power of Attorney Act, 1882 cannot override the specific provision of a statute which requires that a particular act should be done by a person in the manner as prescribed thereunder. 33. Therefore, we hold that a ‘Power of Attorney Holder’ is not competent to file an application on behalf of a ‘Financial Creditor’ or ‘Operational Creditor’ or R-187

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‘Corporate Applicant’. 36. In so far as, the present case is concerned, the ‘Financial Creditor’-Bank has pleaded that by Board’s Resolutions dated 30th May, 2002 and 30th October, 2009, the Bank authorised its officers to do needful in the legal proceedings by and against the Bank. If general authorisation is made by any ‘Financial Creditor’ or ‘Operational Creditor’ or ‘Corporate Applicant’ in favour of its officers to do needful in legal proceedings by and against the ‘Financial Creditor’ / ‘Operational Creditor’/ ‘Corporate Applicant’, mere use of word ‘Power of. Attorney’ while delegating such power will not take away the authority of such officer and ‘for all purposes it is to be treated as an ‘authorization’ by the ‘Financial Creditor’ ‘Operational Creditor’ ‘Corporate Applicant’ in favour of its officer, which can be delegated even by designation. In such case, officer delegated with power can claim to be the ‘Authorized Representative’ for the purpose of filing any application under section 7 or Section 9 or Section 10 of ‘I&B Code’. 37. As per Entry 5 & 6 (Part I) of Form No. 1, ‘Authorised Representative’ is required to write his name and address and position in relation to the ‘Financial Creditor’/Bank. If there is any defect, in such case, an application under section 7 cannot be rejected and the applicant is to be granted seven days’ time to produce the Board Resolution and remove the defect. 40. In view of reasons as recorded above, R-188

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while we hold that a ‘Power of Attorney Holder’ is not empowered to file application under section 7 of the ‘I&B Code’, we further hold that an authorized person has power to do so. P.S: No appeal against this order is found by the author. NCLAT/Nov17 / sec. 7 read with Rule 4 (20.11.2017)

Shri D.R. Balakrishna Raja v Indian Bank M/s B.K.R. Hotels & Resorts Pvt Ltd. Company Appeal (AT) Violation of (Insv) No. 123 of 2017 rules of natural justice

Issue: Corporate debtor claimed order admitting the sec 7 application was passed in violation of rules of natural justice. Held: The appeal was dismissed as it was observed that NCLT passed the order after hearing the parties. On the date of admission of the application u/sec. 7, the corporate debtor appeared through their counsel, who raised objections, hence no merit was found in the case. P.S: No appeal against this order is found by the author.

NCLAT/Nov17 T.R Jawahar & / sec. 7 Anr v Edelweiss Asset (20.11.2017) & Anr. Company Appeal (AT) (Insv) No. 274 of 2017

Issue: The Appeal was filed challenging the locus of the respondents. According to the appellant, the application u/sec. 7 of the code was filed by the person in the capacity of “trustee” and not as a “financial creditor”. Held: The Appeal was dismissed. NCLAT observed that it was true that the respondent stands in the capacity of a ‘trustee’ but NCLAT found that the respondent is also a company registered under the Companies Act, 1956 and comes within the definition of ‘financial creditor’ as defined under subsec. (7) read with sub-sec. (8) of sec. 5 of the I & B Code. Hence, no merit was found in the appeal. R-189

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P.S: No appeal against this order is found by the author. Issue: NCLAT/July17 Nikhil Mehta & (i) Whether the appellants who reached / sec. 7 Sons v AMR with agreements/ Memorandum of Infrastructure Ltd. Understandings with respondent for the Company Appeal (AT) purchase of three units being a (Insv) No. 07 of 2017 residential flat, shop and office space in the projects developed, promoted and marketed by the respondent come within the meaning of ‘financial creditor’ as defined under the provisions of subsec. (5) of sec 7 of the I & B code, and (ii) Whether an application for triggering insolvency process under sec. 7 of I &B code is maintainable where winding up petitions have been initiated and pending before Hon’ble High Court against the ‘corporate debtor’. Held: The Appeal was allowed and the appellant was held to be a financial creditor. The matter was remanded back to NCLT for admission of the matter. Following are some of the important observations: ‘The first question arises for consideration is as to who is a Financial Creditor’. Learned Adjudicating Authority, for determination of the aforesaid issue examined the definition provided in Section 5 (7) and 5(8) and in the impugned judgment rightly observed:“12. A perusal of definition of expression ‘Financial Creditor’ would show that it refers to a person to whom a financial

R-190

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debt is owed and includes even a person to whom such debt has been legally assigned or transferred to. In order to understand the expression ‘Financial Creditor the requirements of expression financial debt’ have to be satisfied which is defined in Section 5(8) of the IBC The opening words of the definition clause would indicate that a financial debt is a debt along with interest which is disbursed against the consideration for the time value of money and it may include any of the events enumerated in sub-clauses (a) to (i). Therefore the first essential requirement of financial debt has to be met viz, that the debt is disbursed against the consideration for the time value of money and which may include the events enumerated in various sub-clauses. A Financial Creditor is a person who has right to a financial debt. The key feature official transaction as postulated by section 5(8) is its consideration for time value of money. In other words, the legislature has included such financial transactions in the definition of ‘Financial debt’ which are usually for a sum of money received today to be paid for over a period of time in a single or series of payments in future. It may also be a sum of money invested today to be repaid over a period of time in a single or series of instalments to be paid in future. In Black’s Law- Dictionary (9th edition) the expression ‘Time Value’ has been defined to mean “the price associated with the length of time that an investor must wait until an investment

R-191

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matures or the related income is earned”. In both the cases, the inflows and outflows are distanced by time and there is a compensation for time value of money. It is significant to notice that in order to satisfy the requirement of this provision, the financial transaction should be in the nature of debt and no equity has been implied by the opening words of Section 5(8) of the IBC. It is true that there are complex financial instruments which may not provide a happy situation to decphe1 the true nature and meaning of a transaction. It is pertinent to point out that the concept ‘Financial Debt’ as envisaged under Section 5(8) of the IBC is distinctly different than the one prevalent in England as provided in its Insolvency Act, 1986 and the ‘Rules’ framed thereunder. It appears that in England there is no exclusive element of disbursement of debt laced with the consideration for the time value of money. However, forward sale or purchase agreement as contemplated by Section-5 (8)(f) may or may not be regarded as a financial transaction. A forward contract to sell product at the end of a specified period is not a financial contract. It is essentially a contract for sale of specified goods. It is true that some time financial transactions seemingly restructured as sale and repurchase. Any repurchase and reverse repo transaction are sometimes used as devices for raising money. In a transaction of this nature an entity may require liquidity against an asset and the

R-192

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financer in return sell it back by way of a forward contract. The difference between the two prices would imply the rate of return- to the financer.(See Taxman’s Law Relating to IBC, 2016 by Vinod Kothari & Sikha Bansal).” From the provisions of Law and discussion as made and quoted above, we find that following essential criteria’s to be fulfilled for a Creditor to come within the meaning of ‘Financial Creditor:’(i) A person to whom a ‘Financial debt’ is owed and includes a person whom such debt has been legally assigned or transferred to (ii) The debt along with interest, if any, is disbursed against the consideration for time value of money and include any one or more mode of disbursed as mentioned in clause (a) to (i) of sub-section (8) of Section 5. 19.To determine the question whether appellants came within the meaning of ‘Financial Creditor’, it is desirable to notice the relevant clause of one of the Memorandum of Understanding dated 12th April 2008 reached between the appellants and the Respondent-Corporate Debtor… From the aforesaid agreement/ Memorandum of Understanding it is clear that appellants are “investors” and has chosen “committed return plan”. The respondent in their turn agreed upon to pay monthly committed return to 17 investors. Thus, the amount due to the appellants come within the meaning of ‘debt’ as defined in Section 3(11) of the I & B Code’ R-193

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The appellants have enclosed the annual return of Respondent-Corporate Debtor dated 31St March 2014. Therein the amount deposited by ‘investors’ including the appellants as has been shown as committed return while giving the ‘financial cost”/ at par with interest on loans, as From the ‘Annual Return’ of the Respondent and Form-16A, we find that the ‘Corporate Debtor’ treated the appellants as ‘investors’ and borrowed the amount pursuant to sale purchase agreement for their commercial purpose treating at par with ‘loan’ in their return. Thereby, the amount invested by appellants come within the meaning of ‘Financial Debt’, as defined in Section 5(8)(f) of I & B Code, 2016 subject to satisfaction as to whether such disbursement against the consideration is for time value of money, as discussed in the subsequent paragraphs. Learned Adjudicating Authority has rightly highlighted the opening word of the definition clause which indicate that a ‘financial debt’ is a debt along with interest which is disbursed against the consideration for the time value of money and may include any of the events enumerated in sub-clause (a) to (i). Therefore, it is to be seen whether the amount paid by the appellants to the Corporate Debtor, fulfil the other condition of “disbursement against consideration of time value and money”, to come within the definition of “Financial Creditor” having satisfied that the Corporate Debtor raised the amount through a transaction of sale and R-194

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purchase of agreement having commercial effect of a borrowing (Section 5(8) (f)). The agreement shows that the respondent agreed to complete the construction of shopping mall on or before December 2009, in all respects. And was required to complete and handover the shop in the shopping mall before the said date. It is not the case of the respondent that the construction was stopped or delayed on account of factors beyond the control of the respondent, as stipulated in the later part of the Memorandum of Understanding. It was agreed upon by the respondent that since the appellants have paid most of the amount the respondent was ready to pay “monthly committed returns” to the appellants. However, as the appellants were not required the monthly return till December 2008 i.e. for 9 months so the RespondentCorporate Debtor undertook to make a consolidated payment of Rs. 99,600/- less TDS. For every calendar month the Corporate Debtor was liable to pay committee return w.e.f. January 2009 till the date of handing over of the possession to the appellants. Therefore, it is clear that the amount disbursed by the appellants was “against the consideration of the time value of the money” and “the RespondentCorporate Debtor raised the amount by way of sale - purchase agreement, having a commercial effect of borrowing.” This is also clear from annual returns filed by Respondent and not disputed by the Respondent-Corporate Debtor in their R-195

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annual returns, wherein the amount so raised/borrowed has been shown as ‘commitment charges’ under the head “Financial cost”. The financial cost includes “Interest of loans” and other charges. Therefore, the ‘commitment charge’, which include interest on loan, shown against the head “Financial cost” having accepted by the Corporate Debtor in their annual return, we hold that the appellants have successfully proved that they are ‘financial Creditor’ within the meaning of Section 5(7) of the I & B Code. 26. Learned Adjudicating Authority while rightly interpreted the provisions of law to understand the meaning of expression ‘financa1 creditor’ at paragraph 12 of the impugned judgment as quoted above, but failed to appreciate the nature of transactions in the present case and wrongly came to a conclusion “that it is a pure and simple agreement of sale and purchase of a piece of property and has not acquired the status of a financial debt as the transaction does not have consideration for the time value of money”. P.S: No appeal against this order is found by the author. NCLAT/Dec17 1. Mintri Tea / sec. 7 Company Limited., 2.Bhaveh Mintri, 3. Disputed Debt Purnima Mintri, is also a debt Shiwaani for the purpose Mintri. v Punjab of Sec 7 National Bank.

R-196

Issue: The appellants sought relief against the order passed by NCLT, Kolkata admitting a Section 7 application. The said petition was preceded by a notice under “SARFESI” Act. It was observed that there was a mismatch in amounts claimed under the notice and under the petition of nearly INR. 3 crores. The respondent bank clarified

Case Digest: List of important judgments under IBC

Court/Month. Case Particulars Year of Case/Relevant Provision; (date of the decision) Brief law point covered application. Company Appeal (AT) that the amount derived on was on (Insv) No. 237 of 2017 calculation of interest. Hence, the application was admitted by NCLT Kolkata. Held: The appeal was dismissed. NCLAT held that the amount of debt claimed, would always vary with the default of debt amount which would be a part of the claim & the total amount must have been different as it may include the interest. Further, NCLAT concludes that the respondents on Calculation of interest satisfy the bench and show the amount due & the default that took place, hence there was no merit in the present appeal. It further referred to Innovative v ICICI judgment of Apex Court. It held that as long as it is not disputed that there is a debt and there was a default, the application under sec. 7 could be admitted. Debt may even be disputed as long as debt is due. Debt includes a disputed claim. P.S: No appeal against this order is found by the author. NCLAT/Nov17 Forech India Pvt. / sec. 7 Ltd. v Edelweiss Assets Reconstruction Pendency of Company Ltd. & Anr. winding up Company Appeal (AT) Proceedings. (Insv) No. 202 of 2017

Issue: The NCLT admitted an application under sec. 7 against the corporate debtor. The said admission was challenged by the present appellant, who was a third party and claimed to be an “operational creditor”. The main ground of challenge is the pendency of winding up proceedings in High Court. Held: The appeal was dismissed. NCLAT observed that no order was passed for winding up against the corporate debtor by HC and no liquidation proceedings were initiated. It was held that in the absence of R-197

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actual initiation of winding up proceedings against the corporate debtor, it is open to the financial creditor/operational creditor to file an application for corporate Insolvency Resolution Process against the corporate debtor to recover his debt. It further observed under sec. 11 the financial creditor is ineligible to file an application under sec. 7 only if the financial creditor has violated any of the terms of resolution plan which was approved twelve months from the date of making an application. It further held that winding up under the Companies Act, 2013 has been treated to be liquidation under the I & B Code. There is no provision under the I & B Code which stipulate that if a winding up or liquidation proceeding has been initiated against the corporate debtor, the petition under sec. 7 or sec. 9 against the said corporate debtor is not maintainable. P.S: Appeal is filed in the Hon’ble Supreme Court. Civil Appeal. 818 of 2018. Notice is issued. NCLAT/May17 Starlog Enterprises / sec 61 Limited v ICICI Bank (24.05.17) Ltd. Company Appeal (AT) (Insv) No. 5 of 2017

R-198

Fact: NCLT passed an ex-parte order against the corporate debtor (Starlog Enterprise Limited) admitting an application u/sec. 7 of IBC preferred by financial creditor (ICICI Bank). It was found that: (a) Financial creditors has added the amount that were not due (as entire loan was not recalled) to the amount claimed. (b) The application was filed in a hurry. (c) The amount as shown in the notice sent few days before the filing of the application was materially different from the amount claimed in the Petition.

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(d) The financial creditor was part of the Joint Lender Forum and had attended the meeting of the said forum and participated in the discussions where corrective action plan was being considered. It however, did not even mention the filing of the Petition in the said JLF meeting. (e) No notice before admission was given to the corporate debtor. (f) The IRP nominated by the financial creditor failed to act in the interest of the company which caused huge losses to the company. Held: (a) The principal (unmatured) amount never having become due and payable to the financial debtor could not have been claimed as a default amount. (b) NCLT’s order suffers from nonapplication of mind as it failed to consider the mismatch of amount claimed in demand notice and amount claimed in application u/sec. 7. (c) A notice send by financial creditor which does not state whether the application is filed, does not state the filing number and the date of listing, if notified cannot be considered to be a notice to the corporate debtor. (d) The application which is filed has to be forwarded as Rule 4(3) of AAA rules contemplate a post filing notice and not a notice before filing. (e) The finding as to the amount in default is perverse and contrary to the fact. Hence, the appeal was allowed and cost was R-199

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imposed on financial creditor and the admission of the sec 7 application was set aside. P.S: Appeal is filed in Supreme Court. Civil Appeal. 8275 of 2017. Appeal is dismissed as withdrawn. NCLAT/may17 Kaliber Associates / sec 7 Pvt. Ltd. v Tripat Kaur Company Appeal (AT) (26.5.2017) (Insv) No. 52 of 2017

Issue: Order passed by NCLT was in violation of rules of Natural Justice. Held: The appeal was allowed. As appellant unconditionally provided a schedule of payment and the amount of default. The respondent (financial creditor) though accepted that no notice was issue by NCLT before admitting the application under sec. 7, submitted that he had no objection in settling the dispute with the appellant. P.S: No appeal against this order is found by the author.

NCLAT/Aug17 Steel Konnect (India) Issues: 1. The notice served on the appellant under / sec. 7 Pvt. Ltd. v Hero Rule 4(3) was a pre filing notice. Fincorp Ltd. Company Another notice had a wrong date of Appeal (AT) (Insv) hearing for admission of the application No. 51 of 2017 u/sec.7 and hence is was claimed that this is a violation of natural justice. 2. Whether enclosures of record of default or copies of entries in Banker’s Book as required in terms of Form - 1, read with Rule 4 of the Adjudicating Authority Rules and sub-sec. (3) of sec. 7 of IBC is mandatory? 3. Whether the corporate debtor can prefer appeal under sec.61 of IBC through the BOD, which stands suspended after

R-200

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admission of an application. (para 17&19). Held: The appeal was rejected and all the contentions of the appellant were dealt with. (a) NCLAT took into consideration that though the notice was not issued, but the appellant had appeared and was heard by NCLT at the time of admission of the application. NCLAT further held that: “Even if it is presumed that no separate notice was issued by NCLT to the “Corporate Debtor”, the appellant having heard before passing the impugned order, the question of remitting the case for hearing on the ground of non-compliance of principles of natural justice does not arise as it will be futile”. (b) With respect to the second issue: NCLAT placed reliance on Neelkanth Township and Construction Pvt. Limited. v Urban Infrastructure Trustees Limited and pronounced that : A procedural provision cannot override or affect the substantive obligation of the adjudicating authority to deal with applications under Section 7 merely on the ground that Board has not stipulated or framed Regulations with regard to sub-section 3(a) of Section 7. “The rules framed by the Central Government under Section 239 having prescribed the documents, record and evidence of default as noticed above, we hold that in absence of regulation framed by the Board relating to record of default recorded with the information R-201

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utility or other record of evidence of default specified, “the documents”, ‘record’ and ‘evidence of default’ prescribed at Part V of Form-1, of the Adjudicatory Rules 2016 will hold good to decide the default of debt for the purpose of Section 7 of the ‘IBC’. 21. We further hold that the ‘Regulations framed by the Board’ being subject to the provisions of I & B Code’ and rules framed by the Central Government under Section 239, ‘Part V of Form - 1’ of Adjudicating Authority Rules, 2016 framed by Central Government relating to ‘documents’, ‘record’ and ‘evidence of default’, will override the regulations, if framed by the Board and if inconsistent with the Rule. However, it is always open to Board to prescribe additional records in support of default of debt, such as records of default recorded with the information utility or such other record or evidence of default in addition to the records as mentioned in Part V of Form-I.” (c) NCLT further observed that corporate debtor cannot be represented by an Interim Resolution Professional whose appointment is under challenge and for all purposes will have to be represented by the persons who are authorized prior to the admission of the insolvency petition. It further observed that for the 180/270day resolution period, Director continue to remain as such for all purposes in the records of Registrar of Companies. The Board of Directors is only suspended.

R-202

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P.S: No appeal against this order is found by the author. NCLAT/Jul17/ Mindtree Exports sec. 7 read with Private Limited v M/s sec. 5(7) Ashmita Multitrade Private Limited & Anr Company Appeal (AT) (Insv) No. 98 of 2017

Facts: The respondent company claimed to be a financial creditor as defined u/sec 5(7) and filed an application u/sec 7. They initially claimed to be an operational creditor and preferred an application under sec. 9 but the same was withdrawn. The order of admission was passed without issuing notice to the corporate debtor. Held: The Appeal was allowed and admission of the petition was set aside. As NCLT failed to consider whether any notice was actually served on the corporate debtor. Also, under Rule 4(3), which provides for serving a copy of the application u/sec. 7 mentioning the date of hearing before the NCLT. Further, NCLT also failed to consider whether the respondents/petitioner come within the meaning of “financial creditors” or not as they earlier claimed to be “operational creditors”. P.S: No appeal against this order is found by the author.

NCLAT/Aug17 Ardor Global Pvt. / Rule.8 Ltd v Nirma Industries Pvt Ltd. Company NCLT has Appeal (AT) (Insv) power to permit No. 137 of 2017 withdrawal of the petition.

Issue: There were defects in the petition. The Petitioner in NCLT was allowed to withdraw the application with liberty to refile it. Held: The appeal was dismissed. It was held, according to Rule 8 of the Adjudication rule, NCLT has power to permit withdrawal of the petition on request made by the Petitioner before its admission. The withdrawal can be permitted with liberty to refile. Constructive res judicata will not apply to a petition which

R-203

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has been withdrawn with liberty to re-file. P.S: No appeal against this order is found by the author. NCLAT/Nov17 Sh Sumeet Ahuja v Union Bank of / sec. 7 India & Anr. Substitution of Company Appeal (AT) Appellant (Insv) No. 128 of 2017

Issue: Admission of Section 7 application filed by the power of attorney holder was challenged on the ground of lack of authority. Held: Decision in M/s Palogix Infrastructure Pvt Ltd v ICICI Bank, Company Appeal (AT) (Insolvency) No.30 of 2017 was referred. NCLAT observed that “As noticed, in the present case the application under Section 7 has been filed by the Deputy General Manager of the Bank, in the authorisation order it is mentioned as Power of Attorney, but that will not change the complex of the instrument which is an order of authorisation. In view of such position of law the submission made by the counsel for the appellant cannot be accepted.” P.S: No appeal against this order is found by the author.

NCLAT/May17 M/s Madhur Engineers Pvt Ltd. & / sec. 10 Anr v Facor Steels Ltd. Company Appeal (AT) (Insv) No. 136 of 2017

Issue: The appellant is financial creditor. It challenged the admission of a Section 10 application of the corporate debtor. It submitted that a winding up petition has been initiated and is pending in the High Court and the moratorium which is a consequence of the admission will affect the winding up petition. Held: Appeal is rejected. In the absence of any illegality in admitting the Section 10 petition, the order of the NCLT was upheld.

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P.S: No appeal against this order is found by the author. NCLAT/Apr17/ Hind Motors India sec. 10 Ltd. v Adjudicating Authority NCLT, Chandigarh. Company Appeal (AT) (Insv) No. 11 of 2017

Issue: The appellants (Hind Motors India Ltd.) raises its grievances that NCLT cannot exclude the “public depositors” as they come within the meaning of “financial creditors”. Held: NCLAT leaves the question open to be answered at the appropriate stage. NCLAT, further giving clarification to its decision, states that as the application under sec.10 is already admitted and consequential orders have been passed pursuant to sec. 15 (Public announcement of Corporate Insolvency Resolution Process). If any public depositor applies showing ‘dues’ of debt claiming itself as an operational creditor and the RP / NCLT do not accept the claim – the appellants (Hind Motors India Ltd) are given liberty to file a further appeal. P.S: No appeal against this order is found by the author.

NCLAT/Aug17 Schweitzer Systemtek / sec. 10 India Pvt. Ltd v Phoenix ARC Pvt. Ltd. & Ors. Company Appeal (AT) (Insv) No. 129 of 2017

Issue: The appellant (corporate applicant) appeals against the order passed by NCLT whereby the Corporate Resolution Process is initiated u/sec. 10. His case is that the movable and immovable property of Guarantor (promoter) is also being attached pursuant to sec. 10 of the Code. This fact is disputed by the financial creditor. Held: The Appeal is dismissed as NCLAT places reliance on: Alpha & Omega Diagnostics (India) Ltd. v Asset Reconstruction Company of India Ltd. & Ors and holds that property of personal guarantor

R-205

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is not the property of corporate debtor and is not subject to attachment. It makes following observations: “6.In this respect one may also refer to Section 60 of the I & B Code, as per which under sub-section (2) if Corporate Insolvency Resolution Process, or liquidation proceeding of a corporate debtor is pending before the ‘Adjudicating Authority’, an application relating to the ‘insolvency resolution’ or ‘bankruptcy’ of a personal guarantor required to be filed before the same Bench of Adjudicating. Authority, meaning thereby, separate application for initiation of resolution process require to be filed against the guarantor before the same very Bench of the Adjudicating Authority who is hearing the corporate resolution process or liquidation proceeding against principal corporate debtor. 7. Sub-section (3) of Section 60 further makes it clear that if an insolvency resolution process or bankruptcy proceeding of a personal guarantor of the corporate debtor is pending before any other court of law or Tribunal, such as “Debt Recovery Tribunal”, who is the Adjudicating Authority for the purpose of Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms all those proceeding shall also stand transferred to the Adjudicating Authority, dealing with insolvency resolution process or liquidation proceeding of the Corporate Debtor. 8. Sec. 60(5) further makes it clear that the Adjudicating Authority has jurisdiction to R-206

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entertain and dispose of an application or proceeding by or against the Corporate Debtor or corporate person including any claim made by or against the Corporate Debtor or Corporate person, including claims by or against any of its subsidiaries situated in India.” P.S: No appeal against this order is found by the author. NCLAT/Dec17 Leo Duct Engineers & / sec. 10 Consultants ltd. v 1. Canara Bank, 2.Standard Chatered Bank Company Appeal (AT) (Insv) No. 100 of 2017

Facts: The Section 10 application of the corporate debtor was rejected on the ground inter alia that it would hurt the interest of the financial debtors. Held: The NCLAT relied on Unigreen Global Private Limited v Punjab National Bank & ors. and set aside the order of NCLT. It further observed that NCLT having held that application under sec. 10 is complete and in absence of any ineligibility of appellant under sec. 11, it was incumbent on the part of NCLT to admit the appeal, having no jurisdiction to notice unrelated facts beyond the requirement under the IBC and the Forms prescribed under the Adjudicating Authority Rules. P.S: No appeal against this order is found by the author.

NCLAT/July17 Alpha & Omega / sec. 10 Diagnostics (India) (10.07.17) Ltd. v Asset Reconstruction Company of India Ltd. Moratorium shall be & Ors. Company declared for Appeal (AT) (Insv)

Issue: The appellant challenged one of the observation of the NCLT where it was held that sec. 14(1)(c) relates only to the property of the corporate debtor as it uses the term “its”. Held: The appeal was dismissed. NCLAT upheld the order of NCLT. It confirmed the stand of the NCLT which read as under: R-207

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“The outcome of this discussion is that the Moratorium shall prohibit the action against the properties reflected in the Balance Sheet of the Corporate Debtor. The Moratorium has no application on the properties beyond the ownership of the Corporate Debtor. For the sake of completeness, it is worth to refer that the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (the SARFAESI Act) may be having different criteria for enforcement of recovery of outstanding debt, which is not the subject matter of this Bench. Before I past with it is necessary to clarify my humble view that the SARFAESI Act may come within the ambits of Moratorium if an action is to foreclose or to recover or to create any interest in respect of the property belonged to or owned by a Corporate Debtor, otherwise not.” P.S: No appeal against this order is found by the author.

NCLAT/Dec17 / sections 10&65 (8.05.17/Princi pal Bench)

Unigreen Global Private Limited v 1. Punjab National Bank, 2.Corporation Bank., 3. Vijaya Bank, 4.Oriental Bank of Non-disclosure Commerce, Company of any fact, Appeal (AT) (Insv) unrelated to No. 81 of 2017 Section 10 and Form 6 cannot be termed to be suppression of

R-208

Issue: 1. Whether non-disclosure of facts beyond the statutory requirement can be a ground to dismiss an application for initiation of Corporate Insolvency Resolution Process? 2. Penalty of Rs.10 Lacs imposed by NCLT, Principal Bench under sec. 65 is legal or not? Held: The appeal was allowed. 1. NCLAT placed reliance on the judgment of Supreme Court in Innoventiive Industries Ltd v ICICI Bank & Ors. and observed that, the moment NCLT is

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Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered facts. Nonmentioning of suit(s) pending between the parties cannot termed to be suppression of facts nor can be a ground to reject the application

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2.

3.

4.

5.

6.

satisfied that a default has occurred, the application must be admitted unless it is incomplete. Further, NCLAT clarified that if all information is provided by an applicant as required under sec. 10 and Form 6 and if the corporate applicant is otherwise not ineligible under sec. 11, NCLT is bound to admit the application and cannot reject the application on any other ground. In para 22, NCLAT also clarifies that sec. 10 does not empower NCLT to go beyond the records as prescribed under sec. 10. Any fact unrelated or beyond the requirement under IBC or Forms prescribed under Adjudicating Authority Rules (Form 6 in the present case) are not required to be stated or pleaded. Non-disclosure of any fact, unrelated to sec. 10 and Form 6 cannot be termed to be suppression of facts or to hold that the corporate applicant has not come with clean hand is incorrect. The corporate debtor has to however disclose disqualification, if any, under sec. 11. With respect to the second issue, according to sec. 5(11) read with sec. 65 of IBC – NCLT can only impose penalty if prima facie opinion is formed that the appellant has initiated the proceeding “fraudulently” or “with malicious intent” for the purpose other than the resolution of the insolvency or liquidation or that voluntary liquidation proceedings has been filed with the intent to defraud any person. As NCLT failed to prove that the application had been filed “Fraudulently”

R-209

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or “with Malicious Intent” the penalty imposed by NCLT was set aside. P.S: No appeal against this order is found by the author. NCLAT/Sept17 Rajendra / sec. 27 Kapoor v Anil Kumar (Interim Reslution NCLT is duty Professional & Ors.) bound to Company Appeal (AT) consider the (Insv) No. 198 of 2017 name of another “Resolution Professional”, if proposed by the Committee of Creditors

R-210

NCLAT made following observations: ‘Referring to provisions of ‘Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “I&B Code”) while we observed that it is open for the Adjudicating Authority to allow the ‘Interim Resolution Professional’ to continue as Resolution Professional, learned Counsel for the appellants submits that the Committee of Creditors has already decided to remove the present ‘Interim Resolution Professional’ and to appoint another ‘Insolvency Resolution professional’. .. In view of the Sec 27, we are of the view that the Adjudicating Authority is duty bound to consider the name of another ‘Resolution Professional’, if proposed by the Committee of Creditors or may call for name from the ‘Insolvency and Bankruptcy Board of India’, if no name has been proposed. We hope and trust that the Adjudicating Authority will act in accordance with law, as quoted above, and pass appropriate order on the next date of hearing. 6. Till appropriate order in this regard is passed by the Adjudicating Authority, the Adjudicating Authority will not give effect to the impugned order and directions to the extent it is against the provisions of ‘I&B Code’. However, till the regular ‘Insolvency Resolution Professional’ is appointed, the Interim

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Resolution Professional may be asked to perform the day to day routine work, strictly in accordance with the provisions of the ‘I&B Code’. P.S: No appeal against this order is found by the author. NCLAT/Jun17/ P.K Ores Pvt sec 9 Limited v Tractors India Private Limited. “Scope of Company Appeal (AT) Existence of (Insv) No. 56 of 2017 dispute.”

Issue: The order of admission of a Section 9 application was challenged on following grounds: 1. Violation of natural justice. 2. Scope of existence of dispute. Held: The appeal is allowed and order of admission is set aside on the aforesaid grounds. NCLAT observed: “In the present case as the Adjudicating Authority has not given any notice to the Corporate Debtor, prior to admitting the application under Section 9 of the I&B Code, the impugned order is fit to be set aside having been passed in violation of rules of natural justice. … In the present case we find that the Corporate Debtor raised dispute about the quality of goods and brought the same to the notice of the Operational Creditor. The Corporate Debtor also claimed damage for inferior quality of goods and its loss much prior to receipt of notice under sub-section (1) of Section 8 of the I&B Code. In this background and in view of decision in “Kirusa Software Private Ltd. Vs Mobilox Innovations Private Ltd”, we hold that a dispute is existing about the quality of goods which is one of the clause of sub-section (6) of Section 5 of I&B Code.”

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P.S: No appeal against this order is found by the author. NCLAT/Nov17 Mr. Senthil Kumar / sec. 9 Karmegam v 1. Dolphin Offshore Enterprises (Mauritius) Pvt. Ltd, 2. Unison Engineering & Construction Ovt. Ltd. Company Appeal (AT) (Insv) No. 154 of 2017

NCLAT set aside the order of the NCLT admitting a sec 9 application on the ground that demand notice under sec. 8(1) was not issued by the operational creditor but by an advocate on behalf of the “operational creditor” and Bank Certificate attached is not in terms of provisions of sec. 9(3)(c) of IBC.

NCLAT/May17 Smart Timing Steel / sec. 9 Ltd. Creditor v National Steel and Agro Industries Ltd. Company Appeal (AT) (Insv) No. 28 of 2017

Issue: The appellants pleaded to exempt the provision of mandatory filing of bank certificate under sec. 9 of IBC, as the appellant is a foreign company of Hong-Kong, having no registered office or bank account in India.

P.S. In view of the latest ruling of the Supreme Court discussed above this position of law has changed. No appeal against this order is found by the author.

Held: The appeal was disallowed. In view of the findings of the Appellate Tribunal in J.K. Jute Mills Company Limited, the appellant having failed to complete the documents within 7 days, the Tribunal was right in dismissing the application preferred by the appellant. The argument that the foreign companies having no office in India or no account in India with any Financial Institution will suffer in recovering the debt from corporate debtor cannot be accepted as apart from the I & B Code, there are other provisions of recovery like suit which can be preferred by any person. P.S. This position has however changed. Kindly refer to the Supreme Court cases

R-212

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mentioned above. Appeal was filed in the Supreme Court. Civil Appeal No. 9819 of 2017. Appeal is dismissed in terms of the signed order. NCLAT/Jul17/ West Bengal Essential Commodities Supply sec 7 Corporation NCLAT has the Ltd. v Bank of power to relax Maharashtra the Resolution Company Appeal (AT) Process if (Insv) No. 90 of 2017 appellants satisfy all the creditors under certain circumstances.

Issue: The order passed by NCLT, Kolkata Bench to initiate Corporate Insolvency Proceedings under sec. 7 was challenged on the ground that appellant was a state undertaking and that such admission of the petition would affect the supplies of Essential Commodities to the poor farmers at large. Held: The appeal was dismissed as the application preferred by the respondent financial creditor was complete and not defective. NCLAT stated that affecting supplies of Essential Commodities to poor farmer does not form any grounds to reject the application under sec. 7, but the appellants were granted leave to request NCLT, Kolkata to close the Resolution Process if and when the settlement talks with the financial creditor fructified provided other creditors had no objections. P.S: No appeal against this order is found by the author.

NCLAT/Jul17/ Achenbach sec. 9 Buschhutten GmbH & Co. v Arcotech Ltd. Application Company Appeal (AT) preferred by the (Insv) No. 97 of 2017 applicant was not maintainable in the absence of

The applicant’s application under sec. 9 was rejected by the NCLAT on the ground that Application is not maintainable in the absence of bank certificate which is record of ‘Financial Institution’ as defined in subsec. (14) of sec. 3 of the I&B Code. As regards existence of dispute NCLAT observed: ‘that plea taken by the learned counsel for R-213

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the appellant is that the Learned Adjudicating Authority, referring to clause of arbitration, has not entertained the application on the ground that there is an existence of a dispute. We are of the view that mere clause of arbitration in an agreement cannot be termed to be an “existence of dispute” pending before the Arbitral Tribunal for the purpose of refusal of an application preferred under Section 9 of the I&B Code.’ P.S. This position as regards the requirement of bank certificate has changed. Kindly refer to the Supreme Court cases discussed above. Appeal is filed in the Supreme Court. Civil Appeal No. 23504 of 2017. Pleading are being completed.

NCLAT/July17 Uttam Galva Steels / sec 9 Limited v DF (28.7.2017) Deutsche Forfait AG & Anr. Company Appeal (AT) (Insv) No. 39 of 2017

Issue: 1. Whether a joint application by two or more ‘operational creditors’ under sec. 9 of IBC is maintainable? 2. Whether it is mandatory to file “certificate of recognized financial institution’ along with an application under along with the application under sec. 9 of IBC? 3. Whether the demand notice with invoice under sec.8 of IBC can be issued by any lawyer on behalf of an operational creditor? and 4. Whether there is an existence of dispute, if any? Held: The admission of the insolvency petition by NCLAT was set aside based on following issues:

R-214

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Issue 1: Joint petition under sec. 9 by two separate operational creditors is not permissible. Issue 2: Bank certificate is mandatory. Issue 3: Demand notice cannot be issued by lawyer unless it fulfills the requirement set out in the order. Issue 4: NCLAT relied on the Kirusa Software Pvt. Ltd. v. Mobilox Innovations Pvt. Ltd. to decide on the question of existence of the dispute. It held that as a notice of winding up was disputed by appellant by detailed reply much prior to purported notice under sec. 8 issued by lawyer and a suit between the parties is pending, there was existence of a ‘dispute’, within the meaning of sec. 8 read with subsec. (5) of sec. 5 of I&B Code and, therefore, the petition under sec. 9 preferred by respondents against the appellant was not maintainable. P.S: As regards bank certificate and sending sec. 8 notice by a lawyer, the position has changed. Please refer to the Supreme Court cases discussed above. No appeal against this order is found by the author. NCLAT/Aug17 M/s. Annapurna Infrastructure Pvt. Ltd. / sec 9 and Anr. v M/s. SORIL (29.8.2017) Infra Resources Ltd. Company Appeal (AT) (Insv) No. 32 of 2017

Fact: This is an appeal against a decision of NCLT rejecting to admit an application under sec 9 on the ground of existence of disputes. Issue: (i) Whether there is an ‘existence of dispute’ between the parties, after the Court affirms the award passed by Arbitral Tribunal under sec. 34 of the R-215

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Arbitration Act? (ii) Whether pendency of a proceeding for execution of an award or a judgment and decree bar an operational creditor to prefer any petition under the IBC? (iii) Whether the 1st appellant is an ‘operational creditor’ within the meaning of IBC? Held: The appeal was allowed and NCLAT remitted the matter back to NCLT to admit & initiate the Insolvency proceedings. NCLAT made following observations: ‘From Section 8(2)(a) of the IBC, we find that pendency of the arbitration proceedings has been termed to be an existence of dispute and not the pendency of an application under Sec 34 of under Sec 37 of the Arbitration Act. From the perusal of the section read with Form 5 of AAA Rules, it is clear that while pendency of the suit or arbitration proceedings has been termed as existence of dispute apart from other disputes, decree and award of Tribunal has been shown as record of default. Thus, we cannot hold that dispute is pending….. Insolvency resolution process is not a money suit for recovery nor a suit for execution for any decree or award as distinct from Section 35 of the Arbitration Act, which relates to execution of an award. For the reasons aforesaid, while we hold that Corporate Insolvency Resolution Process can be initiated for default of debt, as awarded under the Arbitration Act, we further hold that the finding of the learned Adjudicating Authority that it is an R-216

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executable matter is against the essence of the I & B Code. The question of availing any effective remedy or alternative remedy, in case of default of debt for an ‘operational creditor’, as held by the learned Adjudicatory Authority, is not based on any sound principle of law. For the reasons aforesaid, the impugned order passed by the learned Adjudicating Authority cannot be sustained’ The question of whether the person who is charging lease rent is an operation creditor or not was not decided by the NCLT and hence the matter was remitted back to NCLT to consider this aspect and to confirm whether the application was otherwise complete. P.S: No appeal against this order is found by the author. NCLAT/Sept17 JK Jute Mill Mazdoor / sec. 9 Morcha v Juggilal Kamlapat Jute Mills Co. Ltd. Company Appeal (AT) (Insv) No. 82 of 2017

Issue: Whether an application under sec. 9 of IBC is maintainable at the instance of Workmen Association? Held: The appeal is rejected. NCLAT held that a workman or employee who has rendered services to the corporate debtor individually come within the meaning of ‘operational creditor’. The Trade Union or Association of Workmen/employee, do not come within the meaning of ‘operational creditor’ as no services is rendered by the Workmen’s Association/ Trade Union to the ‘corporate debtor’. In absence of any liability or application in respect of any claim which is due to Workmen Association/Trade Union from a ‘corporate debtor’ and as they are not ‘operational creditor’ they therefore do not

R-217

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have any claim under IBC. Further, members of a Trade Union/Workmen Association, who are workmen or employee of a ‘corporate debtor’, may be due some amount (to such individual workman/ employee) from a ‘corporate debtor’ including salary, gratuity, provident fund etc., in view of services rendered by them, but in such cases, in respect of each workman there will be separate cause of action, separate claim and separate date of default of debt. For example, as pleaded by 19 interveners, for each workman/ employee and those deceased and now represented through their widows or legal heirs/legal representatives in respect of each of them, there are separate claim of salary or retirement benefits or other dues for different period. In majority of the cases, the date of default of debt will also be different. There may be workmen/employees who are also member of the workmen association/trade union but may not have any claims at all. In the case of Uttam Galva Steels Limited v. DF Deutsche Forfait AG & Anr in Company Appeal (Insolvency) No. 39 of 2017, this Appellate Tribunal by Judgement dated 28th July 2017 held that joint application under sec. 9 is not maintainable. In view of these findings, it was held that application at the instance of appellant is not maintainable. Such individual workman/ employee can prefer an application under sec. 9 giving details of debt and date of default but it should not be less than one lakh rupees in view of sec. 4 of the I&B Code. In such R-218

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cases if corporate insolvency resolution process is started against the corporate debtor, it is always open to the other creditors, including workmen/ employees, their legal heirs to file claim before the Insolvency Resolution Professional once notice is published in the newspaper under sec. 15 of the I&B Code and/or prior to completion of insolvency resolution process. NCLAT/Oct17/ Sandeep Reddy & Issue: The appellant submit that there was a dispute in existence prior to issue of demand sec. 9 Anr v Jaycon Infrastructure Ltd. notice under sec. 8(1) of IBC and hence the Company Appeal (AT) application made by the respondents should (Insv) No. 228 of 2017 be rejected. Further it was observed that the parties have settled the dispute. Held: Appeal is allowed. NCLAT held that as the respondents did not dissent the submissions of the appellant, it was clear that the dispute existed prior to issue of the demand notice. Hence, the application under sec. 9 was not maintainable, and that parties have already reached the settlement. The appeal was dismissed. P.S: No appeal against this order is found by the author. Issue: Whether notice under sec. 8 of IBC is NCLAT/May17 Seema a pre-requisite for filing Form 5 in a / sec. 9 Gupta v Supreme Infrastructure India transferred petition? (25.5.2017) Ltd. & Ors. Company Held: Giving prior notice u/sec. 8 of IBC is Appeal (AT) (Insv) mandatory before initiation of interim No. 53 of 2017 resolution process, since such notice has not been issued, the NCLT rightly rejected the application. It is clear that, without a notice under sub-sec. (1) of sec. 8 no application can be preferred u/sec. 9 of IBC. R-219

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P.S: No appeal against this order is found by the author. NCLAT/July17 Satish Mittal v Ozone Issue: Appeal dismissed observing that the Builders & Developers appellants were not “operational creditors”. / sec. 9 Pvt. Ltd. Company Held: It was observed by the NCLAT that (13.7.2017) Appeal (AT) (Insv) the appellant has not made any claim in No. 75 of 2017 respect of goods. Further, the appellant has also not rendered any services for which he was entitled to claim any amount. It is not the case that the appellant was in employment or a debt in respect of repayment of dues arising under any law was due to him. As the dues to which the appellant claims does not arise under any law for the time being in force, the Tribunal found no ground to interfere with the impugned order of rejection of application under sec. 9. The Appeal was thus dismissed. P.S: Appeal was filed against this order in Supreme Court (Civil Appeal 15440/2017) and the same was dismissed. NCLAT/Oct17/ Jord Engineers India Issue: Application admitted by Mumbai sec. 9 read with Ltd. v Valia & Bench was not maintainable being sec. 8(1) Company. Company incomplete & in absence of proper demand Appeal (AT) (Insv) Notice under sec. 8(1) of IBC. (13.10.2017) No. 158 of 2017 Held: Appeal was admitted. M/s. Uttam Galva Steels Limited v DF Deutsche Forfait AG & Anr was referred to and relied upon. P.S: Appeal was filed against this order in Supreme Court (Civil Appeal 2117/2017) and the same is pending. NCLAT/Jul17/ KKV R-220

Naga Issue: The appellant was an employee of the

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Court/Month. Case Particulars Year of Case/Relevant Provision; (date of the decision) Brief law point covered sec. 9 Prasad v Lanco respondent company (corporate debtor). The (13.7.2017) Infratech Ltd. appellant sought permission to withdraw the Company Appeal (AT) appeal to enable him to raise claims before (Insv) No. 10 of 2017 the IRP, if any insolvency resolution is initiated against the respondent company. Held: The appeal was withdrawn with liberty.

dismissed

as

P.S: No appeal against this order is found by the author. NCLAT/Aug17 / sec. 9 (01.06.2017/Ch ennai)

M/s. Bhash Software Issue: Labs Pvt. Ltd v M/s (i) The impugned order has been passed in violation of Rules of natural justice Mobme Wireless without notice to the appellant. Solutions Ltd. Company Appeal (AT) (ii) No notice under sec. 8 of IBC or under Rule 5(3) of the I & B (Application to (Insv) No. 79 of 2017 Adjudicating Authority) Rules, 2016 has been served on the appellant. (iii) There is an existence of dispute and therefore application under sec. 9 was not maintainable. Held: The Appeal was allowed. Ms. Innoventive Industries Ltd. v ICICI Bank & Anr – Company Appeal (AT) (Insolvency) No. 1 & 2 of 2017, this Appellate Tribunal held: ……in view of the discussion above, we are of the view and hold that the Adjudicating Authority is bound to issue a limited notice to the corporate debtor before admitting a case for ascertainment of existence of default. In view of such decision, we hold that the impugned order dated 1st June, 2017 cannot be upheld having passed in violation of R-221

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Rules of natural justice. There is an existing dispute with regard to the debt amount as is apparent from the record. In Kirusa Software Private Ltd. v Mobilox Innovations Private Ltd. Company Appeal (AT) (Insol.) No. 6 of 2017, this Appellate Tribunal by judgment dated 24th May, 2017 while interpreting the meaning of “dispute” and “existence of dispute, if any”, The case of appellant is covered by decision in Kirusa Software Private Ltd. v Mobilox Innovations Private Ltd. There being “existence of dispute”, we hold that the petition under sec. 9 preferred by respondent“operational creditor” was not maintainable. For the reasons aforesaid, NCLAT set aside the impugned order dated 1st June, 2017 passed by the Ld. Adjudicating Authority, Chennai Bench in Company Petition No. 506(IB)/CB/2017. P.S: Appeal was filed against this order in Supreme Court (Civil Appeal 17300/2017) but the same was dismissed. NCLAT/Oct17/ Black Pear Hotels Pvt. Issue: Whether the application preferred by sec. 9 Ltd v Planet M Retail appellant- operational creditor is barred by Limitation. (04.05.17/Mum Ltd. bai Bench) Held: Appeal is rejected. Neelkanth (Limitation) Township & Construction Pvt. Ltd. v Urban Infrastructure Trustee Ltd. referred and relied upon. P.S: No appeal against this order is found by the author.

R-222

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Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered NCLAT/ May18 M/s ANG Industries / sec24 Ltd v. 1. Shah (24.05.2018) Brothers Ispat Pvt. Ltd. 2. Ashok Leyland Ref. Sec 24 of Ltd., [Company Appeal (AT) IBC. (Insolvency) No. 109 of 2018]

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Background: The appellant company was in CIR process and is represented by the Resolution Professional. The aggregate debt of the two operational creditors (OCs) was more than 10% of the debt of the Corporate Debtor. They requested that both may be allowed to nominate their own representatives. The NCLT considering the size of the debt and the fact of it was a Section 10 petition allowed the two operational creditor to have separate representatives to attend the meeting of CoC. NCLT held that as the Corporate Debtor is a listed public company, independence & impartiality of Resolution Professional are essential. Thus, it would be just & equitable to direct that both the OCs shall be entitled to have their representations as observers in CoC. Challenging this order, the Resolution Professional had filed this appeal. Issues: 1. Whether, in terms of Sec. 24(3)(c) of IBC, the Resolution Professional is required to give notice to OCs or their representatives to attend the meeting of CoC ? 2. What is the intention of the legislature/ Parliament to allow the ‘(suspended) BOD’ or ‘Partners’ of the Corporate Debtor and the ‘Operational Creditor’ or their representatives or the ‘Resolution Applicant(s)’ to attend the meeting of the CoC, if they have no right to vote? Facts: NCLAT gave a background of rationale and manner in which Section 24(3)(c) was introduced. Initially, at the R-223

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drafting stage of IBC, no provision was made to issue notice to the Operational Creditor. However, the ‘Parliamentary Joint Committee’ after due deliberations were of the view that, if not voting rights, operational creditors at least should have presence in the committee of creditors to present their views/concerns on important issues considered at the meetings so that their views/concerns are taken into account by the committee of creditors while finalizing the resolution plan. This was decided in the view that OCs are not able to decide the commercial viability of the Corporate Debtor nor can they take risk of restructuring their debt (in order to make the Corporate Debtor a going concern). However, the OCs have right to trigger CIRP (u/s 9), thus their presence is also required to present their views/concerns on important issues so that their views/concerns are taken into account by the CoC while finalizing the resolution plan, even if no voting rights are given to Operational Creditor.’ This aspect was dealt with in detail by NCLAT in Rajputana Properties Pvt. Ltd. v Ultra Tech Cement Ltd. & Ors. where the Appellate Tribunal held that ‘…“13. If Section 24 is read with Section 30, it is clear that the following persons are to take part in the meeting of Committee of Creditors at the time of approval of one or other resolution plan. (a) members of Committee of Creditors; (b) members of the (suspended) Board of Directors or the Partners of the corporate persons;

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(c) Operational Creditors or their representatives if the amount of their aggregate dues is not less than ten per cent of the debt [Clause (a), (b), (c) of Section 24(3)]; and (d) Resolution Applicant(s) when resolution plan of such applicant(s) are placed for consideration [Section 30(5)]. 14. The members of the ‘Committee of Creditors’ have voting right but others who attend the meeting as noticed above including the Board of Directors, Partners, Operational Creditor(s) and the Resolution Applicant(s) have no voting right. 15. From the aforesaid provisions the intention of the legislature is clear that the Committee of Creditors while approving or rejecting one or other resolution plan should follow such procedure which is transparent. Those who will watching the proceeding such as (suspended) Board of Directors or its Partners; Operational Creditors or its representatives and Resolution Applicant(s) are not mere spectator but may express their views to the Committee of Creditors for coming to conclusion in one or other way.16. For the reason aforesaid we are of the view that the Committee of Creditors should record reasons (in short) while approving or rejecting one or other resolution plan. 17. Views, if any, are expressed by the (suspended) Board of Directors or it’s Partners; Operational Creditors or its representatives and Resolution Applicant(s), are also required to be taken into consideration by the Committee of Creditors before approving or rejecting one or other

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resolution plan. The views so expressed by any of those who are watching the proceeding should also be recorded (in short).”.’ Held: The appeal was dismissed. The Resolution Professional was directed to act in accordance with the decision of the Appellate Tribunal in Rajputana Properties Pvt. Ltd. V/s. Ultra Tech Cement Ltd. & Ors. The Appellate Tribunal chose not to interfere with the NCLT Order. NCLAT/ Mar18/ Sec 24 (26.03.2018)

Binani Industries Limited v. Mr. Vijay Kumar V. Iyer & Anr. [Contempt Case (AT) No. 04 of 2018 : Company Appeal (AT) (Insolvency) No. 82 of 2018]

Background: The appeal was submitted by the suspended BOD of the Binani Industries Ltd. stating that the Resolution Professional was required to serve seven days’ notice in advance along with relevant documents whereas notice was actually served one day prior to the CoC meeting. Issue: Whether the suspended board is capable of representing the Corporate Debtor? Facts: The applicant stated that the Resolution Plan was not made available to the applicant beforehand by the Resolution Professional, otherwise the Suspended BOD (applicant) would have pointed out that there is a better ‘Resolution Plan’ submitted by another ‘Resolution Applicants’ which should have been accepted in place of the ‘Resolution plan’ approved in the CoC meeting. The Appellate Tribunal was of the view that the Suspended BOD are not competent to represent the Binani Industries Limited and thus the Contempt Petition by Binani Industries Limited was stated to be not

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maintainable. Whereas, the Suspended BOD was given liberty to raise all the aforesaid issues before the Adjudicating Authority. Held: The appeal was dismissed. It was held that the suspended BOD is not competent to represent the Corporate Debtor. NCLAT/Jul 18/ ICICI Bank Ltd. v. 1. Sec27 Oceanic Tropical (04.07.2018) Fruits Pvt. Ltd. 2. State Bank of India 3. Ref. - Sec. 16, 22 Central Bank of India & 27 of IBC. 4. Mr. C. Balasubramanian5. Venkataramana Nagarajan [Company Appeal (AT) (Insolvency) No. 113 & 114 of 2018]

Background: Appeal was filed by ICICI Bank Ltd. against impugned order of the Adjudication Authority where Shri V. Nagarajan was appointed as new Resolution Professional on proposal of two FCs (Respondent 2 & 3) having voting right less than 75%. (i.e.73.62%) Issue:Whether the Resolution Professional can be validly appointed by majority of less than 75%? Is the provision of obtaining 75% consent mandatory or directory? Facts: 1. In the instant case, SBI & CBI failed to get 75% of the voting share for appointment of a resolution professional. 2. Appellant submitted that u/s 22(2) of IBC is mandatory and that no Resolution Professional can be appointed by CoC with consent of 75% of voting right. Whereas Respondent submitted that 75% of voting shares [as per sec. 22(2)] is not mandatory. Held: The appeal was dismissed. - Minimum 75% of the voting share as prescribed u/s 22 & 27 are mandatory. - Under Sec 22, if the COC does not choose to continue with the IRP, the CoC is not required to give reason for R-227

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not approving the IRP to function as (Regular) Resolution Professional. - Both the decision to continue the IRP as a RP and decision to appoint a different RP required 75% voting share. - If none of above decisions are taken then IRP would continue till the appointment of a (Regular) Resolution Professional. - If a resolution professional once appointed is to be replaced, for replacement of the Resolution Professional u/s 27(1), the CoC is required to form opinion, and to write the reasons for replacement of the (Regular) Resolution Professional - NCLAT observed that it was not open to them to propose the name of another Resolution Professional when they do not have requisite majority, and they should have referred the matter to the Adjudicating Authority with request to call for name of a Resolution Professional from the IBBI. However, in this case though the Appellate dismissed the appeal. It held that Shri V. Nagarajan, (the current Resolution Professional) having proposed in the meeting of CoC and the IBBI having already confirmed his appointment after more than 90 days of his appointment, the Appellate Tribunal chose not to interfere with the order of appointment. NCLAT/ May 18/ Sec27

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P.S: The percentage for approving Shravan Kumar Visnoi Background: A Section 9 petition was v. M/s Crown Alba admitted. In the Section 9 petition the name Writing Instrument of the IRP proposed was the appellant –

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered (28.05.2018) Pvt. Ltd. [Company Appeal (AT) Ref. - Sec. (Insolvency) No. 253 9,16,22 & 27 of of 2018] IBC

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Shravan Kumar Vishnoi. The NCLT however appointed one Mr. Anurag Goel as a Resolution Professional (Resolution Professional) on the ground that the Appellant has already appointed as Resolution Professional in another case. Aggrieved by the order, the IRP proposed in the Section 9 petition filed this appeal stating that, except in the case of pendency of disciplinary proceeding, the Adjudicating Authority cannot reject the proposal on any other ground. [Sec.16(3)(b)] Issue: Whether Adjudicating Authority can replace a proposed Resolution Professional, if named and approved by the creditor in their Petition in the absence of pendency of any disciplinary proceedings? Held: The appeal was dismissed. The NCLAT observed that there was no illegality committed by the IRP or Resolution Professional & thus, the ground shown in this case by Adjudicating Authority were not justified. However, it did not interfere with the order as Mr. Anurag Goel was appointed as Resolution Professional and the IBBI had approved his name. NCLAT while passing this order observed the following: (i) ‘Interim Resolution Professional’ has continue as ‘Resolution Professional’ if the ‘Committee of Creditors’ by majority of vote not less than seventyfive percent approved the name to continue as ‘Resolution Professional’. (ii) In case the ‘Interim Resolution Professional’ is appointed as ‘Resolution Professional’ another person can be R-229

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appointed by the ‘Committee of Creditors’ but by majority of vote not less than seventy-five percent of share. (iii) “Resolution Professional’ can be replaced by another one only under Section 27 by the ‘Committee of Creditors’ of majority votes not less than seventy-five percent of the voting shares. Except special circumstances and good reasons, the Adjudicating Authority should not replace a ‘Resolution Professional’, if named and approved by the ‘Financial Creditor’ or ‘Committee of Creditors’. NCLAT/ May,18/ BIFR (03.05.2018)

Kusum Products Ltd. v. Union of India [Company Appeal (AT) (Insolvency) No. 69 of 2018]

Issue: The Appellant preferred an application under Rule 11 of the NCLAT Rules, 2016 r/w SICA Repeal Act, 2003 r/w the IBC, 2016 for extension of time provided in the scheme framed by BIFR. Facts: Appellant submitted that Sec. 4(b) of the SICA Repeal Act, 2003 had been amended and substituted by Schedule VIII of the IBC (u/s 252). (it was held that the said provision is not applicable to this case as it is related to Sec. 10 of IBC.) Held: The appeal was dismissed. The Adjudicating Authority had rejected the application to grant extension of time for compliance of the Scheme of Revival framed by the BIFR in absence of any such provision under SICA Act, 1985 which was repealed. It held that there is no such provision under Rule 11 of the NCLT Rules or SICA Repeal Act or IBC to grant such extension of time. It however granted leave to approach appropriate authority.

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Chandu Laxman Chavan v. Union of India & Ors. [Company Appeal (AT) (Insolvency) No. 15 of 2018]

Background: The Appellate Tribunal, by interim order had stated that if liquidation proceedings have been started, the Liquidator will not auction sale the property of company without prior permission of the Appellate Tribunal.

Facts: The Liquidator submited that much prior to passing of the interim order by the Indian Overseas Bank Appellate Tribunal, the auction had been completed and thereby he requested to & Ors. v. Kamineni Steel & Power India clarify the interim order. Pvt. Ltd. & Ors. Held: The previous order was clarified and [Company Appeal Interim Order passed earlier was modified. (AT) (Insolvency) No. It was held that the cases where auction has 335 of 2017] already been held, the parties and the Adjudicating Authority will maintain status with quo (i.e. usual & normal state of things) as on the date of the Interim Order. Thereafter, United Seamless no agreement shall be executed and sale Tabulaar Pvt. Ltd. v. should not be confirmed without permission Kamineni Steel & of the Appellate Tribunal. Power India Pvt. Ltd. & Ors.[Company Appeal (AT) (Insolvency) No. 23 of 2018] AND

with

NCLAT/

Kamineni Steel & Power India Pvt. Ltd. v. Indian Bank & Ors. [Company Appeal (AT) (Insolvency) No. 45 of 2018] Sriram Compounds Background: The appeal along with the R-231

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Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered Mar,18 Pvt. Ltd. v. Shiva (05.03.2018) Drums Pvt. Ltd. & Ors. [Company Ref. - Sec. Appeal (AT) (Insolvency) No. 46 of 433(e), 434(1)(a) & (b) 2018] and 439 of the CA, 1956, Sec. 434 of the CA, 2013 r/w Sec. 239(1) of the IBC, 2016 Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016

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application for ‘condonation of delay’ had been preferred to this Appellate Tribunal against NCLT order where the NCLT held that transferred petition stood abated. As appellant had not completed the requirement of petition which were transferred from High court to NCLT (as stipulated by Rule 5 of Transfer of Pending Proceedings Rules). Issue: Condonation of delay was presented on the ground that the Appellant earlier had wrongly moved before the Hon’ble HC. Prayer had been made to exclude the period when the matter was pending before the Hon’ble High Court of Delhi. Facts: Pursuant to Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016, the case was transferred from the Hon’ble HC to the Adjudicating Authority. Similar issue fell for consideration before this Appellate Tribunal in M/s. Sabari Inn Pvt. Ltd. v. M/s. Rameesh Associates Pvt. Ltd. where it was held that “The Respondent having failed to provide all the details as required under Form-5, the application under sections 433 and 434 of the Companies Act, 1956 cannot be treated to be an application u/s 9 of the IBC in terms of Rule 5 of Transfer Rules, 2016. In such circumstances, the application under Sections 433 and 434 of the Companies Act, 1956 stands abated.” Held: Appeal was dismissed. Appellate Tribunal had already held that the provisions of Limitation Act, 1963 are not applicable to the application for CIRP under IBC, even then this appeal was not allowed since, as per Rule 5, the Appellant was

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required to serve notice u/s 8(1) of the IBC and to submit all information in terms of Form 5 (AAA), but none was done by the Appellant. Thus, the Appellate Tribunal chose not to interfere with the order of the Adjudicating Authority. P.S. Position regarding applicability Limitation ACT has been clarified by Apex Court as well as section 238A. NCLAT/ Apr18/ Mr. Mahesh Kumar Sec 23 Panwar, (Director of (06.04.2018) M/s. Mega Soft Infrastructure Pvt. Ltd.) v. Abhishek Anand (Resolution Professional) [Company Appeal (AT) (Insolvency) No. 117 of 2018]

Facts: The Adjudicating Authority decided to proceed with the liquidation proceeding of the Corporate Debtor (M/s. Mega Soft Infrastructure Pvt. Ltd.) on the recommendation of the CoC. 1. The Appellant contended that without following the procedure for resolution process like, recording the details of creditors & calling applications from Resolution Applicants, the impugned order of liquidation had been passed by the Adjudicating Authority. 2. The RP contended that as per IBC, the Board of Directors was required to cooperate with the Resolution Professional and to provide all the records including title deeds of the properties belonging to the Corporate Debtor. But the BOD of Corporate Debtor failed to do so and has not cooperated. Issue: The appellant submitted there was no occasion to order liquidation & that the matter could have been resolved if the resolution process was followed and resolution plans were called for. Held: The appeal was dismissed. The

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NCLAT observed that the Board of Directors has not cooperated with the Resolution professional. Already 180 days had been completed from the day resolution process had started & it was observed that the Directors were not co-operating with the Resolution Professional or CoC. Thus, NCLAT held that thus Adjudicating Authority had no option but to pass order of Liquidation. NCLAT/ May18/ Sec61 (30.05.2018)

National Engineering Industries Ltd. v. Cimmco Birla Ltd. [Company Appeal (AT) (Insolvency) No. 151 of 2018] AND Pr. Commissioner of Income-tax-7 v. M/s. Modern Terry Towels Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 192 of 2018]

Background: Appeal had been preferred u/s 61(1) of IBC against order passed by BIFR, in a view of Notification No. S.O. 1683 (E) dtd. 24.05.2017 which states that: ‘…the order passed by the BIFR has been ordered to be treated as an order passed by the Adjudicating Authority under Section 31(1) of the I&B Code and thereby preferred appeal within 90 days before the National Company Law Appellate Tribunal (NCLAT).’ Issue: The period of limitation as prescribed by Notification S.O. 1683(E) dtd. 24.05.2017 (i.e. 90 days) is in conflict with the maximum period of limitation granted u/s 61(2) of the IBC (i.e. 45 days). So, whether the appeal is maintainable or not? If otherwise the appeal is maintainable, the impugned Scheme is legal or not? Facts: The same Notification came into consideration before this Appellate Tribunal in the Principal Director General of Income Tax (Admn. & TPS) vs. M/s. Spartek Ceramics India Ltd. & anr. [Company Appeal (AT) (insolvency) No. 160 of 2017], where it was held that: “53. …the period of limitation as prescribed by

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said Notification being in conflict with the maximum period of limitation granted u/s 61(2) of the IBC and beyond forty-five days, the NCLAT having not empowered to entertain the appeal. The NCLAT has no jurisdiction to entertain an appeal under Section 61 beyond the period of forty-five days. 54. The NCLAT, having been empowered by the Parliament to hear the appeal under provisions of the Companies Act, 2013, ‘I&B Code, 2016’ and the Competition Act, 2003, the Central Government cannot empower the Appellate Tribunal to hear an appeal pursuant to the said Notification.” Wrt the second issue, the Appellate Tribunal stated that though they are not supposed to decide the merit of the appeal, but after accepting the arguments of the appellant it was found that there are infirmity in the scheme & it was found to be in contravention of Sec. 30(2)(e) of the IBC. Thus, even if the scheme is treated to be approved u/s 31(1), it is an illegal scheme. Held: The appeal was dismissed. 1. It was held that the appeal u/s 61(1) is not maintainable and otherwise also barred by limitation as prescribed u/s 61(2). 2. Though, it was found that the schemes is illegal, however, in absence of the Appellate Tribunal’s jurisdiction to exercise of powers u/s 61 of IBC and appeals being barred by limitation, the Tribunal chose not to interfere with the illegal scheme though it was held to be R-235

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an illegal scheme. Liberty was given to challenge the legality of the scheme before the appropriate court before whom the scheme would come for implementation. NCLAT/Jan18/ Elecon Engineering Background: Aggrieved by the order of the Sec 61 Co. Ltd. v. Ducon Adjudicating Authority where the application (12.01.2018) Technologies (I) Pvt. filed u/s 9 of IBC by the appellant was rejected on the ground of ‘existence of Ltd. [I.A. No. 29 of dispute’, the appellant had filed this appeal 2018] : [Company together with an application for condonation Appeal (AT) (Insolvency) No. 14 of of delay. 2018] Issue: 1. Whether the delay can be condoned 2. Whether there exist a dispute Facts: 1. The Certified copy of the NCLT order was supplied to the appellant on 15.11.2017. So, he was required to file the appeal by 15.12.2017 (i.e. within 30 days). However, the appeal was filed on 02.01.2018. The appellant submitted that this Appellant Tribunal was closed during the Winter Vacation, but the Appellate Tribunal noticed that the Registry was open till 27.12.2018. 2. The Appellate Tribunal stated that no good and convincing ground has been shown by the appellant to condone the delay. From the order quoted by the Adjudicating Authority, it was also found that there was an ‘existence of dispute’ as certain emails where exchanged between the parties prior to the demand notice. Held: The appeal was dismissed. The Appellate Tribunal chose not to interfere with R-236

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the NCLT order. Background: The CoC of the respondent had unanimously decided not to seek extension of time beyond 180 days. It was observed that no purpose would be served by continuing the CIRP by extending the time limit, thus the Tribunal had directed to initiate Liquidation process against the Corporate Debtor. Issue: The appellant (a shareholder) being aggrieved by the order had filed this appeal stating that given an opportunity to appear in the CoC meeting, the (suspended) BOD of Corporate Debtor could have shown that there is a Resolution Applicant ready to submit the Resolution Plan. Facts: 1. The Respondent submitted that there was no viable Resolution Plan and no eligible Resolution Applicant had applied. 2. The Appellant Tribunal stated that even if it is presumed that there were some other plans, but if they were not in accordance with Sec. 30(2), they were not to be placed before CoC. The Resolution Plans which were actually considered by CoC were held as not viable. In such situation, it was not required to request for extension of time beyond 180 days. Held: The Appeal was dismissed. The Appellate Tribunal held that the Adjudicating Authority had rightly ordered for Liquidation of Corporate Debtor. NCLAT/Jul18/ M/s Seth Thakurdas The Appellate Tribunal stated that the Sec12 Khinvraj Rathi v. M/s Resolution Professional cannot be removed NCLAT/Jul,18/ Mr. S. Ravi Srinivas. Sec10 (SBI) v. M/s Super (11.07.2018) Agri Seeds Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 124 of 2018]

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Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered (02.07.2018) Cals Refineries Ltd. [Company Appeal Ref. – Sec. 27 of (AT) (Insolvency) No. IBC 333 of 2018] NCLAT/Feb18/ State Bank of India Sec14 (FC) v. 1. Mr. V. (28.02.2018) Ramakrishnan 2. M/s Veesons Energy Sec. 5(8)(h), sec. Systems Pvt. Ltd. 5(22), sec. [Company Appeal 14(1)(b), (AT) (Insolvency) No. (c)&(d), sec. 60 213 of 2017] & sec.31(1)

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except in accordance with Sec. 27(2) of IBC.

Background: CIRP was in process & Moratorium was declared as per NCLT order. SBI (FC) issued an auction notice to sell the property of the Guarantor. The guarantor has challenged the sale on the basis that if any property of guarantor is sold to realize the portion of debt of Corporate Debtor, then it amounts to creating a create charge on assets of Corporate Debtor and thus amounting to ‘encumbering’ Corporate Debtor’s properties. Whereas, Sec. 14(1)(b) provides that Moratorium prohibits ‘encumbering’ by Corporate Debtor of any of its assets. Thus, NCLT held that SBI is restrained from proceeding against the Guarantor till the period of Moratorium is over. Issue: Whether ‘Moratorium’ protects the assets of the Guarantor. Held: The appeal was dismissed. NCLAT held that Moratorium will not only be applicable to the property of the ‘Corporate Debtor’ but also on the ‘Personal Guarantor’. P.S: This case is not irrelevant as Section 14 is not modified. It specifically provides that Section 14 does not protect the assets of the surety and protection does not extend to sureties in contract of guarantee. Further, As per recent SC judgment, Guarantor is a separate legal person and thus Insolvency or Bankruptcy proceeding can be initiated against the such Guarantor even if

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Moratorium is ordered against the Corporate Debtor. (14/08/2018) NCLAT/Jul18/ Tomorrows Sales Background: The Appellant (Successful Sec29A Agency Pvt. Ltd. Resolution Applicant) challenged the NCLT (05.07.2018) (Successful Resolution order where it refused to grant approval to its Resolution Plan on the ground that: Applicant) v. Rajiv Khurana (Resolution (i) consent of shareholders for transfer of shares has not been taken. Professional for Power Himalayas Ltd. (ii) there is discrimination in the matter of payment to Promoters and Operational & Ors.) [Company Creditors as it was proposed that the Appeal (AT) Promoters will be paid in three years as (Insolvency) No. 162 and when the financial position of the of 2018] Corporate Debtor will permit and 40% upfront payment will be made in favour of Operational Creditors. (iii) the two of the Directors of the Corporate Debtor has been allowed to be retained by the Resolution Applicant. The successful applicant procured consent of the shareholders to the plan and also filed an affidavit stating that there is no discrimination on the manner of payment. However, despite that the NCLT rejected the plan holding that it has no power to revisit the order or to allow revised resolution plan. Issue: Whether the Adjudicating Authority can approve the amended Resolution Plan, if it is in consonance with Sec. 30(2) of IBC & is unanimously approved by CoC? Fact: 1. Appellant stated that the Resolution plan (Payment Plan), after being rejected by the Adjudicating Authority in the first instance, had been renewed by agreeing to- make 100% upfront payment in R-239

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favour of OCs & to pay amount to Promoters only if the financial position of the Corporate Debtor permits. This plan, also, had been approved unanimously by CoC. 2. The Adjudicating Authority rejected the same on the ground that it had no power to revisit the order or to allow Revised Plan. 3. It was found that the plan was in consonance with Sec. 30(2) of IBC & was unanimously approved by CoC, thus the Appellate Tribunal stated that the Adjudicating Authority should not have rejected the same. 4. It was also stated that merely retention of two of the Directors of the Corporate Debtor does not violate any of the provision of Sec 29A of IBC (which related to ineligibility of the Resolution Applicant). Thus, admittedly, the Resolution Applicant is eligible. Held: The appeal was allowed. It was held that the original application was wrongly rejected & that the Adjudicating Authority should have accepted the amended Resolution Plan. The impugned order of the Adjudicating Authority was set aside and the amended Resolution Plan was approved. Chirag Gada v. Bank Facts: The appellant is a promoter of the of Baroda & Anr. Corporate Debtor. He submitted a resolution plan which was rejected. In the meanwhile [Company Appeal (AT) (Insolvency) No. CIRP period had been lapsed & Liquidation proceedings had already been started. The 71 of 2018] appellant appealed against the order stating -

NCLAT/ May,18/ Sec29A (18.05.2018)

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that resolution plans ought to have been called from others under Section 25(2)(h) Held: The appeal was dismissed. AS CIRP period has lapsed, liquidation has started and as the appellant is a ineligible Resolution Applicant, no relief was granted by the Appellate Tribunal. NCLAT/Feb18/ Sandeep Kumar Facts: The appeals had been preferred by the Sec34 Gupta, Resolution appellant (Resolution Professional) against the order of the Adjudicating Authority who (28.02.2018) Professional v. Stewarts & Lloyds of decided not to appoint the appellant as Liquidator, as he had failed to take India Ltd. & Anr. appropriate steps for completing the [Company Appeal (AT) (Insolvency) No. Resolution Plan & thus, appointed another person to be a Liquidator. 263 of 2017] Issue: Whether the Adjudicating Authority can engage another Resolution Professional AND or Liquidator in place of the existing Resolution Professional or Liquidator if Sandeep Kumar performance of such Resolution Professional Gupta, Resolution or Liquidator is not satisfactory? Professional v. Stewarts & Lloyds of Issues: 1. As per Sec. 34(1), the Resolution India Ltd. & Anr. Professional can only act as Liquidator [Company Appeal for the purpose of liquidation and can be (AT) (Insolvency) No. replaced by the Adjudicating Authority 303 of 2017] only if : - the Resolution Plan submitted by the Resolution Professional u/s 30 is rejected for failure to meet the requirement in Sec. 30(2). - IBBI recommends the replacement of the ‘Resolution Professional’ for reasons to be recorded in writing. [as stipulated in Sec. 34(4)] And the appellant submitted that none of the above two conditions had been R-241

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occurred for the Adjudicating Authority to take such decision. 2. It was found that within 180 days only one CoC meeting took place & ultimately, just before completion of 180 days, the Resolution Professional submitted his report that no Resolution Plan had been submitted by any Resolution Applicant. Held: The appeal was dismissed. The Appellate Tribunal stated that Resolution Professional’s performance did not amount to misconduct but as the Adjudicating Authority was not satisfied with the performance of the Resolution Professional, it was well within its jurisdiction to engage another person as Resolution Professional or Liquidator. (It was further stated that if the list of RPs being made available by IBBI to the Adjudicating Authorities, any person is appointed out of the said list should be treated to be an appointment Resolution Professional/Liquidator on the recommendation of IBBI.) NCLAT/Jan18/ Mr. Devendra Background: The appeal had been preferred Sec34 Padamchand Jain by the appellant (Resolution Professional) against the order of the Adjudicating (31.01.2018) (Resolution Professional of VNR Authority where it was decided u/s 33 (1) & Ref. Sec. 22, 23, Infrastructures Limited 34(1) of IBC to remove the existing 24, 27, 30, 33 & - Corporate Debtor) v Resolution Professional (appellant) & 1.State Bank of India, appoint another person as Liquidator stating 34 of IBC. that: 2.State Bank of Hyderabad, 3.Indian ‘…the liquidator shall submit a preliminary report to the Adjudicating Authority within Overseas Bank, 75 days from the liquidation commencement 4.Punjab National Bank, 5.Bank of India, whereas, the existing Resolution R-242

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered 6.Bank of Baroda, 7.IFCI Limited, 8.IFCI Factors Limited, 9.VNR Infrastructure Limited, 10.Insolvency and Bankruptcy Board of India,[Company Appeal (AT) (Insolvency) No. 177 of 2017]

Particulars

Professional has not assisted the Adjudicating Authority to the satisfaction during various hearings held.’ Issue: Whether in absence of ground mentioned in Section 34, can the Adjudicating Authority replacing the appellant (Resolution Professional) by another liquidator? Held: The appeal was dismissed. It was held that the Adjudicating Authority has jurisdiction to remove the Resolution Professional if it is not satisfied with the functioning of the Resolution Professional, which amounts to non-compliance of Sec. 30(2) of IBC. The NCLAT also made following observations: After perusal of submissions by parties & after observing Sec. 22, 23, 24, 27, 30, 33 & 34 of IBC, the facts emerged are as follows: (a) IRP can be appointed as Resolution Professional. [Sec. 22(2)]; (b) CoC can replace IRP by another Resolution Professional. [Sec. 22(2)]; (c) CoC can replace Resolution Professional by requisite board (75% of voting rights) if it is of opinion that the Resolution Professional appointed under section 22 is required to be replaced. [Sec. 27]; The Adjudicating Authority is also (d) empowered to replace Resolution Professional in case the Resolution Plan is rejected for failure to meet the requirement mentioned in Sec. 30(2). [Sec. 34(4)]; (e)

Normally the Resolution Professional appointed is to act as Liquidator for R-243

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

the purpose of liquidation unless replaced by the Adjudicating Authority u/s 34(4). [Sec. 34(1)] NCLAT/Jul18/S Aditya Enterprises v. Facts: Appellant had preferred application ec7 Rajratan Exim Pvt. u/s 433(1)(a) of Companies Act, 1956 (06.07.2018) Ltd. [Company Appeal (proceedings of winding up on the ground of (AT) (Insolvency) No. inability to pay debts) before HC, on the ground that Corporate Debtor had failed to 335 of 2018] pay the money borrowed by it for its business. [In the view of CG notification dtd. 07.12.2016, the case was transferred before the Adjudicating Authority (NCLT).] The appellant submitted that the Corporate Debtor took loan for business, which shall be treated as Financial Debt as per sec. 5(8)(a), whereas, the Corporate Debtor disputed that he already paid the dues. After perusal of submissions by the parties the Adjudicating Authority had held that there was no ‘financial transaction’ between the parties & stated further that mere receipt of a loan cannot be treated to be Operational or Financial or Unsecured or Secured Debt, till the application is able to show the purpose for grant of such loan. Referring to Supreme Court’s order in Innoventive Industries Ltd. v. ICICI Bank, (SCC. 407/2018), the Appellate Tribunal stated that there being a dispute about debt, the question of default does not arise. Issue: Whether mere receipt of a loan can be treated to be an Operational or Financial or Unsecured or Secured Debt? Held: The appeal was dismissed. NCLAT observed that in absence of any record to show that the loan amount was borrowed by R-244

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

the “Corporate Debtor” for its business, we cannot considered the amount as a financial debt. Further, it observed that “Corporate Debtor” has already disputed the debt by stating that he had already paid back the dues. In this case there being a dispute about debt, the question of default does not arise. There is no evidence placed on record to suggest that any financial debt is due to the appellant. NCLAT/Jul18/S R.B.Synthetics & Anr. Facts: The appellant (FC) preferred the ec 7 v. Bee Ceelene Textile appeal against the order of the Adjudicating Authority where the application filed u/s 7 (02.07.2018) Mills Pvt. Ltd. by the FC was rejected on the ground that the [Company Appeal Read sec 7 with (AT) (Insolvency) No. authorization by M/s R. B. Synthetics and HUF of Radhakishan Bhagwandas Rule 4 of AAA. 106 of 2018] Ruchandani had not been filed. The Appellate Tribunal stated that if the ‘authorization letter’ was not accompanied or other record relating to ‘debt or a default’ was not enclosed [as per sec 7(1) r/w Rule 4 of AAA], it was duty on part of the Adjudicating Authority to allow time to the FC to remove the defects, instead of rejecting the application on the ground that the authorization letter has not been enclosed. Also, the Corporate Debtor had neither disputed the debt nor pleaded that there is no default thus, the question as to existence of ‘debt’ or ‘default’ did not arise. Issue: Whether without allowing sufficient time to FC to complete the record and remove the defect, the application filed by the FC can be rejected? Held: The appeal was allowed. The order passed by the Adjudicating Authority was set aside and the appellant R-245

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

was given three weeks’ time to remove the specified defects. NCLAT/Jul18/S Mr. Brijesh Kumar Background: Aggrieved by the order of the ec7 Agarwal (Director & Adjudicating Authority where the application filed by Financial was admitted & (05.07.2018) Shareholder of M/s moratorium was ordered. the Corporate Kunj Forgings Pvt. Debtor had filed this appeal Ltd.) v. Punjab Issue: The appellant (Corporate Debtor) National Bank submitted that: [Company Appeal (AT) (Insolvency) No. 1. FC had acted neither in terms of RBI circulars & guidelines nor as per RBI 312 of 2018] Act. 2. The amount due is barred by ‘limitation’ Facts: 1. Referring to objection 1 (above), the Appellate Tribunal stated such ground cannot be accepted to reject the application as debt is otherwise admitted. 2. The objection about ‘limitation’ was also not accepted in a view that there was a continuous cause of action. It was also stated that ‘even if it is accepted that Art. 137 of Part II of the Limitation Act is applicable, in the present case, right to apply u/s 7 accrued to the FC on 1st December, 2016, when IBC came into force. Therefore, the application is not barred by Limitation.’ Held: The appeal was dismissed. P.S: The provisions of Limitation Act are now applicable [Section 238A] NCLAT/Jul18/S Shreyans Realtors Pvt. Background: The application filed by the ec7 Ltd. & Anr. v. Saroj appellant u/s 7 was rejected by the Realtors & Developers Adjudicating Authority on the grounds that (04.07.2018) Pvt. Ltd. [Company there was no evidence either to show that R-246

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered Appeal (AT) (Insolvency) No. 311 of 2018]

NCLAT/ May18/Sec 7 (28.05.2018)

Particulars

taking of loan from the FC had ever been ratified by the Corporate Debtor or that the Corporate Debtor had ever agreed to accept the loans on the terms & conditions set out by the appellant. Challenging the order, this appeal had been filed. Issue: The onus was on FCs to show that Mr. Chaudhary had been authorised by BOD of Corporate Debtor to approach the FCs for loan. Facts: The FCs miserably failed to prove the same thus it was held that the appellants cannot claim to owe Financial Debt from Corporate Debtor & thus cannot claim to be FC as defined u/s 5(7)&(8). Held: The appeal was dismissed. The Appellate Tribunal chose not to interfere with the order of Adjudicating Authority. Kanti Commercial Pvt. Facts: The Adjudicating Authority had Ltd. v. Edelweiss Asset admitted the application filed u/s 7 of IBC by the Respondent, aggrieved by which the Reconstruction Co. Ltd. & Ors. [Company Corporate Debtor filed this appeal. South Indian Bank Ltd. sanctioned a loan to Appeal (AT) (Insolvency) No. 250 Corporate Debtor (Falcon Tyres Ltd.) & subsequently entered into an Assignment of 2018] Agreement with Respondent whereby, the loan right of South Indian Bank Ltd. so far as related to the Corporate Debtor were assigned in favour of the Respondent. Thereby, the Respondent became the assignee & came within the meaning of ‘FC’ u/s 5(7) r/w 5(8) of IBC. Admittedly, there was debt owed by the Corporate Debtor in favour of the South Indian Bank Ltd., which is now in favour of the Assignee and Corporate Debtor defaulted to pay such loan. Issue: Whether the Respondent who is an R-247

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ June,18 (25.06.2018)

R-248

Particulars

assignee of a debt can be treated as Financial Creditor or not? Held: The appeal was dismissed. The Appellate Tribunal chose not to interfere with the order as assignee is included with the meaning of financial debt. Uttam Galva Metallics Facts: SBI (FC) had filed two separate Ltd. v. State Bank of applications u/s 7 against the Appellants here for initiation of CIRP. However, the order of India [Company admission or rejection was not passed by the Appeal (AT) (Insolvency) No. 315 Adjudicating Authority. CDs submitted that they have already negotiated the matter with a of 2018] third party foreign investor who had agreed to invest money and to pay the amount on behalf AND of both the CDs. Whereas, FC submitted that the matter is Uttam Value Steels Ltd. v. State Bank of pending for last six months and there is no direct negotiation by any foreign investor to India [Company pay the amount. It was observed by the Appeal (AT) (Insolvency) No. 316 Appellate Tribunal from the records that, it was not clear who was the investor who of 2018] intended to invest on behalf of the CDs or intends to purchase the CDs by paying the total outstanding dues of the Financial Creditor. Issue: CDs submitted that as applications had not yet been admitted, it is open to take steps to pay the total dues to the FC with a request to withdraw both the applications (as permissible under Rule 8 of AAA). CDs prayed to the Appellate Tribunal to direct the Adjudicating Authority to defer the pronouncement of orders for another 4 weeks. Held: The appeal was dismissed. The Appellate Tribunal chose not to direct the Adjudicating Authority to refrain from

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ May18/Sec7 (24.05.2018)

Particulars

Indian Bank & Ors. (FC) v. Kadevi Industries Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 128 of 2018] AND Resolution Professional Raghu Babu Gunturu v. Kadevi Industries Ltd. & Ors. (Corporate Debtor) [Company Appeal (AT) (Insolvency) No. 129 of 2018] AND Kadevi Industries Ltd. (Through Shareholder Mr. Malapaka Purushottam) v. Indian Bank & Ors.(FC) [Company Appeal (AT)

pronouncement of orders which otherwise were required to be pronounced within 14 days. However, it clarified even if the applications u/s 7 were admitted against one or other Corporate Debtor, even then it will be open to the Corporate Debtor(s), alongwith the proposed investor to negotiate with the FC & settle the claim and approach appropriate forum for relief. Background: These appeals had been preferred by FC, Resolution Professional & Corporate Debtor against a common order of the Adjudicating Authority where the NCLT, referring to the manner in which CIRP progressed, imposed the cost on FC & Corporate Debtor and passed adverse remarks against the Resolution Professional, due to non-receipt of the amount from the Resolution Applicant in the Escrow Account. Issue: 1. The order of the Adjudicating Authority did not suggest as to which member of the FC or which officers of the Corporate Debtor was involved with any person [including M/s Citax Ventrure Pvt. Ltd. - The Resolution Applicant] for which the cost was imposed. 2. The Adjudicating Authority had also failed to state as to how a Resolution Professional can be stated to be hand in glove in absence of any evidence. Facts: 1. CIRP was initiated on an application filed by Appellant (FC) u/s 7 & even after completion of 270 days, the Resolution Applicant i.e. ‘M/s Citax Ventures Pvt. Ltd.’ had not deposited the R-249

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered (Insolvency) No. 135 of 2018]

NCLAT/ May18/Sec7 (21.05.2018)

NCLAT/ May18/Sec7 R-250

Particulars

amount in the Escrow Account. The Appellate Tribunal stated that it was for the Adjudicating Authority to decide the course of action after issuing notice to the Resolution Applicant if the amount had not been deposited by him. 3. It was also stated that after the approval of the resolution plan under Section 31(1), the period of moratorium came to an end, the terms of Resolution Professional also came to an end. The CoC had no role to play thereafter. Therefore, the Corporate Debtor, their officers could not be held responsible in absence of any evidence. Held: The appeal was allowed. In absence of any reason and evidence, the part of the NCLT order, so far it relates to imposition of costs on the FC & Corporate Debtor and adverse remarks as made against Resolution Professional, was set aside. Mr. Satyaprakash Background: The joint application preferred Aggarwal & Ors. v. by the Appellants u/s 7 had been rejected on Vistar Metal Industries the ground of a technical defect. Pvt. Ltd. [Company Held: The appeal was allowed & the order of the Adjudicating Authority was set aside. The Appeal (AT) (Insolvency) No. 136 Appellate Tribunal held that before rejecting the application, the Adjudicating Authority was of 2018] required to give an opportunity to the Appellant to rectify the defect. It was further stated that the Adjudicating Authority is not required to decide as to what is the actual amount of claim and other details, which are required to be determined by the Resolution Professional. Dr. H. N. Nagaraj Background: Application u/s 7 of IBC had (shareholder of M/s. been preferred by the Respondent (FC) 2.

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered (14.05.2018) Live 100 Hospital Pvt. Ltd.) v. Edelweiss Asset Reconstruction Company Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 210 of 2018]

NCLAT/ May18/Sec7 (01.05.2018)

Particulars

which was admitted by the Adjudicating Authority. Aggrieved, a shareholder of M/s. Live 100 Hospital Private Limited (Corporate Debtor) filed this appeal & submitted that though there was ‘debt’ there was no ‘default’ & that this aspect has not been properly considered by the Adjudicating Authority. It was prayed that the order passed by the Adjudicating Authority shall be set aside since there was no ‘default’ on the part of the Corporate Debtor even though there was ‘debt’ due to the FC (Respondent). Held: 1. The Appellate Tribunal stated that the Adjudicating Authority is only supposed to see whether the application is complete or not and whether there is any ‘debt’ or ‘default’ or not. 2. It was found that the Corporate Debtor had failed to pay instalments as has been set out in the schedule of the agreement restructuring the loans and thus it was held that the order passed by the Adjudicating Authority was fair. Mr. Atul Mittal Background: An agreement was entered [Director of APS between the parties where the Respondent Buildtech Pvt. Ltd. - was desirous of booking two flats in a project (Corporate Debtor)] v. of Appellant. Khushal Infratech Pvt. As per agreement, if the Respondent choose Ltd. & Anr. [Company an option of ‘assured return’, then he had to inform one month in advance to the Appeal (AT) (Insolvency) No. 86 of Appellant in writing of its decision to 2018] continue or not to continue with the booking/holding of the said flats and thereafter the first party would return the deposit within next one month. R-251

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ Apr,18/Sec7 R-252

Particulars

Failing to follow the terms of agreement, the Respondent filed an application u/s 7 of IBC, which was admitted by the Adjudicating Authority. Aggrieved by the same, this appeal had been filed. Issue: The Appellant submitted that the Respondent does not come within the meaning of ‘Financial Creditor’ in terms of Sec. 5(7) & (8) of the IBC. Submissions: 1. The Respondent failed to show that the Corporate Debtor was informed that the Respondent intended to continue with the booking/holding of the flat in question as no record was brought to the notice of the Adjudicating Authority to show that the Respondent opted for ‘assured return’. 2. The Appellant submitted that the total amount as was due the Respondent had already been paid back & the Respondent accepted the same. 3. The parties entered into an agreement and the terms of settlement had been brought on record. Held: The appeal was allowed. The Appellate Tribunal held that Respondent had failed to prove that he comes within the meaning of FC under the provision of IBC. Thus, the order passed by the Adjudicating Authority was set aside. Also, the Adjudicating Authority was directed to close the IRP proceeding as the Respondent had been paid all the dues by the Appellant (Corporate Debtor). State Bank of India v. Background: In the judgment rendered by Debashish Nanda the Adjudicating Authority on the

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered (27.04.2018) [Company Appeal (AT) (Insolvency) No. 49 of 2018]

Particulars

application filed by the Resolution Professional of the Respondent (here) against the Appellant (FC) for making debit entries to the account of the corporate debtor, the Adjudicating Authority held that – ‘…once the moratorium is in force the financial creditor including the bank has to prefer its claim before the Resolution Professional…’ The Adjudicating Authority further ordered to impose a cost of Rs. 25,000/- on FC due to direct statutory violation of Sec. 14(1)(c) of IBC. The FC was directed to roll back all debit entries adjusted in the account of the Corporate Debtor after 01.06.2017 (i.e. date when order of Moratorium was passed) and accordingly restore the account in the same state as it was on 01.06.2017, within 7 days. Issue: Whether any amount deposited by any person in the account of corporate debtor after order of moratorium can be appropriated by bank (FC) towards its own dues during the period of Moratorium? Facts: 1. In its interim order, the Appellate Tribunal held that – ‘…the appellant cannot debit any amount from the Corporate Debtor’s account after the order of moratorium. However, it may be open to the FC to incorporate the interest against the appropriate head in a separate set of same account, which should not be treated to be the amount debited for adjustment. …that the Bank cannot freeze the

R-253

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ Apr,18/Sec7 (26.04.2018)

R-254

Particulars

account nor can prohibit the Corporate Debtor from withdrawing the amount, as available on the date of moratorium for its day to day functioning through Resolution Professional.’ 2. The Appellant submitted that by the date of order of Moratorium, the Corporate Debtor has overdrawn Rs.8,04,81,486.35/- over the limits beyond Rs. 8 crore and therefore no amount was available in the account of the CoCs for the Resolution Professional to draw any amount. This fact had not been disputed by the Resolution Professional. Held: The appeal was partly allowed. It was held that any amount deposited by any person in the account of CoCs, after the date of order of Moratorium, cannot be appropriated by bank towards its own dues during the period of Moratorium. The Appellate Tribunal chose not to interfere with the order of Adjudicating Authority but set aside the order whereunder cost of Rs.25000/- has been imposed on the appellant (FC). The Appellate Tribunal further stated that their interim order would continue during the period of moratorium. Aditya Kumar Jajodia Background: FC’s application u/s 7 was v. Srei Infrastructure admitted by the adjudicating authority Finance Ltd. & Ors. aggrieved by which, the appellant had filed this appeal. [Company Appeal (AT) (Insolvency) No. In its order under Para No. 84, the 292 & 293 of 2018] Adjudicating Authority stated that – “84. On considering the submission by the AND parties having regard to the materials on

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered Allahabad Bank v. Srei Infrastructure Finance Ltd. & Ors. [Company Appeal (AT) (Insolvency) No. 324 of 2017]

Particulars

record, it is found that the FC has established that on 11.08.2017, the Corporate Debtor owed an amount to the tune of Rs. 5956,06,55,355.00 to the FC and there was clear default on 11.08.2017 in respect of repayment of the same. I have also found that application is complete in all respects.” Submissions: 1. The Appellate stated that the FC had already taken steps u/s 19 of DRT Act & u/s 13(4) of the SARFAESI Act) & thus the application u/s 7 of IBC shall be rejected. 2. The claim amount as shown by the FC is different than the claim amount as had been shown in the application u/s 7 of the IBC. 3. The Appellant, referring to para 84 of the order, submitted that the Adjudicating Authority was not authorised to decide the claim amount as it shall be determined by the Resolution Professional and then by the CoC. 4. Another ground taken by the Appellant was that the Form 7 was not signed by the authorised person. Held: 1. The Appellate Tribunal referred to its decision in M/s. Unigreen Global Private Limited v. Punjab National Bank & Anr. where reference was made to Sec.238 of IBC which reads as follows – “238. Provisions of this Code to override other laws – The provisions of this Code shall have effect,

R-255

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ Apr,18/Sec7 (03.04.2018)

R-256

Particulars

notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.” Thus, the Appellate Tribunal stated that the submission contending that the FC had already taken steps against the Corporate Debtor under other Acts, does not hold the ground to reject the application of the FC & thus cannot be accepted. 2. The Appellate Tribunal accepted the submissions made by the Appellate that the Adjudicating Authority was not required to make any observations with regard to any claim amount owed to one or other FC which is required to be determined by the Resolution Professional and the CoC. 3. It was found that the application u/s 7 was filed by the authorised employees of the FC & thus, the Appellate Tribunal choose not to set aside the order on such ground. The appeal was dismissed. The Appellate Tribunal set aside Paragraph no. 84 of the impugned order, but affirmed the rest of the order passed by the Adjudicating Authority. Mahesh Kumar Sureka Facts: Respondent’s (FC) application u/s 7 v. SBER Bank & Ors. of IBC was admitted by the Adjudicating Authority. Aggrieved by the order, the [Company Appeal (AT) (Insolvency) No. appellant (Corporate Debtor) filed this appeal submitting that a meeting of the consortium 319 of 2017] members of Joint Lenders Forum (JLF) was convened where the FCs were informed about worsening scenario which was

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

adversely affecting the performance of the Corporate Debtor. In spite of the same, the FC approached the Adjudicating Authority u/s 7, which has been admitted by the Adjudicating Authority without taking into consideration the aforesaid facts. 1. The Appellant submitted that there is no default as per Sec. 3(12) as the Corporate Debtor was under restructuring and in view of the decision taken by the JLF. 2. It was contended that the Authorised Representative of FC had not signed Form 1, it has been signed by the Chief Executive Officer of the Bank. Held: 1. Responding to 1st issue, the Appellate Tribunal stated that such submissions cannot be accepted, as there was debt and the Corporate Debtor failed to pay the debt to FC within the time, giving rise to the proceeding u/s 19 of the DRT Act. The Appellate Tribunal further stated that as the decision of the JLF is concerned, an application u/s 7 cannot be rejected on such ground. 2. Responding to the 2nd issue, reference was made to the judgement of this Appellate Tribunal in “Palogix Infrastructure Private Limited Vs. ICICI Bank Limited”, where it was stated that – ‘…the Corporate Debtor cannot plead that the officer has power to sanction loan, but such officer has no power to recover the loan amount or to initiate ‘CIRP’, in spite of default of debt.’

R-257

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered NCLAT/ Mar,18/Sec7 (22.03.2018)

NCLAT/ Mar,18/Sec7 (22.03.2018)

R-258

Particulars

The appeal was dismissed. Background: FCs filed application u/s 7 of IBC against the appellant, which was admitted & moratorium was ordered. Aggrieved by the order the suspended Board of Directors of the Corporate Debtor filed this appeal. Issue: Whether the Appeal preferred by Corporate Debtor through its suspended Board of Directors (BOD) is maintainable or not? Facts: 1. Reference was made to ‘Innoventive Industries Ltd. v. ICICI Bank’ wherin the Hon’ble Supreme Court stated that – ‘…once an insolvency professional is appointed to manage the company, the erstwhile directors who are no longer in management, obviously cannot maintain an appeal on behalf of the company.’ 2. The Appellant prayed for time for substitution of the Director of Corporate Debtor with its Resolution Professional. However, in spite of the time granted to the Appellant, no such application for substitution has been filed. Held: The appeal was dismissed. The Appellate Tribunal held that Appeal preferred by the suspended BOD on behalf of the company is not maintainable. Rajit Mehra v. Punjab Background: The application filed by the National Bank & Anr. Respondent u/s 7 of IBC was admitted. Aggrieved by the same, the appellant [Company Appeal (AT) (Insolvency) No. (Corporate Debtor) filed an appeal on various grounds. 102 of 2018] The appellant submitted that : 1. The application u/s 7 was filed by the

Shree Ganesh Jewellery House (I) Ltd. v. Abhishek Stock Broking Services Pvt. Ltd. & Ors.[Company Appeal (AT) (Insolvency) No. 78 of 2018]

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

Power of Attorney holder which was given in the year 1989. 2. The valuation of the security of the bank had not been provided. 3. The account of the Corporate Debtor was declared Non-Performing Assets (NPA) in the year 2016 but subsequently loan was sanctioned by the Bank in the year 2017. Facts: 1. Responding to 1st issue, the Appellate Tribunal made reference to Palogix Infrastructure Pvt. Ltd. v. ICICI Bank where this Appellate Tribunal held that“’Power of Attorney Holder' is not competent to file an application on behalf of a Financial Creditor or Operational Creditor or Corporate Applicant…But, ‘If general authorization is made by any FC, mere use of word 'Power of. Attorney'…will not take away the authority of such officer and for all purposes it is to be treated as an 'authorization by the FC’. If there is any defect, an application cannot be rejected…the applicant is to be granted seven days' time to remove the defect. …The Corporate Debtor cannot plead that the officer has power to sanction loan, but such officer has no power to recover the loan amount or to initiate CIRP, in spite of default of debt.” In the present case, application has been filed by the Assistant General Manager. The Appellate Tribunal held that the said Bank officer is eligible to file an

R-259

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ Mar18/Sec7 (12.03.2018)

R-260

Particulars

application u/s 7 as, the Power of Attorney is the authorization letter which was given as back as in the year 1989. 2. Referring to the 2nd issue, the Appellate Tribunal stated that ‘valuation of the security’ is not required to be provided in the cases when the relevant data relating to ‘debt’ and ‘default’ with supporting evidence has been provided. There was no dispute w.r.t. ‘debt’ which is payable by the Corporate Debtor and that they have ‘defaulted’ to pay the amount to FC. 3. On the 3rd issue, the Appellate Tribunal stated that the application cannot be rejected on a ground that ‘account of the Corporate Debtor was declared NPA’. The Tribunal stated that ‘The facts which are not required to be disclosed in the format (Form 1) cannot be treated to be suppression of facts.’ Held: The appeal was dismissed. The Appellate Tribunal stated that the application had been rightly admitted by the Adjudicating Authority since the issues stated above cannot be taken as ground to reject the application. Rajit Mehra v. Punjab Facts: The Appellant’s application u/s 7 was National Bank & Anr. dismissed by the Adjudicating Authority as winding up proceedings was pending against [Company Appeal (AT) (Insolvency) No. the Corporate Debtor. Issue: Whether even after initiation of 83 of 2018] winding up proceedings, another application u/s 7 or u/s 9 against the same Corporate Debtor is maintainable or not? Held: The Appellate Tribunal referred to

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ Mar18/Sec7 (07.03.2018)

Particulars

“Innoventive Industries Limited Vs. Kumar Motors Pvt. Ltd.” where it was held by this Appellate Tribunal that – ‘…the High Court has already admitted the winding up proceedings and ordered for winding-up of the Respondent Corporate Debtor, we hold that the question of initiation of CIRP against same Corporate Debtor does not arise.” The appeal was dismissed. The Appellate Tribunal chose not to interfere with the order of the Adjudicating Authority. Ranjeet Karnal v. Bell Facts: Application was preferred to the Finvest (India) Limited Adjudicating Authority by the Respondent [Company Appeal (FC) u/s 7 of IBC, where the proof of service (AT) (Insolvency) No. of notice was also filed by the FC. None appeared for the Appellant (Corporate 68 of 2018] Debtor), neither any objection was filed. The Adjudicating Authority had admitted the application. 1. The notices were sent to the old address of the Corporate Debtor. The address of the Corporate Debtor was changed more than a year prior to the filing of the application u/s 7, which was known to the FC. 2. The Appellate Tribunal stated that there was nothing on record to suggest that the notice was forwarded by the FC or served on the Corporate Debtor. Thus it is not clear as to how the FC filed proof of service of notice on the Corporate Debtor. 3. The Adjudicating Authority accepted that the notice recording the date of hearing of the application was issued but not served on the Corporate Debtor and R-261

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ Mar18/Sec7 (06.03.2018)

R-262

Particulars

returned unserved. Issue: Notice under Rule 4(3) of IBC along with Form-1 and notice issued by the Adjudicating Authority was not served on the Corporate Debtor and still the order was passed admitting the application filed by the FC. Held: The appeal was allowed. It was held that the rules of Natural Justice had been violated. NCLT order was set aside and the case was remitted to the Adjudicating Authority for fresh decision. K.S. Rangasamy v. Background: The application filed by FC State Bank of India & (Respondent here) u/s 7 of IBC was admitted by the Adjudicating Authority. Aggrieved by Anr. [Company the same, Corporate Debtor preferred this Appeal (AT) (Insolvency) No. 83 of appeal on various grounds. 2017] The appellant submitted that: 1. FC had already initiated proceedings u/s 19 of RDDB Act, 1993, & had also issued notice under the SARFAESI Act, 2002 which was ‘stayed’ by the Hon’ble SC. 2. No notice was issued by the Adjudicating Authority to the Corporate Debtor (appellant) prior to admitting the application u/s 7 of IBC. Observations: 1. The Appellant had not disputed that there is a debt due to the FC and had also accepted that amount was due and default had occurred to pay the amount. Thus, it was held that the Adjudicating Authority has rightly admitted the application. 2. The Appellate Tribunal referred to ‘M/s. Innoventive Industries Limited v. ICICI

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ Mar18/Sec7 (06.03.2018)

State Bank of India v. SKC Retails Ltd. Through IRP & anr. [Company Appeal Regulation 33 of (AT) (Insolvency) No. the IBBI 08 & 43 of 2018] (Insolvency Resolution AND Process for Corporate State Bank of India v. Persons) Tech Magacorp Regulations, International Pvt. Ltd. 2016 Through IRP & anr. [Company Appeal (AT) (Insolvency) No. 09 of 2018]

Particulars

Bank & Anr.’ wherein this Appellate Tribunal had held that – ‘…where the result would not be different, and it is demonstrable beyond doubt, order of compliance with the principles of natural justice will not be justified.’ In the abovementioned case, reference was also made to the “Exception on The Principle of Rules of Natural Justice” on the basis of which the Appellate Tribunal rejected the 2nd issue raised by the Appellant. Held: The appeal was dismissed. The Appellate Tribunal stated that there is no reason to remit the case to the Adjudicating Authority on the ground of violation of rules of natural justice, which will be a useless formality. Facts: Both the appeals had been preferred by the FC (State Bank of India) who is a member of the CoC against different orders passed by the Adjudicating Authority. The CoC had been directed to bear the rest of the expenses towards the fees payable to IRP in proportion to the amount claimed by such IRP. Issue: Whether the CoC are liable to bear the expenses incurred by the IRP or not? Held: 1. Reference was made to Regulation 33 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 which is related to “cost of the interim resolution professional” where it was stated that – ‘The applicant generally proposes the name of the IRP. R-263

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ Feb18/Sec7 (09.02.2018)

R-264

Particulars

Such applicant negotiates the fee to be charged and paid to the IRP. The Adjudicating Authority is required to fix the expenses where the applicant has not fixed expenses. In such case, the applicant, who has filed the application u/s 7 or 9 of the IBC, is required to bear the expenses which is to be reimbursed by the CoC to the extent the CoC ratifies the same.’ 2. In this case, the application was filed by the respondent u/s 7 of IBC, the name of resolution professional was suggested by the applicant. Therefore, the applicant is liable to incur the expenses of resolution professional and thereafter, the applicant will get the amount reimbursed by the CoC to the extent the amount as is ratified by the Committee. The appeals are disposed of with the aforesaid observations and directions. Neeraj Bhatia Facts: Application u/s 7 of IBC preferred by (Director of M/s. the Respondents had been admitted by the Summit Aviation Pvt. Adjudicating Authority. Challenging the order on the ground that the Respondents do Ltd.) v. Davinder not come within the meaning of the FC this Ahluwalia; Mrs. appeal had been filed. Mamta Ahluwalia; M/s. Summit Aviation Issue: Whether the Respondents come within the meaning of FC or not? Pvt. Ltd. [Company Appeal (AT) Held: (Insolvency) No. 142 1. Appellant submitted that the Corporate Debtor never entered into any of 2018] understanding with the respondents nor the respondents disbursed any amount against consideration of time value of money. Whereas, the Respondents submitted that a sum of Rs.1.05 Crores

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

had been paid by the Respondents pursuant to Contract of Guarantee. 2. Referring to various definitions under IBC such as – Debt [Sec. 3(11)], Default [Sec. 3(12)], Financial Creditor [Sec. 5(7)], Financial Debt [Sec. 5(8)] & to ‘Nikhil Mehta and Sons (HUF) Vs. AMR Infrastructure Ltd.’ it was concluded that – …The key feature of financial transaction as postulated by section 5(8) is its “consideration for time value of money”. Reference was also made to Dr. B.V.S. Lakshmi vs. Geometrix Laser Solutions Private Limited where it was found that – ‘The disbursement against the “consideration for the time value of money” is the main factor.’ 3. The Appellate Tribunal found that there was nothing on record to suggest that the amount had been ‘disbursed’ in favour of Corporate Debtor against ‘consideration for the time value of money’. The Respondents had also failed to bring on record any evidence to suggest that the money was borrowed or raised by the Corporate Debtor under any other transactions including sale or purchase or other mode having commercial effect of borrowing. The Appellate Tribunal held that the contesting respondents do not come within the meaning of FC and thus the application u/s 7 was not maintainable. The appeal was allowed. The Application u/s 7 was dismissed and the order of the

R-265

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

Adjudicating Authority and actions taken under such order were declared illegal and were set aside. NCLAT/Feb18/ Mr. Pradeep Kothari Facts: The Respondent had filed application Sec7 (Director of M/s. u/s 7 of IBC which was admitted by the Adjudicating Authority even though it was (07.02.2018) Kothari Industrial Corporation Limited) not clear whether the applicant is a Financial v. Mr. A. Pandian & Creditor or Operational Creditor. Issue: Whether the application u/s 7 of IBC Anr. [Company filed by the Respondent was maintainable or Appeal (AT) (Insolvency) No. 11 not? of 2018] Held: 1. Respondent himself was not clear as to whether he is an Operational Creditor or FC which was evident from the fact that he issued demand notice u/s 8(1) of IBC and claiming him to be Operational Creditor and having found that there is an ‘existence of dispute’, he filed incomplete application u/s 7 of IBC. This fact has not been disputed by the Respondent. 2. It was stated by the Appellate Tribunal that the Adjudicating Authority also failed to notice the aforesaid fact and failed to notice whether the Respondent is a FC or not. The appeal was allowed. The order passed by the Adjudicating Authority and actions taken wrt such order were declared illegal and were set aside. It was further stated that the Adjudicating Authority will fix the fee of IRP, who had been appointed after the application u/s 7 of IBC was admitted by the Adjudicating Authority, and the Corporate Debtor will pay the fees for the period the Resolution R-266

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered NCLAT/Jan18/ Gay Printers v. Pawan Sec7 Buildwell Pvt. Ltd. (16.01.2018) [Company Appeal (AT) (Insolvency) No. 17 & 18 of 2018]

Particulars

Professional has functioned. Facts: The application filed by the appellant u/s 7 of IBC was rejected by the Adjudicating Authority on the following grounds: - The Appellant did not fall within the ambit of FC so as to maintain the application u/s 7 of IBC, - The Appellant had not disclosed as to how the assets and liability of the earlier Partnership Firm (Gay Printers) had been assigned to the Appellant, and - The requisite mandatory form was not complete and true. The Application u/s 7 & Review Application filed by the Appellant were both rejected by the Adjudicating Authority. Aggrieved by the orders, this appeal had been filed by FC. Issue: Whether the application u/s 7 of IBC was maintainable or not? Held: 1. The loan amount of Rs.1 Crore was advanced to the respondent (Corporate Debtor) by the Gay Printers Partnership firm which had two partners. 2. After the death of one partner, the surviving partner entered into new partnership with his son without any representation from the side of deceased partner. 3. It is therefore safe to conclude the erstwhile partnership firm got dissolved and the new firm came into existence without representation from deceased partner. Therefore the newly constituted firm of Appellant could not be said to be in continuation of and as successor of R-267

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

the earlier firm, both firms being separate entities. 4. There was no material on the record to demonstrate that assets including the interest of deceased partner of the erstwhile firm (Gay Printers) has been assigned to the Appellant. 5. In absence of documentary proof, it cannot be said that the assets and liabilities of the erstwhile Gay Printers Partnership firm including 50% share of deceased partner stood assigned to the Appellant. The appeal was dismissed. NCLAT held that Appellant had failed to establish his status as FC in respect of the claim made for maintaining application u/s 7 of IBC. Therefore, it was held that the Adjudicating Authority rejected the application on merit & thus, no interference is warranted. NCLAT/Jan18/ Kamal Dutta v. Facts: Director of the DPL Builders Pvt. Sec7 Anubhuti Aggarwal & Ltd. (Corporate Debtor) had preferred this (11.01.2018) anr. [Company Appeal appeal against the order of the Adjudicating (AT) (Insolvency) No. Authority where the application u/s 7 of IBC 329 of 2018] filed by Ms. Anubhuti Aggarwal who claimed herself to be a FC was admitted. Issue: The appellant submitted that the applicant, Ms. Anubhuti (Respondent), do not come within the meaning of FC since an agreement was reached for selling the flats in favour of the said respondent and the same cannot be treated as an investment or borrowing by the Corporate Debtor for the purpose of section 5(7) & 5(8) of the IBC. Held: 1. It was found that an agreement was entered between the parties where they R-268

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

agreed that the payment would be made to the respondent on specific date. Such agreement having reached prior to date of order passed by the Adjudicating Authority, the application u/s 7 was not maintainable. 2. The Respondent accepted that an agreement reached was reached before the order was passed by the Adjudicating Authority and still the application was not withdrawn by the respondent. It was further submitted by the Respondent that the am1ount had already been paid as per settlement. 3. The Appellate Tribunal stated that the Adjudicating Authority failed to discuss whether the amount which was given by the Respondent to the Corporate Debtor as the consideration was ‘against the time value of money’ or not, which is the essential requirement u/s 5(8) of IBC. The appeal was allowed. It was held that the application u/s 7 was not maintainable and was thus dismissed. The order of the Adjudicating Authority and any action taken wrt to such order were declared illegal and set aside. NCLAT/Jan18/ Chand Khan Facts: The application preferred by the Sec7 [Managing Director of Respondent u/s 7 of IBC was admitted, CK Infrastructures aggrieved by which, Mr. Chand Khan (03.01.2018) Ltd.] v. RCI Industries [Managing Director of CK Infrastructures & Technologies Ltd. Ltd.] filed this appeal. [Company Appeal Issue: No notice was issued by the (AT) (Insolvency) No. Adjudicating Authority to the Corporate 307 of 2017] Debtor before admission of the application R-269

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

u/s 7 and this was claimed to be the violation of rules of Natural Justice. Held: 1. The Respondent (FC) submitted that the Adjudicating Authority directed the FC to issue notice on the Corporate Debtor. The FC accepted that no direct notice was issued by the Adjudicating Authority to the Corporate Debtor. Referring to M/s. Innoventive Industries Ltd. Vs. ICICI Bank & Anr. the Appellate Tribunal stated that the Notice was required to be issued to the Corporate Debtor by the Adjudicating Authority, failing to do so the Appellate Tribunal decided to set aside the order passed by the Adjudicating Authority. 2. The matter had been settled between the parties which was accepted by the Respondent, thus, no ground was found to remit the case to the Adjudicating Authority. Held: The appeal was allowed. The application preferred by the Respondent u/s 7 was dismissed. The order passed by the Adjudicating Authority and any action taken under such order had been declared illegal and had been set aside. NCLAT/Mar18/ Explo Media Pvt. Ltd. Facts: The Adjudicating Authority rejected Sec9 v. Ambience Pvt. Ltd. the application filed by the Operational Creditor on the ground of ‘existence of (16.03.2018) [Company Appeal (AT) (Insolvency) No. dispute’. Denying the ‘existence of dispute’ Operational Creditor had filed this appeal. 20 of 2018] Held: It was found that the Operational Creditor had issued Advocate Notice u/s 434(1)(a) of CA,1956, which was duly replied by the Corporate Debtor disputing the R-270

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ May18/Sec9 (31.05.2018)

NCLAT/

Particulars

quality of service. Thus, it was evident from the records that there was an existence of dispute between the parties prior to issuance of notice u/s 8 of IBC. The appeal was dismissed. Kamal Kumar Facts: Corporate Debtor filed this appeal Kandpal [Ex-Director against the order of the Adjudicating of Leption Projects (P) Authority where application u/s 9 was Ltd.] v. Sanghvi admitted, stating that the Notice u/s 8 was never served on the Corporate Debtor & that Movers Ltd. & Anr. the said order had been passed without notice [Company Appeal (AT) (Insolvency) No. to the Corporate Debtor. Issue: Whether the order passed by the 273 of 2018] Adjudicating Authority without any notice to the Corporate Debtor is maintainable? Held: 1. It was contented by the Corporate Debtor (appellant) that the affidavit by dasti reached the office & found nobody occupying the premises. In spite of the same, the Adjudicating Authority without hearing the Corporate Debtor had passed the impugned order. 2. The Operational Creditor accepted that the notice could not be served on the Corporate Debtor and also accepted that the Appellant has paid the amount in favour of the Operational Creditor. The appeal was admitted. The order and the actions taken in effect of the order(s) passed by the Adjudicating Authority were declared illegal and were set aside. Corporate Debtor was allowed to function independently through its BOD from immediate effect. Indiabulls Housing Issue: Whether an application u/s 7 of the R-271

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered May18/Sec7 Finance Ltd. v. Shree (30.05.2018) Ram Urban Infrastructure Ltd. [Company Appeal (AT) (Insolvency) No. 252 of 2018]

NCLAT/ May18/Sec9 (31.05.2018)

R-272

Particulars

IBC is maintainable when winding up proceeding against the Corporate Debtor has already been initiated by High Court. Held: Reference was made to the order of this Appellate Tribinal in Innoventive Industries Limited vs. Kumar Motors Private Limited from which it was derived that the word “winding up” mentioned in the Companies Act, 2013 is synonymous to the word “liquidation” as mentioned in the IBC. It was held that as Bombay High Court had already ordered for “winding up”, which is the second stage of the proceeding, initiation of “CIRP”, which is the first stage of resolution process, against the same ‘Corporate Debtor’ does not arise. The appeal was dismissed. Mr. Neeraj Gupta Facts: Corporate Debtor appealed against the (Suspended Director order of the Adjudicating Authority where & Shareholder of M/s the application filed u/s 9 by Operational Sardhana Papers Pvt. Creditor (Respondent) was admitted, stating that the order was passed without serving Ltd.) v. M/s Raj any ‘Demand Notice’ u/s 8 of IBC and that Duplex Pvt. Ltd. & the Adjudicating Authority failed to consider Anr. [CA(AT)(Insolvency) the same. The Operational Creditor did not dispute the No. 247 of 2018] contentions made by Corporate Debtor. It was submitted by the appellant that the matter had been settled between the parties & the Operational Creditor also accepted the same (which was denied before the Adjudicating Authority). Issue: Whether the order passed by the Adjudicating Authority without any notice to the Corporate Debtor is maintainable? Held: The appeal was allowed. The order and the actions taken in effect of

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ Apr,18/Sec 9 (25.04.2018)

NCLAT/ Jul,18/Sec 9 (09.07.2018)

Particulars

the order(s) passed by the Adjudicating Authority were declared illegal and were set aside. Corporate Debtor was allowed to function independently through its BOD from immediate effect. Blue Stampings & Background: The appeal had been filed by Forgings Ltd. v. BMM the Corporate Debtor against the order passed by the Adjudicating Authority where Ispat Ltd. & Anr. Operational Creditor’s application u/s 9 was [Company Appeal (AT) (Insolvency) No. admitted. The Corporate Debtor (appellant) is ready to 160 of 2018] pay the total amount with interest (Rs.99,52,986 + interest) to which the ‘Operational Creditor’ is entitled. Whereas the Operational Creditor agreed to settle the dispute only if the original claimed amount of Rs.1,60,47,076/- is paid. Held: Considering the fact that there was a debt and default for which CIRP had already been admitted and moratorium was ordered, the Appellate Tribunal did not set aside the existing Resolution Process on the ground that the parties agreed for settlement. The appeal was dismissed. Subsequent facts: Pawan Mantri (Director of Blue Stampings & Forgings Ltd.) v. BMM Ispat Ltd. [Civil Appeal No. of 2018(D 16558)- SC/May18/Sec9 (07.05.2018)] Appeal was filed to accept and record the Settlement Agreement between the parties. Appeal was admitted. Order passed by the Appellate Tribunal was set-aside. Suprabha Protective Facts: Aggrieved from order of NCLT Products Pvt. Ltd v. where, Operational Creditor’s application u/s 9 was dismissed on the ground of ‘existence Phoenix Trading & of dispute’, Operational Creditor had filed Consulting Pvt. Ltd. [Company Appeal the appeal. R-273

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Particulars Year of Case/Relevant Provision; (date of the decision) Brief law point covered (AT) (Insolvency) No. 1. Appellant (Operational Creditor) 345 of 2018] submitted that the respondent (Corporate Debtor), after raising dispute in 2016, had agreed to pay the due amount in 2017, thus admitting debt and default. 2. The Operational Creditor stated that the dispute raised in 2016 was regarding below standard quality goods and the invoices presented for that dispute had no relevance with the current claim.

NCLAT/ Jul,18/Sec 9 (05.07.2018)

R-274

The Appellate Tribunal observed that there exists the dispute regarding the quality of goods and it is not possible to vary such disputed claim while dealing with an application u/s 9 of IBC. Held: The appeal was dismissed. The Appellate Tribunal chose not to interfere with the order of the Adjudicating Authority. Mitcon Consultancy & Facts: The Operational Creditor preferred Engineering Services this appeal against the order of the Pvt. Ltd. v. M/s Vitthal Adjudicating Authority where it was held Corporations Ltd. that the Legal Expenses cannot be included in the category of the Operational Debt. [Company Appeal (AT) (Insolvency) No. Thus, the claim of the petitioner was not entertained. 101 of 2018] Issue: Whether the Legal Expenses be included in the category of Operational Debt? Held: 1. Respondent had submitted that there was an ‘existence of dispute’ in regard to the consultancy service provided by the appellant & in reference to the same, the Arbitration clause in the agreement had been pointed out. 2. As there was no record to suggest that the dispute was claimed prior to the

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLT/AHM/ Sep17/ Sec9 (06.09.2017)

Besto Tradelink Pvt. Ltd. v. SAL Steel Ltd. [CP - (IB)94/2017]

Particulars

Demand Notice date, the Appellate Tribunal stated: - That, mere mentioning of Arbitration clause cannot prove the existence of dispute. - That, any dispute subsequent to issuance of Demand Notice cannot be taken into consideration to reject an application u/s 9. - That, submission by a party that ‘telephonically the Respondent had disputed the claim’ cannot be accepted in absence of any record. 3. The Appellate Tribunal stated that the Adjudicating Authority wrongly rejected the application on the ground that the appellant included Legal Expenses in the Operational Debt. The appeal was allowed. The order of the Adjudicating Authority was set aside and was directed to admit the case, order moratorium and appoint IRP. Facts: Due to default committed in repayment of Operational debt, Operational Creditor filed application u/s 9 against Corporate Debtor. 1. On perusal of the documents filed (Invoice, Ledger A/c of Respondent Co. maintained by Applicant Co., Bank Statement & Certificate issued by Bank) the Adjudicating Authority found that the amount was due and the default was committed. 2. Practicing Chartered Accountant, while appearing for respondent, made the statement before the Adjudicating Authority that ‘Operational Debt is due R-275

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

to the Applicant’. Held: The petition was thus, admitted. Moratorium was ordered & IRP was appointed. Subsequent facts: M/S SAL Steel Ltd. v. Besto Tradelink Pvt. Ltd. [Civil Appeal no. 370 of 2018] SC/Jan18/sec 9 (10.01.2018) Matter had been settled between the parties by using the power under Art. 142 by Hon’ble SC which recorded the Consent Terms of settlement between the parties and the Interim Order passed by the Adjudicating Authority was set aside. NCLAT/ Jul,18/ M/s Durlum India Pvt. Facts: Aggrieved by the rejection of Sec9 Ltd. v. M/s Sharma application, filed u/s 9 of IBC, by the Adjudicating Authority on the ground of (09.07.2018) Kalypso Pvt. Ltd. ‘existence of dispute’, Operational Creditor [Company Appeal (AT) (Insolvency) No. had filed this appeal. 1. The Operational Creditor submitted that 351 of 2018] the Corporate Debtor had not replied and failed to mention about the ‘existence of dispute’ to the Demand Notice sent to it u/s 8 of IBC. 2. The Appellate Tribunal stated that it was noticed that no reply was given by the Corporate Debtor pursuant to the Demand Notice, but that would not take away the right of the Corporate Debtor to take plea of ‘existence of dispute’ at the time of admission of application u/s 9. Held: The appeal was dismissed. The order of the Adjudicating Authority was found to be reasonable and thus no interference was made by the Appellate Tribunal.

R-276

Case Digest: List of important judgments under IBC

Court/Month. Year of Case/Relevant Provision; (date of the decision) Brief law point covered NCLT/Chd/ May18/ Sec9 (31.05.2018)

Case

Particulars

Nisheet Ranjan v. Facts: Petitioner (Operational Creditor), an Letstrak Tech Pvt. Ltd. ex-employee of Corporate Debtor, claimed [CP- (IB)32/2018] amount in default towards termination of his employment to be Rs.40,79,529/-. This petition is filed to initiate CIRP against the Corporate Debtor (the employer of the Petitioner). Operational Creditor claimed for: - Unpaid salary of 3 months. - Reimbursement in lieu of 6 months’ notice period of termination, - travelling expenses during tenure of employment. - Reimbursement for terminating the employment with his previous employer. Arguments: 1. Corporate Debtor stated that travel allowances claimed were not for the official duty. 2. The Operational Creditor is said to have suppressed the material facts & handpicked those documents only which suit him to mislead the Tribunal. 3. Corporate Debtor wanted to settle the matter & call upon Operational Creditor to complete the exit documents & take his dues, if payable to him. 4. Operational Creditor communicated his wish to terminate his employment via email & despite a week’s time granted to the Operational Creditor he failed to furnish company’s confidential data and equipment back to Corporate Debtor which clearly depicts the dispute was already raised by Corporate Debtor way back before sending the Demand Notice u/s 8.

R-277

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

5.

Despite receiving reply to the Legal Notice, raising dispute, the Operational Creditor had courage to state in its affidavit that there is no dispute of unpaid operational debt pending between parties in any court of law. 6. It was found in ‘Employment Letter’ that notice period after expiry of probation period (3 months), would be six months. Whereas the contract does not speak about the amount to be paid in case of this six month period notice. Held: 1. Reference was made to definition of ‘dispute’ u/s 5(6) and contention of Corporate Debtor was regarded as ‘dispute’ relating to the amount of debt due. This dispute was seemed to be raised much before sending of the Demand Notice. 2. Matter of reimbursement of six months’ notice period was considered to be a part of ‘breach of trust’ which shall be claimed before the Civil Court or other appropriate Forum and not under IBC Code. 3. It was stated that claim towards ‘Operational Debt’ can be made only in respect of the ‘services already rendered’ & not by way of compensation for termination without notice, for which remedy is elsewhere. 4. Even the employment letter from previous employer of Operational Creditor does not contain any term stating that in case the petitioner is terminated prematurely, the Operational

R-278

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ Jul18/ Nisheet Ranjan v. Sec9 Letstrak Tech Pvt. Ltd. (09.07.2018) [Company Appeal (AT) (Insolvency) No. 350 of 2018]

NCLAT/ May18/ Sec9 (29.05.2018)

Aditya Raheja (GStaad Hotels Pvt. Ltd.) v. Heritage Marble Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 248 of 2018]

Particulars

Creditor would be liable to pay for reimbursement for leaving previous employer. Any such claim may also be maintainable before Civil Court or other appropriate Forum & not under IBC code. 5. On the grounds of existence of dispute, the petition was rejected. Facts: Operational Creditor was an exemployee of the Corporate Debtor who filed an application u/s 9 against the Corporate Debtor due to default of repayment towards termination of his employment, which was rejected by the Adjudicating Authority on various grounds. Aggrieved by the rejection on the ground of ‘existence of dispute’, Operational Creditor had filed this appeal. Held: The Appellate Authority held that it is not the Forum to examine as to which portion of claim of Operational Creditor & counter claim of Corporate Debtor is recoverable or due or defaulted. The appeal was dismissed. The Appellate Tribunal found no ground to differ with the grounds shown by the Adjudicating Authority. Facts: Corporate Debtor appealed against the order of the Adjudicating Authority where, the application filed by Operational Creditor u/s 9 was admitted, stating that the claim made by Operational Creditor was on the basis of disputed documents. It was found that there was a dispute about invoice issued by Operational Creditor & thus it was opined that the application u/s 9 is not maintainable. Thus, the order NCLT order was set aside by the Appellate Tribunal. Later, Operational Creditor R-279

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLAT/ May18/ Sec 9 (28.05.2018)

Pratik Gupta (Director & Shareholder of M/s Petrolube India Ltd.) v. M/s Columbia Petro Chem. Pvt. Ltd. M/s Columbia Petro Chem. Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 133 of 2018]

NCLAT/ May18/Sec9 (24.05.2018)

The State Trading Corporation of India Ltd. v. Gandhar Oil Refinery India Ltd. [Company Appeal (AT) (Insolvency) No. 236 of 2018]

R-280

Particulars

submitted that the matter had been settled between the parties & thus, the matter was not remitted to the Adjudicating Authority. Held: The appeal was allowed. Order of the Adjudicating Authority and other actions taken by IRP were declared illegal and set aside. Corporate Debtor was allowed to function independently through its BOD from immediate effect. Issue: The appellant preferred the appeal against the NCLT order where application u/s 9 was admitted, stating that the order had been passed by the Adjudicating Authority without notice to the Corporate Debtor. Held: The appeal was dismissed. From the documentary evidences presented by Operational Creditor, it was clear that the Notice u/s 8 was served on Corporate Debtor thus, the Appellate Tribunal found no merit in the appeal. [Order by the Adjudicating Authority was passed on 25.01.2018 & the appeal was filed on 26.03.2018, but as the appellant was not a party before the Adjudicating Authority by name (on the basis of date of knowledge of the Appellant) the appeal was considered to be on time.] Background: Application filed u/s 9 by the Respondent (Operational Creditor) was admitted by the Adjudicating Authority & Moratorium was ordered. In terms of the agreement reached between the Corporate Debtor & the Operational Creditor, the Corporate Debtor was liable to pay the amount only on receipt of the amount from the third party to whom the goods were supplied by the Operational Creditor. The

Case Digest: List of important judgments under IBC

Court/Month. Case Year of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

Adjudicating Authority had failed to consider the same. Issue: There was a ‘debt’ but there was no ‘default’ Held: The appeal was allowed. It was held that in absence of any ‘default’, the order of initiation of CIRP was illegal. Application u/s 9, preferred by Operational Creditor was dismissed. The NCLT order was set aside.

Abbreviations AAA Rules: Insolvency and Bankruptcy (Application to Adjudicating Authority) Rule, 2016 SC: Hon’ble Supreme Court NCLAT: Hon’ble National Company Law Appellate Tribunal NCLT: Adjudicating Authority IBC: Insolvency and Bankruptcy Code, 2016 Sec 7 Application: Application filed under sec. 7 of IBC by a financial creditor for initiating Corporate Insolvency Resolution Process against the corporate debtor. Sec 9 Application: Application filed under sec 9 of IBC by an operational creditor for initiating Corporate Insolvency Resolution Process against the corporate debtor. Sec 10 Application: Application filed under sec 10 of IBC by a corporate applicant for initiating Corporate Insolvency Resolution Process against the corporate debtor. Corporate debtor: The Company or Limited Liability Partnership or other eligible corporate persons mentioned in Part II against whom the corporate insolvency resolution process or bankruptcy process under the IBC is sought to be initiated.

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Introduction

1.1.

INTRODUCTION

NCLT & NCLAT were constituted on 1st June 2016. On the same day, CLB was dissolved and all the matter that were pending in CLB on that date were transferred to NCLT. In December 2016, the second tranche of provisions were notified. As a result, many of the matters pending in High Court were transferred to NCLT. The cases pending in BIFR stood abated. The notification constituting the Tribunals is annexed as Annexure I to this chapter. The provisions of Companies Act, 2013 that were notified in May, June, September, and December 2016 are annexed as Annexure II at the end of this chapter. This chapter provides a brief background on Tribunals. The Companies Act, 2013 has introduced two tribunals, one is the National Company Law Tribunal (hereinafter referred to as ‘Tribunal’ or ‘NCLT’) and the other one is National Company Law Appellate Tribunal (hereinafter referred to as ‘NCLAT’ or “Appellate Tribunal”). NCLAT is the forum for dealing with appeals arising out of the orders of NCLT. Together the two are referred to as “Tribunals”. This chapter provides answers to the following questions that may arise in the minds of the readers as well:

Decoding the law • What is NCLT/Tribunal? • What is NCLAT/Appellate Tribunal? • What is the difference between NCLT and NCLAT? • What is the difference between a tribunal and a court? • Who first brought forth the idea of these Tribunals? • When the Tribunals were first introduced? • Why didn’t the Tribunals get notified under the Companies Act, 1956? • Who challenged the constitutionality of the Tribunals? • What was the challenge all about? • Is the concept of Tribunals under the Companies Act, 1956 (1956 Act) and the Companies Act, 2013 (2013 Act) identical? 1.1

NCLT and NCLAT Law Practice and Procedure, 7e

•

1.2.

Chapter 1

Why was the constitution of Tribunals challenged again under the Companies Act, 2013? What were the grounds for challenging it? What exactly had happened?

MEANING OF NCLT AND NCLAT

The NCLT or “Tribunal” is a quasi-judicial authority created under the Companies Act, 2013 to handle corporate civil disputes arising under the Act. It is an entity that has powers and procedures like those vested in a court of law or judge. NCLT is obliged to objectively determine facts, decide cases in accordance with the principles of natural justice and draw conclusions from them in the form of orders. Such orders can remedy a situation, correct a wrong or impose legal penalties/costs and may affect the legal rights, duties or privileges of the specific parties. The Tribunal is not bound by the strict judicial rules of evidence and procedure. It can decide cases by following the principles of natural justice. NCLAT or “Appellate Tribunal” is an authority provided for dealing with appeals arising out of the decisions of the Tribunal. It is formed for sitting in appeal over the decisions taken by the Tribunal on questions of fact and law. The Appellate Tribunal reviews the decisions of the Tribunal and has power to set aside, modify or confirm it. Appellate Tribunal is an intermediate appellate forum where the appeals lie against the orders of the Tribunal. The decisions of Appellate Tribunal can further be challenged in the Supreme Court.

1.2.1.

New enforcement mechanism—place of tribunals

The chart below provides a holistic view about the enforcement mechanism contemplated under the Companies Act, 2013 and the place of Tribunals in this machinery.

In the new framework that is created for enforcement of the Act, the authorities like 1.2

Chapter 1

Introduction

Registrar of Companies (ROC) and Regional Directors (RD) are retained. The powers of Central Government are also revisited. The Companies Act, 2013 provides for specialised judicial mechanism consisting of NCLT & NCLAT to deal with civil matter and Special Courts to deal with corporate criminal cases. Serious Fraud Investigation Office is recognised under the Act to investigate into the cases of serious frauds. For listed companies, powers of Central Government and SEBI are sought to be clearly demarcated.

1.2.2.

Difference between NCLT and NCLAT

The NCLT has primary jurisdiction whereas NCLAT has appellate jurisdiction. NCLAT is a higher forum than NCLT. Evidence and witnesses are generally presented before NCLT for taking the decisions and NCLAT generally reviews decisions of NCLT and checks it on a point of law or fact. Fact-finding and evidence collection is primarily a task of Tribunal whereas the Appellate Tribunal decide cases based on already collected evidences and witnesses.

1.2.3.

Court v Tribunal

Civil Courts are judicial institutions that deal with any and every civil dispute that arise in India (provided the jurisdiction of civil courts in not barred). Tribunals are specified quasi-judicial bodies for resolving disputes that arise under the Companies Act and other specified acts (RBI Act, LLP Act etc). Like Courts, Tribunals are also independent of the executive and the legislative bodies of governance. They are also open to public that can access them for redressal of their grievances under the Companies Act, 2013 (where the Tribunal is empowered to deal with cases). Both Courts and Tribunals are transparent, as they need to give reasoned orders. Orders of both institutions are subject to appeal. In Courts, the matters are strictly decided on the basis of rules of evidence and civil procedure code. In Tribunals, the decisions are taken in an informal manner. The strict rule of procedure and evidence does not apply to Tribunals. Only lawyers can appear in the court whereas, in Tribunal, the party can be represented by a wide variety of persons including different professionals. Courts have the power to adjudicate in a variety of cases whereas Tribunals specialise in a particular area. In terms of cost, courts are very expensive as compared to Tribunals that provide a cheaper and quicker forum for resolution of disputes. Tribunal has lesser powers than a Court. For example, Courts are vested with wide powers under CPC whereas the Companies Act, 2013 confers only some of these powers on the Tribunal.

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NCLT and NCLAT Law Practice and Procedure, 7e

1.3.

Chapter 1

INTRODUCTION OF CONCEPT OF NCLT IN INDIA – ERADI COMMITTEE

The concept of forming the Tribunal for dealing with various activities of companies was first introduced in the Companies Act, 1956 by the Company (Second Amendment) Act, 2002. The Tribunal was proposed to be established partly as a result of the recommendations of Eradi Committee. In 2010, the Union of India constituted a High Level Committee on 'Law relating to Insolvency of Companies' under the Chairmanship of Justice v Balakrishna Eradi, a retired Judge of the Hon’ble Supreme Court. The purpose of the committee was to examine the existing laws relating to winding-up proceedings of the company in order to remodel it in line with the latest developments and innovations in the corporate laws and governance and to suggest reforms to procedures to be followed at various stages during insolvency proceedings of the company to avoid unnecessary delay in tune with international practices in the field. The said Committee identified the following areas which contributed to inordinate delay in finalisation of winding-up/dissolution of companies: (a) filing statement of affairs; (b) handing over of updated books of accounts; (c) realization of debts; (d) taking over possession of the assets of the company and sale of assets; (e) non-availability of funds for the Official Liquidator to discharge his duties and functions (f) settlement of the list of creditors; (g) settlement of list of contributories and payment of calls; (h) finalisation of income-tax proceedings; (i) disposal of misfeasance proceedings. The Committee found that multiplicity of court proceedings is the main reason for the abnormal delay in dissolution of companies. It also found that different agencies dealing with different areas relating to companies - Board for Industrial & Financial Reconstruction (BIFR) and Appellate Authority for Industrial & Financial Reconstruction (AAIFR) dealt with references relating to rehabilitation and revival of companies. High courts dealt with winding-up of companies and Company Law Board (CLB) dealt with matters relating to the prevention of oppression and mismanagement etc. Considering the laws on corporate insolvency prevailing in industrially advanced countries, the Committee recommended various amendments to provisions of the Companies Act, 1956 for setting-up a National Company Law Tribunal which will combine the powers of the CLB under the Companies Act, 1956, BIFR and AAIFR under the Sick Industrial Companies (Special Provisions) 1.4

Chapter 1

Introduction

Act, 1985 and the jurisdiction and powers relating to winding-up presently vested with the High Courts.

1.4.

2002 AMENDMENT CHALLENGED

The Tribunals were never constituted under the Companies Act, 1956 as the constitutionality of the Companies (Second Amendment) Act, 2002 was challenged by the Madras Bar Association in 2003. The Madras High Court by its order dated 30 March 2004 held that creation of the NCLT and vesting the powers hitherto exercised by the High Courts and CLB in the Tribunal was unconstitutional. It referred to and listed the defects in several provisions (mainly sections 10FD(3)(f)(g)(h), 10FE, 10FF, 10FL(2), 10FR(3), 10FT) in Parts IB and IC of the Companies Act,1956. Therefore, it declared that until the provisions of Part IB and IC of the Act, introduced by the Amendment Act which were defective being in violation of the basic constitutional scheme (of separation of judicial power from the Executive and Legislative power and independence of judiciary enabling impartial exercise of judicial power) are duly amended by removing the defects that were pointed out, it will be unconstitutional to constitute a Tribunal and Appellate Tribunal to exercise the jurisdiction now exercised by the High Court or the Company Law Board. The Union of India accepted certain defects pointed out by the High Court in Parts IB and IC of the Act and agreed to amend the relevant provisions to remove the defects. However, it did not accept certain suggested changes and thus the matter went to the Apex Court. The Supreme Court in its order passed on 11 May 2010 in Union of India v R. Gandhi, President, Madras Bar Association [MANU/SC/0378/2010 : (2010)2CompLJ577(SC) : 2010(3)CTC517 : 2010(261)ELT3(S.C.) : JT2010(5)SC553(1) : (2010)4MLJ734(SC) : 2010(5)SCALE514 : (2010)11SCC1 : [2010]100SCL142(SC) : 2010(6)UJ2945] declared that certain provisions of the said sections were unconstitutional and passed judgement. This decision was passed in 2010 by the Supreme Court and is hereinafter referred to as “2010 NCLT Case”.

1.5.

JJ IRANI COMMITTEE

JJ Irani Committee was formed for making suggestion for enactment of a new company law. In its report dated 31 May 2005, the Committee noted the importance of the establishment of Tribunal and welcomed the move to establish specialised Tribunals under the new company law. It observed that: “Corporate issues will also require a quick resolution. The time taken in the existing framework needs to be reviewed. This is particularly so in the context of rehabilitation, liquidation and winding up. Mergers and amalgamations also need to be facilitated to take place through a speedier process. Through the Companies (Second Amendment) Act, 2002 the Government has envisaged setting up of the National Company Law Tribunal and the National Company Law Appellate Tribunal. We 1.5

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Chapter 1

welcome this move. It is time the forum with specialization to deal with corporate issues, bringing together expertise from various disciplines, is established. We are informed that there are certain legal issues to be resolved before these institutions can be set up. We hope that this process is speedily concluded so that a single forum is available for an informed consideration of corporates issues.”

1.6.

INTRODUCTION OF TRIBUNAL IN COMPANIES ACT, 2013

In the Companies Act, 2013, the concept of Tribunals was introduced again. The nomenclature namely “NCLT” and “NCLAT” was retained. However, the powers and scope of the Tribunals were much wider under the new legislation (check table Power of NCLT: At a Glance). The Companies Act, 2013 introduced the provisions for the formation of NCLT and NCLAT. Many of the suggestions set out by the Supreme Court in the 2010 judgement were essentially complied with and the provisions pertaining to the Tribunal and Appellate Tribunal were suitably introduced in the revised format. However, the Madras Bar Association (MBA) again filed a case challenging the said provision in the Supreme Court in 2013 and the matter was referred to a 5 judge bench of the Supreme Court.

1.6.1.

Nature of challenge under 2013 Act

In Madras Bar Association v Union of India (UOI) and Ors. [2015VII AD (S.C.) 229 : [2015]126CLA111(SC) : (2015)3CompLJ1(SC) : (2015)4MLJ184(SC) : 2015(6)SCALE331 : [2015]131SCL26(SC) : MANU/SC/0610/2015 (‘2015 NCLT Case’), Madras Bar Association raised a three-fold challenge which were decided as follows:

Issue No. 1: Challenge to the validity of the constitution of NCLT and NCLAT Held : Constitutional. Issue No. 2: Challenge to the prescription of qualifications including term of office and salary allowances etc. of President and Members of the NCLT as well as Chairman and Members of the NCLAT. Held : The Supreme Court held that “having regard to the aforesaid clear and categorical dicta in 2010 judgment, tinkering therewith would evidently have the potential of compromising with standards which 2010 judgment sought to achieve, nay, so zealously sought to secure. Thus, we hold that sec 409(3)(a) and (c) are invalid as these provisions suffer from same vice. Likewise, sec 411(3) as worded, providing for qualifications of technical Members, is also held to be invalid. For appointment of technical members to the NCLT, directions contained in sub-para (ii), (iii), (iv), (v) of para 120 of 2010 judgment will have to be scrupulously 1.6

Chapter 1

Introduction

followed and these corrections are required to be made in sec 409(3) to set right the defects contained therein. We order accordingly, while disposing of issue No. 2”.

Issue No. 3: Challenge to the structure of the Selection Committee for appointment of President/Members of the NCLT and chairperson/ members of the NCLAT. Held : The Selection process was held unconstitutional. The prime consideration in the mind of the Bench was that it is the Chairperson, viz. Chief Justice of India, or his nominee who is to be given the final say in the matter of selection with the right to have a casting vote. The 2010 judgment specifically provided that a casting vote should be provided to the Chairperson of the Selection Committee which was sought to avoided by the Companies Act, 2013. Therefore, the Supreme Court held that provisions of sec 412(2) of the Act were invalid and direction was issued to remove the defect by bringing this provision in accord with sub-para (viii) of para 120 of the 2010 judgment.

1.6.2.

Reasons for establishing Tribunals

The necessity of establishing tribunals was discussed in the judgment of 2010 and 2015 and a brief overview is provided to understand the need for such an institutional set up under the Companies Act, 2013. Under regular civil process, to ensure fair play and avoidance of judicial error, the procedural laws provide for appeals, revisions and reviews, and allow parties to file innumerable applications and raise vexatious objections as a result of which the main matters get pushed to the background. All the litigations in the Courts get inevitably delayed, which leads to frustration and dissatisfaction among litigants. In view of the huge pendency, courts are not able to bestow attention and give priority to cases arising under the special legislation. Therefore, there is a need to transfer some selected areas of litigation dealt with by traditional courts to special Tribunals. As Tribunals are free from the shackles of procedural laws and Evidence Law, they can provide easy access to speedy justice in a ‘cost- affordable’ and 'user-friendly' manner. Tribunals can have both Judicial Member and a Technical Member. The Judicial Member will act as a bulwark against apprehensions of bias and will ensure compliance with basic principles of natural justice such as fair hearing and reasoned orders. The Judicial Member would also ensure impartiality, fairness and reasonableness in consideration. The presence of a Technical Member ensures the availability of expertise and experience related to the field of adjudication for which the special Tribunal is created, thereby improving the quality of adjudication and decision-making. In UK, the Committee constituted to undertake the review of the delivery of justice through Tribunals chaired by Sir Andrew Leggatt. The Leggatt Committee in 2001 1.7

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explained the advantages of Tribunals, provided they could function independently and coherently, thus: “Choosing a tribunal to decide disputes should bring two distinctive advantages for users. First, tribunal decisions are often made jointly by a panel of people who pool legal and other expert knowledge, and are the better for that range of skills. Secondly, tribunals' procedures and approach to overseeing the preparation of cases and their hearing can be simpler and more informal than the courts, even after the civil justice reforms. Most users ought therefore to be capable of preparing and presenting their cases to the tribunal themselves, providing they have the right kind of help. Enabling that kind of direct participation is an important jurisdiction for establishing tribunals at all.” De Smith's Judicial Review, (6th Edn., Page 50 Para 1.085) sets out the advantages of Tribunals, thus: “In the design of an administrative justice system, a Tribunal may be preferred to an ordinary court because its members have specialized knowledge of the subject-matter, because it will be more informal in its trappings and procedure, because it may be better at finding facts, applying flexible standards and exercising discretionary powers, and because it may be cheaper, more accessible and more expeditious than the High Court. Many of the decisions given to Tribunals concern the merits of cases with relatively little legal content, and in such cases a Tribunal, usually consisting of a legally qualified Tribunal judge and two lay members, may be preferred to a Court. Indeed dissatisfaction with the over-technical and allegedly unsympathetic approach of the courts towards social welfare legislation led to a transfer of functions to special Tribunals”.

1.7.

FURTHER READING (a) Madras Bar Association v Union of India (UOI) and Ors. [2015VII AD (S.C.) 229 : [2015]126CLA111(SC) : (2015)3CompLJ1(SC) : (2015)4MLJ184(SC) : 2015(6)SCALE331 : [2015]131SCL26(SC) : MANU/SC/0610/2015] (2015 NCLT case); (b) Union of India v R. Gandhi, President, Madras Bar Association [MANU/SC/0378/2010 : (2010)2CompLJ577(SC) : 2010(3)CTC517 : 2010(261)ELT3(S.C.) : JT2010(5)SC553(1) : (2010)4MLJ734(SC) : 2010(5)SCALE514 : (2010)11SCC1 : [2010]100SCL142(SC) : 2010(6)UJ2945] (2010 NCLT case); (c) Report of the High Level Committee on Law Relating to Insolvency And Winding Up of Companies (Committee chaired by Shri Justice V. Balakrishna Eradi and called the “Eradi Committee Report”) , 2000;

1.8

Chapter 1

Introduction

(d) Interim Report of The Bankruptcy Law Reform Committee ( under the Chairmanship of Mr. T.K. Vishwanathan called the “BLRC Interim Report”), February 2015; (e) Report on Company Law, Dr. Jamshed J. Irani, Chairman, Expert Committee on Company Law (called the “J.J Irani Report”), 31 May 2005. ♦♦♦♦

Annexure I: Constitution of NCLT and NCLAT NOTIFICATION New Delhi, the 1st June, 2016

S.O. 1932(E).—In exercise of the powers conferred by section 408 of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes the National Company Law Tribunal to exercise and discharge the powers and functions as are, or may be, conferred on it by or under the said Act with effect from the 1st day of June, 2016. NOTIFICATION New Delhi, the 1st June, 2016 S.O. 1933(E).—In exercise of the powers conferred by section 410 of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes the National Company Law Appellate Tribunal for hearing appeals against the orders of the National Company Law Tribunal with effect from the 1st day of June, 2016. [F. No. A-45011/14/2016-Ad. IV] PRITAM SINGH, Addl. Secy.

NOTIFICATION New Delhi, the 1st June, 2016 S.O. 1936(E).-In exercise of the powers conferred by clause (a) of sub-section (1) of section 434 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 01st day of June, 2016, on which all matters or proceedings or cases pending before the Board of Company Law Administration (Company Law Board) shall stand transferred to the National Company Law Tribunal and it shall dispose of such matters or proceedings or cases in accordance with the provisions of the Companies Act, 2013 or the Companies Act, 1956. [F. No. 1/30/CLB/2013/CL-V] PRITAM SINGH, Addl. Secy.

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Chapter 1

Annexure II: Notification of sections of Companies Act, 2013 and notification of constitution of benches of NCLT NOTIFICATION

New Delhi, the 18th May, 2016 S.O.1795 (E).-In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 18th day of May, 2016 as the date on which the provisions of clause (iv) of subsection (29) of section 2, sections 435 to 438 (both sections inclusive) and section 440 of the said Act shall come into force. [F.No. 01/12/2009-CL-I (Vol.IV)] AMARDEEP SINGH BHATIA, Jt. Secy.

NOTIFICATION New Delhi, the 01st June, 2016 S.O. 1934(E).—In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 20l3 (18 of 20l3), the Central Government hereby appoints the 01st day of June, 2016 as the date on which the following provisions of the said Act shall come into force, namely :— Sl. No.

Section

1.

Sub-section (7) of section 7 [except clause (c) and (d)]

2.

Second proviso to sub-section (1) of section 14

3.

Sub-section (2) of section 14

4.

Sub-section (3) of section 55

5.

Proviso to Clause (b) of sub-section (1) of section 61

6.

Sub-sections (4) to (6) of section 62

7.

Sub-sections (9) to (11) of section 71

8.

Section 75

9.

Section 97

1.10

Chapter 1

Introduction

Sl. No.

Section

10.

Section 98

11.

Section 99

12.

Sub-section (4) of section 119

13.

Section 130

14.

Section 131

15.

Second proviso to sub-section (4) and sub-section (5) of section 140

16.

Sub-section (4) of section 169

17.

Section 213

18.

Sub-section (2) of Section 216

19.

Section 218

20.

Section 221

21.

Section 222

22.

Sub-sections (5) of section 224

23.

Sections 241, 242 [except clause (b) of sub-section (1), clause (c) & (g) of sub-section (2)], 243, 244, and 245

24.

Reference of word ‘Tribunal’ in sub-section (2) of section 399

25.

Sections 415 to 433 (both inclusive)

26.

Sub-section (1)(a) and (b) of section 434

27.

Sub-section (2) of section 434

28.

Section 441

29.

Section 466

[F. No. A-45011/14/2016-Ad.IV] PRITAM SINGH, Addl. Secy.

1.11

NCLT and NCLAT Law Practice and Procedure, 7e

Chapter 1

NOTIFICATION New Delhi, the 9th September, 2016 S.O. 2912 (E).- In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 20l3 (18 of 20l3), the Central Government th hereby appoints 9 September, 2016 as the date on which the provisions of section 227, clause (b) of sub-section (1) of section 242, clauses (c) and (g) of sub-section (2) of section 242, section 246 and sections 337 to 341 (to the extent of their applicability for section 246), of the said Act shall come into force. [F. No. A-45011/14/2016-Ad-IV] AMARDEEP SINGH BHATIA, Jt. Secy. NOTIFICATION New Delhi, the 13th April, 2017 S.O. 1182(E).—In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 13th day of April, 2017 as the date on which the provisions of section 234 of the said Act shall come into force. NOTIFICATION New Delhi, the 18th October, 2017 S.O. 3393(E).—In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 18th October, 2017 as the date on which the provisions of section 247 of the said Act shall come into force. NOTIFICATION New Delhi, the 26th December, 2016 S.O. 4167(E).—In exercise of the powers conferred by sub-section (3) of Section 1 of the Companies Act, 20l3 (18 of 20l3), the Central Government hereby appoints the 26th December, 2016 as the date on which the provisions of section 248 to 252 of the said Act, shall come into force.

1.12

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Introduction

NOTIFICATION New Delhi, the 7th December, 2016 S.O. 3677(E).-In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 15th day of December, 2016 as the date on which the following provisions of the said Act shall come into force, namely: SL.No. Section 1.

Clause (23) of section 2

2.

Clause (c) and (d) of sub-section (7) of section 7

3.

Sub-section (9) of section 8

4.

Section 48

5.

Section 66

6.

Sub-section (2) of section 224

7.

Section 226

8.

Section 230 [except sub-section (11) and (12)], and Sections 231 to 233

9.

Sections 235 to 240

10.

Sections 270 to 288

11.

Sections 290 to 303

12.

Section 324

13.

Sections 326 to 365

14.

Proviso to section 370

15.

Sections 372 to 373

16.

Sections 375 to 378

17.

Sub-section (2) of section 391

18.

Clause (c) of sub-section (1) of section 434

1.13

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Chapter 1

NOTIFICATION New Delhi, the 01st June, 2016 S.O. 1934(E).—In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 20l3 (18 of 20l3), the Central Government hereby appoints the 01st day of June, 2016 as the date on which the following provisions of the said Act shall come into force, namely: Sl. No. Section 1.

Sub-section (7) of section 7 [except clause (c) and (d)]

2.

Second proviso to sub-section (1) of section 14

3.

Sub-section (2) of section 14

4.

Sub-section (3) of section 55

5.

Proviso to Clause (b) of sub-section (1) of section 61

6.

Sub-sections (4) to (6) of section 62

7.

Sub-sections (9) to (11) of section 71

8.

Section 75

9.

Section 97

10.

Section 98

11.

Section 99

12.

Sub-section (4) of section 119

13.

Section 130

14.

Section 131

15.

Second proviso to sub-section (4) and sub-section (5) of section 140

16.

Sub-section (4) of section 169

17.

Section 213

18.

Sub-section (2) of Section 216

19.

Section 218

20.

Section 221

21.

Section 222

22.

Sub-sections (5) of section 224

23.

Sections 241, 242 [except clause (b) of sub-section (1), clause (c) & (g) of sub-section (2)], 243, 244, and 245

1.14

Chapter 1

Introduction

Sl. No. Section 24.

Reference of word ‘Tribunal’ in sub-section (2) of section 399

25.

Sections 415 to 433 (both inclusive)

26.

Sub-section (1)(a) and (b) of section 434

27.

Sub-section (2) of section 434

28.

Section 441

29.

Section 466

NOTIFICATION [Author’s note: The principal notification was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), vide number S.O. 1935(E), dated the 1st day of June, 2016 and subsequent amendments were published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), vide number S.O. 345(E), dated the 3rd February, 2017, number S.O. 3145 (E), dated the 28th June, 2018, number S.O. 3430 (E), dated the 12th July 2018, number S.O. 3683 (E), dated the 27th July 2018, and number vide SO 1216(E), dt. 8-03-2019, ]

New Delhi, the 1st June, 2016 S.O. 1935(E).-In exercise of the powers conferred by sub-section (1) of section 419 of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes the following Benches of the National Company Law Tribunal mentioned in column (2) of the table below, located at the place mentioned in column (3) and to exercise the jurisdiction over the area mentioned in column (4), namely:TABLE Serial Number (1) 1.

2.

1 2

3

Title of the Bench

Location

Territorial Jurisdiction of the Bench

(2) (a) National Company Law Tribunal, Principal Bench. (b) National Company Law Tribunal, New Delhi Bench. National Company Law Tribunal, Ahmedabad

(3) New Delhi

(4) (1) [***]1 (2) [***]2 (3) Union territory of Delhi.

Ahmedabad

(1) State of Gujarat. (2) [***]3

Omit, “(1) State of Haryana”, vide SO 345(E), dt. 3-2-2017. Omit, w.e.f. 1-07-2018, the entry “(2) State of Rajasthan” from S.No.1, Column No. 4, vide S.O 3145(E), dt 28-06-2018. Omit, w.e.f 8-03-2019, entry “(2) State of Madhya Pradesh” vide SO 1216(E), dt. 8-03-2019.

1.15

NCLT and NCLAT Law Practice and Procedure, 7e Serial Number

Title of the Bench

(1)

(2)

Location (3)

Chapter 1 Territorial Jurisdiction of the Bench (4)

Bench.

[(3) Union territory of Dadra and Nagar Haveli and Daman and Diu.]4

3.

National Company Law Allahabad Tribunal, Allahabad Bench.

(1) State of Uttar Pradesh. (2) State of Uttarakhand.

4.

National Company Law Bengaluru Tribunal, Bengaluru Bench. National Company Law Chandigarh Tribunal, Chandigarh Bench.

(1) State of Karnataka.

5.

6.

National Company Law Tribunal, Chennai Bench.

7.

National Company Law Guwahati Tribunal, Guwahati Bench.

8.

National Company Law Tribunal, Hyderabad Bench. National Company Law Tribunal, Kolkata Bench.

9.

4

5 6

7 8 9

10

1.16

Chennai

Hyderabad Kolkata

(1) State of Himachal Pradesh. [(2a) Union territory of Jammu and Kashmir. (2b) Union territory of Ladakh.]5 (3) State of Punjab. (4) Union territory of Chandigarh. [(5) State of Haryana]6 (1) [***]7 (2) State of Tamil Nadu. (3) [***]8 (4) Union territory of Puducherry. (1) State of Arunachal Pradesh. (2) State of Assam. (3) State of Manipur. (4) State of Mizoram. (5) State of Meghalaya. (6) State of Nagaland. (7) State of Sikkim. (8) State of Tripura. (1) [***] 9. (2) State of Telangana. (1) State of Bihar. (2) State of Jharkhand. (3) [* * *]10 (4) State of West Bengal. (5) Union territory of Andaman and

Subs. w.e.f. 12-2-2021, vide SO 654(E), dt. 12-2-2021 for the entries “(3) Union territory of Dadra and Nagar Haveli, (4) Union territory of Daman and Diu.”. Subs. w.e.f. 12-2-2021, vide SO 654(E), dt. 12-2-2021 for the entry “(2) State of Jammu and Kashmir.”. Ins. w.e.f. 3-2-2017, vide SO 345(E), dt. 3-2-2017. Omit, w.e.f 1-8-2018, “(1) State of Kerala”, vide SO 3683(E), dt. 27-07-2018. Omit, w.e.f 1-8-2018, “(3) Union Territory of Lakshadweep”, vide SO 3683(E), dt. 27-07-2018. Omit, w.e.f 8-03-2019, entry “(2) State of Andhra Pradesh” vide SO 1216(E), dt. 8-03-2019. Omit, w.e.f. 15-07-2018, the entry “(3) State of Odisha” from S.No.9, Column No. 4, vide S.O 3430(E), dt 12-07-2018.

Chapter 1 Serial Number (1)

Introduction Title of the Bench

Location

(2)

Territorial Jurisdiction of the Bench

(3)

(4)

10.

National Company Law Tribunal, Mumbai Bench.

Mumbai

Nicobar Islands. (1) [* * *]11 (2) State of Goa. (3) State of Maharashtra.

12[11

National Company Law Tribunal, Jaipur Bench. National Company Law Tribunal, Cuttack Bench. National Company Law Tribunal, Kochi Bench.

Jaipur

(1) State of Rajasthan.]

Cuttack

(1) State of Odisha (2) State of Chhattisgarh] (1) State of Kerala (2) Union Territory of Lakshadweep]

15[14

National Company Law Tribunal, Indore Bench.

Indore

16[15

National Company Law Amaravati Tribunal, Amravati Bench.

13[12 14[13

Kochi

(1) State of Madhya Pradesh] (2) State of Andhra Pradesh.]

**** NOTIFICATION New Delhi, the 3rd February, 2017 S.O. 345(E).—In exercise of the powers conferred by sub-section (1) of section 419 of the Companies Act, 2013 (18 of 2013), the Central Government hereby amends the notification of the Ministry of Corporate Affairs number S.O. 1935 (E) dated the 1st day of June, 2016, namely:— 2.

In the said notification, in the Table,(i) (ii)

In serial number 1, in column number (4), the entry “(1) State of Haryana”, shall be omitted. In serial number 5, in column number (4), after entry (4), the following entry shall be inserted, namely:— “(5) State of Haryana”.

11

Omit, w.e.f. 15-07-2018, the entry “(1) State of Chhattisgarh” from S.No.10, Column No. 4, vide S.O 3430(E), dt 12-07-2018.

12

Ins. w.e.f. 1-07-2018, vide S.O 3145(E), dt 28-06-2018. Ins, w.e.f. 15-07-2018, vide S.O 3430(E), dt 12-07-2018. Ins. w.e.f. 1-8-2018, vide SO 3683(E), dt. 27-07-2018. Ins. w.e.f 8-03-2019, vide SO 1216(E), dt. 8-03-2019. Ins. w.e.f 8-03-2019, vide SO 1216(E), dt. 8-03-2019.

13 14 15 16

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NCLT and NCLAT Law Practice and Procedure, 7e

Chapter 1

NOTIFICATION New Delhi, the 28th June, 2018 S.O. 3145(E).—In exercise of the powers conferred by sub-section (1) of section 419 of the Companies Act, 2013 (18 of 2013), the Central Government hereby establishes the National Company Law Tribunal, Jaipur Bench at Jaipur and for the said purpose further amends the notification of the Ministry of Corporate Affairs number S.O. 1935 (E), dated the 1st day of June, 2016, namely:— 2. In the said notification, in the Table, (i) (ii) “11

3.

in serial number 1, in column number (4), the entry “(2) State of Rajasthan”, shall be omitted; after serial number 10 and the entries thereto, the following shall be inserted namely:-

National Company Law Tribunal, Jaipur Jaipur Bench

(1) State of Rajasthan.”

This notification shall come into force on the 1st day of July, 2018. NOTIFICATION New Delhi, the 12th July, 2018

S.O. 3430(E).— In exercise of the powers conferred by sub-section (1) of section 419 of the Companies Act, 2013 (18 of 2013), the Central Government hereby establishes the National Company Law Tribunal, Cuttack Bench at Cuttack and for the said purpose further amends the notification of the Ministry of Corporate Affairs number S.O. 1935 (E), dated the 1st day of June, 2016, namely:— 2. In the said notification, in the Table, (i)

in serial number 9, in column number (4), the entry “(3) State of Odisha”, shall be omitted;

(ii)

in serial number 10, in column number (4), the entry “(1) State of Chhattisgarh”, shall be omitted; after serial number 11 and the entries relating thereto, the following shall be inserted namely:-

(iii) “12

3.

1.18

National Company Law Tribunal, Cuttack Bench

Cuttack

(1) State of Odisha (2) State of Chhattisgarh”.

This notification shall come into force on the 15th day of July, 2018.

Chapter 1

Introduction

NOTIFICATION New Delhi, the 27th July, 2018 S.O. 3683(E).—In exercise of the powers conferred by sub-section (1) of section 419

of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes the National Company Law Tribunal, Kochi Bench at Kochi and for the said purpose hereby makes the following further amendments in the notification of the Government of India, Ministry of Corporate Affairs number S.O. 1935 (E), dated the 1st June, 2016, namely:— 2.

In the said notification, in the Table, -

“13

3.

(i)

against serial number 6, in column number (4), the entries “(1) State of Kerala” and “(3) Union territory of Lakshadweep”, shall be omitted;

(ii)

after serial number 12 and the entries relating thereto, the following shall be inserted, namely:-

National Company Law Tribunal, Kochi Bench

Kochi

(1) State of Kerala. (2) Union territory of Lakshadweep.”.

This notification shall come into force on the 1st day of August, 2018. NOTIFICATION New Delhi, the 8th March, 2019

S.O. 1216(E).—In exercise of the powers conferred by sub-section (1) of section 419 of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes the National Company Law Tribunal, Indore Bench at Indore and Amaravati Bench at Amaravati, and for the said purpose hereby makes the following further amendments in the notification of the Government of India, Ministry of Corporate Affairs number S.O. 1935 (E), dated the 1st June, 2016, namely:2. In the said notification, in the Table, (i)

against serial number 2, in column number (4), the entries “(2) State of Madhya Pradesh” shall be omitted;

(ii)

against serial number 8, in column number (4), the entries “(1) State of Andhra Pradesh” shall be omitted;

(iii) “14

after serial number 13 and the entries relating thereto, the following shall be inserted, namely:National Company Indore (1) State of Madhya Pradesh Law Tribunal, Indore Bench

1.19

NCLT and NCLAT Law Practice and Procedure, 7e

15

3.

National Company Law Tribunal, Amravati Bench

Amaravati

Chapter 1

(2) State of Andhra Pradesh.”

This notification shall come into force on the date of its publication. **** NOTIFICATION New Delhi, the 12th February, 2021

S.O. 654(E).— In exercise of the powers conferred by sub-section (1) of section 419 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following further amendments in the notification of the Government of India, Ministry of Corporate Affairs number S.O. 1935 (E), dated the 1st June, 2016, namely:2.

In the said notification, in the Table,(i)

against serial number 2, in column number (4), for items (3) and (4) and the entries relating thereto, the following items and entries shall be substituted namely:“(3) Union territory of Dadra and Nagar Haveli and Daman and Diu.”;

(ii)

against serial number 5, in column number (4), for item (2) and the entry relating thereto, the following items and entries shall be substituted namely:“(2a) Union territory of Jammu and Kashmir. (2b) Union territory of Ladakh” [F. No. A-45011/84/2020-Ad.IV]

1.20

Chapter 2

Constitution of NCLT and NCLAT 2.1

INTRODUCTION

As discussed in the previous chapter, the Supreme Court in its decision dated 14 May 2015 held that certain provisions dealing with the constitution and selection process of the Tribunal members are unconstitutional1. This chapter deals with the constitution of Tribunals in light of this decision.

2.2

CONSTITUTION OF NCLT

Tribunal will consist of a President, Judicial and Technical members. Initially, NCLT was composed of a president, 15 judicial members and 8 technical members across 11 NCLT benches. Thereafter, the strength of the Tribunal was increased and the Tribunal was composed of the President, 17 judicial members and 9 technical members. The number of NCLT Benches also increased and in 2019, 3 additional benches have been notified in Jaipur, Kochi and Cuttack. In August 2018, applications were invited for filling up 14 posts of Judicial Members and 22 posts of Technical members. In July 2019, the selection process was completed. Currently, the Tribunal is composed of the President, 19 Judicial and 21 Technical Members.

[This space has been left blank intentionally]

1

Details of the case are discussed in Chapter 1.

2.1

NCLT and NCLAT Law Practice and Procedure, 7e

2.2.1

Chapter 2

Qualification

2.2.1.1 President The President of NCLT shall always be a person who has been a Judge of High Court for five years, to be appointed after consultation with the Chief Justice of India.

2.2.1.2 Judicial member Judicial Member shall be a person having at least 10 years of experience as an advocate; or is or has been a Judge of a District or High Court for 5 years. This criteria is approved by the Supreme Court and the constitutionality of this provision has been upheld.

2.2.1.3 Technical member To be appointed as a technical member one needs to fit in one of the following criteria; ● Member of ICLS (Indian Corporate Law Services) or ILS (Indian Legal Service) of pay scale of Joint Secretary for at least 3 years out of a total minimum service of fifteen years. This criteria is however held unconstitutional. This criteria was modified by the Companies (Amendment) Act, 2017. The new criteria reads as follows -“(a) has, for at least fifteen years been a member of

2.2

Chapter 2

●

●

●

Constitution of NCLT & NCLAT

the Indian Corporate Law Service or Indian Legal Service and has been holding the rank of Secretary or Additional Secretary to the Government of India”; or A member of ICAI, ICSI or ICWA practicing for at least fifteen years. The Supreme Court has held that considering practicing ICWA as eligible is unconstitutional and asked the Central Government to revise the said condition in accordance with 2010 decision of the Supreme Court2; or A person of proven ability, integrity, knowledge and practice for at least 15 years in the area of law, industrial finance, industrial management or administration, industrial reconstruction, investment, accountancy, labour matters, or such other disciplines related to management, conduct of affairs, revival, rehabilitation and winding up of companies. This criteria has been changed by the Companies (Amendment) Act, 2017. It has now been substituted with the following criteria “(e) is a person of proven ability, integrity and standing having special knowledge and professional experience of not less than fifteen years in industrial finance, industrial management, industrial reconstruction, investment and accountancy.". A person who has at least for five years at present or in the past, served as a presiding officer of a Labour Court, Tribunal or National Tribunal constituted under Industrial Disputes Act, 1947 (14 of 1947).

2.2.2

Number of members

The Tribunal can have any number of members. No bar is placed. Under the old Act, the number was restricted to 62. The Government in the 2015 NCLT case (discussed in previous chapter) pointed out that it has given approval for creation one post of President and 62 posts of Members of NCLT. It has approved for one post of Registrar and one post of Secretary for NCLT.

2.2.3

Seat of NCLT

The seat of NCLT should be in New Delhi. However, it is possible that like CLB, they can have benches in Mumbai, Kolkata & Chennai. The government had indicated before the Supreme Court that they are considering the creation of a Tribunal for every state. Currently, there are 14 NCLT (including the three recently added). It is possible that over time there will be around 16 Tribunals in India.

2.2.4

Transfer of members

The provisions dealing with Transfer of members from one Bench to another have been amended by National Company Law Tribunal (Salary, Allowances and other

2

As per the Apex Court decision, members of ICWAI cannot be a technical member. However, the reading of the 2010 NCLT judgment and 2015 NCLT judgment gives that impression that it may be possible that the sub clause number may be incorrect as the main reservations were expressed by the Apex Court about clause number 409(3)(e) rather than 409(3)(c).

2.3

NCLT and NCLAT Law Practice and Procedure, 7e

Chapter 2

Terms and Conditions of Service of President and other Members) Amendment Rules, 2019. The new rules dealing with transfer read as under : The provisions dealing with Transfer of members from one Bench to another have been amended by National Company Law Tribunal (Salary, Allowances and other Terms and Conditions of Service of President and other Members) Amendment Rules, 2019. The new rules dealing with transfer read as under : “15A. Posting and transfer of Members. – (1) Initial posting of a Member shall be done by the Central Government in consultation with the President. (2) Subsequent transfers to different Benches shall be done by the President having regard ordinarily to the following:— (a) the capacity or otherwise of the Member for the purpose of his posting, including his efficiency, disposal and other relevant factors; (b) a Member save and except for sufficient and cogent reasons shall not be posted at a place where he had earlier been practising as an Advocate or a Chartered Accountant, Company Secretary or Cost Accountant, as the case may be; (c)

a Member may not be posted at a place where any of his parents, spouse or other close relation is practising as an Advocate or a Chartered Accountant, Company Secretary or Cost Accountant in Company Law matters;

(d) save and except for sufficient and cogent reasons, the Member shall not be posted at a place for a period exceeding three years, and ordinarily, a Member may not be posted at a place where he was earlier posted unless a period of two years has elapsed; (e)

ordinarily a Member shall not be transferred before completion of three years at a station except on administrative grounds or on personal request basis.

(3) Transfer on personal request basis shall include considerations such as serious medical grounds, serious dislocation in children’s education, unavoidable family responsibilities; however consideration of transfer on personal request shall be subject to consideration of factors enumerated in sub-rule (2). (4) Transfer on administrative grounds shall be made only in consultation with the Central Government.”.

2.3 2.3.1

APPELLATE TRIBUNAL (NCLAT)

Constitution

Appellate Tribunal shall consist of a chairperson, judicial and technical members. 2.4

Chapter 2

Constitution of NCLT & NCLAT

Currently, the Bench of NCLAT is situated only in New Delhi which initially was constituted of one chairperson and one technical member. Currently, the NCLAT is composed of the Chairperson, two judicial members and one technical member.

2.3.2

Number of members

Appellate Tribunal shall have one chairperson. Earlier, apart from Chairperson, sec 410 mandated that NCLAT could have maximum eleven members. However, vide Companies Amendment Act, 2020, the maximum limit on number of members is lifted. Now any number of members can be appointed in NCLAT at the discretion of Central Government. The Central Government in the 2015 NCLT case has stated that it has approved one post of chairperson and five posts of members of NCLAT.

2.3.3

Seat of NCLAT and Benches of NCLAT

Vide Companies Amendment Act, 2020, sec 418A has been inserted. Under ssec 418A, the Central Government after consultation with the Chairperson, is empowered to establish Benches of the Appellate Tribunal to hear appeals against any direction, decision or order referred to in sec 53A of the Competition Act, 2002 and under sec 61 of the Insolvency and Bankruptcy Code, 2016. The powers of the Appellate Tribunal may be exercised by such Benches that are created. Each Bench shall have at least one Judicial Member and one Technical Member. The seat of NCLAT is in New Delhi. In exercise of the power of the Central Government, the principal bench of NCLAT has been constituted at New Delhi and another Bench of NCLAT has been constituted in Chennai. S. no. (1) 1.

2.

Title of the Bench

Territorial Jurisdiction of the Bench (2) (3) National Company Law Appellate The Bench of the NCLAT at New Tribunal, New Delhi Bench Delhi shall be known as the Principal Bench of the NCLAT which shall continue to hear all appeals other than those in the jurisdiction of Chennai Bench of the NCLAT. National Company Law Appellate This bench is created only to hear Tribunal, Chennai Bench. appeals against the orders of the Benches of the National Company Law Tribunal (NCLT) situated at (1) Karnataka (2) Tamil Nadu (3) Telangana (4) Andhra Pradesh (5) Kerala (6) Union territory of Lakshadweep. 2.5

NCLT and NCLAT Law Practice and Procedure, 7e

S. no.

Title of the Bench

(1)

2.3.4

(2)

Chapter 2

Territorial Jurisdiction of the Bench (3) (7) Union territory of Puducherry. It does not have jurisdiction to hear appeals against the decisions of NFRA, IBBI or Competition Commission. It is however, empowered to hear appeal against orders of NCLT passed under Companies Act, 2013 and Insolvency and Bankruptcy Code, 2016.

Qualification

2.3.4.1 Chairperson The chairperson shall be a person who is or has been a judge of the Supreme Court or the chief justice of a high court.

2.3.4.2 Judicial member A judicial member shall be a person who is or has been a Judge of a High Court or is a judicial member of the Tribunal for five years.

2.3.4.3 Technical member Till 2017, the qualification for being appointed as a technical member was that the person should be of proven ability, integrity and standing having special knowledge and experience, of not less than twenty-five years, in various fields like law, industrial finance etc. This provision has been held unconstitutional and the Central Government is directed to comply with the 2010 decision of Supreme Court as regards the qualification.3 In 2017, the qualification has been amended by the Companies (Amendment) Act, 2017. It now provides for the following criteria"(3) A technical member shall be a person of proven ability, integrity and standing having special knowledge and professional experience of not less than twenty-five 3

2.6

2010 NCLT judgment reads as under: “56. We may now tabulate the corrections required to set right the defects in Parts IB and IC of the Act: (v) The first part of clause (f) of sub-section (3) providing that any person having special knowledge or professional experience of 20 years in science, technology, economics, banking, industry could be considered to be persons with expertise in company law, for being appointed as Technical Members in Company Law Tribunal, is invalid. (vi) Persons having ability, integrity, standing and special knowledge and professional experience of not less than fifteen years in industrial finance, industrial management, industrial reconstruction, investment and accountancy, may however be considered as persons having expertise in rehabilitation/revival of companies and therefore, eligible for being considered for appointment as Technical Members.”

Chapter 2

Constitution of NCLT & NCLAT

years in industrial finance, industrial management, industrial reconstruction, investment and accountancy."

2.4

SELECTION PROCESS

The constitution of the Selection committee was held unconstitutional by the Supreme Court. The Supreme Court had directed that the said provision ought to be revised to ensure that there are equal number of judicial and non-judicial members in the selection committee and the judicial member should be presiding over the selection process. Further, judicial members presiding over the selection committee should have a casting vote to ensure that judicial members have a decisive say in the selection process. The Companies Act, 2013 contemplates following to be the composition of the selection committee for selecting the members of NCLT and NCLAT. It further has set out the steps taken by the Legislature vide Companies (Amendment) Act, 2017 to rectify the defects notified by the Apex Court.

2.4.1

Manner of selection

Position NCLT NCLAT President/Chairperson Shall be appointed after Shall be appointed after consultation consultation with Chief with Chief Justice of India. Justice of India. Judicial Members Shall be appointed by Shall be appointed after consultation selection committee. with Chief Justice of India. Technical Members

2.4.2

Shall be appointed by Shall be appointed by selection selection committee. committee.

Composition of Selection Committee

The Selection Committee shall comprise of a chairperson and four members. Position Chairperson

Eligibility Chief Justice of India or his nominee. Chairperson shall have a casting vote. The provision giving right of the casting vote to the Chairperson were inserted vide the Companies (Amendment) Act, 2017. This amendment is in pursuance of the changes to the provisions recommended by the Apex Court. Convener/Member – 1 Senior judge of Supreme Court or chief justice of a high court. Secretary in Ministry of Corporate Affairs. Member – 2 Secretary in Ministry of Law and Justice. Member – 3 Secretary in Department of Financial Services in the Ministry Member – 4 2.7

NCLT and NCLAT Law Practice and Procedure, 7e

Position

2.5

Chapter 2

Eligibility of Finance. After the Companies (Amendment) Act, 2017, this position has been deleted from the Selection committee. This has been done to comply with the changes recommended by the Apex Court where it was held that committee should be composed in such a manner that judicial members have a majority and veto over the selection process of members.

TERM OF NCLT AND NCLAT

The chart provides details of the term of the members, president and chairperson of the Tribunal and Appellate Tribunal and their eligibility and retirement. Chairperson Term

Judicial member 5 years and shall 5 years and shall 5 years and shall be eligible for be eligible for be eligible for re-appointment re-appointment re-appointment for another term for another term for another term of 5 years. of 5 years. of 5 years. 67 65

Retirement age at NCLT Retirement 70 age at NCLAT Age Eligibility 50 Years

2.6

President

Technical member 5 years and shall be eligible for re-appointment for another term of 5 years. 65

-

67

67

50 Years

50 Years

50 Years

STAFF

The Central Government in its affidavit filed in 2015 NCLT case had stated that they have obtained approval for creation of 246 posts of supporting staff of NCLT and NCLAT.

2.7

FURTHER READING (a) Madras Bar Association v Union of India (UOI) and Ors., [2015VII AD (S.C.) 229 : [2015]126CLA111(SC) : (2015)3CompLJ1(SC) : (2015)4MLJ184(SC) : 2015(6)SCALE331 : [2015]131SCL26(SC) : MANU/SC/0610/2015] (2015 NCLT case); (b) Union of India v R. Gandhi, President, Madras Bar Association, [MANU/SC/0378/2010 : (2010)2CompLJ577(SC) : 2010(3)CTC517 : 2010(261)ELT3(S.C.) : JT2010(5)SC553(1) : (2010)4MLJ734(SC) : 2010(5)SCALE514 : (2010)11SCC1 : [2010]100SCL142(SC) :

2.8

Chapter 2

Constitution of NCLT & NCLAT

2010(6)UJ2945] (2010 NCLT case); (c) National Company Law Appellate Tribunal (Salaries, Allowances and other Terms and Conditions of Service of Chairperson and other Members) Rules, 2015; (d) National Company Law Tribunal (Salary, Allowances and other Terms and Conditions of Service of President and other Members) Rules, 2015. ♦♦♦♦

2.9

NCLT and NCLAT Law Practice and Procedure, 7e

2.10

Chapter 2

Chapter 3

Transition to NCLT: Impact on existing cases 3.1

INTRODUCTION

Most of the provisions of Companies Act, 2013 dealing with powers of NCLT are now notified (Post 15th December 2016) and to that extent the corresponding provisions of the Companies Act, 1956 would be inoperative and repealed. The Companies Act, 2013 has provided the manner in which the transition will take place from the old Act to the new. This chapter seeks to answer the queries that may arise with respect to such transition.

Decoding the law ● What will happen to the existing cases that are pending at various forums? ● Are all the existing cases going to be transferred? Are there any exceptions? ● Which is the cut-off date from which the matters will be transferred? ● Is there no specific guideline about which matters will be transferred and which matters the old forum can dispose off? ● What will happen to mergers and winding up proceedings in the High Court? ● What will happen to cases that are pending in CLB? And those in BIFR? ● What will be the status of interim orders passed by the High Court and CLB? ● Will these interim orders be vacated? Or will they continue? Do I need to approach the Tribunal for their continuance? ● Which cases will be transferred? ● Which cases will abate? What does “abate” mean? What about the interim relief that I was enjoying in these matters? ● My case is in the stage of final hearing? Can it again be reopened? ● The process of winding up the company has begun. Will this process be stopped or will it continue? ● I had initiated the merger under Old Act. Now the matter is transferred to NCLT. Do I comply with the additional compliances and additional disclosure requirement of the law? 3.1

NCLT and NCLAT Law Practice and Procedure, 7e

Chapter 3

This chapter tries to answer the questions that are raised above, which any practitioner may ask. The Companies Act, 2013 to a certain extent does throw light on these questions. However, there are still some grey areas where clarifications are necessary.

3.1.1

Transitional provisions: at a glance1

Nature of Proceeding Merger

Impact on notification of the Act Section Continued from the stage at which it is 434(1)(c) transferred to NCLT. Winding up Continued from the stage at which it is 434(1)(c) transferred to NCLT. Some cases not transferred as per directions set out in rules and notifications. (read commentary) Reduction of Capital Continued from the stage at which it is 434(1)(c) transferred to NCLT. Interim orders of High Continued (read commentary) 465(2)(b) Court Challenge to High Court Appropriate forum that would hear the 303 order passed under the matter if Old Act was not repealed. Companies Act, 1956 CLB cases Discretion given to Tribunal to continue 434(1)(a) the matter at the stage whether it is transferred or may reopen the matters to certain extent. Interim orders by CLB Continued (read commentary) 465(2)(a) read with 465(2)(b) Challenge to orders passed Appeal to high court on questions of law 434(1)(b) by CLB Proceedings before Proceedings will abate 434(1)(d) BIFR/AAIFR Investigation proceedings Will continue by inspectors under New 465(2)(j) Act Criminal proceedings Will continue before the same court 465(2)(i) where it was instituted.

1

3.2

Section 465, as on 3rd October 2018 has not been notified. However, if the manner in which cases are dealt with in NCLT are observed, in essence, the principles established therein are followed. Section 6 of the General Clause Act is also relevant to understand the transition from an old Act to a new Act and can be used to interpret and analyse any question arising therefrom.

Chapter 3

3.1.2

Transition to NCLT: Impact on existing cases

Important developments – 2019-2020

Date/details

Particulars

Jaipur Metals & Electricals Employees Organization v. Jaipur Metals & Electricals Ltd., (2019) 4 SCC 227

The first step to transferring winding up proceedings to the NCLT was taken by the Companies (Transfer of 15 Pending Proceedings) Rules, 2016 [“Transfer Rules, 2016”], which compulsorily transferred all winding up proceedings pending before High Courts to the NCLT at a stage prior to the service of the petition in terms of Rule 26 of the Companies (Court) Rules, 1959. The question of transfer of proceedings from High court has been a subject matter is numerous litigation. Facts: An employees’ union challenged the judgment of the Rajasthan High Court dated 1st January 2018, in which the High Court where the HC refused to transfer winding up proceedings pending before it to the NCLT and set aside an order dated 13th April 2018 of the NCLT by which order a financial creditor’s petition under sec 7 of IBC has been admitted. In this case Apex Court held that independent proceedings under the IBC can only continue when the a winding up order has not been passed. In a significant passage, the Court then went on to hold: “19. However, this does not end the matter. It is clear that Financial Creditor has filed a Section 7 application which was admitted by NCLT. This proceeding is an independent proceeding which has nothing to do with the transfer of pending winding-up proceedings before the High Court. It was open for a the financial creditor at any time before a windingup order is passed to apply under Section 7 of the Code. This is clear from a reading of Section 7 together with Section 238 of the Code.” The Court therefore finally held: “20. … We are of the view that NCLT was absolutely correct in applying Section 238 of the Code to an independent proceeding instituted by a secured financial creditor, namely, the Alchemist Asset Reconstruction Company Ltd. This being the case, it is difficult to comprehend how the High Court could have held that the proceedings before NCLT were without jurisdiction. On this score, therefore, the High Court judgment has to be set aside. NCLT proceedings will now continue from the stage at which they have been left off. Obviously, the company petition pending before the High Court cannot be proceeded with further in view of Section 238 of the Code. The writ petitions that are pending before the High Court have also to be disposed of in light of the fact that 3.3

NCLT and NCLAT Law Practice and Procedure, 7e

Date/details

Forech India Ltd. v Edelweiss Assets Reconstruction Co. Ltd., 2019 SCCOnLine SC 87

M/s Kaledonia Jute & Fibres Pvt. Ltd. v M/s Axis Nirman & Industries Ltd. & Ors., 2020 SCCOnLine SC 943

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Particulars proceedings under the Code must run their entire course. We, therefore, allow the appeal and set aside the High Court's judgment” Facts: A winding up petition filed in 2014 was pending in High Court. During the pendency of this petition, a financial creditor moved to NCLT against the same corporate debtor. His insolvency petition filed under sec 7 of the Code was admitted in May/June 2017. An appeal was filed by the original petition in winding up petition challenging the said decision of admission of insolvency petition when winding up petition was pending. The Apex Court while held that it did not agree with the rational under which the appeal was dismissed but refused to interfere with the order of admission of insolvency petition on different ground. However, it granted liberty to petition before high court to apply for transfer if his winding up petition to NCLT. It held as follows: “However, we decline to interfere with the ultimate order passed by the Appellate Tribunal because it is clear that the financial creditor's application which has been admitted by the Tribunal is clearly an independent proceeding which must be decided in accordance with the provisions of the Code. 23. Though, we are not interfering with the Appellate Tribunal's order dismissing the appeal, we grant liberty to the appellant before us to apply under the proviso to Section 434 of the Companies Act (added in 2018), to transfer the winding up proceeding pending before the High Court of Delhi to the NCLT, which can then be treated as a proceeding under Section 9 of the Code.” Facts: High Court passed an winding up order against a corporate debtor and appointer the official liquidator. An application was filed for recall of the winding up order which was pending in High Court and the winding up order was kept in abeyance. In the meantime an insolvency petition was filed in NCLT and an application was made to High Court to transfer the winding up petition to NCLT. The application for transfer of proceedings was rejected by High Court. Aggrieved by an order passed by the Company Court (High Court of Allahabad), refusing to transfer the winding up petition pending therein, to the National Company Law Tribunal (NCLT for short), a financial creditor has come up with this appeal.

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Transition to NCLT: Impact on existing cases

Particulars The main issues that arise for consideration in this appeal were: (i) what are the circumstances under which a winding up proceeding pending on the file of a High court could be transferred to the NCLT and (ii) at whose instance, such transfer could be ordered. The Apex Court held that any creditor can apply for transfer of winding up proceeding as this would avoid two parallel proceeding from continuing: “44. Thus, the proceedings for winding up of a company are actually proceedings in rem to which the entire body of creditors is a party. The proceeding might have been initiated by one or more creditors, but by a deeming fiction the petition is treated as a joint petition. The official liquidator acts for and on behalf of the entire body of creditors. Therefore, the word “party” appearing in the 5 the proviso to Clause (c) of Sub-section (1) of section 434 cannot be construed to mean only the single petitioning creditor or the company or the official liquidator. The words “party or parties” appearing in the 5th proviso to Clause (c) of Sub-section (1) of Section 434 would take within its fold any creditor of the company in liquidation. 45. The above conclusion can be reached through another method of deductive logic also. If any creditor is aggrieved by any decision of the official liquidator, he is entitled under the 1956 Act to challenge the same before the Company Court. Once he does that, he becomes a party to the proceeding, even by the plain language of the section. Instead of asking a party to adopt such a circuitous route and then take recourse to the 5th proviso to section 434(1)(c), it would be better to recognise the right of such a party to seek transfer directly. 46. As observed by this Court in Forech India Limited (supra), the object of IBC will be stultified if parallel proceedings are allowed to go on in different fora. If the Allahabad High Court is allowed to proceed with the winding up and NCLT is allowed to proceed with an 21 enquiry into the application under Section 7 IBC, the entire object of IBC will be thrown to the winds. 47. Therefore, we are of the considered view that the petitioner-herein will come within the definition of the expression “party” appearing in the 5th proviso to Clause (c) of Sub-section (1) of Section 434 of the Companies Act, 2013 and that the petitioner is entitled to seek a transfer of the 3.5

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Action Ispat And Power Pvt. Ltd. v Shyam Metalics And Energy Ltd., [Civil Appeal No. 4041 of 2020], SC/Dec20, (15.12.2020)

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Particulars pending winding up proceedings against the first respondent, to the NCLT. It is important to note that the restriction under Rules 5 and 6 of the Companies (Transfer of Pending Proceedings) Rules, 2016 relating to the stage at which a transfer could be ordered, has no application to the case of a transfer covered by the 5th proviso to clause (c) of sub-section (1) of Section 434. Therefore, the impugned order of the High court rejecting the petition for transfer on the basis of Rule 26 of the Companies (Court) Rules, 1959 is flawed.” (emphasis in original) The question that was raised in several petitions were whether the winding up proceedings can be transferred to NCLT after the winding up petition is admitted or after the High court has passed a winding up order. This controversy was finally out to rest by the Apex Court. The ratio of the judgement is set out below: In a winding up proceeding where the petition has not been served in terms of rule 26 of the Companies (Court) Rules, 1959 at a preadmission stage, given the beneficial result of the application of the Code, such winding up proceeding is compulsorily transferable to the NCLT to be resolved under the Code. Even post issue of notice and pre admission, the same result would ensue. However, post admission of a winding up petition and after the assets of the company sought to be wound up become in custodia legis and are taken over by the Company Liquidator, sec 290 of the Companies Act, 2013 would indicate that the Company Liquidator may carry on the business of the company, so far as may be necessary, for the beneficial winding up of the company, and may even sell the company as a going concern. So long as no actual sales of the immovable or movable properties have taken place, nothing irreversible is done which would warrant a Company Court staying its hands on a transfer application made to it by a creditor or any party to the proceedings. It is only where the winding up proceedings have reached a stage where it would be irreversible, making it impossible to set the clock back that the Company Court must proceed with the winding up, instead of transferring the proceedings to the NCLT to now be decided in accordance with the provisions of the Code. Whether this stage is reached would depend upon the facts and circumstances of each case. While analysing the previous judgement of transfer of pending proceedings the following observation were made by the court:

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Particulars “11. What becomes clear upon a reading of the three judgments of this Court is the following: (i) So far as transfer of winding up proceedings is concerned, the Code began tentatively by leaving proceedings relating to winding up of companies to be transferred to NCLT at a stage as may be prescribed by the Central Government. (ii) This was done by the Transfer Rules, 2016 (supra) which came into force with effect from 15.12.2016. Rules 5 and 6 referred to three types of proceedings. Only those proceedings which are at the stage of pre-service of notice of the winding up petition stand compulsorily transferred to the NCLT. (iii) The result therefore was that post notice and pre admission of winding up petitions, parallel proceedings would continue under both statutes, leading to a most unsatisfactory state of affairs. This led to the introduction of the 5th proviso to section 434(1)(c) which, as has been correctly pointed out in Kaledonia (supra), is not restricted to any particular stage of a winding up proceeding. (iv) Therefore, what follows as a matter of law is that even post admission of a winding up petition, and after the appointment of a Company Liquidator to take over the assets of a company sought to be wound up, discretion is vested in the Company Court to transfer such petition to the NCLT. The question that arises before us in this case is how is such discretion to be exercised?”

3.2

TRANSFER OF PENDING PROCEEDINGS

3.2.1

Date for transfer of proceedings

Section 434 provides as under: “434. Transfer of certain pending proceedings (1) On such date as may be notified by the Central Government in this behalf ……. (2) The Central Government may make rules consistent with the provisions of this Act to ensure timely transfer of all matters, proceedings or cases pending before the Company Law Board or the courts, to the Tribunal under this section.” The Government has notified 1st June 2016 as the date from which all pending proceedings before CLB are to be transferred NCLT. Similar dates were notified for 3.7

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transfer of matter which are being dealt with by High Court after the other powers of NCLT (like merger, winding up etc.) were notified in December 2016. However, there are different guidelines provided as regards the manner in which the transferred proceedings will be dealt with. Proceedings transferred from High Court and CLB will be proceeded differently. This aspect is dealt with in detail in the succeeding pages. In case of BIFR, the proceedings will abate2. The Government is empowered to specify different dates for matters at different stages to enable smooth transition. Further, even after the remaining sections of the Companies Act, 2013 are notified, the Central Government in exercise of its power has not transferred certain cases of involuntary winding up and other cases of voluntary winding up that were pending in High Court. The details are set out in the succeeding paragraphs. These case continue before the existing forum i.e. High Courts.

3.2.2

Continuance of proceedings before existing forums

“465. Repeal of certain enactments and savings. (1) The Companies Act, 1956 and the Registration of Companies (Sikkim) Act, 1961 (hereafter in this section referred to as the repealed enactments) shall stand repealed: Provided that the provisions of Part IX A of the Companies Act, 1956 shall be applicable mutatis mutandis to a Producer Company in a manner as if the Companies Act, 1956 has not been repealed until a special Act is enacted for Producer Companies: Provided further that until a date is notified by the Central Government under Section 434(1) for transfer of all matters, proceedings or cases to the Tribunal, the provisions of the Companies Act, 1956 in regard to the jurisdiction, powers, authority and functions of the Board of Company Law Administration and court shall continue to apply as if the Companies Act, 1956 has not been repealed: Provided [further that also that provisions of the Companies Act, 1956 referred in the notification issued under section 67 of the Limited Liability Partnership Act, 2008 shall, until the relevant notification under such section applying relevant corresponding provisions of this Act to limited liability partnerships is issued, continue to apply as if the Companies Act, 1956 has not been repealed……..” The Central Government has notified what all matters will get transferred, from which date and, what all matters will not get transferred.

2

3.8

Abatement means the act of elimination or nullifying.

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Even after the Act is notified, the Central Government has decided to leave certain proceedings pending before the High Court. However, in case of Company Law Board, all the proceedings were transferred. To clear any doubt about the implied repeal of the jurisdiction, powers, authority and functions of the High Court under Companies Act, 1956 after the notification of Companies Act, 2013, the Central Government has issued a removal of difficulties order expressly confirming their rights and powers under the Companies Act, 1956. They can continue to deal with the cases pending before them, until the cases are concluded or until a date is notified by the Central Government (if it chooses to transfer these proceeding to NCLT at a later date).

3.3

PENDING HIGH COURT PROCEEDINGS

The impact of the Companies Act, 2013 on existing proceedings before the High Court is provided in sec 434 of the Companies Act, 2013. “Section 434. Transfer of Certain Pending Proceedings. (1) On such date as may be notified by the Central Government in this behalf: ….. (c) all proceedings under the Companies Act, 1956, including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending immediately before such date before any District Court or High Court, shall stand transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before their transfer….” This provision is amended and substituted by the new sec 434 provided in clause 34 of the Eleventh Schedule of Insolvency and Bankruptcy Code which amends certain provisions of Companies Act, 2013: “434. Transfer of certain pending proceedings (c) all proceedings under the Companies Act, 1956 (1 of 1956), including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending immediately before such date before any District Court or High Court, shall stand transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before their transfer: Provided that only such proceedings relating to the winding up of companies shall be transferred to the Tribunal that are at a stage as may be prescribed by the Central Government.”(emphasis supplied) By Companies (Removal of Difficulties) Fourth Order, 2016 (which came into force with effect from the 15th December, 2016) sec 434 was amended. In section 434 subsec (1), in clause (c), after the proviso, the following provisos shall be inserted, namely:-

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“Provided further that only such proceedings relating to cases other than winding-up, for which orders for allowing or otherwise of the proceedings are not reserved by the High Courts shall be transferred to the Tribunal: Provided also that – (i) all proceedings under the Companies Act, 1956 other than the cases relating to winding up of companies that are reserved for orders for allowing or otherwise such proceedings; or (ii) the proceedings relating to winding up of companies which have not been transferred from the High Courts; shall be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959”. Under the Companies (Transfer of Pending Proceedings) Rules, 2016 that were issued in December 2016, the provision set out herein below was provided for transfer of High Court powers. These provisions shall come into force with effect from 15th December, 2016, except rule 4, which shall come into force from 1st April, 2017. “3. Transfer of pending proceedings relating to cases other than Winding up All proceedings under the Act, including proceedings relating to arbitration, compromise, arrangements and reconstruction, other than proceedings relating to winding up on the date of coming into force of these rules shall stand transferred to the Benches of the Tribunal exercising respective territorial jurisdiction: Provided that all those proceedings which are reserved for orders for allowing or otherwise of such proceedings shall not be transferred. 4. Pending proceeding relating to voluntary winding up All proceedings relating to voluntary winding up of a company where notice of the resolution by advertisement has been given under sub-section (1) of section 485 of the Act but the company has not been dissolved before the 1st day of April, 2017 shall continue to be dealt with in accordance with provisions of the Act.'. 5. Transfer of pending proceedings of Winding up on the ground of inability to pay debts (1) All petitions relating to winding up under clause (e) of section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub-section (4) of section 419 of the Act, exercising territorial jurisdiction and such petitions shall be treated as applications under sections 7, 8 or 9 of the Code, as the case may be, and dealt with in accordance with Part II of the 3.10

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Code: Provided that the petitioner shall submit all information, other than information forming part of the records transferred in accordance with Rule 7, required for admission of the petition under sections 7, 8 or 9 of the Code, as the case may be, including details of the proposed insolvency professional to the Tribunal within six months3 from date of this notification, failing which the petition shall abate. (2) All cases where opinion has been forwarded by Board for Industrial and Financial Reconstruction, for winding up of a company to a High Court and where no appeal is pending, the proceedings for winding up initiated under the Act, pursuant to section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 shall continue to be dealt with by such High Court in accordance with the provisions of the Act. 6. Transfer of pending proceedings of Winding up matters on the grounds other than inability to pay debts All petitions filed under clauses (a) and (f) of section 433 of the Companies Act, 1956 pending before a High Court and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal exercising territorial jurisdiction and such petitions shall be treated as petitions under the provisions of the Companies Act, 2013 (18 of 2013)” By Companies (Transfer of Pending Proceedings) Second Amendment Rules, 2017, with effect from 16th June, 2017, the following rules will be effective namely:“5. Transfer of pending proceedings of Winding up on the ground of inability to pay debts (1) All petitions relating to winding up of a company under clause (e) of section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and, where the petition has not been served on the respondent under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub-section (4) of section 419 of the Companies Act, 2013 exercising territorial jurisdiction to be dealt with in accordance with Part II of the Code: Provided that the petitioner shall submit all information, other than information forming part of the records transferred in accordance with rule 7, required for admission of the petition under sections 7, 8 or 9 of the Code, as the case may be, including details of the proposed insolvency professional to the Tribunal upto 15th day of July, 2017, failing which the petition shall stand abated: 3

Companies (Transfer of Pending Proceedings) Amendment Rules, 2017 changed rule 5 where the words “sixty days” were replaced by “six months”.

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Provided further that any party or parties to the petitions shall, after the 1st day of July, 2017, be eligible to file fresh applications under sections 7 or 8 or 9 of the Code, as the case may be, in accordance with the provisions of the Code: Provided also that where a petition relating to winding up of a company is not transferred to the Tribunal under this rule and remains in the High Court and where there is another petition under clause (e) of section 433 of the Act for winding up against the same company pending as on 15th December, 2016, such other petition shall not be transferred to the Tribunal, even if the petition has not been served on the respondent.". In case of matters that are pending before the High Court on the notified date, there is a specific direction that the Tribunal may deal with such matters from the stage before their transfer. The impact of this provision on different types of cases that are pending in the High Court are given in the following paragraphs.

3.3.1

Corporate restructuring cases

Section 434 read with rules, is applicable in the cases of compromise and arrangement. It also includes the term reconstruction. Thus, it will apply even to an application for reduction of capital that is pending before the High Court. However, the law on these provisions has changed and thus, the implementation of this provision on these proceedings is analysed herein below.

3.3.1.1 Compromise and arrangements In case of compromise and arrangement, under the Companies Act, 1956, there are two stages in the High Court. In the first stage in High Court, a company used to file a Company Summons for Direction (CSD). This was the stage where the company sought directions from the court for holding meetings of different classes of members and creditors. In certain cases, the company requested for dispensation of meetings. After the CSD was decided, the companies involved in the merger used to hold meetings, if the High Court had ordered it. After the meetings, chairman’s report was filed. Then the company proceeded with filing of Company Scheme Petition (CSP). If in the CSD, meetings were dispensed with, then, immediately after disposal of the CSD, the Company Scheme Petition (CSP) was filed. In the second stage, after the CSD is disposed, the company used to file a Company Scheme Petition (CSP). The CSP was heard by the High Court in two stages. In the first stage, the CSP was admitted, if the High Court prima facie found everything in order. On such admission, directions were given to the concerned authorities informing them about the scheme and their objections were sought. The Official Liquidator (wherever it was applicable) and Regional Director would file their reports with the High Court. They 3.12

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would inform the Court about their observations/objections/opinions. Further, matter was also advertised and objections were sought from interested parties. In the second stage, the matter was placed for final hearing before the High Court. After hearing the representation of companies and of other persons objecting to the scheme, if any, and analysing the reports of authorities, the High Court would decide whether to sanction the scheme after considering where the scheme was fair. Merger procedure in the transition stage As the Tribunal is formed and the provisions of compromise and arrangements are notified, the transition has already taken place and pending matters are being heard and decide by Tribunals. Matters pending in more than one High Court have gone to one NCLT as it has jurisdiction over several states. The transition has taken place in the following manner unless the Government has by notification provided otherwise: (a) All the provisions of the Companies Act, 2013 are applicable to the merger and must be complied with from the stage from which the new provisions become applicable. For instance, even in old Company Scheme Petitions, Tribunals have insisted for auditor certification of accounting standards as a condition precedent to approval of scheme. (b) The Companies Act, 2013 does not provide for any concessions or exemptions for complying with the procedure for mergers which are filed before the date of notification of the sections. For instance, even in Transferred Company Summons for Directions, The Tribunal is insisting on holding of meeting (NCLT, Mumbai) and dispensation from calling shareholder’s meeting is not granted. (c) If a CSD is filed, then hearing of the said application will take place before the NCLT. Under the Companies Act, 1956, dispensation could be sought even for holding creditor meeting. If the said dispensation is sought under CSD and the matter moves to NCLT before the decision is taken by High Court, then in that event, the dispensation for creditors’ meeting cannot be taken unless 95% in value of the creditors have consented. The Companies Act, 2013 has expanded the type of arrangements for which the meetings have to be called. One view was taken that in such cases, parties will have to file another application for holding the meeting or may have to amend the existing CSD. However, the Tribunals are not insisting on filing a new Notice of Motion for Directions but are giving order on the Application as filed in the High Court. (d) If a CSD is decided, then the concerned company can file a CSP in the NCLT having jurisdiction over the registered office of the company. There is a High Court for every state; however, this is not true for NCLT. Thus, the proceedings will have to be continued in the NCLT which has jurisdiction over the state where the registered office is situated. For instance, merger 3.13

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matters that were filed in High Court of Madhya Pradesh have been transferred to NCLT, Ahmedabad. Observation Sections 465(2)(a) and (b) provide that orders that are passed (in this case by High Courts) will be deemed to be orders passed under the new Act irrespective of whether or not they are consistent with provisions of the new Act. Thus, the orders that are already passed in the High Court will not be reopened. They will be deemed to be passed under the new Act and the rest of the proceedings will be continued in light of the new Act. (e) If the CSP is filed, then the NCLT will hear and pass the order for admission. Under the Companies Act, 1956, the notice is required to be given to limited authorities. The Companies Act, 2013 has increased the number of authorities that are to be intimated. Further, the disclosures under the New Act have also increased. The authorities will need to adhere to new timelines and if their objections are not received within 30 days, they will be deemed to have approved the scheme. The Act does not provide any guideline on these compliances but it seems that the Tribunal will provide the same. (f) The parties will adhere to the new disclosure norms, new formats, and new compliances under the new Act from the stage of transition.

Erstwhile Grey areas and Answers When the provision were newly introduced several questions had arisen which has no answer. Based on empirical evidence, following are the answers to these grey areas: Question 1: The Companies Act, 2013 has changed the procedures and disclosures. For instance, the notice to authorities has to be sent at the time when dispensation of meetings is sought. Under the Companies Act, 1956, sending notices came at CSP admission stage whereas under the new Act it is contemplated at an earlier date before the meeting of members and creditors are called for. When are these notices to be sent in case of the matters that are transferred and to which authorities are they to be sent? Answer: The NCLT did order compliance with the provisions of sending notices before the matter was taken up for final hearing. Question 2: Companies Act, 2013 does not require reports from Official Liquidator and Regional Director but the Companies Act, 1956 required such reports. Will these reports be called for in case of old matters that are transferred from the High Court? Does NCLT have power to call for such report?

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Answer: The NCLT still given time and consider the reports provided by Official Liquidator and Regional Director. This procedure has not been dispensed with. Question 3: New Act does not allow seeking dispensation. If in a merger of holding and subsidiary company, the holding company has taken dispensation from filing CSD as well as CSP in accordance with the Mahaamba Judgement4. Then, can NCLT continue to pass judgments only on the basis of the petitions filed by the subsidiary companies for sanctioning of the scheme? Answer: Different NCLT benches have taken different views as regards compliances in case of merger of wholly owned subsidiary with its holding company and dispensation of meeting of shareholders and creditors.

3.3.1.2 Reduction of capital cases Under the Companies Act, 1956, a petition for reduction of capital is to be filed alongwith Company Summons for Direction (CSD) in the High Court. The CSD is heard first. The Hon’ble Judge decides whether it is a fit case for dispensation of procedure under sec 101(2) of the Companies Act, 1956. If yes, then the formalities for settlement of list of creditors and giving notices of hearing to the creditors has to be complied with. Once, the procedure under the CSD is completed, the Company Scheme Petition (CSP) is taken up for hearing. Like a merger, it goes through two stages. In the first stage, the CSP is admitted and directions are passed by the Hon’ble Court including directions for advertisements. In the second stage, the Court places the matters for hearing. It hears the objections if any, against the reduction. If the reduction is found to be in order, an order is passed for reduction alongwith an order to publish the order of reduction and other formalities. Under the Companies Act, 2013, there is a change in the procedure and requirement. For instance, notices are to be served on authorities and auditor’s certificate is required. Thus, if under the old Act, only the CSD and CSP is filed and no order was passed, the petition and summons may require to be amended. If the CSD stage was already completed, then in that event, considering the provisions of the new Act, the company can move ahead with the CSP. If additional documents are required or additional details are required, then they may be filed by way of an additional affidavit. If the CSP admission stage was not completed, then in that event the Tribunal may direct the company to give notices to the statutory authority at the time of CSP admission stage (first stage of CSP). The authorities have been given a fixed time period within which they have a right to object. If the matter 4

Mahaamba Investment Limited v IDI Limited (2001) 105 CompCase 16 wherein it is held that if a scheme by way of transfer of undertaking does not affect the rights of the members or creditors of the transferee-company, as between themselves and the company, or does not involve a reorganisation of the share capital of the transferee-company, no application by the transfereecompany under s 391 or s 394 of 1956 Act would be necessary.

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was already admitted in the High Court, then it is likely to go for final hearing before the Tribunal, and in that event as per the mandate, the Tribunal is empowered to hear the objections and pass an order. Under the order, the New Act does not specifically require the word “and reduced” to be inserted. However, the Tribunal has been given power to ensure that the interest of the creditors is protected. With this view, the Tribunal may, at its discretion, require some additional formalities to be completed as per the Companies Act, 2013 before the reduction of capital order is finalized.

3.3.2

Pending winding up proceedings

Petitions under section 433(e) for inability to pay debts Cases filed under sec 433(e) of Companies Act, 1956 where the petition is not served on the respondents under rule 26 of Companies (Court) Rules, 1959 shall be transferred and be considered as an application under sec 7, 8 or 9 of the IBC. The relevant extract of rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016 reads as under: “5. Transfer of pending proceedings of Winding up on the ground of inability to pay debts.— (1) All petitions relating to winding up under clause (e) of section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub-section (4) of section 419 of the Act, exercising territorial jurisdiction and such petitions shall be treated as applications under sections 7, 8 or 9 of the Code, as the case may be, and dealt with in accordance with Part II of the Code: Provided that the petitioner shall submit all information, other than information forming part of the records transferred in accordance with Rule 7, required for admission of the petition under sections 7, 8 or 9 of the Code, as the case may be, including details of the proposed insolvency professional to the Tribunal within sixty days from date of this notification, failing which the petition shall abate. (2) All cases where opinion has been forwarded by Board for Industrial and Financial Reconstruction, for winding up of a company to a High Court and where no appeal is pending, the proceedings for winding up initiated under the Act, pursuant to section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 shall continue to be dealt with by such High Court in accordance with the provisions of the Act.” By Companies (Transfer of Pending Proceedings) Amendment Rules, 2017. Rule 5, in sub-rule (1) in the proviso for the words “sixty days” the words “six months” was

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substituted. By Companies (Transfer of Pending Proceedings) Second Amendment Rules, 2017, rule 5 is substituted with effect from 16th June 2017. "5. Transfer of pending proceedings of Winding up on the ground of inability to pay debts.(1) All petitions relating to winding up of a company under clause (e) of section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and, where the petition has not been served on the respondent under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub-section (4) of section 419 of the Companies Act, 2013 exercising territorial jurisdiction to be dealt with in accordance with Part II of the Code: Provided that the petitioner shall submit all information, other than information forming part of the records transferred in accordance with rule 7, required for admission of the petition under sections 7, 8 or 9 of the Code, as the case may be, including details of the proposed insolvency professional to the Tribunal upto 15th day of July, 2017, failing which the petition shall stand abated: Provided further that any party or parties to the petitions shall, after the 15th day of July, 2017, be eligible to file fresh applications under sections 7 or 8 or 9 of the Code, as the case may be, in accordance with the provisions of the Code: Provided also that where a petition relating to winding up of a company is not transferred to the Tribunal under this rule and remains in the High Court and where there is another petition under clause (e) of section 433 of the Act for winding up against the same company pending as on 15th December, 2016, such other petition shall not be transferred to the Tribunal, even if the petition has not been served on the respondent." Transfer of pending proceedings of Winding up matters on the grounds other than inability to pay debts All petitions filed under clauses (a) and (f) of sec 433 of the Companies Act, 1956 pending before a High Court and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal exercising territorial jurisdiction and such petitions shall be treated as petitions under the provisions of the Companies Act, 2013 (18 of 2013). [Rule 6 of Companies (Transfer of Pending Proceedings) Rules, 2016] The Companies (Transfer of Pending Proceedings) Rules, 2016 are silent about cases filed under provisions other than sections 433(a), (f) and (e) of Companies Act, 1956. However, Companies (Removal of Difficulties) Fourth Order, 2016 has amended sec 434 which now provides that “(ii) the proceedings relating to winding up of companies which have not been transferred from the High Courts; shall be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) 3.17

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Rules, 1959”. Thus, all these proceedings under other sub sections of sec 433 will continue to be dealt with by High Courts. Case 1: M/s. Sabari Inn Pvt. Ltd. v M/s. Rameesh Associates Pvt. Ltd. Company Appeal (AT) (Insolvency) No. 117 of 201“ dated 17 November 2017 [NCLAT/Nov 2017/sec.9] Issue: NCLT treated the application under sections 433 and 434 of the Companies Act, 1956 as an application under sec 9 of the IBC. The issue was whether sec 8 provisions need to be complied with for matters which are transferred from High Court. Held: NCLAT held that sec 8 procedure has to be complied with for the matters transferred from High Court. The appeal was allowed. NCLAT held that no notice under sec 8(1) of the IBC was issued in Form-3 or 4 prior to treating the application as a sec 9 petition under IBC. The application was also not filed in the proper format i.e. Form 5, as required under sec 9 of the IBC read with rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in terms of which details of record of default etc. are required to be provided. Reliance was placed on the Central Government notification G.S.R 1119 (E) dated 7th December, 2016 issued from the Ministry of Corporate Affairs. By the said notification, in exercise of the powers conferred under sec 434(1)(2) of the Companies Act, 2013 read with 239(1) of the IBC, the Central Government framed "The Companies (Transfer of Pending Proceedings) Rules, 2016". By virtue of Rule 5 it is clear that after transfer of a case, the Applicant (Respondent herein) was required to submit all information, other than information forming part of the records transferred from the High Court, for admission of the petition under sections 7, 8 or 9 of the IBC, including details of the proposed ‘Insolvency Professional’ within sixty days, failing which, the petition shall stand abated. Hence NCLAT accepted the appeal and set aside the order of admission of application under sec 9. Case 2: Allied Media Network Pvt. Ltd. v M/s Sunraa Media Ltd. Company Appeal (AT) (Insolvency) No. 226 of “017 [NCLAT/Oct 2017/IBC] Held: The winding up petition was transferred to NCLT pursuant to rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016. However, the same was abated as documents required under sec 9 were filed beyond the time limit i.e. 15.07.17. NCLAT upheld that NCLT order. However, it allowed the appellant to file a fresh application under the IBC. Pending voluntary winding up cases By Companies (Removal of Difficulties) Order, 2017 (29/7/2017) it is clarified that voluntary winding up cases which were initiated under the Companies Act, 1956 where notice of resolution of voluntary winding up has been published in accordance with section 485(1) of Companies Act, 1956 shall be continued to be dealt with by Companies Act, 1956 read with Company (Court) Rules, 1959.

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Transition to NCLT: Impact on existing cases

Impact of more than one winding up cases against a company Rule 5 as amended by Companies (Transfer of Pending Proceedings) Second Amendment Rules, 2017 provides that where a petition relating to winding up of a company is not transferred to the Tribunal under this rule and remains in the High Court and where there is another petition under clause (e) of sec 433 of the Act for winding up against the same company pending as on 15th December, 2016, such other petition shall not be transferred to the Tribunal, even if the petition has not been served on the respondent. To summarize the impact of the aforesaid discussion, the following cases will not be transferred: (a) All applications and petitions relating to Voluntary winding up cases in most cases. (b) All petitions file under sec 433(e) of Companies Act, 1956 where the petition is served on the Respondents under rule 26 of Companies (Court) Rules,1959, (c) All petitions filed under sec 433(a) and sec 433(f) of Companies Act, 1956 where the petition is served on the Respondents under rule 26 of Companies (Court) Rules,1959. (d) Cases filed for winding up under provisions other than sections 433(a), (f) and (e) of Companies Act, 1956 will continue to be dealt with by High Courts. (e) Winding up initiated by High Court on the recommendation of BIFR pursuant to sec 20 of SICA where no appeal is pending against this recommendation (This provision was deleted by Companies (Transfer of Pending Proceedings) Second Amendment Rules, 2017 in June 2017. However, in light of original rules issued in 2016, if the High Court has initiated the winding up process, in the view of the author the deletion of this rule will not affect the said proceeding.

3.3.2.1 What will be the status of pending cases? All petitions relating to winding up under sec 433(e) of the Act on the ground of inability to pay its debts pending before a High Court, and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sec 419(4) of the Act, exercising territorial jurisdiction and such petitions shall be treated as applications under sections 7, 8 or 9 of the Code, as the case may be, and dealt with in accordance with Part II of the Code. The petitioner must submit all information, other than information forming part of the records transferred in accordance with Rules, required for admission of the petition under sections 7, 8 or 9 of the Code, as the case may be, including details of the proposed insolvency professional to the Tribunal within six months, failing which the petition shall abate.

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3.3.2.2 Appeals against orders passed by the high court Section 303 provides: “Nothing in this Chapter shall affect the operation or enforcement of any order made by any Court in any proceedings for the winding up of a company immediately before the commencement of this Act and an appeal against such order shall be filed before such authority competent to hear such appeals before such commencement.” Thus, the order for winding up and other orders passed by the high courts in connection with winding up will be effective and operative even after the provisions of the Companies Act, 2013 for winding up come into operation. Appeal against such order will lie before the forum where they would otherwise lie. These appeals against orders of High Court will not go before NCLAT. Analysis of the Companies (Transfer of Pending Proceedings) Rules, 2016 as provided by Bombay High Court A single bench of Bombay High Court in Commissioner of Income Tax-8 v Registrar of Companies and Ors (Company Petition 643 of 2014) analysed the said provisions at length. The petition was filed under sec 560 and in the order dated 2nd May 2016, the Court analysed that the provision for transfer of this type of petition while analysing the powers of court with respect to transfer of pending proceedings. The court held as follows: “34. In my view, notification dated 7th December, 2016 issued by the Central Government by exercising powers conferred under Sections 434(1) and 434(2) of the Companies Act, 2013 thereby prescribing the Rules called as the Companies (Transfer of Pending Proceedings) Rules, 2016 will have to be read with substantial provisions of section 434(1)(2) of the Companies Act, 2013. The Court has to also consider the purpose, objects and intent of the legislature while enacting an Act. The purpose and intent of enacting the Companies Act, 2013 was to consolidate and to amend the laws relating to companies for last 100 years in this Country. Before the enactment of the Companies Act, 2013, the subject like rectification of Register of Members, claim of compromise and arrangement, reconstruction of sick industrial Company, oppression and mismanagement and winding up was provided under different statute and were executed through different Forum such as High Court, Company law board, BIFR etc. The legislature itself thought it necessary to enact the Companies Act, 2013 and the Insolvency and Bankruptcy Act, 2016 to consolidate the Companies Law Administration and Insolvency proceedings against certain parties before a separate body constituted viz. The National Company Law Tribunal and National Law Appellate Tribunal under one roof. 35. In my view, there is no discretion provided to the Court by the 3.20

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legislature insofar as the transfer of the pending proceedings is concerned. The said rules provide for a mandate for transfer of the proceedings subject to an exception provided in proviso to Rule 3. In my view the expression "or otherwise" will have to be read in the context of the conclusion of hearing of the proceedings where the orders were reserved for allowing or for any other purpose to prevent any delay and prejudice to the rights of the parties to the proceedings. Section 434 (1)(c) clearly provides that such proceedings upon transfer will have to be thus heard from the stage before their transfer. 36. Insofar as winding up proceedings are concerned, transfer of such proceedings are separately provided under Rules 4 and 5 of the Companies (Transfer and Pending Proceedings) Rules, 2016. In respect of such winding up proceedings, second proviso to 434(1)(c) makes it clear that only such proceedings shall be transferred to Tribunal that are at a stage as may be prescribed by the Central Government. Rule 5 of the said Companies (Transfer of Pending Proceedings) Rules, 2016 provides for transfer of such winding up of proceedings on the ground of inability to pay debts. 37. Rule 5 of the said Companies (Transfer of Pending Proceedings) Rules, 2016 has been recently construed by this Court in the case of West Hills Reality Private Limited vs. Neelkamal Realtors Tower Pvt. Ltd. in Company Petition No.331 of 2016 in the Judgment pronounced on 23rd December, 2016. This Court after considering various notifications issued by the Central Government which are referred to aforesaid, has held that those petitions which are admitted and where notice of petition was not served on the respondent pursuant to the order of admission, will stand transferred to the NCLT and will be taken up for admission once again to require the petitioners in those petitions to furnish information for admission of the petitions under section 7, 8 or 9, of the Insolvency and Bankruptcy Act, 2016. 38. It is held that for winding up of Company under Section 433(e) of the Companies Act, 1956 which is pending before the High Court and which is not served by the petitioner on the respondent Company on or before 15th December, 2016 shall stand transferred to the NCLT under Rule 5 of the said Company (Transfer of Pending Proceedings) Rules, 2016. If such pending petition is served by the petitioner on the respondent before such date, the petition will continue to be dealt with by this Court and the applicable provisions will be provisions of the companies Act, 1956. The said judgment dated 23rd December, 2016 is further clarified by this Court by an order dated 17th January, 2017 by this Court. It is clarified that the sine qua non for transfer of a winding up petition to the NCLT under the Companies (Transfer of Pending Proceedings) Rules, 2016, is non-service of a pending petition. It is clarified that as for the service of 3.21

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the petition, it is not necessary that the service must be effected only in pursuance of an acceptance order. Any service effected on his own by the petitioner on the respondents is equivalent to the service under Rule 26. The petition in that case is not liable to be transferred to NCLT. 39. In my view, it is thus clear that insofar as the winding up proceedings are concerned, the pending proceedings as on 15 December, 2016 in High Court shall stand transferred to the NCLT or not depend upon the effect of service under Rule 26 of the Companies (Court) Rules, 1959 or not whereas the criteria for transfer of all other proceedings including proceedings under Section 560 of the Companies Act, 1956 is different and transfer thereof is based on and is depending upon the condition whether hearing in such matters is concluded and the proceedings are reserved for orders for allowing or not. In my view, there is no discretion left in the hands of the Court to not to transfer such proceedings to the NCLT on the ground that it would be more convenient or that in the interest of justice the proceedings shall be heard by this Court, though the hearing is not concluded and proceedings are not reserved for order for allowing or not. 43. Be that as it may, the provisions of the Companies Act, 2013 read with various notifications issued by the Central Government including the said Rules, makes it clear that in case the proceedings other than the winding up of the proceedings which were pending in the High Court on 15th December, 2016 stood transferred unless the hearing in those proceedings are concluded and the proceedings were reserved for orders for allowing or not.”

3.4

PENDING COMPANY LAW BOARD PROCEEDINGS

Section 434 read with rule 64 of NCLT Rules provide the law and process of transition from CLB to NCLT. Section 434 reads as follows: “(1) On such date as may be notified by the Central Government in this behalf— (a) all matters, proceedings or cases pending before the Board of Company Law Administration (herein in this section referred to as the Company Law Board) constituted under sub-section (1) of section 10E of the Companies Act, 1956, immediately before such date shall stand transferred to the Tribunal and the Tribunal shall dispose of such matters, proceedings or cases in accordance with the provisions of this Act; (b) any person aggrieved by any decision or order of the Company Law Board made before such date may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the 3.22

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Transition to NCLT: Impact on existing cases

Company Law Board to him on any question of law arising out of such order: Provided that the High Court may if it is satisfied that the appellant was prevented by sufficient cause from filing an appeal within the said period, allow it to be filed within a further period not exceeding sixty days …” Rule 64 of NCLT Rules provides as follows: “64. Matters earlier dealt by the Company Law Board: 1. Notwithstanding anything contained in any other law for the time being in force, , an original civil action or case arising out of the Act, or any other corresponding provision of the Companies Act, 1956 or Reserve Bank of India Act, 1934 is filed or pending before the Company Law Board on the date on which the Tribunal is constituted, and the relevant provisions of the Act, dealing with the Tribunal have been given effect, or the Company Law Board has been dissolved in pursuance of the provisions of the Act, then all the cases on such date pending with the Company Law Board or such Benches shall stand transferred to the respective benches of the Tribunal exercising corresponding territorial jurisdiction as if the case had been originally filed in the Tribunal or its Bench to which it is transferred on the date upon which it was actually filed in the Company Law Board or its Bench from which it was transferred: Provided that the Tribunal shall consider any action taken under the regulations of the Company Law Board as deemed to have been taken or done under the corresponding provisions of these rules and the provisions of the Act, and shall thereupon continue the proceedings, except in a case where the order is reserved by the Company Law Board or its Bench and in such a case, the Tribunal shall reopen the matter and rehear the case as if the hearing had not taken place: Provided further that the Tribunal is at liberty to call upon the parties in a case to produce further evidence or such other information or document or paper or adduce or record further depositions or evidence as may deem fit and proper in the interest of justice. 2. It shall be lawful for the President or such member (s) to whom the powers are so delegated, to provide that matters falling under all other sections of the Act, shall be dealt with any such Benches consisting of one or more members as may be constituted in exercising of such power as enshrined in the Act, Provided that matters pending before the Principal Bench of the Company Law Board as on the date of constitution of Tribunal shall continue and be disposed of by a bench consisting of not less than two members of the Tribunal having territorial jurisdiction

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3. It shall be lawful for the Tribunal to dispose of any case transferred to it wherever the Tribunal decides that further continuance of such application or petition transferred before the Tribunal shall be a an unnecessary proceeding on account of changes which have taken place in the Act either upon an application filed by either of the parties to the proceedings or suo motu. 4. A fresh petition or an application may also be filed in the Form NCLT 1 corresponding to those provisions of the Act, if both the parties thereto so consent with the approval of the Tribunal while withdrawing the proceedings as already continued before the Company Law Board and serve a copy of the petition on the parties thereto including the Central Government, Regional Director, Registrar of Companies, Official Liquidator or Serious Fraud Investigation Office, as the case may be, as provided in the Act, in the manner as provided under Part III. 5. Upon an application to the Tribunal if the permission is granted to file a petition or an application in physical form, then the same shall be filed accompanied with the documents or papers to be attached thereto as required to prove the case subject to the provisions of the Act, and rules hereto. 6. The same procedure shall also apply to other parties to application or petition for filing reply or counter thereto. 7. Notwithstanding the above and subject to section 434 of the Act, the Tribunal may prescribe the rules relating to numbering of cases and other procedures to be followed in the case of transfer of such matters, proceedings or cases.” The matters pending before the CLB on notified date will be transferred. The Tribunal is required to dispose of such matters in accordance with the provisions of the law. Unlike in case of high court proceedings, there is no specific provision that the Tribunal can take up the proceeding at the stage where it was left. Thus, one possible interpretation may be that the Tribunal may start the proceedings afresh, even if the matter was at the final stage before CLB. However, the rule provides some guidelines in this regard.

3.4.1

Challenge against orders of CLB

Section 434(1)(b) provides as follows: “(b) any person aggrieved by any decision or order of the Company Law Board made before such date may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order: Provided that the High Court may if it is satisfied that the appellant was prevented by sufficient cause from filing an appeal within the said period, allow it to be filed within a further period not exceeding sixty days;” 3.24

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Transition to NCLT: Impact on existing cases

The Act provides a clear answer to that. The order of CLB will be challenged before the concerned High Court that has jurisdiction. The time period for such appeal is also provided. In Prag Bosini Synthetics Limited v 3A Capital Limited (NCLAT order 11/7/2016), NCLAT dismissed an appeal filed against an order of CLB holding that High Court was the appropriate authority.

3.4.2

Status of existing interim orders

Section 465(2)(a) read with sec 465(2)(b) provide that an order passed under the Companies Act, 1956 will be deemed as if it were passed under the corresponding provision of the Companies Act, 2013. Thus, for instance, if the order is passed by the CLB under sections 397 and 398 of the Companies Act, 1956, it will be deemed that it was passed under sec 241. However, if such order cannot be passed under the Companies Act, 2013, as there is no corresponding provision, it will be deemed that it was passed under the Companies Act, 2013 (Sections 465(2)(a) & 465(2)(b)).

3.5

PENDING BIFR/AAIFR PROCEEDINGS

By way of notifications dated November 25, 2016 (“Repeal Notifications”), the Ministry of Finance appointed December 1, 2016 as the date on which the provisions of Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (“SICA Repeal Act”) shall come into effect and sec 4(b) of the SICA Repeal Act shall be enforced. With the effectiveness of the SICA Repeal Act, the Sick Industrial Companies (Special Provisions) Act, 1985 (“SICA”) has been repealed. Further the Board for Industrial and Financial Reconstruction (“BIFR”) and the Appellate Authority for Industrial and Financial Reconstruction (“AAIFR”) has been dissolved. Section 4(b) of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 as amended by Insolvency and Bankruptcy Code provides that all the cases pending in BIFR and AAIFR stand abated. The provision of 4(b) as amended by The Eighth Schedule of IBC reads as follows: “(b) On such date as may be notified by the Central Government in this behalf, any appeal preferred to the Appellate Authority or any reference made or inquiry pending to or before the Board or any proceeding of whatever nature pending before the Appellate Authority or the Board under the Sick Industrial Companies (Special Provisions) Act,1985 (1 of 1986) shall stand abated: Provided that a company in respect of which such appeal or reference or inquiry stands abated under this clause may make reference to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 within one hundred and eighty days from the commencement of the Insolvency and Bankruptcy Code, 2016 in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016: Provided further that no fees shall be payable for making such reference under Insolvency and Bankruptcy Code, 2016 by a company whose appeal or reference or inquiry stands abated under this clause.". 3.25

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Thus, all cases before BIFR & AAIFR will abate with effect from 1st December 2016. Section 465 read with sec 434 provide the law and effect of the Companies Act, 2013 on BIFR proceeding. Section 434 is amended by cl 34 of the Eleventh Schedule of Insolvency and Bankruptcy Code which amends certain provisions of Companies Act, 2013. By virtue of the said provision, this clause pertaining to BIFR/AAIFR i.e. sec 434(d) is deleted. However, the same is provided herein below for academic purposes: Section 434(d) (now omitted) read as follows: “(1) On such date as may be notified by the Central Government in this behalf — ………(d) any appeal preferred to the Appellate Authority for Industrial and Financial Reconstruction or any reference made or inquiry pending to or before the Board of Industrial and Financial Reconstruction or any proceeding of whatever nature pending before the Appellate Authority for Industrial and Financial Reconstruction or the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985 immediately before the commencement of this Act shall stand abated: Provided that a company in respect of which such appeal or reference or inquiry stands abated under this clause may make a reference to the Tribunal under this Act within one hundred and eighty days from the commencement of this Act in accordance with the provisions of this Act: Provided further that no fees shall be payable for making such reference under this Act by a company whose appeal or reference or inquiry stands abated under this clause….” The protection that many companies enjoyed under BIFR was lost on the date the provisions were notified by the Central Government. The companies who were vigilant had to take necessary steps on the notified date, to apply afresh to NCLT for seeking protection. There was no protection or safeguarded provided during the transitory period when the proceedings with the BIFR will abate and before NCLT passes orders on the fresh applications filed by the sick (insolvent) companies. Protection under sections 465(2)(a) and 465(2)(b) was not applicable to this and interim orders passed under SICA as it is not a repealed enactment under sec 465. Thus, after the BIFR cases abate, the companies were open to face actions filed or continued by creditors. Many companies against whose BIFR proceedings abated had faced an avalanche of cases from creditors after the BIFR process abated. Impact on Scheme Approved by BIFR: By Insolvency and Bankruptcy Code (Removal of Difficulties) Order, 2017 issued on 24th May 2017, the MCA has clarified that schemes sanctioned by BIFR continue to be effective and operations: The operative part of the order reads as under:

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Transition to NCLT: Impact on existing cases

“In the Insolvency and Bankruptcy Code, 2016, in the Eighth Schedule, relating to amendment to the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, in section 4, in clause (b), after the second proviso, the following provisos shall be inserted, namely:— “Provided also that any scheme sanctioned under sub-section (4) or any scheme under implementation under sub-section (12) of section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 shall be deemed to be an approved resolution plan under sub-section (1) of section 31 of the Insolvency and Bankruptcy Code, 2016 and the same shall be dealt with, in accordance with the provisions of Part II of the said Code: Provided also that in case, the statutory period within which an appeal was allowed under the Sick Industrial Companies (Special Provisions) Act, 1985 against an order of the Board had not expired as on the date of notification of this Act, an appeal against any such deemed approved resolution plan may be preferred by any person before National Company Law Appellate Tribunal within ninety days from the date of publication of this order.” Impact on Winding up Initiated on recommendations of BIFR/AAIFR: The same has been dealt with above under the transition provisions relating to winding up.

3.6

PENDING INVESTIGATION PROCEEDINGS

Section 465 provides as under: “465(2)(j) any inspection, investigation or inquiry ordered to be done under the Companies Act, 1956 shall continue to be proceeded with as if such inspection, investigation or inquiry has been ordered under the corresponding provisions of this Act;” The investigation proceedings will continue. It states here that it will be deemed that the investigation is ordered under the Companies Act, 2013. Thus, it can be interpreted that inspectors will have all the powers including new powers that are vested with them under the Companies Act, 2013 for the purpose of investigation. However, if offences are discovered, the offences cannot be fined with imprisonment/fine under the Companies Act, 2013, if the penalty for the offence was lower at the time when the offence was committed. Case 1: The Apex Court in Bank of New York Mellon London Branch v Zenith Infotech Limited [CIVIL APPEAL NO.3055 OF 2017(Arising out of S.L.P.(C) No.1587 of 2015)] held that if there is any pending reference under sec 15 of SICA, then it would be open for the company to seek remedies under sec 252 read with sections 13, 14, 20 and 25 of the Insolvency and Bankruptcy Code.

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EXISTING INTERIM ORDERS

Section 465 provides some answer to this predicament. “(b) subject to the provisions of clause (a), any order, rule, notification, regulation, appointment, conveyance, mortgage, deed, document or agreement made, fee directed, resolution passed, direction given, proceeding taken, instrument executed or issued, or thing done under or in pursuance of any repealed enactment shall, if in force at the commencement of this Act, continue to be in force, and shall have effect as if made, directed, passed, given, taken, executed, issued or done under or in pursuance of this Act;” An interim order is an “order” which is passed under the Companies Act, 1956. Thus, the interim order that is passed under the Companies Act, 1956 will continue to be in force under the Companies Act, 2013.

3.8

FURTHER READING

(a) Maxwell's Interpretation of Statute, P. St. J. Langan; (b) Commentary on Repeal and Saving Clauses, Justice G. P Singh; (c) Principles of Statutory Interpretation, Wadhwa & Co., Eighth Edition 2002; (d) Section 6 of General Clauses Act and cases thereon.

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General powers of NCLT and NCLAT 4.1

INTRODUCTION

Under the Companies Act, 2013, NCLT has wide powers to deal with several matters. Powers from various authorities and judicial forums have been or are being transferred to NCLT (see Table “Power of NCLT: At a glance”). The basic intent is to create a single forum to deal with the entire gamut of corporate civil cases in an efficient and expeditious manner in accordance with the recommendations of Eradi Committee that were endorsed by several other committees, like JJ Irani Committee.

Amongst the powers that are conferred on NCLT, many powers were enjoyed by other erstwhile authorities. These powers have been removed from the purview of those authorities and brought into the purview of NCLT. However, the Companies Act, 2013 has not merely transferred the powers, role and functions of these other authorities but has also modified the powers of NCLT and the nature and scope of these powers. For instance, the laws on compromise and arrangement and the scope of powers of Tribunal have undergone a change. This book deals in detail with various powers of NCLT with respect to different subject matters. This chapter is confined to the general powers that are conferred on the Tribunals.

4.2

GENERAL POWERS UNDER THE ACT

The powers of NCLT are wider than that of the Company Law Board (CLB) and the Board of Industrial and Financial Reconstruction (BIFR). Only the broad overview of powers is discussed here. In every matter like class action, oppression and mismanagement, deregistration of incorporated company, NCLT has a unique set of powers for dealing with cases. These are discussed at relevant places wherein the particular remedy or issue is discussed. The general powers of NCLT and NLAT are mentioned below.

4.2.1

Power to determine procedure (Section 424)

The proceedings before NCLT shall be guided by the principles of natural justice. The Tribunal and the Appellate Tribunal shall have the power to regulate their own procedure. This power is however, subject to the Companies Act, 2013 and the rules. Thus, they can determine their own procedure and manner of functioning, within the 4.1

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scope of the powers conferred by the Act. Under the Companies Act, 1956, the CLB had its own procedure that was determined by the CLB Regulations. After the constitution of NCLT, these regulations will be notified.

4.2.2

Power to punish for contempt (Section 425)

Power to punish for contempt inter alia is the ability of the court to punish any person for wilful disobedience to any judgment, decree, direction, order or other process of a court or wilful breach of an undertaking given to the court. Even if a person breached a promise to the court, on the faith of which the court sanctions a course of action, it is construed as misconduct amounting to contempt of court. The Tribunal and Appellate Tribunal have the power to punish for contempt, which is similar to the power of the high court. CLB under the old Act did not have these powers. The Madras Bar association has challenged the constitutionality of conferring this power on these Tribunals. However, the Supreme Court has held that this is constitutional under the 2015 NCLT judgment. Gireesh Kumar Sanghi v Ravi Sanghi, [2019 SCC OnLine NCLAT 474] The NCLAT held that although the Tribunal and the Appellate Tribunal are empowered to punish a person for violation of their orders under the Contempt of Courts Act, 1971 no appeal is maintainable under sec 421 of the Companies Act, 2013 once the Tribunal exercises its power under the 1971 Act read with sec 425 of the Companies Act, 2013.

4.2.3

Powers of civil court (Section 424)

The Tribunal and the Appellate Tribunal have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit in respect of the following matters, namely: (a) summoning and enforcing the attendance of any person and examining him on oath. Thus, the Tribunal has been given necessary powers to summon witnesses and accused persons; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavits; (d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872, to requisition any public record or document or a copy of such record or document from any office. By this power, they can inter alia direct the ROC, RD, SEBI etc. to provide documents pertaining to the companies or any person in connection with any matter; (e) issuing commissions for the examination of witnesses or documents. For instance, the Tribunal can direct a person chosen by him to examine documents that are situated at the registered office or branch office to ascertain truth in any matter;

4.2

Chapter 4

General Powers of NCLT and NCLAT

(f) dismissing a representation for default or deciding it ex-parte. For instance, the Tribunals can dismiss a petition, if the petitioner fails to appear and the Tribunal feels that he is delaying the matter. Again, the petitioner can be heard in matters and decision can be passed without hearing the respondent, if the respondent fails to cooperate and fails to appear before the Tribunal when directed. However, such steps can be taken only after reasonable opportunity is given to the applicant/petitioner/respondent, as the case may be. This power will ensure that Tribunal is able to hear matters expeditiously as per the mandate under the Companies Act, 2013; (g) setting aside any order of dismissal of any representation for default or any order passed ex-parte. If a decision is passed ex-parte as the petitioner or respondent was not present, the said matter can be reopened if the person against whom such order is passed, applies to the Tribunal and shows sufficient cause to justify the setting aside of such order.; (h) any other matter which may be prescribed.

4.2.4

Powers of courts (Section 424)

All proceedings before the tribunal or the appellate tribunal shall be deemed to be judicial proceedings within the meaning of sections 193, 228 and 196 of the Indian Penal Code and the Tribunal and the Appellate Tribunal shall be deemed to be civil court for the purposes of sec 195 and Chapter XXVI of the Code of Criminal Procedure, 1973.

4.2.5

Execution of orders (Section 424)

Any order made by the tribunal or the appellate tribunal may be enforced by the Tribunal in the same manner as if it were a decree made by the court. It shall be lawful for the tribunal or the appellate tribunal to send its order for execution to the court within the local limits of whose jurisdiction, (a) In the case of an order against a company, the registered office of the company is situated; or (b) In the case of an order against any other person, the person concerned voluntarily resides or carries on business or personally works for gain.

4.2.6

Assistance of courts/authorities (Section 429)

Both the Tribunals can take assistance of the chief metropolitan magistrate, chief judicial magistrate or the district collector. The said request has to be made to the chief metropolitan magistrate, chief judicial magistrate or the district collector within whose jurisdiction any such property, books of account or other documents of such sick or other company, are situated or found. They can seek assistance for taking into custody or under its control all property, books of account or other documents of the company. 4.3

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Assistance can be sought only in the proceedings relating to a sick company or winding up of any company

4.2.7

Delegation of powers (Section 426)

The tribunal or the appellate tribunal may either by general or by special order direct, subject to certain conditions, if any, as may be specified in the order, any of its officers or employees or any other person authorised by it to inquire into any matter connected with any proceeding or as the case may be, appeal before it and to report to it in such manner as may be specified in the order. Only the power of inquiry can be delegated. The decision making power of both the Tribunals cannot be delegated. They can require an inquiry to be made. The Companies Act, 2013 has not limited the instances in which it can order an inquiry. Thus, for any matter that is before the Tribunal, an inquiry can be ordered. Further, the Tribunal can delegate this authority to any person including a chartered accountant, forensic auditor, chartered secretary, handwriting experts. For instance, if the matter is related to falsification of books of accounts, then in that event the Tribunal, to ascertain the truth may require an inquiry to be conducted by a forensic auditor. Thus, this power is a very wide one and the Tribunals have been given the freedom to exercise it in any matter before them.

4.3

GENERAL POWERS UNDER THE RULES

The draft rules has granted the following additional powers on the Tribunals

4.3.1

Adjournment of hearing

The Tribunals have to follow the principles of natural justice and Tribunal may grant adjournment(s) if it deems fit in the interest of justice. However, as the new Act has outlined time lines (which are directory and not mandatory in nature) the Tribunal may, in its wisdom restrict the number of adjournments it is willing to give.

4.3.2

General power to amend (Rule 155 of the NCLT Rules)

The Tribunal may, within a period of 30 days from the date of completion of pleadings, and on such terms as to costs or otherwise, as it may think fit, amend any defect or error in any proceeding before it and all necessary amendments shall be made for the purpose of determining the real question or issue raised by or dependent on such proceeding. Thus, if there are any defects in a petition or application, an application for rectification of the same may be filed. However, the opposite party may oppose the amendment and then the said application can be considered after hearing both the parties. Recourse can be taken to the principles/tests that were laid down under various cases for allowing amendments of pleadings under Code of Civil 4.4

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Procedure1. Under the draft NCLT rules that were issued in January 2016 it was envisaged that Tribunal could allow the amendment at any stage of the proceedings, if it is satisfied that there are good grounds for amendment. However, the notified NCLT rules provide a time line for making amendments.

4.3.3

Tribunal to be deemed to be a court

The Tribunal shall be deemed to be a court for limited purposes as set out in sec 424 namely for the purpose of sec 195 and Chapter XXVI of the Code of Criminal Procedure, 1973.

4.3.4

Power to dispense with the requirements of the rules

The Act and the rules provide exhaustive norms and procedure for all the matters that are dealt with. Rule 14 of the NCLT Rules provides that the Tribunal may on sufficient cause being shown, exempt the parties from compliance of any requirement of these rules and may give such directions in matter of practice and procedure, as it may consider just and expedient on the application moved in this behalf to render substantial justice. Thus, the Tribunal shall have power for reasons to be recorded in writing, to dispense with the requirements of any rules. The Tribunal can, in certain cases depending on the fact and circumstance of the case, dispense with certain requirements of the Act where the power to dispense is given by the NCLT rules. For instance, the power to dispense is envisaged with respect to the Act and rules pertaining to reduction of capital in the draft NCLT rules that were issued in January 2016. Thus, the reduction of capital which is a long procedure where the list of creditors has to be prepared and they have to be notified. If the company is able to provide consent of all creditors of the company, the Tribunal may consider dispensing with the requirements.

4.3.5

Saving of inherent powers of the Tribunal (Rule 11 of the NCLT Rules)

Rule 11 of the NCLT Rules provide that the Tribunal has inherent powers: “Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.” The power that is conferred by this Rule, is similar to the powers that were conferred under reg 44 of the CLB Regulations, 1991. Regulation 44 reads as under: “44. Saving of inherent power of the Bench - Nothing in these rules shall be deemed to limit or otherwise affect the inherent power of the Bench to

1

While strict procedures of CPC are not applicable, the principles laid down can be used in certain cases.

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make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Bench.” What are the inherent powers of the CLB and to what extent these powers extend can be a subject matter of many cases? Whether inherent powers can be invoked for passing interim order, if the Act does not give the said power expressly for the subject matter? Whether CLB has the power to recall the order? Whether it has power to vacate? Whether CLB has power to transfer the matter from one bench to another? The provision of dealing with inherent power of Tribunal also needs to be explored and old cases of CLB may prove to be useful in this regard. However, the powers will have to be read in a new light in view of the difference in the nature and power of NCLT. In Shaw Wallace and Co. Ltd. v Union of India (UOI) [MANU/WB/0376/1998 : 2CWN11 : (1999)ILR 2Cal429], the nature of this inherent power was discussed: “59. ….Since Section 408 vests the Central Government and not the Company Law Board with power to appoint additional Directors to the Board of the Company on the order of the Company Law Board to that effect, we are unable to accept Mr. Mitra's submissions that the Company Law Board was entitled to pass the impugned order in exercise of inherent powers. Even if, having regard to reg. 44 of the Company Law Board Regulations, 1991, the Company Law Board is vested with inherent powers to make such orders as may be required for the ends of justice or to prevent abuse of the process of the Board, such power cannot be exercised in excess of the powers flowing from the statute itself. Such power has to be exercised by the Board in aid of and not de hors the provisions of the Statute and, in any event, such exercise of power conferred by reg. 44 cannot override the provisions of the Statute.” Some of the case laws where the nature and scope of inherent powers were discussed are set out below. (a) Ram Chandra Singh v Savitri Devi - 2004-2-L. W. 70 - to show it is a fraud in law if a party makes representations, which he knows to be false. An act of fraud on court is always viewed seriously and vitiates all solemn acts. Any collusion or conspiracy with a view to deprive the rights of others in relation to a property would render the transaction void ab initio. (b) Indian Bank v Satyam Fibres (India) Pvt. Ltd. - (1996) 5 Supreme Court Cases 550 - to show that the courts possess inherent power under sec 151 of Civil Procedure Code, 1908 to recall its judgment or order, if it is obtained by fraud on them or where the courts are misled by a party. (c) Smt. Pushpa Katoch v Manu Maharani Hotels Ltd. - (2001) 34 SCL 298 - to show that the CLB would have the powers to review its own order in case the finding and the relief granted are based on fabricated or forged documents. 4.6

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(d) Smt. Gangabai v Ratankumar - AIR 1983 Bombay 291 - to show that apart from the provisions of sec 151 of CPC, every court has got inherent powers to correct its own mistakes. (e) The South India Insurance Co., Ltd. v Lakshmi - AIR 1967 MDS 464 - to show that the principle of sec 151 of CPC has an intrinsic application to all judicial or quasi-judicial tribunals. Therefore, all Tribunals have inherent power to apply the principles of natural justice. (f) Manohar Lal Chopra v Bahadur Rao Raja Seth Hiralal MANU/SC/0056/1961 : AIR 1962 SC 527 to show that the inherent power has not been conferred upon the court; it is a power inherent in the court by virtue of its duty to do justice between the parties before it. (g) Dadu Dayal Mahasabha v Sukhdev Arya - (1990) 1 Supreme Court Cases 189 - to show that the court by virtue of sec 151 of CPC, has inherent power to correct its own proceedings when it is satisfied that while passing a particular order, it was misled by one of the parties or fraud was practiced upon the court. (h) Konathala Sriramulu v Board of Revenue (C.T.) - AIR 1965 Andhra Pradesh 395 - to show that the court in exercise of its inherent jurisdiction derived from sec 151 of CPC, can set aside an order made by it contrary to the terms of a statute and judicial precedents. (i) United India Insurance Co. Ltd. v Rajendra Singh - AIR 2000 Supreme Court 1165 - to show that fraud affects the solemnity, regularity and orderliness of the proceedings of the court and also amounts to an abuse of the process of court. Hence, every court or tribunal has the power under sec 151 of CPC to recall its own order, if obtained by practicing fraud on the court or tribunal. (j) Budhia Swain v Gopinath Deb - (1999) 4 Supreme Court Cases 396 - to show that sec 151 of CPC envisages the inherent power of the Tribunals or courts to recall and set aside an order, if among other things, fraud or collusion has been used to obtain the judgment. RECENT CASE LAWS UNDER IBC AND COMPANIES ACT, 2013 a) Swiss Ribbons Pvt. Ltd. v Union of India, 2019 SCC OnLine SC 73 In this matter, Supreme Court made it clear that at any stage where the committee of creditors is not yet constituted, a party can approach the NCLT directly for withdrawal of insolvency petition post admission. Tribunal, in exercise of its inherent powers under rule 11 of the NCLT Rules, 2016, may allow or disallow an application for withdrawal of a insolvency petition after its admission( before constitution of COC) if settlement has taken place between parties. It is the inherent power of NCLT to allow withdrawal of an

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application made by the Applicant after hearing all the concerned parties and considering all relevant factors on the facts of each case. b) NUI Pulp and Paper Industries Pvt. Ltd. v Ms. Roxcel Trading GMBH [Company Appeal (AT) (Insolvency) No. 664 of 2019]. NCLAT, Delhi vide its judgment dated July 17,2019 held that NCLT is empowered to pass the ad-interim order under rule 11 of the NCLT Rules, 2016 before admitting any application filed under sections 7, 9 or 10 of the Insolvency and Bankruptcy Code, 2016. Rule 11 of the NCLT Rules, 2016, authorize an NCLT to pass any such orders as may be necessary. Rule 11 of the National Company Law Tribunal Rules, 2016 is concerned with the 'inherent powers' of the NCLT.

4.3.6

Enlargement of time (Rule 15 and 153 of the NCLT Rules)

Where any period is fixed under these rules, or granted by Tribunal for doing any act, or filing of any document or representation, the Tribunal may, in its discretion from time to time, in the interest of justice and for reasons to be recorded, enlarge such period, even though the period fixed by or under these rules or granted by the Tribunal may have expired. Rule 15 and 153 of the NCLT Rules reads as under: “15. Power to extend time The Tribunal may extend the time appointed by these rules or fixed by any order, for doing any act or taking any proceeding, upon such terms, if any, as the justice of the case may require, and any enlargement may be ordered, although the application therefor is not made until after the expiration of time appointed or allowed.” “153. Enlargement of Time Where any period is fixed by or under these rules, or granted by Tribunal for doing any act, or filing of any document or representation, the Tribunal may, in its discretion from time to time, in the interest of justice and for reasons to be recorded, enlarge such period, even though the period fixed by or under these rules or granted by the Tribunal may have expired.” However, this power cannot be construed as granting powers to Tribunals to extend time when matter is time barred. This will apply for extending time for granting replies and rejoinder and other time lines for submitting documents. For instance, certain documents like petition under compromise and arrangement for approval of a scheme must be filed within 7 days from the date of filing chairman’s report. The Tribunal can extend this time.

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Mr. Raj Narain Singh and Another v The Registrar of Companies and Others [Company Appeal (AT) No. 373 of 2018, May 31, 2019; 2019 SCC OnLine NCLAT 312] The NCLT declined to extend period for compliance of filing returns given under section 252(3) that was mentioned while passing an order for restoration of the name of the Company. NCLAT held that under rule 153 of the NCLT Rules read with rule 11, NCLT is empowered to pass such orders as are required to meet the ends of justice. Time was extended and liberty was given to the Appellants to further request NCLT for time for the purposes of filing Returns in view of facts of that case.

4.3.7

Rectification of order (Rule 154 of the NCLT Rules)

Any clerical or arithmetical mistakes in any order of the Tribunal or error therein arising from any accidental slip or omission may, at any time, be corrected by the Tribunal on its own motion or on application of any party by way of rectification. An application for the said rectification may be made in Form No. NCLT 9 of the NCLT Rules within 2 years from the date of the final order for rectification of the final order not being an interlocutory order. APC Credit Rating P. Ltd v Registrar of Companies, NCT of Delhi and Haryana [2017 SCC OnLines NCLAT 370] The NCLAT held that the Companies Act, 2013, does not empower the Tribunal to review its own order and judgement. Under sec 420(2), the Tribunal has been empowered to act at any time within two years from the date of the order, with a view to rectify any mistake apparent from the record, amend any order passed by it and to make such amendment, if a mistake is brought to its notice by the parties. Rule 154 of the NCLT Rules, 2016 empowers the Tribunal to rectify its order if there is any clerical or arithmetical mistake in the order of the Tribunal or error therein arises from any accidental slip or omission of its own motion or an application of any party by way of rectification.

4.3.8

Power to impose costs (Rule 149 of the NCLT Rules)

The Tribunal, after hearing the applicant and respondent, shall make and pronounce an order in respect of imposing costs on the defaulting party as it may deem fit.

4.3.9

Amicus curiae

Rule 61 of the NCLT Rules allows the Tribunal to appoint an amicus curiae. It may, at its discretion permit any person or persons including the professionals and professional bodies to render or to communicate view to the Tribunal as amicus curiae on any point or points or legal issues as the case may be as assigned to such amicus curiae.

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Assessors and valuers (Rules 54 of the NCLT Rules)

In any enquiry into a claim, the Tribunal may call in the aid of assessors or valuer, not exceeding two in number, who possess any technical or special knowledge with respect to any matter before the Tribunal for the purpose of assisting the Tribunal. An assessor or valuer shall perform such functions as the Tribunal may direct. The remuneration, if any, to be paid to an assessor or valuer shall in every case be determined by the Tribunal and be paid by it in the manner as may be specified by the Tribunal.

4.4

GENERAL PROVISIONS FOR EXERCISE OF POWERS

4.4.1

Production of documents

No process for compelling the production of any document kept by the registrar shall be issued from any court or the Tribunal except with the leave of that court or the Tribunal and any such process, if issued, shall bear thereon a statement that it is issued with the leave of the court or the Tribunal.

4.4.2

Nature of exercise of powers

Section 459 deals with the manner in which the Tribunals many exercise the powers that are granted to it. As per this section, if the Tribunal is required or authorised by any provision of this Act: (a) to accord approval, sanction, consent, confirmation or recognition to, or in relation to, any matter; or (b) to give any direction in relation to any matter; or (c) to grant any exemption in relation to any matter, then, the Tribunal may in the absence of anything to the contrary contained in that provision or any other provision of this Act, accord, give or grant such approval, sanction, consent, confirmation, recognition, direction or exemption, subject to such conditions, limitations or restrictions as it may think fit to impose and may, in the case of a contravention of any such condition, limitation or restriction, rescind or withdraw such approval, sanction, consent, confirmation, recognition, direction or exemption.

4.5

COMPARISON BETWEEN POWERS OF DIFFERENT TRIBUNALS

In the last two decades, numerous Tribunals have been created under several Acts and powers conferred on them. The nature of those powers, the manner of their functioning and their scope and their status has been a subject matter of number of cases. A brief chart showing the comparison between the Tribunals that are

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established is given below to appreciate the similarities and differences. It can be a useful guide for understanding the scope and extent of powers of Tribunals. General powers of different tribunals Power

NCLT 2013 Act

SAT (SEBI Act 1992)

DRAT

BIFR

(RDDB Act, (SICA 1993) 1985)

Summoning and enforcing

sec 424(2)(a) sec 15U (2)(a) sec 22(2)(a)

sec 13(3)(a)

Examining on oath

sec 424(2)(a) sec 15U(2)(a) sec 22(2)(a)

sec 13(3)(a)

Receiving evidence on affidavits

sec 424(2)(c) sec 15U(2)(c) sec 22(2)(c)

sec 13(3)(b)

Requisitioning record

sec 424(2)(d) Not specified

sec 13(3)(d)

Not mentioned

Issuing commissions for sec 424(2)(e) sec 15U(2)(d) sec 22(2)(d) examination of witness or documents

sec 13(3)(e)

Dismissing a representation for default

sec 424(2)(f) sec 15U(2)(f) sec 22(2)(f)

Not mentioned

Setting aside any order of sec 424(2)(g) sec 15U(2)(g) sec 22(2)(g) dismissal

Not mentioned

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Chapter 5

De-registration, Striking off of Companies and Director Disqualification 5.1

INTRODUCTION

The Companies Act, 2013 provides various ways in which companies can be removed from the register of companies ie dissolved. One new section which is introduced in this Act is sec 7(7). This section was notified in two parts. Section 7 except two sub clause viz. (c) and (d) was notified on 1st June 2016. Sub-sections (c) and (d) were notified on 15th December 2016. Section 7(7) provides for de- registration of companies in certain circumstances. Deregistration is a remedy that is distinct from winding up and striking off. However, it may result in winding up or initiating proceedings for striking off.

5.2

NATURE OF THE REMEDY OF DE-REGISTRATION

Section 7(7) is a remedy that is newly incorporated in the Companies Act, 2013 to remove companies that are fraudulently incorporated or that have provided misleading or false information for their incorporation. This remedy is called “deregistration” by the author. The errors and improprieties at the time of registration can now be questioned any time.

5.2.1

Background for insertion of this remedy

The Companies Act, 1956 provided that the certificate of incorporation granted after completing the formalities of incorporation of companies was conclusive proof that the company was properly incorporated. Such company could not be removed from the register of companies by the ROC without following the due process of law. This benefit of conclusiveness of certificate is not available under the Companies Act, 2013. Under this Act, the information, forms, consents given at the time of incorporation can be questioned. Further, if any illegality is found at the time of incorporation, the promoters can be made personally liable and the company can be deregistered ie it can be removed from the register of companies. This is inserted to 5.1

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prevent frauds in the incorporation of companies and provide speedy winding up of fraudulently incorporated entities.

5.2.2

Benefits

The Companies Act, 2013 casts the onus of providing correct information on the promoters and first directors. As the registration can be challenged at a future date, the process of incorporation is much faster. However, the procedure for speedy deregistering of companies is also available for improperly/fraudulently incorporated companies.

5.2.3

Scope of the remedy

The Tribunal is empowered to take several steps, including cancellation of registration and dissolving the company. The Tribunal can even declare the liability of members to be unlimited. This is a very onerous provision. It completely deviates from the basic concept of limited liability. Under the Companies Act, 1956, the members’ liability could be unlimited only if the number of members remained below the minimum prescribed number for a period of 6 months. This was a very objective test. However, now whether the liability of the members should be made unlimited is left to the subjective satisfaction of the Tribunal. There is no time limit to challenge the registration. Such registration can thus be challenged at any time. However, they are two things that may prevent belated applications challenging validity of registration. One is the period of limitation and the second is the Tribunal disallowing belated challenges, if it thinks fit.

5.2.4 Difference between provision of striking off and deregistration Deregistration application is filed under sec 7(7) by any person while striking off can be made under sec 248 by the registrar or the company. Striking off is one of the relief that can be granted under sec 7(7). A Section 8 company cannot be struck off under sec 248 but there is no such condition under sec 7(7). The condition under 248 need not be complied with while granting an order for removing the name of the company from the register of companies.

5.2.5

Difference between winding up and deregistration?

Winding up is one of the orders that can be passed while deciding the application for deregistration. Winding up can be ordered for fraudulent promotion or conduct and fraudulent operation and management of the company, but deregistration can be ordered only in connection with wrongs done during incorporation.

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5.3

De-registration, Striking off of Companies and Director Disqualification

REMEDY OF DEREGISTRATION

Section 7 reads as under: “7. Incorporation of company 1. There shall be filed with the Registrar within whose jurisdiction the registered office of a company is proposed to be situated, the following documents and information for registration, namely:— (a) The memorandum and articles of the company duly signed by all the subscribers to the memorandum in such manner as may be prescribed; (b) a declaration in the prescribed form by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of the company, and by a person named in the articles as a director, manager or secretary of the company, that all the requirements of this Act and the rules made there under in respect of registration and matters precedent or incidental thereto have been complied with; (c) an affidavit from each of the subscribers to the memorandum and from persons named as the first directors, if any, in the articles that he is not convicted of any offence in connection with the promotion, formation or management of any company, or that he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the preceding five years and that all the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief; (d) the address for correspondence till its registered office is established; (e) the particulars of name, including surname or family name, residential address, nationality and such other particulars of every subscriber to the memorandum along with proof of identity, as may be prescribed, and in the case of a subscriber being a body corporate, such particulars as may be prescribed; (f) the particulars of the persons mentioned in the articles as the first directors of the company, their names, including surnames or family names, the Director Identification Number, residential address, nationality and such other particulars including proof of identity as may be prescribed; and (g) the particulars of the interests of the persons mentioned in the articles as the first directors of the company in other firms or bodies corporate along with their consent to act as directors of the company in such form and manner as may be prescribed.

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2. The Registrar on the basis of documents and information filed under subsection (1) shall register all the documents and information referred to in that subsection in the register and issue a certificate of incorporation in the prescribed form to the effect that the proposed company is incorporated under this Act. 3. On and from the date mentioned in the certificate of incorporation issued under sub-section (2), the Registrar shall allot to the company a corporate identity number, which shall be a distinct identity for the company and which shall also be included in the certificate. 4. The company shall maintain and preserve at its registered office copies of all documents and information as originally filed under sub-section (1) till its dissolution under this Act. 5. If any person furnishes any false or incorrect particulars of any information or suppresses any material information, of which he is aware in any of the documents filed with the Registrar in relation to the registration of a company, he shall be liable for action under section 447. 6. Without prejudice to the provisions of sub-section (5) where, at any time after the incorporation of a company, it is proved that the company has been got incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company, or by any fraudulent action, the promoters, the persons named as the first directors of the company and the persons making declaration under clause (b) of subsection (1) shall each be liable for action under section 447. 7. Without prejudice to the provisions of sub-section (6), where a company has been got incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company or by any fraudulent action, the Tribunal may, on an application made to it, on being satisfied that the situation so warrants,— (a)

pass such orders, as it may think fit, for regulation of the management of the company including changes, if any, in its memorandum and articles, in public interest or in the interest of the company and its members and creditors; or

(b) direct that liability of the members shall be unlimited; or (c) direct removal of the name of the company from the register of companies; or (d) pass an order for the winding up of the company; or (e) pass such other orders as it may deem fit:

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Provided that before making any order under this sub-section— (i)

the company shall be given a reasonable opportunity of being heard in the matter; and

(ii) the Tribunal shall take into consideration the transactions entered into by the company, including the obligations, if any, contracted or payment of any liability.”

5.3.1

Who can apply?

Section 7(7) does not specify the person who can apply for relief of improperly incorporated entities. Thus, there is no bar on any person applying for deregistration, if he is in some manner prejudiced by the existence of the company. A stranger to the company cannot file such application as he will have to show the locus for filing such application. However, any stakeholder can file for deregistration. Creditors, shareholders or any statutory authority (Registrar, CLB, SEBI) can file for deregistration of the company, if they are of the opinion that company has played foul during incorporation by providing misleading information knowingly to the Registrar.

5.3.2

When can one apply?

Section 7(7) has not provided a time limit for making an application for deregistration. Thus, it is essential to explore when an application can be made. Can it be made any time during the existence of the company? Section 433, specifically provides that the provisions of Limitation Act apply to the proceedings before Tribunal. Thus, while sec 7(7) does not provide a time limit for filing an application, the provisions of Limitation Act will become applicable in barring an action that is taken belatedly. The period of limitation shall be three years (Art. 137). Now, the period of three years shall start from the date of cause of action, which in most cases may be the date of registration or a date of signing the affidavit or making the misstatements. However, if there is a fraud or concealment, then the period of limitation will get extended and the period of three years will begin from the date when the fraud is discovered or when the case depends on a concealed document, then from the date when the applicant had means of producing the concealed document (Section 17 of Limitation Act, 1963). The Act does not specify the period of limitation for the presentation of application, but Art 137 of the Limitation Act, 1963 provides limitation period of three years from the time right to apply accrues, for the applications where no period of limitation is provided. So, here the right to apply shall be accrued from the date when the company is incorporated. In case of fraud, the time may commence from the date the fraud is noticed.

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5.3.3

Chapter 5

Under what circumstances?

Section 7(7) lays down the circumstances in which an order for deregistration can be sought. It includes the following grounds: (a) Where a company has been incorporated by furnishing false or incorrect information. (b) Where a company has been incorporated by making false or incorrect representation. (c) Where a company has been incorporated by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating the company. (d) Where a company has been incorporated by any fraudulent action. The example of such instances can be as follows: (a) Incorrect financials provided for sec 8 company incorporation to obtain licence or misstatement made in the application for getting licence. (b) False statement of assets and liabilities for obtaining sec 8 company licence. (c) False representation has been made about the existence of registered office and false return filed. (d) Company formed for circumventing income tax law or insider trading law. (e) Company incorporated at the behest of people who have committed fraud in the securities market and are barred from promoting and managing companies. This section provides reliefs only for fraud and improprieties while incorporating companies or promoting companies. This section cannot be used for any defects/frauds found in operation or management of the company.

5.3.4

Against which companies?

5.3.4.1 Can registration of any company under the Companies Act, 2013 be challenged? The registration of any company registered under this Act can be challenged. Even registration of “Section 8 companies” that have received licences from the regional director for their charitable endeavors can be challenged. The list also includes companies with or without share capital, charitable companies, dormant companies, companies limited by guarantees, one person companies etc. This provision is however not extended to foreign companies registered under the Act.

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5.3.4.2 Can registration of companies under the Companies Act, 1956 be questioned? There is an express safeguard to prevent old registrations from being questioned. Registrations under the Companies Act, 1956 are deemed to be valid. Such registrations were deemed to be conclusive proof that all formalities have been complied with. Thus, under Companies Act, 2013, existing companies are safeguarded.

5.3.5

Nature of reliefs sought

The Act has provided an illustrative list of orders that can be passed by the Tribunal. The nature of ultimate reliefs and interim relief will depend on the facts and circumstances of each case. Inter alia, following orders can be passed by the Tribunal: (a) orders, as it may think fit, for regulation of the management of the company including changes, if any, in its memorandum and articles, in public interest or in the interest of the company and its members and creditors; or (b) direct that the liability of the members shall be unlimited; or (c) direct removal of the name of the company from the register of companies; or (d) pass an order for the winding up of the company; or (e) If the company is a shell company, with no material assets and liability, a plain order of striking off may be passed. However, if the company has become operational, then a proper winding up process may have to be followed for putting an end to the company. While deciding the case for deregistration, the tribunal will have to take into consideration several factors which may include: (a) The transactions entered into by the company, including the obligations, if any, contracted or payment of any liability. (b) Nature and gravity of impropriety complained of (c) The impact of the said impropriety on the members, creditors, workmen, the statutory authorities and the general public. (d) Whether the said impropriety is curable or is striking off the company from registers of companies the only option (e) Who is responsible for the said wrong? Is it the shareholders or promoters or professionals or directors or others? (f) What will be the best route to give relief? (g) Whose interest needs to be considered while granting relief? The Companies Act, 2013 has left the nature of orders that can be passed at the discretion of the Tribunal under sec 7(7)(e). The Tribunal has wide powers and can

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use it even to grant interim orders. Instances of such orders may include the following: (a) Restrict a public company from accepting deposits from the public. (b) Restrict a ‘Section 8 company’ from accepting further donation until it complies with certain conditions. (c) Making company issue a public disclosure. (d) Make company file additional disclosures. (e) Provide that public company may be converted into a private company. (f) Takeover of company. (g) Merger of a company with another. (h) Impose restrictions on securities. (i) Suo motu use other powers granted under the Act. The tribunal should be slow in granting any order, whereby the members are made liable to pay anything more than what they contracted for while subscribing to the shares of the company as such order will go to the root of the fundamental principles of limited liability.

5.4

PROCEDURE FOR DEREGISTRATION 1. The person intending to file application under sec 7(7) can file it in Form No NCLT 1 along-with documents set out in Annexure B of NCLT Rules. 2. The application should include the facts that justify the Tribunal to intervene and pass orders under sec 7(7). If the Applicant intends to seek interim reliefs then an application for interim/interlocutory relief shall be filed alongwith the main application. It can be filed alongwith the application or may be filed later on. 3. Every application filed under sec 7(7) shall also mention the following particulars: (a) Name of the company and other details including date of incorporation, name and address of the subscribers, promoters and first directors. (b) The details of false or incorrect information or representation or material facts or information suppressed. (c) Details of such documents in or declaration filed or made for incorporating such company. (d) Involvement of promoters, subscribers and first directors in committing fraud during the course of incorporation. (NCLT Rule 66)

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4. If it finds substance, the Tribunal shall serve a notice in Form No. NCLT 5 to opposite party along with a copy of the application. The opposite party shall include the company. 5. If the company and the concerned persons against whom orders are sought fail to appear on the date specified in Form no. NCLT 5, the Tribunal after reasonable opportunity to respondent shall forthwith proceed ex-parte to dispose of the application. 6. If the company and other respondent contest the application, it may file a reply along with copies of such documents on which it relies, before the date of hearing and such reply and copies of documents shall form part of the record. 7. Reply shall be served on the applicant and the applicant shall get an opportunity to rejoin his application. 8. The Tribunal shall notify to the parties the date of the hearing of the petition. 9. Where, on the date fixed for hearing the petition or application or any other date to which hearing is adjourned, if the applicant appears and the respondent doesn’t, the Tribunal may adjourn the hearing or hear and decide the petition or the application ex-parte in exercise of the power conferred in sec 424(2)(f) of the Act. If the applicant fails to appear in such manner, the application may be dismissed. 10. If the circumstances of the case so require, the Tribunal may hold a trial and asses the nature and weight of evidence produced before it. It may call for witnesses, appoint commissions for recording evidence as may be required. If evidence is required to be lead, then the evidence can be lead in accordance with the NCLT rules. The procedure should be such that principles of natural justice are followed. 11. The Tribunal shall send a copy of every order passed to the parties concerned. 12. The Tribunal shall decide every application as expeditiously as possible on perusal of documents, affidavits and other evidence, if any, and after hearing such oral arguments as may be advanced with reference to sec 422 of the Act. 13. The Tribunal may, before passing any order call for further information/evidence and may require the parties or any one or more of them to produce any further documentary or other evidences as may considered necessary – (a) for the purpose of satisfying itself that there is impropriety in incorporation or the nature and magnitude of the impact of such wrongdoing.

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(b) If any fabrication or forgery of documents is alleged, the Tribunal may send the records for opinion of the central forensic science laboratory at the cost of party alleging fabrication of records. (c) The Tribunal may direct production of the transactions entered into by the company, including the obligations, if any, contracted or payment of any liability. [Rule 43 of NCLT Rules] 14. Tribunal may pass such orders, as it may think fit in accordance with sections 7(7)(a) - 7(7)(e). 15. Tribunal may require a party to file affidavit of compliance to ensure that order is duly complied with.

5.5

STRIKING OFF OF COMPANIES

Chapter XVIII (Section 248 to Section 252) dealing with removal of names of companies from the register of companies was notified on 26th December 2016. Section 248 to section 252 of the Companies Act, 2013 is analogous to sec 560 of the Companies Act, 1956. Section 248 deals with the circumstances in which the company’s name can be removed from the register of companies. The removal can be involuntary where the registrar of companies takes steps to remove a company or voluntary where the company can approach for removal of its own name. Under sec 560, such distinction did not exist but the Ministry of Corporate Affairs did allow companies to voluntary apply for removal of their names from register of companies (Fast Track Exit Scheme). Section 248(1) before the amendment provided for two grounds for removal of name from the register of companies. One of these grounds had to be satisfied in both voluntary and involuntary striking off of companies. The grounds for strike off were amended by Companies Amendment Act, 2019. After the amendment, following are the grounds for striking off the company (under voluntary and involuntary strike off mechanism): (a) company has failed to commence its business within one year of its incorporation (b) company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under sec 455 (c) the subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within 180 days of its incorporation under 10A(1) (d) the company is not carrying on any business or operations, as revealed after the physical verification of registered office carried out under sec 12(9). 5.10

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Chapter XVIII and the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 provide various steps and procedures to be followed for removal of name of companies from register of companies. It also provides the instances where companies cannot be removed from the register. However, in this book the focus is on powers of Tribunal in case such removal/striking off takes place and rights of any person aggrieved by such removal who intends to restore the name of the company on the register of companies.

5.5.1

Power of Tribunal to restore companies struck off

Section 252 deals with the power of Tribunal to restore the name of the company on the register of companies. The section reads as under: “252 Appeal to Tribunal (1) Any person aggrieved by an order of the Registrar, notifying a company as dissolved under section 248, may file an appeal to the Tribunal within a period of three years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the name of the company from the register of companies is not justified in view of the absence of any of the grounds on which the order was passed by the Registrar, it may order restoration of the name of the company in the register of companies: Provided that before passing any order under this section, the Tribunal shall give a reasonable opportunity of making representations and of being heard to the Registrar, the company and all the persons concerned: Provided further that if the Registrar is satisfied, that the name of the company has been struck off from the register of companies either inadvertently or on the basis of incorrect information furnished by the company or its directors, which requires restoration in the register of companies, he may within a period of three years from the date of passing of the order dissolving the company under section 248, file an application before the Tribunal seeking restoration of name of such company. (2) A copy of the order passed by the Tribunal shall be filed by the company with the Registrar within thirty days from the date of the order and on receipt of the order, the Registrar shall cause the name of the company to be restored in the register of companies and shall issue a fresh certificate of incorporation. (3) If a company, or any member or creditor or workman thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal on an application made by the company, member, creditor or workman before the expiry of twenty years from the publication 5.11

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in the Official Gazette of the notice under sub-section (5) of section 248 may, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other directions and make such provisions as deemed just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off from the register of companies” A perusal of this section shows that this power to restore is divided into two parts: A. Power to restore in case of any type of striking off B. Additional power to restore in case of voluntary striking off

5.5.1.1

Power to restore in case of any type of striking off

If the Registrar of Companies, in pursuance of the power to suo moto strike off a company, removes a company from the register of companies, then a person can appeal to the Tribunal under sec 252(1) and not under sec 252(3). If a company has been voluntarily removed from the registrar of companies, even then a person aggrieved can file under sec 252(3). Select persons namely, the company, the creditors, workman and the members, in addition to Section 252(1) also have recourse to section 252(3). However, the NCLAT has taken a contrary view which is set out in the table giving details of latest judgements. Distinction between appeal under section 252(1) and 252(3) Under sec 252(1) any order under sec 248(5) removing the name of the company from register of companies can be challenged. However, appeal under sec 252(3) can be filed only in cases where company has voluntarily had its name struck off from the register of companies. The period of appeal under sec 252(1) is only three years from the date of the order under sec 252(1) whereas under sec 252(3) the period of limitation for filing appeal is twenty years from the date of publication of the order in Official Gazette under sec 248(5). Under section 252(1), any person aggrieved can appeal against striking off but under sec 252(3) only the company, the members, creditors and workman can apply. Thus, under sec 252(1) a larger number of person have locus standi to challenge the striking off. The Section contemplates that even the registrar of companies can apply for restoration of the company. The grounds for restoration provided in sec 252(3) are wider than the grounds for restoration provided under sec 252(1) and the Tribunal has wider discretion in sec 252(3).

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De-registration, Striking off of Companies and Director Disqualification

What is the Limitation Period? In section 560 of the Companies Act, 1956, the time period of limitation was 20 years but under the new Act, the period for filing an appeal for restoration is only three years. The period of three years is counted from the date of the order. The date of the order is the date on which name of the company is struck off from the registrar of companies under sec 248(5). What are the grounds for restoration? The Act provides that if the Tribunal is satisfied that there is absence of grounds specified in sec 248(1) then it can order restoration. Thus, a person aggrieved can show that the company is a functional company and has been operating. However, it seems that the case laws under the section 560 of the Companies Act, 1956 also needs to be considered while discussing the grounds for restoration. Under sec 560 of the old Act, the High Courts had allowed the companies to be restored where they found that the procedure for striking off was not followed. For instance, In PPI Enterprises Private Limited & Ors. v Registrar of Companies (2015 SCC OnLine Del 13748) the Court analysed the cases laws on Section 560 of the Companies Act, 1956. It held as follows: “10.

In Purushottamdass (Bulakidas Mohta Co. P. Ltd. v Registrar of Companies, Maharashtra (1986) 60 Comp Cas 154 (Bom), the Bombay High Court has held, inter alia, that; “18. The object of section 560(6) of the Companies Act is to give a chance to the company, its members and creditors to revive the company which has been struck off by the Registrar of Companies, within a period of 20 years, and to give them an opportunity of carrying on the business only after the company judge is satisfied that such restoration is necessary in the interests of justice.”

11.

This decision has been followed by this Court in Pancham Hotels Pvt. Ltd. v. Registrar of Companies, CP No. 554/2014; Medtech Pharma (India) Pvt. Ltd. v. Registrar of Companies, CP No. 241/2009; Santaclaus Toys Pvt. Ltd. v. Registrar Of Companies, CP 271/2009; Deepsone Non-Ferrous Rolling Mills Pvt. Ltd. v. Registrar of Companies, NCT of Delhi and Haryana, CP No. 285/2009; Kakku E and P Control Pvt. Ltd. v. The Registrar of Companies, NCT of Delhi and Haryana, CP No. 409/2008 and Sohal Agencies Pvt. Ltd. v. Registrar of Companies, NCT of Delhi and Haryana, CP No. 297/2009.

12.

Under the facts and circumstances, it is possible that notice in respect of action under S.560 was not sent to the registered office of the company. Consequently, the condition precedent for the initiation of proceedings to strike off the name of petitioner from the Register maintained by the respondent was not satisfied. Looking to the fact that the petitioner is stated to be a running company; and that it has filed this petition within the stipulated limitation period, and to the decision of the Bombay High Court 5.13

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in Purushottamdass (Bulakidas Mohta Co. P. Ltd.) v. Registrar of Companies, Maharashtra (supra); it is only proper that the impugned order of the respondent dated 23.06.2007, which struck off the name of the petitioner from the Register of Companies, be set aside. At the same time, however, there is no gainsaying the fact that a greater degree of care was certainly required from the petitioner company in ensuring statutory compliances. Looking to the fact that annual returns and balance sheets were not filed for almost twelve years, the primary responsibility for ensuring that proper returns and other statutory documents are filed, in terms of the statute and the rules, remains that of the management.” However, on reading the grounds under sec 252(1) with those under sec 252(3), it is seen that the grounds provided under sec 252(1) are limited. It seems that legislature has limited and restricted the power of aggrieved persons is seeking revival of the companies where Registrar of companies has taken a suo motu action in deregistering the companies. Further, the legislature intended there should be fewer grounds of revival when Registrar of Companies has taken the action for striking off. This fact is further corroborated by the language of sec 252(1). The grounds for restoration is restrictive. It is quite unlike the language of the erstwhile sec 560(6) of the Companies Act, 1956. The discretion of Tribunal under sec 252(1) is limited. Thus, case laws under Sections 560 may not be squarely applicable. They may be distinguished in light of difference in the language of the two sections and difference in the extent of discretionary power given to the appellate authority in the two sections. Who can apply? The application can be made by any person aggrieved by the order. It can be the company, a shareholder, an employee, a director, a creditor and so on. Section 252(1) even contemplates that the Registrar of Companies can suo motu apply for restoration of the name of the company. In Rishima SA Investments LLC v Registrar of Companies, West Bengal & Ors. (2017 SCC OnLine Cal 350) the Hon’ble Calcutta High Court answered the following question in affirmative - Is a person, not being a member or a creditor or the company itself, entitled to challenge the striking off of the name of the company under sec 560 of the Companies Act, 1956? It held that the petitioner who claims to have entered into a tripartite agreement in which the company is involved has locus standi to maintain a writ against order of ROC striking of the company. The petitioner claimed to have a jural relationship with the company. The rights of the petitioner stand affected by the decision of the Registrar of Companies in striking off the name of the company from the Register. In the facts of the present case, the petitioner cannot be said to be a busy body so far as the affairs of the company is concerned when they have shown that tripartite agreement was entered into with them and affidavit and documents were signed on behalf of the company that is struck off.

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Under sec 560, it was stated that a company, member or creditor can apply for restoration. However, now “any person aggrieved by the order” can apply for restoration. In light of this, instead of writ under 1956 Act as was filed in the aforesaid case, such aggrieved person can file an application under sec 252(1) of the Companies Act, 2013. The registrar of companies can suo motu apply for restoration of name of company whose name can been removed by him. The 2nd proviso to section 252(1) provides that Registrar is empowered to file an application for restoration if the Registrar is satisfied, that the name of the company has been struck off from the register of companies either inadvertently or on the basis of incorrect information furnished by the company or its directors.

5.5.1.2

Power in voluntary striking off

Section 252(3) empowers certain persons to apply in cases where the companies have opted for voluntary exit and removal of their name from register of companies. This is additional power to appeal. Limitation Period The limitation in this clause is similar to the limitation provided under sec 560 of the Companies Act, 1956. It provides a limitation period of twenty years. Unlike in sec 252(1) the period is not counted from the date of order of the registrar of companies but from the date of the publication of order of registrar in the Official Gazette. What are Grounds for revival? Section 252(3) provides following grounds: (a) Company at the time of being struck off was functioning (b) Company was in operation (c) Otherwise it is just that the name of the company be restored Thus, the grounds for restoration under sec 252(3) are wider than 252(1). The grounds are similar to the grounds that were specified under sec 560(6) which provided “if satisfied that the company was, at the time of the striking off, carrying on business or in operation or otherwise that it is just that the company be restored to the register…” Thus, the case law under sec 560 will be relevant for revival of companies under sec 252(3). Who can apply? In case of sec 252(3), only the following person can file an appeal viz. company, creditors, workman and member. Any other person who intends to appeal will have to apply under section 252(1).

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5.5.2

Chapter 5

High Court cases and NCLAT cases

Relevant Name of case Provision; (date of the decision) Brief law point covered

Particulars

Sec 252 of the Tweak India Future NCLAT allowed restoration of name of company. Companies Innovations Pvt Ltd v The company was unable to show that there were Act,2013; Registrar of Companies, any significant business transactions. However, (03.03.2020) Punjab and Chandigarh, Company was able to demonstrate that they are operational and that they has entered into MOU’s in NCLAT/Del/Company Appeal (AT) No. 300 of their attempt to enter USA Market. NCLAT observed that all this reflects that the Appellant is in 2019 operation. “Operation” in commercial sense means developing business platform also. Sec 248 of the R Narayannasamy v The Companies Registrar of the Act,2013; Companies, Tamil Nadu, (26.11.2020) NCLAT/Del/Company Appeal (AT) No. 171 of 2020

In this case there were conflicting views of Judicial and technical members. The judicial members was of the opinion that restoration of company should be allowed inter alia in light of pending of legal cases against the company. The technical member was of the view that restoration should not be allowed inter alia as procedure of striking off was followed and appellant has not challenged the legality in issue of notice and has not filed reply to the notice issued by ROC. In light of conflicting view, the matter was placed before Acting Chairperson of NCLAT for constitution of appropriate bench/nominating 3rd Member for rendering his opinion /decision in the appeal.

Sec 252 of the Aman Kumar Jain & Companies Mohit Jain v Registrar of Companies (NCT of Act,2013; Delhi and Haryana) and (01.02.2019) Additional Commissioner of Income Tax, NCLAT/Del/Company Appeal (AT) No. 382 of 2018

The appeal seeking restoration of company was not allowed. The NCLAT while not allowing restoration made following observation: “5. We have perused the documents filed by the Appellants. It is pertinent from the financial statements filed by the Company that there was no revenue generation in the Company for the years ended 31.3.2015, 31.3.2016 and 31.3.2017. The provisional statement for the period ending 31.10.2017 shows some revenue, however, this statement is irrelevant for the present matter as it relates to the period after striking off of the company’s name. Further, the bank account statements do not show any transactions which would demonstrate that the business operations are ongoing. An agreement for purchase of an immovable property has been attached to the appeal, however, the agreement was entered into in

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De-registration, Striking off of Companies and Director Disqualification 2010 and here is nothing to show that any work has been carried out over the said land or is being carried out. The company has also failed to file income tax returns as seen by the report filed by the Income Tax Department. 6.In view of the fact that the Appellants have failed to show that the Company has been unable to show that it was carrying on business or operations in the two immediately preceding financial years the appeal filed by the appellants stands dismissed, without any order as to cost.”

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Adroit Trade (P) Ltd. (Struck off) v Registrar of Companies, Chennai, NCLAT Company Appeal (AT) No. 264 of 2018

The restoration of company was allowed. NCLAT observed that the struck off company has been carrying on business of sale and purchase of property though the instances given were few and far between. While such transactions could not be said to be substantial and of respectable magnitude, it could not detract from the fact that the Appellant was carrying on business which was seriously affected because of the striking off the company. It further held that if the Appellant company was not restored it would be able to defend the litigation slapped on it.

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Ramesh Kumar Chitlangia and Ors v ROC, Jaipur, NCLAT Company Appeal (AT) No. 4 of 2020

Pendency of legal proceedings was held to be a just and equitable ground for restoration of name of company on register of companies.

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Basant Kumar Berlia v ROC, West Bengal, NCLAT Company Appeal 171 of 2018

NCLAT allowed restoration of the company holding that company was not a sham company. The company was not carrying on busines and revenues were NIL. However, the Balance sheet showed that company had land assets, long and short term loans and advances, cash and bank balance. Thus, on the basis of assets, the company was allowed to be restored.

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Elektrans Shipping Pte Ltd. v Pierre D'silva & Anr., NCLAT Company Appeal (AT) (Insolvency) No. 754 of 2019

NCLAT held that insolvency proceedings can be filed against a company whose name has been struck off from ROC.

v M.A. Panjwani Registrar of Companies and Ors., Delhi High

Here the HC held: “16. It was submitted on behalf of the Registrar of Companies that in striking off the name of the Company, the procedure prescribed in Section

-

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Court (2015) 124 CLA 109 (Delhi)

560 of the Act was followed. That may be so. Sub-sec 6 of sec 560 gives power to the company court to order restoration of the name of the company if it finds that such of course was ‘just’. The fact that the ROC did follow the due procedure prescribed by law while striking off the name cannot, therefore, be an answer to a petition filed on the ground that it would be ‘just’ to restore the name of the company.”

Bombay Court

High Purushottam Dass v Registrar of Companies, (1986) 60 Maharashtra, Bombay CompCas 154 High Court (1986) 60 CompCas 154 (Bom) (Bom)

The object of sec 560(6) of the Companies Act is to give a chance to the company, its members and creditors to revive the company which has been struck off by the Registrar of Companies, within period of 20 years, and give them an opportunity of carrying on the business only after the company judge is satisfied that such restoration is necessary in the interest of justice.

Delhi Court

DHC observed “12………Looking to the fact that the petitioner is stated to be a running company; and that it has filed this petition within the stipulated limitation period, and to the decision of the Bombay High Court in Purushottamdass and Anr.(Bulakidas Mohta Co. P. Ltd.) v. Registrar of Companies, Maharashta & Ors. (supra); it is only proper that the impugned order of the respondent dated 23.06.2007 which struck off the name of the petitioner from the Register of Companies, be set aside. At the same time, however, there is no gainsaying the fact that a greater degree of care was certainly required from the petitioner Company in ensuring statutory compliances. Looking to the fact that annual returns and balance sheet were not filed for almost fourteen years, the primary responsibility for ensuring that proper returns and other statutory documents are filed in terms of the statute and the rules, remains that of the management.”

High Ascot Shoes Private Limited v Registrar of Companies, Delhi High (2017) 2 Court (2017) 2 CompLJ118 CompLJ118 (Del) (Del)

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5.18

Mace Platronics Pvt. When the name of the company was struck off after Ltd. v ROC, (2010) 104 following the prescribed procedure for non-filing of SCL 277(Del) statutory records, even though the contentions of the company that the officials entrusted with responsibility of filing documents had failed to do so cannot be accepted, yet since the company was a running company and the application had been filed in time, the court had power to restore the name of the company.”

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5.6

De-registration, Striking off of Companies and Director Disqualification

PROCEDURE FOR FILING APPEAL UNDER SEC 252

The rule 87A for filing appeal under sec 252 where inserted on 5th July 2017 by NCLT (Amendment) Rules, 2017. The rules provide the following procedure for filing the appeal. 1. An appeal under sub-sec (1) or an application under sub-sec (3) of sec 252, may be filed before the Tribunal in Form No. NCLT 9, with such modifications as may be necessary. 2. A copy of the appeal or application, shall be served on the Registrar and on such other persons as the Tribunal may direct, not less than fourteen days before the date fixed for hearing of the appeal or application, as the case may be. 3. Upon hearing the appeal or the application or any adjourned hearing thereof, the Tribunal may pass appropriate order, as it deems fit. 4. Where the Tribunal makes an order restoring the name of a company in the register of companies, the order shall direct thati.

the appellant or applicant shall deliver a certified copy to the Registrar of Companies within thirty days from the date of the order;

ii. on such delivery, the Registrar of Companies do, in his official name and seal, publish the order in the Official Gazette; iii. the appellant or applicant do pay to the Registrar of Companies his costs of, and occasioned by, the appeal or application, unless the Tribunal directs otherwise; and iv. the company shall file pending financial statements and annual returns with the Registrar and comply with the requirements of the Companies Act, 2013 and rules made thereunder within such time as may be directed by the Tribunal. 5. An application filed by the Registrar of Companies for restoration of name of a company in the register of companies under second proviso to subsec (1) of sec 252 shall be in Form No. NCLT 9 and upon hearing the application or any adjourned hearing thereof, the Tribunal may pass an appropriate order, as it deems fit. Position after commencement of Companies (Amendment) Ordinance, 2018 [and thereafter by Companies (Amendment) Act, 2019] Additional grounds and circumstances are inserted by which the company’s name can be struck off. The amendment reads as follows: “27. Amendment of section 248 In section 248 of the principal Act, in sub-section (1), (a) in clause (c), for the word and figures “section 455,”, the words and figures “section 455; or” shall be substituted; 5.19

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(b) after clause (c) and before the long line, the following clauses shall be inserted, namely:“(d) the subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within one hundred and eighty days of its incorporation under sub­ section (1) of section 10A; or (e)

the company is not carrying on any business or operations, as revealed after the physical verification carried out under sub-section (9) of section 12.”.

The grounds are as under: a.

After a company is incorporated, it is incumbent now for every subscriber to the memorandum to pay the value of shares which are agreed to be subscribed by him. The declaration has been filed by the director with 180 of the date of incorporation that such value of shares has been paid by the subscribers. If such declaration is not filed within 180 days and the ROC has a reasonable cause to believe that the company is not carrying on any business or operation, he may, initiate actions for striking off the name of the company ( Section 10A)

b. A company under Companies Act, 2013 is required to have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it. A company which is newly incorporated must have get a registered office within 15 days from the date of incorporation. If the ROC has reasonable cause to believe that the company is not carrying on any business or operations, he may cause a physical verification of the registered office of the company. If ROC finds that the requirement of having a registered office is not complied with, then he is entitled to initiate action for the removal of the name of the company from the register of companies under Chapter XVIII (Section 12).

5.7

DIRECTOR DISQUALIFICATION

The Ministry of Corporate Affair had issued a list in September 2017 wherein it had disqualified nearly 3 lakh directors under sec 164(2)(a) of the Companies Act, 2013. The directors who were directors of the companies which failed to file returns for three continuous years were disqualified. Due to the said move, several directors approached the High Courts. In view of the demand from the industry, the Ministry of Corporate Affairs came out with a Condonation of Delay Scheme, 2018 which provided a mechanism to file overdue returns. By view of the said scheme, several writ petitions were disposed off. The order passed by Bombay and Delhi High Court in some of writ petitions are annexed as Annexure A-1 and Annexure B-1 and B-2 respectively. However, the Delhi High court and Bombay High Court also permitted 5.20

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filing of hard copies of financial statement and returns of such companies where the directors did not want to revive the companies on the undertaking that these companies would not be revived. The Ministry of Corporate Affairs challenged the decisions in the Apex Court. The decision of Bombay High Court passed on 22nd March 2018 was challenged and Apex Court granted a stay on the operation of the order. The said decision is annexed as Annexure A-2. Further, August 2018, Madras High Court also passed a speaking order in which it exhaustively discussed the aspects of the disqualification of directors and held in favour of the directors. The said order is annexed as Annexure-C. To take the advantage of the Condonation of Delay Scheme, 2018 (‘CODS’), many people have applied for revival of the company which have been struck off by virtue of non-filing of returns. On revival, the understanding is that they will complete the filing of overdue returns and take advantage of the CODS Scheme. The said scheme was initially expiring on 31st March 2018 but has been extended till 30th April 2018. The CODS Scheme and its extension is attached as Annexure D and Annexure E. The said scheme is not extended beyond 30th April 2018. However, companies who have filed for revival of companies under sec 252 while the scheme was operative are entitled to take advantage of the scheme after NCLT orders the restoration of the company. Another clarification was issued in this regard by which this position was explained. The said clarification circular is annexed as Annexure F. One of the orders of revival for the purpose of availing the benefit of CODS Scheme is attached as Annexure G.

5.7.1 5.7.1.1

Important case laws on disqualification of directors DELHI HIGH COURT

Mukut Pathak & Ors v Union of India & Anr [High Court of Delhi/Nov/2018/Sec 164(2)(a) and Sec 167(1)(a) of the Companies Act, 2013; (04.11.2019)] Held: HC held as follows: “06. Neither any of the provisions of the Companies Act nor the Rules framed thereunder stipulate cancellation or deactivation of DIN on account of a director suffering a disqualification under section 164(2) of the Act. It is relevant to note that Rule 11 of the Company (Appointment and Qualification of Directors) Rules, 2014 was amended with effect from 05.07.2018 to provide for deactivation of DIN in the event of failure to file Form DIR-3-E-KYC within the period as stipulated under Rule 12A of the said Rules. The amendment so introduced also does not empower the Central Government to cancel or deactivate the DIN of disqualified directors. 107. It is also material to refer to Rule 14 of the said Rules. In terms of Rule 14(1) of the said Rules, every director is obliged to inform the company concerned, about his disqualification under sub-section (2) of section 164 of the Act in Form DIR-8. In terms of Sub-rule (2) of Rule 14 of the said Rules, a company, which has committed the defaults as stated in clauses(a) or (b) of section 164(2) of the Act, is required to file 5.21

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Form DIR-9 furnishing the names and addresses of all its directors, with the Registrar of Companies. Sub-rule (5) also contemplates filing of an application for removal of the disqualification of directors. None of the provisions of Rule 14 of the said Rules indicates that the DIN of directors incurring the disqualification under section 164(2) of the Act, is required to be deactivated. 108. It is important to note that whereas a DIN is necessary for a person to act as a director; it is not necessary that a person who has a DIN be appointed as a director. Section 164(2) only provides for temporary disqualification for a period of five years for a person to be appointed/re-appointed as a director. Thus, it is not necessary that the DIN of such person to be deactivated. 109. It is also material to note that sub-section (2) of section 167 of the Act provides for a punishment for any person who functions as a director knowing that his office has become vacant on account of his disqualification as specified in section 167(1) of the Act. Thus, Section 167 includes a mechanism for enforcing the rigors of section 167(1) of the Act. In the present case, the respondents have sought to cancel/deactivate the DIN of directors disqualified under section 164(2) of the Act. This has been done to enforce the provisions of section 167(1) of the Act. Clearly, this is not supported by any statutory provision. This Court is of the view that the Central Government having framed the rules specifying the conditions in which a DIN may be cancelled, cannot cancel the same on any other ground and without reference to such rules. 110. Similarly, there is also no provision supporting the respondents' action of cancelling the DSC of various directors. The said action is therefore unsustainable. 111. In view of the above, this Court finds no infirmity with the impugned list to the extent it includes the names of the petitioners as directors disqualified under section 164(2) of the Act. This Court also rejects the contention that the impugned list is void as having been drawn up in violation of the principles of natural justice. 112. However, the Court finds merit in the contention that the petitioners cannot be stated to have demitted their office as directors by virtue of section 167(1) of the Act. As held above, the provisions of section 167(1) of the Act are wholly inapplicable to directors who had incurred disqualification under section 164(2) of the Act. As noticed above, the defaulting companies in which the petitioners were directors have been struck off from the Register of Companies (except in W.P.(C) 3658/2019 where the proceedings have been initiated under the Insolvency and Bankruptcy Code, 2016). Plainly, the petitioners cannot hold office in those companies that have been struck off from the Register of Companies. However, as it is held that Section 167(1) was inapplicable in respect of disqualifications that were incurred under section 164(2) of the Act, the petitioners continue to be directors of other companies which had not committed any defaults in terms of clauses (a) and (b) of section 164(2) of the Act. 113. As discussed above, the Scheme of section 164(2) and Section 167(1)(a) of the Act was materially amended by the Companies Amendment Act, 2018 by introduction of the provisos to Section 164(2) and Section 167(1)(a) of the Act with effect from 07.05.2018. All directors who incur disqualification under section 164(2) of the Act after the said date, would also cease to be directors in other companies (other than the

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defaulting company) on incurring such disqualification. However, the operation of the provisos to Section 164(2) and Section 167(1)(a) of the Act cannot be read to operate retrospectively. The proviso to Section 167(1) of the Act imposes a punitive measure on directors of defaulting companies. Such being the nature of the amendment, the same cannot be applied retrospectively. It is well settled that the Statute that impairs an existing right, creates new disabilities or obligations - otherwise than in regard to matters of procedure - cannot be applied retrospectively unless the construction of the Statute expressly so provides or is required to be so construed by necessary implication. Therefore, the office of a director shall become vacant by virtue of section 167(1)(a) of the Act on such director incurring the disqualifications specified under section 164(1) of the Act. It shall also become vacant on the directors incurring the disqualification under section 164(2) of the Act after 07.05.2018. However, the office of the director shall not become vacant in the company which is in default under subsection 164(2) of the Act. 114. As discussed above, there is also much merit in the contention that the DIN and DSC of the petitioner could not be deactivated. Accordingly, the respondents are directed to reactivate the DIN and DSC of the petitioners. The Court rejects the contention that the impugned list is void as having been drawn up in violation of the principles of natural justice. It is further stated that the provisions of Sec167(1) of the Act are wholly inapplicable to directors who had incurred disqualification under Sec 164(2) of the Act. However, it was held that the petitioners continue to be the directors of other companies which had not committed any default in term of clauses (a) and (b) of Sec 164(2) of the Act. The Scheme of Sec 164(2) and Sec 167(1)(a) of the Act was materially amended by the Companies Amendment Act, 2018 by the introduction of the provisos. The operation of the provisos cannot be read to operate retrospectively. The office of a director shall become vacant by virtue of section 167(1)(a) of the Act on such director incurring the disqualifications specified under section 164(1) of the Act. It shall also become vacant on the directors incurring the disqualification under section 164(2) of the Act. It is clarified that the petitioners would continue to be liable to pay penalties as prescribed under the Act.” Sandeep Agarwal & Anr v Union of India & Anr Delhi High Court/2020/Sec 164(2) and Sec167(1)(a) of the Companies Act, 2013;(02.09.2020) Facts: In the present case, petitioners are the directors in two companies namely Koksum Papers Pvt Ltd and Kushal Power Projects Private Ltd. The name of Kushal Power was struck off from the ROC due to non-filing of financial statements and annual returns. The petitioners, being director were disqualified under sec 164(2)(a) of the Act. Issue: The disqualification is challenged and the quashing is sought of the Signature Not verified digitally. 5.23

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Held: The petitioners are the directors of an active company i.e., Koksun Papers in respect of which certain documents are to be filed and the said company is entitled to avail the Scheme. Considering the COVID-19 pandemic, the MCA has launched the Fresh Start Scheme-2020, which ought to be given full effect. It is not uncommon to see directors of one company being directors in another company. Under such circumstances, to disqualify directors permanently and not allowing them to avail of their DINs and DSCs could render the Scheme itself nugatory. In order to enable the Petitioners to continue the business of the active company, the disqualification of the Petitioners as Directors is set aside. The DINs and DSCs of the Petitioners are directed to be reactivated, within a period of three working days

5.7.1.2

KARNATAKA HIGH COURT

Yashodhara Shroff v Union of India [High Court of Karnataka/Bengaluru/2017/ Sec 164(2) of the Companies Act,2013; (12.06.2019)]. The relevant extracts of the order are set out below: “Summary of Conclusions: 208. In view of the aforesaid discussion, I have arrived at the following conclusions: (a)

It is held that Section 164(2)(a) of the Act is not ultra vires Article 14 of the Constitution. The said provision is not manifestly arbitrary and also does not fall within the scope of the doctrine of proportionality. Neither does the said provision violate Article 19(1)(g) of the Constitution as it is made in the interest of general public and a reasonable restriction on the exercise of the said right. The object and purpose of the said provision is to stipulate the consequence of a disqualification on account of the circumstances stated therein and the same is in order to achieve probity, accountability, and transparency in corporate governance.

(b)

That Section 164(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-disqualification and this is not in violation of the principles of natural justice and hence, is not ultra vires Article 14 of the Constitution.

(c)

That Section 164(2)(a) of the Act does not have a retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the same.

(d)

That there has been an arbitrary exercise of power by the respondent authority in disqualifying the petitioners as directors of public companies by taking into consideration the period prior to 01.04.2014 as well as subsequent thereto for the purpose of reckoning the continuous period of three financial years. It is observed

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that even in respect of public companies, having regard to the nature of the consequences envisaged under section 164(2) of the Act as compared to Section 274(1)(g) of the 1956 Act, the period prior to 01.04.2014 and subsequent thereto could not have been considered for reckoning three continuous financial years for disqualifying the directors of public companies. Such disqualification is hence quashed.(e) Insofar as the private companies are concerned, disqualification on account of the circumstances stated under section I64(2)(a) of the Act has been brought into force for the first time under the Act and the consequences of disqualification could not have been imposed on directors of private companies by taking into consideration any period prior to 01.04.2014 for the purpose of reckoning continuous period of three financial years under the said provision. The said conclusion is based on the principle drawn by way of analogy from Article 20(1) of the Constitution as, at no point of time prior to the enforcement of the Act, a disqualification based on the circumstances under section 164(2) of the Act was ever envisaged under the 1956 Act vis-a-vis directors of private companies. Such a disqualification could visit a director of only a public company under Section 274(1)(g) of 1956 Act and never a director of a private company. Such disqualification of the petitioners who are directors of private companies is hence quashed. (f)

But, if any disqualification of directors of public companies has occurred under the 1956 Act, i.e., prior to 01.04.2014, the same would result in an ineligibility under section 164(2) of the Act on account of the retro-active operation of the Section.

(g)

Consequently, where the disqualification under section 164(2)(a) of the Act is based on a continuous period of three financial years commencing from 01.04.2014, wherein financial statements or annual returns have not been filed by a public or private company, the directors of such a company stand disqualified and the consequences of the said disqualification would apply to them under the Act.

(h)

That section 167(1)(a) of the Act is not ultra vires Article 14 and/or Article 19(1)(g) of the Constitution. The said provision is saved under Article 19(6) thereof.

(i)

The proviso to section 167(1)(a) of the Act is not ultra vires Articles 14 or 19(1)(g) of the Constitution as being manifestly arbitrary having regard to the interpretation made above.

(j)

Further, the amendment to Section 167(1)(a) of the Act, by insertion of the proviso is by virtue of the Amendment Act, 2017 is subsequent to the date on which the petitioners were disqualified, which in most cases is 01.11.2016 or at any rate prior to 07th May 2018. That the said proviso has only a prospective effect and cannot have a retrospective operation. Thus, in respect of the petitioners who were disqualified prior to the date of enforcement of the amended provision, that portion of the proviso namely “office of the director shall become vacant in all the companies” is not applicable to those petitioners. Hence, the 5.25

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petitioners herein, (who may have also been granted interim orders by this Court) continue to hold office as directors in the defaulting company as well as all other companies. This is in consonance with the interpretation placed on the proviso and petitioners would not vacate the office in all other companies in which they are directors as the proviso does not apply to the petitioners who were all disqualified prior to 07th May 2018, as the amendment, by way of an insertion of proviso, has only a prospective operation. (k)

It is clarified that the operation of the proviso under section 167(1)(a) of the Act being prospective in nature, any disqualification of any director of a public company or a private company prior to 07th May 2018, would not result in such director vacating the office of the director in all other companies in which the disqualified director is a director. However, the director of the company in default would continue to hold office as a director even in respect of the defaulting company. The proviso to the above extent only is by way of a clarification so as to avoid an absurdity as otherwise, all the directors of the defaulting company would have to vacate office which would result in the company being bereft of directors and have a cascading effect and there would be no compliance of section 164(2)(a) by such a company. Hence, the expression “other than the company which is in default” in the proviso to Section 167(1)(a) would imply that the director of a defaulting company who has suffered disqualification need not vacate his office of the director in the defaulting company.

(l)

Consequently, proviso to Section I67(1)(a) of the Act having a prospective operation would affect only those directors who are disqualified on or after 07th May 2018 insofar as vacating office of director other than the defaulting company is concerned.

(m) It is held that the directors of the struck off companies under section 248 of the Act do not per se get disqualified. But, if the said company has also not complied with Section 164(2)(a) of the Act, then the said company being a defaulting company, the directors of such a company get disqualified in terms of the discussion made above. 209. In the result, I pass the following order: ORDER (i)

Where the disqualification of the petitioners is based by taking into consideration any financial year “prior to 01.04.2014 as well as subsequent thereto” while reckoning continuous period of three financial years under section 164(2)(a) of the Act, irrespective of whether the petitioners are directors of public companies or private companies, such a disqualification being bad in law, the Writ Petitions are allowed and the impugned List is quashed to that extent only;

(ii)

If the disqualification of the directors is based by taking into consideration any financial year prior to 01.04.2014 only i.e., the disqualification has occurred

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under the provisions of the 1956 Act in respect of the public companies, the writ petitions are dismissed; (iii) If the disqualification of the directors is based by taking into consideration three continuous financial years subsequent to 01.04.2014, irrespective of whether the petitioners are directors of public companies or private companies, they stand disqualified under the Act; (iv) Where the disqualification of the petitioners is based by taking into consideration any financial year prior to 01.04.2014 in respect of private companies, such disqualification being bad in law, the writ petitions are allowed to the aforesaid extent only; (v)

The Writ Petitions, wherein the challenge is also made to the vires of section 164(2)(a), and/or 167(1)(a) and/or proviso to Section 167(1)(a) of the Act, are dismissed to the aforesaid extent;

(vi) The respondents are directed to restore the DIN of those directors whose disqualification has been quashed by this Court; (vii) Those petitioners who have challenged only the striking off of the companies in which they are directors have an alternative remedy of filing a proceeding before National Company Law Tribunal (NCLT) under section 252 of the Companies Act, 2013, which provides for an appeal to be filed within a period of three years from the date of passing of the order dissolving the company under section 248 of the Act. Hence, those Writ Petitions are dismissed reserving liberty to those petitioners who are aggrieved by the dissolution of the companies under section 248 of the Act (Struck off companies) to approach NCLT, if so advised; (viii)

5.7.1.3

Parties to bear their own costs.

KERALA HIGH COURT

Prof M.K.Sanno v State of Kerala Kerala High Court/Ernakulam/2020/ Sec 164(2) of the Companies Act,2013; (05.01.2021) Issues: The petitioner seeks the following reliefs: 1.

Declare that the respondents 4 to 7 are disqualified under Sec164(2) of the Act to act as directors of the respondent no.3.

2.

Pass an order restraining respondent no 4 to 7 from functioning as directors of respondent no.3

3.

Appoint an administrator and to conduct election of Board of Directors of respondent no. 3

4.

Issue a writ of Mandamus or any other appropriate writ or direction commanding respondent No.1 to consider and pass orders.

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Held: Disqualification of Directors for reappointment or appointment in any Company is a serious matter affecting rights of Directors to hold office of the Director not only in the defaulted company but also in other companies. Therefore, it will not be advisable and would indeed be improper to declare that respondents 4 to 7 are disqualified for reappointment in the Yogam, in view of section 164(2) of the Companies Act, 2013 in the absence of sufficient pleadings. This Court finds that the allegations made by the petitioner have strong legal footing and the petitioner had brought this issue before the competent authority. The issue therefore, has to be examined by the competent authority. The petitioner has approached the 2 nd respondent filing Ext.P4 petition seeking to remove the disqualified Directors of the Yogam, including respondents 4 to 7, in the light of section 164(2) of the Companies Act, 2013. The writ petition is disposed of directing the 2nd respondent to consider and take a decision on Ext.P4 petition submitted by the writ petitioner

5.7.1.4

TELANGANA HIGH COURT

Parameswara Reddy Sura v Union of India Telangana High Court/2019/ Sec 164(2) of the Companies Act,2013 and Companies (Appointment and Qualification of Directors), Rules, 2014; (18.07.2019) Facts: The petitioners are the directors of the private companies, registered under the Companies Act, 2013 (18 of 2013) (for short 'the Act'). Some of the such companies are active, and some of them have been struck off from the register of companies under section 248(1)( c ) of the Act. The petitioners, who were directors of the struck off companies, and who are presently directors of active companies, during the relevant period in question, failed to file financial statements or annual returns for a continuous period of three years. Issues: The contention of the learned counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the Rules, the DINs cannot be cancelled or deactivated, and the violation mentioned under section 164(2)(a) of the Act, is not one of the grounds mentioned under clauses (a) to (f) of Rule 11, and hence for the alleged violation under section 164(2)(a) of the Act, DIN cannot be cancelled. Held: In view of the above facts and circumstances and the judgment referred to supra, the deactivation of the DINs of the petitioners for alleged violations under section 164 of the Act, cannot be sustained. For the foregoing reasons, the impugned orders in the writ petitions to the extent of disqualifying the petitioners under section 164(2)(a) of the Act and deactivation of their DINs, are set aside, and the 2nd respondent is directed to activate the DINs of the petitioners, enabling them to function as Directors other than in strike off companies. Further, It is made clear that this order will not preclude 5.28

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the 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under section 164(2) of the Act, giving the said provision prospective effect from 01.04.2014 and for necessary action against DIN in case of violations of Rule 11 of the Rules. It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off their companies under section 248 of the Act, they are at liberty to avail alternative remedy under section 252 of the Act.

5.7.1.5

ALLAHABAD HIGH COURT

Mohd. Tariq Siddiqui & Anr. vs U.O.I. Thru Secy. Ministry Of Corporate Affairs [Allahabad High Court/ 2019/ Sec 164(2) of the Companies Act,2013; (15.10.2019)] Facts: This batch of writ petitions has been filed to challenge the de-activation of the Director Identification Number by invoking Section 164(2) of the Companies Act, 2013 with a direction to activate the Director Identification Number allotted to the petitioners Held: In view of above, the writ petitions for challenge to the de-activation of the Director Identification Number are allowed. It was de-activated on account of dis-qualification in one company effecting Director Identification Number for the other companies. The opposite parties are directed to activate the Director Identification Number for use for other company

5.7.1.6

MADRAS HIGH COURT

Khushru Dorab Madan vs Union Of India [Madras High Court/2020/ Sec 164(2) and 167 of the Companies Act,2013 and Companies (Appointment and Qualification of Directors), Rules, 2014; (27.01.2020)] Issues: The second respondent released a list of disqualified Directors, who had been disqualified under section 164(2)(a) of the Companies Act 2013. The name of the petitioner found place in the list. By virtue of such disqualification, the petitioner was prohibited from being appointed or reappointed as a Director in any other Company. The petitioner claimed that he had not been given notice prior to such disqualification. Moreover, the Director Identification Number of the petitioner was also deactivated. Held: The Judgments relied on by the petitioners pertain to a fact situation where the three financial years commenced prior to 2014-2015 and since the Act is prospective in nature, the Courts have held that the notification has to be struck down and prior notice has to be given.

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In the present writ petition, the three financial years 2014-2015, 2015-16 and 2016-17 have been completed and since annual returns / financial statements have not been filed, disqualification automatically follows and when disqualification is incurred, deactivation of Director Identification Number also automatically follows. G. Vasudevan v Union of India [Madras High Court/2019/ Sec 164(2) and 167 of the Companies Act,2013; (02.10.2019)] Issue: The petitioner is a Company Secretary. The petitioner herein had previously challenged the impugned proviso before this Court through. However, the same was withdrawn later with the permission of the Court as the same was filed in the nature of a Public Interest Litigation. The petitioner has subsequently filed the instant writ petition. It is to be noted that the petitioner was not granted any liberty to institute a fresh petition for the same relief upon the earlier writ petition being withdrawn. The permission to withdraw the Public Interest Litigation was granted by this Court, without prejudice to the rights of any person aggrieved or otherwise entitled to file such a petition relating to the vires of the proviso, which has been questioned herein. Even though the present petition is not labelled as Public Interest Litigation, it in fact is a Public Interest Litigation. The petitioner's rights have not been in any manner affected by the insertion of the proviso in as much as the petitioner is not a Director in any company and has not had to vacate his office by virtue of the proviso inserted in section 167(1)(a) of the Companies Act by the Companies (Amendment) Act 2017. The petitioner therefore has no locus to institute the present writ petition Held: The Court has held that the proviso can be justified on two grounds. Firstly, it has been reiterated that the exclusion of Directors from vacating their posts in the defaulting company while doing so in all other companies where they hold Directorship has been done in order to prevent the anomalous situation wherein the post of Director in a company remains vacant in perpetuity owing to automatic application of section 167(1)(a) to all newly appointed Directors. Secondly, the underlying object behind the proviso to Section 167(1)(a) is seen to be the same as that of section 164(2) both of which exist in the interest of transparency and probity in governance. Owing to these justifications, the Court thus holds that the proviso to Section 167(1)(a) is neither manifestly arbitrary fundamental rights guaranteed under Part III of the Constitution of India. Bhagavan Das Dhananjaya Das v UOI and ROC, W.P.No.25455 of 2017, In the High Court of Judicature at Madras] “Petition under Article 226 of the Constitution of India, praying for the issue of a Writ of Certiorari and Mandamus, calling for the records of the second respondent relating to the impugned order dated 08.09.2017 uploaded in the website of the first respondent in so far as the petitioner herein is concerned, quash the same as illegal arbitrary and devoid of merit and consequentially direct the respondent herein to permit petitioner

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to get reappointed as Director of any company or appointed as Director in any company without any hindrance. …. 17. All the parties have admitted that no person who is or has been a director of a company which has not filed the financial statements or annual returns for a continuous period of three financial years, shall be eligible to be reappointed as a director of that company or appointed in any other company fora period of five years from the date on which the said company fails to do so. To disqualify a director under section 164(2)(a), it has to be established that three consecutive defaults have occurred for not filing the financial statements. To find out the three consecutive defaults, it is necessary to find out which is the first default. The expression “financial year” as defined under section 2(41) of the 2013 Act in relation to any company or body corporate, means the period ending on 31st day of March every year and where it has been incorporated on or after the first day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up. To follow the first condition, it is also necessary to refer to Section 164 of the 2013 Act, as notified on 1.4.2014, which envisages the disqualification of directors. The corresponding new section under the 2013 Act viz., Section 164(2)(a) uses the word “company” as against “public company” that was used under section 274(1)(g) of the 1956 Act. It is also relevant to see that Section 274(1)(g) of the 1956 Act dealt with the disqualification of directors and the comparison of both the sections spell out the following:Section 274(1)(g) of the 1956 Act w.e.f.13.12.2000 Section 164(2)(a) of the 2013 Act w.e.f.01.04.2014 18. A careful reading of section 274(1)(g) of the 1956 Act, which came into effect from 13.12.2000, clearly states that “three financial years commencing on and after the first day of April, 1999”, whereas the new Section 164(2)(a) of the Companies Act 2013 uses the expression “for any continuous period of three financial years”. Therefore, when it is an admitted fact that Section 164(2)(a) was made effective from 1.4.2014, as per Section 2(41) of the 2013 Act, the first financial year for the purpose of section 164 of the 2013 Act would be 31.3.2015 viz., from 1.4.2014 to 31.3.2015. Therefore, the second financial year would be from 1.4.2015 to 31.3.2016 and the third financial year would be from 1.4.2016 to 31.3.2017. While so, the respondents in para22 of the counter affidavit have stated that all the petitioners have committed default with regard to the filing of the statutory returns for the financial years 2013-14, 201415 and 2015-16. The relevant averment in paragraph-22 of the counter reads as follows:“22....Therefore, the petitioners have not approached this Hon'ble Court with clean hands as the petitioners are at default with regard to filing of the statutory returns for the financial years 2013-14, 2014-15 and 2015-16. The petitioners thence do not deserve any relief, much less removing of disqualification, which has occurred as per the operation of law due to their own mistake...”

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19. When Section 164 of the 2013 Act was made effective only from 1.4.2014 and Section 2(41) of the said Act defines the term “financial year”, as follows, “S.2(41) “financial year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up: Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year: Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause.”, the first financial year commences only from 1.4.2014 to 31.3.2015. Therefore, the first and second respondents have wrongly taken the previous financial year i.e., 1.4.2013 that is not contemplated in section 164(2)(a) of the 2013 Act either expressly or by implication that the financial year would be from 1.4.2013. The Registrar of Companies being a statutory body cannot be allowed to misconstrue the provisions of a statute which infringes the fundamental rights of the petitioners. Hence the writ petitions filed under Article 226 of the Constitution of India, which is the only remedy available to the petitioners, are maintainable and the wrong interpretation of section 164(2)(a) of the 2013 Act for wrongly disqualifying the petitioners to be eligible to be appointed as director of that company or to be appointed in any other company for a period of five years by taking into account the default in filing of annual returns or financial statements even before the provision came into force by the second respondent, is bad in law. 20. The said mistake committed by the statutory body in miscalculating the three consecutive financial years contemplated under section 164(2)(a) can be again seen in paragraph-15 of the counter affidavit, which reads as follows:- “15. I submit that the petitioner/petitioners, as on the date of disqualification, was/were directors in defaulting companies. On verification of the statutory returns filing position for the financial years 2013-14, 2014-15 and 2015-16, it was found that the defaulting companies in which the petitioners are directors, failed to file the statutory returns for the financial years 2013-14, 2014-15 and 2015-16. In view of the said failure the petitioners have become disqualified due to the operation of law under section 164(2)(a) of the Companies Act, 2013.” 21. A careful reading of the above paragraph clearly shows that the second respondent has wrongly applied Section 164(2)(a) of the 2013 Act to disqualify the petitioners as eligible to be appointed as director of that company or reappointed in any other company for a period of five long years, hence, the impugned orders, per se, on the face of it, glaring apparently, are liable to be set aside.

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22. Even the disqualification cannot be given retrospective effect, as admittedly the provisions of the Act came into effect from 1.4.2014. The grievance of the petitioners shows that the Registrar of Companies, the second respondent herein has given effect to the provisions of the Act with retrospective effect and disqualified the petitioners from 1.11.2016 itself. As mentioned above, the first financial year is from 1.4.2014 to 31.3.2015 and the second and third financial years would be from 1.4.2015 to 31.3.2016 and from 1.4.2016 to 31.3.2017 respectively. As Section 164(2)(a) also refers to the annual return or financial statement, Section 92(4) of the new Act has given sixty days time limit to file the annual return from the annual general meeting or the last date on which the annual general meeting to be held viz., on or before 29.11.2017. For ready reference, Section 92(4) is extracted hereunder:- “92.Annual return.--(4) Every company shall file with the Registrar a copy of the annual return, within sixty days from the date on which the annual general meeting is held or where no annual general meeting is held in any year within sixty days from the date on which the annual general meeting should have been held together with the statement specifying the reasons for not holding the annual general meeting, with such fees or additional fees as may be prescribed.” 23. In the light of the above section, when the annual general meeting for the year ending 31.3.2017 can be conducted within six months from the closing date of financial year i.e., 30.9.2017 for private companies, the third financial year would be ending on 31.3.2017 and the last date for convening the annual general meeting is 30.9.2017. Again the last date for filing the annual return is 29.10.2017 and the balance sheet could be filed on 30.10.2017. When this is the legal position, as per Section 164 of the 2013 Act, the disqualification of directors of a private company can get triggered only on or after 30.10.2017, hence, the list of disqualified directors published on the website of the first respondent in September, 2017 has no legal legs to stand up to the scrutiny of the Court under Article 226 of the Constitution of India. 24. Moreover, the General Circular No.08/14 dated 4.4.2014 issued by the Ministry of Corporate Affairs also helps the case of both sides with regard to the applicability of the relevant financial years. It is relevant to extract the contents of the said circular as follows:“A number of provisions of the Companies Act, 2013 including those relating to maintenance of books of account, preparation, adoption & filing of financial statements (and documents required to be attached thereto), Auditors reports and the Board of Directors report (Board's report) have been brought into force with effect from 1st April, 2014. Provisions of Schedule II (useful lives to compute depreciation) and Schedule III (format of financial statements) have also been brought into force from that date. The relevant Rules pertaining to these provisions have also been notified, placed on the website of the Ministry and have come into force from the same date. The Ministry has received requests for clarification with regard to the relevant financial year with effect from which such provisions of the new Act relating to maintenance of books of account, preparation, adoption and filing of financial

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statements (and attachments thereto), auditors report and Board's report will be applicable. Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the financial statements (and documents required to be attached thereto), auditors report and Board's report in respect of financial years that commenced earlier than 1st April, 2014 shall be governed by the relevant provisions/schedules/rules of the Companies Act, 1956 and that in respect of financial years commencing on or after 1st April, 2014, the provisions of the new Act shall apply.” 25. A perusal of the same clearly shows beyond any iota of doubt that the financial statement, auditor's report and board's report in respect of financial years that commenced earlier than 1st April, 2014 shall be governed by the relevant provisions/schedules/rules of the Companies Act, 1956 and that in respect of financial years commencing on or after 1st April 2014, the provisions of the new Act shall apply. This general circular issued after the amendment Act came into effect from 1.4.2014 has clarified the position beyond any pale of doubt as to the applicability of the relevant financial year. Inasmuch as the first respondent also has issued a General Circular No.08/14 stating that in respect of the financial year commencing on or after 1st April 2014, the provisions of the new Act shall apply, it is not known how the second respondent has applied the wrong financial year with effect from 1.4.2013, in a way to give retrospective effect. In this context, it is more relevant to refer to the ratio laid down by the Constitution Bench of the Apex Court in Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited, (2015) 1 SCC 1, wherein it has been observed as follows:-“General Principles concerning retrospectivity 27. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of ‘Interpretation of Statutes’. Vis-à-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof. 28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow’s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. …..

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De-registration, Striking off of Companies and Director Disqualification

26. …. Therefore, when the General Circular No.08/14 dated 4.4.2014 issued by the first respondent also has made it clear that in respect of the financial year commencing on or after 1st April 2014, the provisions of the new Act shall apply, the first financial year for the purpose of section 164(2)(a) shall be 1.4.2014 to 31.3.2015 and the second and third financial years would be from 1.4.2015 to 31.3.2016 and from 1.4.2016 to 31.3.2017 respectively. Moreover, the submission made by Mr.T.K.Bhaskar that the petitioner-directors cannot be disqualified had the respondents taken into consideration the additional period of 270 days available as per the first and second provisos to Section 403 of the Companies Act, 2013, as they stood prior to amendment…… 27. Coming to the violation of the principles of natural justice before invoking Section 248(1) of the Companies Act, 2013 for striking off and Section 164(2)(a) dealing with the disqualification of directors, the respondents have no doubt issued public notice from 5.7.2017. Illustratively, in W.P.No.25455 of 2017, when a notice under section 248 of the Companies Act, 2013 for striking off the name of the company from the register of members for non-filing of the annual returns for a continuous period of three financial years was issued, on receipt of the same, the petitioner also conveyed its no objection for striking off the name, since there was no intention to revive the company by its letter dated 1.6.2017. Thereafter, the name of Birdies and Eagles Sports Technology Private Limited was struck off under section 248 of the Companies Act, 2013 by a gazette notification dated 5.7.2017. The notice dated 18.3.2017 in W.P.No.25455 of 2017 is under section 248(1) of the 2013 Act for striking off the name of the company from the register of companies stating that the company has not been carrying on any business or operation for a period of two financial years. The notice purported to be sent by the second respondent on 24.8.2017 is only for the purpose of calling for explanation as to why the company should not be struck off from the register of members, since the company has not been carrying on any business or operation for a period of two financial years, whereas Section 164(2)(a) deals with the disqualification of the directors of that company or in any other company for a period of five years for not filing the financial statement and annual return for a continuous period of three financial years. The purpose of giving an opportunity of hearing is to prevent injustice. In the cases on hand, the petitioners have been greatly prejudiced by the action of the second respondent, as they cannot function as directors not only in the company from which they are disqualified, but also in any other company which is in compliance of the provisions of the new Act. It may be noted here that a company can be struck off if that company has not been carrying on any business for a period of two financial years and if their directors had not filed the financial statements or annual returns for any continuous period of three financial years, they shall be, no doubt, disqualified to be reappointed as a director of that company for a period of five years from the date on which the said company fails to do so, whereas for disqualification of the directors under section 164(2)(a), there must be a default for not filing the financial statement or annual return for a continuous period of three financial years. For instance, if the company has not been carrying on business for two financial years viz., year ending on 31.3.2015 and 31.3.2016, after giving due notice, the name of the company can be struck off, whereas the director cannot be 5.35

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disqualified, because only two financial years have ended. But for disqualification, there should be three financial years. This vital aspect also has been completely lost sight of by the second respondent and to avoid any such grave injustice, the second respondent, in my considered opinion, ought to have sent show cause notices to the petitioners before taking any action, as it affect their right to continue as directors in other companies which are complying with the provisions of law. Here again, the Constitution Bench of the Apex Court in A.K.Kraipak and others v. Union of India, AIR 1970 SC 150, reiterating the rule of the principles of natural justice, observed as follows:- “The aim of the rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. In other words they do not supplant the law of the land but supplement it. The concept of natural justice has undergone a great deal of change in recent years. In the past it was thought that it included just two rules, namely (1) no one shall be a judge in his own cause (Nemo debet esse jndex propria cause), and (2) no decision shall be given against a party without affording him a reasonable hearing (Audi alter partem). Very soon thereafter a third rule was envisaged and that is that quasi-judicial enquiries must be held in good faith without bias and not arbitrarily or unreasonably But in the course of years many more subsidiary rules came to be added to the rules of natural justice. Till very recently it was the opinion of the courts that unless the authority concerned was required by the law under which it functioned to act judicially there was no room for the application of the rules of natural justice. The validity of that limitation is not questioned. If the purpose of the rules of natural justice is to prevent miscarriage of justice one fails to see why those rules should be made inapplicable to administrative enquiries. Often times it is not easy to draw the line that demarcates administrative enquiries from quasi-judicial enquiries. Enquiries which were considered administrative at one time are now being considered as quasi-judicial in character. Arriving at a just decision is the aim of both quasijudicial enquiries as well as administrative enquiries. An unjust decision in an administrative enquiry may have more far reaching effect than a decision in a quasijudicial enquiry. As observed by this Court in Suresh Koshy George v. University of Kerala,….. 29. In fine, (a) When the New Act 2013 came into effect from 1.4.2014, the second respondent herein has wrongly given retrospective effect and erroneously disqualified the petitioner-directors from 1.11.2016 itself before the deadline commenced wrongly fixing the first financial year from 1.4.2013 to 31.3.2014. (b) By virtue of the new Section 164(2)(a) of the 2013 Act using the expression “for any continuous period of three financial years” and in the light of section 2(41) defining “financial year” as well as their own General Circular No.08/14 dated 4.4.2014, the first financial year would be from 1.4.2014 to 31.3.2015, the second financial year would be from 1.4.2015 to 31.3.2016 and the third financial year would be from 1.4.2016 to 31.3.2017, whereas the second respondent clearly admitted in paras 15 and 22 of the counter affidavit that the default of filing statutory returns for the financial years commenced from 2013-14, 2014-15 and 2015-16 i.e., one year before the Act 2013 came into force. This is the basic incurable legal infirmity that vitiates the entire impugned proceedings. 5.36

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(c) By virtue of the first proviso to Section 96(1) of the 2013 Act, Annual General Meeting for the year ending on 31.3.2017 can be held within six months from the closing of financial year i.e., 30.9.2017, additionally in the light of section 164(2)(a) referring to “annual return” and “financial statement”, the time limit to file annual return under section 92(4) of 2013 Act is sixty days from Annual General Meeting or the last date on which Annual General Meeting ought to have been held, hence, the time limit to file balance sheet under section 137(1) of the 2013 Act is again thirty days from Annual General Meering. Therefore, in view of these legal position, the disqualification could get triggered off only on or after 30.10.2017 only, if any company fails to file annual forms for three financial years. Importantly, it is to be borne in mind that even beyond that time limit, additional time limit of 270 days was available by virtue of the then first proviso to Section 403. (d) Although there is no statute or provision expressly spelling out the observance of the principles of natural justice against disqualification of directors, as the legal right of the petitioners to continue as director in other company or to be reappointed in any other company, which are scrupulously following the provisions of the Companies Act, have been deprived of, the principles of natural justice should have been adhered to by issuing proper notice to all the directors. (e) When the disqualification clause was not attracted to the directors of private companies under the old Act of 1956, the same cannot be allowed to take a retrospective effect under the new Act, when the provision of section 164(2)(a) came into force only from 1.4.2014. This is also for one more reason that the failure to file the annual returns has been adequately taken care of by the penal provision under section 92, making it clear that every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both. Again under section 137, the failure to file the financial statement visits punishment with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both. Further, under section 441(4), the default in filing returns or accounts compoundable by Tribunal or Regional Director or by any officer authorized by the Central Government. (f) In view of the above legal position, when the default in filing the accounts or returns are made as compoundable offence, Section 164(2)(a) providing the disqualification of director of private company not only in the defaulting company, but also from other company in which the petitioner is a director, diligently and meticulously following every provision of law, is certainly disproportionate to the lapse, as it is only regulatory in nature, because, notice to be sent under section 248(1) of the Companies Act, 2013 by the Registrar of Companies for striking off the name of the company from the Registrar of Companies on the premise that the company has not been carrying on any business for a period of two financial years, is different from the disqualification under section 164(2)(a), inasmuch as a company can be struck off, if the company has not been carrying on any business for a period of two financial years, whereas for disqualification, the criteria is three financial years. Therefore, in my considered 5.37

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opinion, although the petitioners have not challenged the provision of section 164(2)(a), as the respondents have not followed the principles of natural justice, extinguishing the corporate life of the directors to the extent of disqualifying them to hold the directorship in the other companies, the said provision is liable to be read down, hence, Section 164(2)(a) is read down to the extent it disqualifies the directors in other companies which are scrupulously following the requirements of law, making it clear that no directors in other companies can be disqualified without prior notice. (g) However, it is made clear beyond any pale of doubt that the mischief of removal of the names of the companies by the Registrar of Companies and the disqualification of the directors in the defaulting company will go together, as it is inseparable, and the Registrar of Companies need not give fresh notice to the directors for their disqualification from the dormant company, if there is a failure to file the financial statement or annual return for any continuous period of three financial years as per Section 164(2)(a). 30. For all the aforementioned reasons, the impugned orders are set aside and the writ petitions shall stand allowed. Consequently, all the connected writ miscellaneous petitions are closed. However, there shall be no order as to costs. 31. Since this Court at the time of entertaining the writ petitions viz., in W.P.Nos.6896 of 2018 etc., vide order dated 26.3.2018 had directed the deposit of Rs.30,000/- and any other charges which are payable under the CODS 2018 Scheme in the Registry of this Court to the credit of their respective writ petitions by way of fixed deposit receipts in the name of the Registrar General for a period of one year, the Registrar General of this Court is directed to transmit the said deposits to the Registrar of Companies, Tamil Nadu, Chennai to reconcile the same to the respective accounts of the companies.”

5.7.1.7

GUJARAT HIGH COURT

Gaurang Balvantlal Shah v Union of India [Gujarat High Court/2018/ Sec 164(2) of the Companies Act,2013 and Companies (Appointment and Qualification of Directors), Rules, 2014; (18.12.2018)] Sec 164(2) of the Act would have a prospective effect rather than retrospective effect and therefore the Directors Identification number can be cancelled only on the grounds mentioned in Rule 11 of Companies (Appointment and Qualification of Directors), Rules, 2014. The Hon’ble High Court ruled that:

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1.

Sec164(2) of the Act would have prospective effect and not retrospective effect.

2.

The defaults under Sec164(2)(a) for non-filing of financial statements and annual returns for a continues period of three financial years.

Chapter 5

3.

5.7.1.8

De-registration, Striking off of Companies and Director Disqualification

In absence of any particulars showing resignation tendered and accepted as per law, director not be exempted from duty to discharge statutory liabilities.

BOMBAY HIGH COURT

Satish Kumar Gupta Versus Union of India and Anr. … Respondents [Bombay High Court/2020/Section 164(2) of the Companies Act, 2013 -WRIT PETITION NO.1224 OF 2018) The government conceded to the following position of directors of defaulting companies “Mr.Singh has invited our attention to para 191 of this judgment to urge that the Government argued that the proviso to Section 164(2) is only clarificatory in nature and, therefore, it has retrospective operation, by which, the petitioners would continue as directors of the defaulting company, but they would vacate office in all other companies. This position is envisaged even under section 167(1) clause (a) of the Act and, therefore, the proviso only clarifies that the directors of the defaulting company would not vacate the office in the defaulting company in order to ensure that the defaulting company is not left without any director.” As regards the question of granting interim relief of stay on disqualification of directors, the same was disallowed with following observations: “164. Additionally, prima facie we find that when the Section is containing a marginal heading “disqualification for appointment”, by sub-section (2) it covers a case of a person who has been a director of a company. If such a company has not filed financial statements or annual returns for any continuous period of three financial years, then, as further noted in the Section, the disqualification is incurred. He cannot be appointed in other company also for a period of five years from the date on which the defaulting company fails to do so. The office of the director will become vacant in terms of section 167, if the disqualifications are incurred. The proviso is inserted to clause (a) of sub-section (1) of section 167 with effect from 7th May, 2018. There, it is said that when the disqualification is incurred under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section. 11. Prima facie, the queries that were posed in our order that the restriction is only on re-appointment and not from continuing as a director of the defaulting company would mean that a director would continue until the end of the extant term, but would not be eligible for reappointment for another five years thereafter. Further, if such a director had been appointed within” six months of the company becoming a defaulting company, he would not incur disqualification. The query that we raised with regard to interpretation of section 167 sub-section (1) clause (a) is also in consonance with the intent of the legislation and we are of the opinion that the stand of the Central Government before the Karnataka High Court would sufficiently protect the interest of the petitioners before us. Section 167(1)(a) is also considered when this Court raised the above queries. Once the queries themselves denote that the Court was of the prima facie opinion that the re-appointment of director of that company, which has not filed 5.39

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financial statements or annual returns for any continuous period of three financial years would mean that the person can continue as noted in the order passed on 15th October, 2019 till the end of the extant term, but would not be eligible for re-appointment for another five years thereafter, then, there is sufficient opportunity to enable him to correct the affairs of that company. As far as Section 167(1)(a) is concerned, there, the vacancy would not occur in the case of a director, who has incurred the disqualifications specified in section 164 more so, when he incurs that disqualification is sufficiently set out in the statute itself and in the order passed on 15th October, 2019. Therefore, the following order would sub-serve the ends of justice. 12. As far as the arguments on the applicability of principle of retrospectivity or that Section 164 could not have a retrospective operation, prima facie, with respect, we do not think that it will be proper to accept the interpretation based on the provision by Mr.Andhyarujina for the simple reason that it is filing of the financial statements or annual returns, which is contemplated in clause (a) of sub-section (2). If the company, in which the person is or has been a director, has not filed financial statements or annual returns for any continuous period of three financial years, on the date on which the company fails to do so, the disqualification is incurred. It is a ministerial or administrative act of filing which is to be performed by the Company. Therefore, if such financial statements or annual returns for any continuous period of three financial years have not been filed, then, the action is triggered. 13. Prima facie, we do not think that the Circular which has been issued by Ministry of Corporate Affairs and the notice dated 7th September, 2017 is in any way inconsistent or contravening the position emerging from the plain reading of this section. In the event, there is any inconsistency, then, statute must prevail. The Circulars are issued by the members of the Executive and is the same is position qua notices of the Department. However, the interpretation of the legal provision is a job or task to be performed by the Court and understanding of the legal provisions by a member of Executive or any Executive functionary cannot be a substitute for that exercise. The Court cannot rely upon them to interpret the legal provisions. The interpretation of the legal provisions must be based on the language of the statute. In such circumstances, we do not think that the interim relief as sought can be granted. A blanket stay or a relief having far reaching legal consequences as sought cannot be granted. The prayers in that behalf are rejected. However, the Section shall operate consistent with the observations by this Court in the forgoing paragraphs. The application for interim reliefs is disposed of in these terms. 14. We clarify that this order only expresses our tentative and prima facie view and shall not influence the Court while finally deciding the matter and particularly the Constitutional challenge.

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De-registration, Striking off of Companies and Director Disqualification

Shailendrajit Charanjit Rai & anr v The Registrar of Companies, Maharashtra, Mumbai & anr. Writ Petition No. 148 of 2018 The operative portion and rational of the order is set out below which has been followed in other similar writ petitions: “7.

Though several contentions have been raised challenging the impugned order of disqualification as a director but during the course of the arguments learned Counsel appearing for the petitioners have prayed that they will be satisfied in case this Court is willing to accept their contention about their entitlement for availing the benefit of CODS­2018. In this view of the matter we are not going into the matter of disqualification. All contentions thereto are kept open. We are inclined to adopt the view taken by the Delhi High Court in the facts and circumstances of the present case. Learned ASG has pointed out that the appeals against the order passed by the learned Single Judge of the Delhi High Court are pending. It is, however, pointed out that the operation of the order passed by the Delhi High Court has not been stayed. It is stated across the bar that in fact the order passed by the Delhi High Court is already implemented in several cases.

8.

Be that as it may, learned Counsel appearing for the petitioners have made an unequivocal statement, on instructions of the petitioners, that the petitioners are desirous of availing the CODS­2018. Learned Counsel appearing for the petitioners, on instructions, have submitted that they undertake not to revive in future the companies which were struck off from the register of company on account of non filing of requisite statements and annual returns.

9.

The petitioners were appointed as directors on the Board of Directors of the companies. The names of those companies were struck off from the register of the companies on account of failure to file requisite financial statements and annual returns. Furthermore, the petitioners submitted that the companies have not been carrying on business for more than three years. It is pointed out that the petitioners are also the directors on the Board of other companies, which are active and functional. As the names of the petitioners were included in the impugned list of disqualified directors, their role as directors is impeded in so far as other companies are concerned which are active and running. Learned Counsel for the petitioners undertake that they do not wish to revive the company of which they were directors and that they would take steps under section 248(2) of the said Act in consonance with the directives contained in Writ Petition (C) 11381 of 2017 of the Delhi High Court in the case of Trilokchand M. Kothari & ors. Vs. Union of India & ors. as also in the case of Sandeep Jain & anr. Vs. Union of India (supra)

10.

Furthermore learned Counsel for the petitioners submits that the petitioners would also like to avail the benefit of the CODS­2018.

11.

In this view of the matter and having regard to the submissions made by the learned Counsel, we are of the view that the petitions can be disposed of with

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the directions that the respondents will follow the directives contained in Trilokchand (supra). It is made clear that the directives contained therein will apply to the petitioners mutatis mutandis. 12.

The petitioners to take immediate steps in consonance with the provisions under section 248(2) of the said Act, 2013 and under the CODS­2018, in any case within a period of seven days from today.

13.

In order to facilitate this exercise, the operation of the impugned list, in so far as it concerns the petitioners, will remain stayed till 31/3/2018 or till such time the respondents take requisite decision with regard to the request of the petitioners made to them in consonance with the provisions under section 248(2) of the said Act, 2013 and under the CODS­2018.

14.

As indicated earlier, the petitioners forthwith to do the needful, in any case within a period of seven days from today. In addition thereto, for the present, the Registrar of Companies will also activate the petitioners’ DIN and DSC.”

5.7.1.9

Supreme Court

Stay on Order of Bombay High Court Granted by Apex Court The Registrar of Companies Maharashtra Mumbai & Anr. v Shailendrajit Charanjit Rai & Anr. [SLP (C) Nos. 18693 – 18703/018, SC] “UPON hearing the counsel the Court made the following ORDER Issue notice returnable within four weeks. There shall be stay of operation of the order passed by the High Court, in the meantime.”

♦♦♦♦

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Chapter 6

Variation of Shareholders’ Rights 6.1

INTRODUCTION

A shareholder has rights in the company by virtue of being the owner of the company. The rights are of different nature and some of them can be varied with the consent of shareholders. This chapter deals with law of variation of shareholders’ rights. Along-with sec 48, variation can also be done through a scheme of merger and amalgamation under sections 230 to 232 or by way of a scheme for revival and rehabilitation. This chapter briefly discusses about class rights and the concept of variation. It deals with variation more particularly from the perspective of sec 48. It explains the manner in which variation of rights can be carried out and the person who can object to it. It also deals with the instances and manner in which rights of shareholders can be varied and also the person who can object to the same.

6.2

OVERVIEW OF CHANGES

6.2.1

Companies (Amendment) Act, 2020

The Committee to Review Offences under the Companies Act, 2013 in its report dated August 2018 recommended that the penalties and imprisonment provisions with respect to sec 48 be retained. However, the legislature in its endeavour to decriminalize the Companies Act, 2013 has vide Companies (Amendment) Act, 2020 omitted sec 48(5) which provided for penal consequences. By virtue of the 2020 Amendment, the defaults under sec 48 are now brought under the in-house adjudication mechanism under sec 454 and there are civil consequences to the noncompliance of sec 48.

6.2.2

Additional approvals

Earlier under the Companies Act, 1956, approvals/consents were required only from those classes of shareholders whose rights were varied. Now, in the Companies Act, 2013, if variation by one class of shareholders affects the rights of any other class of shareholders, the consent of such other class of shareholders shall also be obtained. This remedy however, is available only with respect to the variation of rights of shareholders. Unlike other provision, this provision is not extended to other securities.

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6.2.3

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Wider scope of applicants

The members from whom approvals are to be sought have increased. This will impact the number of members who are eligible to apply for cancellation of variation. Further, this change will compel a relook at the old case laws that have narrowly interpreted the scope of the term “variation”. In this regard, sec 48 reads as under: “48. Variation of shareholders’ rights (1) Where a share capital of the company is divided into different classes of shares, the rights attached to the shares of any class may be varied with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or by means of a special resolution passed at a separate meeting of the holders of the issued shares of that class,— (a) (b)

if provision with respect to such variation is contained in the memorandum or articles of the company; or in the absence of any such provision in the memorandum or articles, if such variation is not prohibited by the terms of issue of the shares of that class:

Provided that if variation by one class of shareholders affects the rights of any other class of shareholders, the consent of three-fourths of such other class of shareholders shall also be obtained and the provisions of this section shall apply to such variation. (2) Where the holders of not less than ten per cent. of the issued shares of a class did not consent to such variation or vote in favour of the special resolution for the variation, they may apply to the Tribunal to have the variation cancelled, and where any such application is made, the variation shall not have effect unless and until it is confirmed by the Tribunal: Provided that an application under this section shall be made within twentyone days after the date on which the consent was given or the resolution was passed, as the case may be, and may be made on behalf of the shareholders entitled to make the application by such one or more of their number as they may appoint in writing for the purpose. (3) The decision of the Tribunal on any application under sub-section (2) shall be binding on the shareholders. (4) The company shall, within thirty days of the date of the order of the Tribunal, file a copy thereof with the Registrar. (5) Where any default is made in complying with the provisions of this section, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with 6.2

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Variation of shareholders’ rights

imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees, or with both.” This section is a modified version of sections 106 and 107 of the Companies Act, 1956. The proviso inserted in sec 48(1) may change the way the variation clause is interpreted and the person who can object to such variation. Variation is allowed under the new Act subject to one additional condition. This is to safeguard the interest of other classes of shareholders. To understand the concept of variation and the rights of dissentient shareholders, one needs to analyse and compare the old law and decisions with the new provisions.

6.3

WHAT ARE SHAREHOLDERS’ RIGHTS?

Before we understand variation of right, it is essential to know what rights are available with the shareholders and which of them can be varied. The term ‘right’ is defined in Ramanatha Aiyer’s ‘Law Lexicon’ as follows: Rights which are enjoyed by shareholders can be divided into two parts namely: (a) Statutory rights ie rights that are granted by statutes. For instance rights enjoyed by members by virtue of the Companies Act, the SEBI Act or any other Act. (b) Contractual rights ie rights granted under the articles, shareholders agreement, JV agreements etc.

6.3.1

Statutory rights

The rights enjoyed under the Companies Act by virtue of being a shareholder are of different types. There are several thresholds of shareholding that make a shareholder entitled to different kinds of rights. Even a single shareholder has rights and the nature and scope of these rights increases with the quantum of shareholding. Certain rights are available to a group of shareholders having shareholding of a particular range. The nature of these rights is discussed in details in the Schedule I.

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6.3.1.1 Can statutory rights be waived/varied? The court has recognized that some statutory rights can be waived. However, there are limitation and restrictions on the waiver of such rights. The rights that can be varied depends on its nature and the legislative intent behind insertion of the right. It will be tested on grounds that are set out herein below. N.R. Harikumar v WW Apparels (India) Private Limited and Ors. [MANU/TN/0894/2015 : 2015-2-LW987 : (2015)5MLJ422] “20. It is true that all rights, including statutory rights can be waived, provided no public interest is involved. A statutory right can be waived subject to certain conditions. But waiver must be specifically pleaded and the burden of proof is upon the party pleading the same to show that a waiver actually took place. Waiver should be a voluntary and intentional relinquishment of a known right, as held in Provosh Chandra Dalui v Biswanath Banerjee [MANU/SC/0422/1989: AIR 1989 SC 1834]. But the party to whom waiver is attributed should be aware of the right that he was waiving. 21. As held by the Privy Council in Vellayan Chettiar Vs Government of Province of Madras [MANU/PR/0049/1947: AIR 1947 PC 197] relied upon by the Respondents, individual rights flowing out of statutory provisions can also be waived. Therefore it is the stand of the Respondents that the preemptive right of purchase conferred by the Articles of Association and the mandatory provisions of Section 108 of the Companies Act, 1956 can also be waived.”

6.3.2

Contractual rights

The Companies Act governs only certain aspects of the functioning of the company. Within the contours of the Companies Act, the company is entitled to decide the rights that can be given to different kinds of shareholders. The key areas where rights of different nature are given are as follows: (a) Voting Rights: The nature of voting rights that can be given to different equity shareholders depends on the agreement with them. Some shareholders can have more votes per shares than others. In other cases, the shareholders can have veto rights. In such instances, without their affirmative vote certain decisions cannot be taken. Certain equity shares have an obligation to vote in a particular way. For instance, in certain management decisions of a joint venture company, shareholders have to vote in the same manner as their joint venture partner votes or in the same manner as a private equity investor votes. (b) Dividends: The rights to dividends can also vary with different kinds of preference and equity shares. Preference shares can be issued with different percentages of dividend. Similarly equity shares can also be issued with differential dividend policies. 6.4

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(c) Right to receive dividend in a particular country. (d) Repayment of capital.

6.4

WHAT CONSTITUTES CLASS RIGHTS?1

As regards class rights, the UK case law of Cumbrian Newspapers Group Ltd v Cumberland & Westmorland Herald Newspaper & Printing Co Ltd [1986] BCLC 286 is noteworthy. The brief facts of the case are as follows: CNG published the Penrith Observer with a 5500 weekly circulation. The chairman Sir John Burgess (as he later became) also had 10.67% of the shares in CWHNP since 1968. Under the constitution CNG had negotiated special rights which it had bargained for in return for closing down a competing paper, the Cumberland Herald, when it had joined, and for acting as CWHNP’s advertising agent. It had the right to preferences on unissued shares (article 5) to not be subject to have a transfer of shares to it refused by the directors (article 7), pre-emption rights (article 9) and the right to appoint a director if shareholding remained above 10% (article 12). The CWHNP directors wanted to cancel CNG’s special rights. CNG argued they were class rights that could only be varied with its consent. The judgment provides an insight into what constitute class rights. The judge held that the CNG's rights as a shareholder could not be varied without its consent because they were class rights when they were conferred ‘special rights on one or more of its members in the capacity of member or shareholder’. He set out three main categories of "special rights" that might exist: (1) rights annexed to shares (2) rights for particular people under the constitution, and (3) rights unattached to particular shares but conferring a benefit on a group of members. Strictly they could not fall into the first category of rights ‘annexed to’ particular shares, because CNG’s special rights came from the constitution. A second classification of right might be like that in Eley v Positive Government Security Life Assurance Co Ltd, 1 Ex D 88 but they were not like that either. A third category involves rights or benefits that, although not attached to any particular shares, were nonetheless conferred on the beneficiary in the capacity of member or shareholder of the company.’ These are in this category. It is like the rights in Bushell v Faith [1970] AC 1099. Enforcement of such rights depends simply on the possession of some shares, except article 12 which would appear to require 10% for enforcement. But what did the legislature mean with the phrase ‘rights attached to a class of shares’? ‘It would, in my opinion, be surprising and unsatisfactory if class rights contained in articles were to be at the mercy of a special resolution majority at a general meeting, unless they were rights attached to particular 1

https://en.wikipedia.org/wiki/Cumbrian_ Newspapers_Group_Ltd_v_Cumberland_%26_ Westmoreland_Herald_Ltd, 3rd September 2015

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shares.’ So, he said that the phrase ‘was intended by the legislature to cater for the variation or abrogation of any special rights given by the memorandum or articles of a company to any class of members, that is to say, not only rights falling into the first category I have described, but also rights falling into the third category.’

Class of shareholders What is the class of a share? It is a very important question and corollary to what constitutes class rights. The term “class of shareholders”, “class of members”, “class of shares” is used in several sections in the Companies Act, 2013. The shares that have uniform rights and privileges can be considered as one class irrespective of different nomenclature used for them. For instance, equity shares having same voting rights may in most circumstances be deemed to be one case irrespective of whether it is held by the public or by the employees of the company or by director of the company or by its promoter or by private equity investor or by a financial institution. Thus, it is not the nomenclatures but the features of the shares that should be considered. The general types of classification of shares is as follows: (a) Equity shares (b) Preference shares However, the Act permits issuance of equity shares with differential rights as regards voting, dividend or otherwise. Thus, even within equity shares, there can be different class of shares with different rights attached. The numbers of judgment on variation are few as compared to the judgments under compromise and arrangements, which also uses the term class of members. The interpretation of the term class under the chapter on compromise and arrangement and in other provisions may provide some guidelines in interpreting the term class used in sec 48. In Miheer H. Mafatlal v Mafatlal Industries Ltd. (1996) 87 Com Cases 792(SC), the Apex Court held that if the same scheme was offered to the entire class of equity shares and it did not affect any one differently. Then, for that purpose they constitute one class: “It is not his case that his interest as an equity shareholder in Respondentcompany is in any way conflicting with the general interest of the equity shareholder in Respondent-company is in any way conflicting with the general interest of the equity shareholders as a class. Consequently it could not be urged by him with any emphasis that the General Body of equity shareholders acting as a class while considering the question of approval of the Scheme was likely to take decision which would adversely affect the commercial interest of the appellant as an equity shareholder.” The rationale discussed in Maftalal’s case is a good indicator while determining the class whose rights are varied and the class whose rights are affected. Thus, even if there are different classes of equity shares with different voting rights, they will be considered to constitute one class, if some decision on preference shares is taken which affects all equity shareholders uniformly. Thus, the company will have to take consent/approval only from

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one class. It need not take consent/approval from sub –classes of equity shares as it affects the entire lot uniformly. Thus, while determining the class one can use the following tests: −

Nature of rights associated with different shares

−

Nature of effect on different kinds of shares

6.5

NATURE AND SCOPE OF VARIATION

As per Chambers 21st Century Dictionary, the term ‘vary’ mean: “…1. to change, or be of different kinds, especially according to different circumstances. 2. to make or become less regular or uniform and more diverse. …” The term is defined in The Law Lexicon, P. Ramanatha Aiyer, Second Edition (Reprint), 2002 as follows: “the act of varying; change in the form ..” While the term “vary” implies any change in the rights. However, prior to enactment of statutory provisions in English Law, it was widely assumed that variation means “adverse variation” where rights of a shareholder are curtailed. However, after statutory provisions were inserted for varying rights of shareholders, it was felt that to be on the safer side it will be beneficial to take consent of the class whose rights are varied, whether their rights are adversely varied or not.2

6.5.1

What constitutes variation?

While the term variation has wide connotation, the courts in England took a very narrow stand as regards variation. A Similar trend was also seen in Indian courts, where this term was narrowly interpreted. Thus, to understand what constitutes variation, it is necessary to understand what has been held not to be “variation”: 1. The House of Lords in Adelaide Electric Co. v Prudential Assurance 1934 A.C. 122, HL interpreted that alteration of place of payment of dividend to preference shareholders from England to Australia did not vary the rights of preference shareholders notwithstanding that Australian pound is lesser in value than English pound. 2. Greenhalgh v Arderne Cinemas [1946] 1 All. E.R 512 CA; White v Bristol Aeroplane Co [1953] CH. 65, CA, A subdivision or increase of one class of shares was held not to vary the rights of another class even though it would change the voting equilibrium 3. Essar Steel Ltd. v Unknown [2006]130CompCas123(Guj) : (2006)5CompLJ83(Guj) : [2005]59SCL457(Guj) : MANU/GJ/0085/2005), 2

19-15, pg. 668 Principle of Modern Company Law.

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The variation referred to in sec 106 is variation to the prejudice of any class of shareholders, and not any variation adding to or enhancing rights of any class. It is only when a variation involves the curtailment of the rights of any class or classes of shareholders, the consent or sanction of such class or classes will be necessary. The section relates to variation and abrogation of rights attached to Shares and has no application to cancellation of shares or a reduction of capital. Similarly, increasing the capital of a Company does not amount to varying class rights. 4. Spindel Fabrik Suessen v Suessen Textile Bearing Limited (1989) 2 CORPT. LA. 202 (BOMBAY), the company had promised its foreign collaborator that it would be entitled to 26% of the company's equity. However, that was held to be neither variation nor breach when the company resolved in accordance with its articles and in compliance with sec 81(1A) to capitalise the interest due to financial institutions in respect of their loans and to issue them in lieu thereof equity shares in the company. The Bombay High Court refused to stay the implementation of the issue. Twenty-six percent of the equity held by a shareholder does not make him a class by itself unless he has some special rights attached to his holding. 5. In Girish Kumar Kharia v Industrial Forge and Engineering Co. Ltd. and Ors. (1999(3)BLJR1755 : [2001]103CompCas150(Patna) : MANU/BH/0057/1999) it was held that increase in share capital within the limits of authorized share capital does not amount to variation though it affects the voting rights: “4. It is well-settled that a variation which affects the enjoyment of right without modifying the right itself is not a variation within the meaning of Section 106. Increase in the number of shares of any kind/category for raising capital or otherwise, though affects the voting power of existing members by diminishing it in number, in no way amounts to variation of their right as envisaged by Section 106. ……. It has been held by a single judge that merely because the company decided by a resolution or otherwise to increase the number of its capital share within the limit of authorised capital and thereby the voting power of the existing shareholders is diminished, it does not amount to variation of the rights of the shareholders as envisaged under Section 106 of the Act. ….”

6.5.2

Applicability of these decisions to section 48

The changes in sec 48 are discussed in detail in the succeeding paragraphs. In view of the changes, the applicability of past case laws will be considered in a new light. The intention of the legislature is to take a broader view of the term ‘variation’ and to give an opportunity to all the classes affected by the variation to oppose it. Thus, in the light of changes introduced in this section in the Companies Act, 2013, previous decisions will need to be reviewed. The term ‘variation’ must be seen in a broader sense and its impact

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considered in totality ie on the class of members whose rights are varied as well as on the other classes whose rights are affected as a result of variation. In the past, the courts have taken a very narrow approach as regards what constitutes variation. Thus, shareholders who could challenge the same were also limited as they restricted this right only to that class of shareholders whose rights were varied. This section now says that even shareholders whose rights are affected as a consequence of the variation must also consent to the variation for it to be approved. Thus, they will also have the right to approach the Tribunal in case they object to the variation.

6.5.3

Prohibition in contract – is variation possible?

The Act provides that variation is possible: “….a) if provision with respect to such variation is contained in the memorandum or articles of the company; or (b) in the absence of any such provision in the memorandum or articles, if such variation is not prohibited by the terms of issue of the shares of that class:…” The variation cannot be carried out if it is restricted by the terms of issue of shares of that class. The impact of these restrictions should be seen in new light under the Companies Act, 2013.

What if there are restrictions on variation placed in terms of issue of class of shares that are affected? It is possible that such provisions may affect the ability of company to vary rights of other classes. If the variation is prohibited by the terms of agreement with the shareholders whose rights are affected or whose rights are varied, then that needs to be considered. If there is no prohibition in the articles or memorandum of association, then the company can go ahead and vary the rights. However, the shareholders can take recourse to contractual remedies to prohibit the company.

6.6

WHEN DOES SECTION 48 BECOME APPLICABLE?

Section 48 begins with the sentence: “(1) Where share capital of the company is divided into different classes of shares, the rights attached to the shares of any class may be varied”. Two important points to attract the provisions of this section are – 1. The share capital should be divided into shares of different classes. If the company has only one class of shares, then for variation of their rights, this section will not be applicable. 2. Within different classes, only rights attached to any one class are varied. If a right that is attached to all the shares is varied, then it will not attract this

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provision. However, if rights of any selected class of shares are varied, then sec 48 becomes applicable. In the UK Companies Act, 2006, there are separate provisions for variation of class rights of companies that have share capital and companies that do not share capital. However in the Companies Act, 2013, there are restrictions only for variation of class rights in companies having share capital. Thus, sec 48 will not govern other companies that do not have share capital. They will be governed by their articles of association regarding the variation of rights of members.

6.7

CONDITIONS FOR VARYING SHAREHOLDER’S RIGHTS

The Act permits a company to vary the rights attached to any class or classes of shares provided the following conditions are fulfilled: (a) Consent of 3/4th of the issued shares is obtained or a special resolution is passed in a meeting of that class of shareholders; and (b) The variation is expressly permitted in the memorandum or articles. In the absence of any such provision in the memorandum or articles, it is permitted if it is not prohibited by the terms of issue of shares of that class. (c) If variation by one class of shareholders affects the rights of any other class of shareholders, the consent of three-fourths of such other class of shareholders is obtained.

6.7.1

Approval for seeking permission to vary

The nature of approvals required for varying the rights attached to particular class of shares has changed. Under the new Act, the following approval/consents are needed:

6.7.1.1

Approval from the concerned class whose rights are varied

Under the Companies Act, 2013, as well as under the Companies Act, 1956, two methods are provided to seek approval from the shareholders of the class whose rights are varied:

Consent Route The Act provides that variation can take place with consent of requisite number of shareholders. It states “with the consent in writing of the holders of not less than threefourths of the issued shares of that class”. Thus, the following requirements are to be fulfilled: (a) It is necessary to identify the shareholder belonging to that class. (b) Their consent should be taken.

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(c) The consent ought to be in writing. There is no format provided and thus it can either be a letter in writing giving consent, or the consent may be in electronic form [sec 2(36) read with sec 2(r) of Information Technology Act, 2000]. (d) The consent should be from 3/4th of the issued shares of that class. Here the calculation will be on the basis of number of issued share capital and not paid up share capital. It does not matter whether the calls are paid.

Special resolution route Approval can be taken at a meeting of the class of shareholders. The meeting needs to be called in accordance with the provisions of the Act. The Act does not provide for a separate procedure for calling class meeting. However, the regular procedure followed for holding extra ordinary general meeting may be followed in this case. In special resolution, we need 3/4th majority votes which includes only the shareholders who are voting and attending the meeting. Whereas in consent, 3/4th majority consent is required from the entire class of issued shares of that class.

6.7.2

Approval of other affected class of shareholders

The Companies Act, 2013 provides that the approval is required not only from the class whose rights are varied but also from the class whose rights are affected “Provided that if variation by one class of shareholders affects the rights of any other class of shareholders, the consent of three-fourths of such other class of shareholders shall also be obtained and the provisions of this section shall apply to such variation.” The background of this insertion in the Companies Act, 2013 is that in the Companies Act, 1956, the term “vary” was interpreted very narrowly wherein the court in many instances held that a change in rights of one class does not amount to variation of another class though the rights of another class did get affected. Thus, this proviso is inserted to protect the interest of other class of shareholders who get affected by any change in class rights of other classes. This proviso has raised some important questions.

Decoding the Law  “Affects the rights” What does it mean? Will the consent be required only if the change has a negative impact on the shareholders or it will be required even if the change has a beneficial impact?  In what manner can such approval be obtained? ■ Can it be in a meeting by passing a special resolution or only by consent in view of this definition? ■ What are the alternate routes to get approval of other class of shareholders?  How to classify whose rights are varied and whose rights are affected?

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Deciphering the term “Affect”

The Act has inserted a proviso wherein now a company needs to take into consideration the wishes of other classes of shareholders whose "rights are affected" by variation of rights of a selected class of shareholders. The meaning of the term "affect" has to be explored to answer these questions. Various dictionaries have defined ‘affect’ as follows: The Law Lexicon, P. Ramanatha Aiyer, Second Edition (Reprint), 2002: "To have an effect upon; to influence, but often used in the sense of acting injuriously persons and things and sometimes in the sense vary. (Bouv; Ame. Cyc; Davis vs. Symonds, 1 Cox. Eq. Cas. 402(407)……" Black’s Law Dictionary, Bryan A. Garner, Ninth Edition, 2009: "1. Most generally, to produce an effect on; to influence in some way. …." Chambers 21st Century Dictionary: "to have an effect on someone or something." Longman Dictionary of Contemporary English: "To do something that produces an effect or change in something or in someone's situation …" Thus, the meaning of ‘affect’ contemplates ‘to have an effect’. The negative connotative ie ‘to have a harmful effect’ is only an interpretation given in a case law. However, the natural meaning of ‘affect’ contemplates "any effect". Thus, by this logic, it means that the consent of all classes of shareholders will be required for the variation, no matter whether it has a positive or negative impact on them. The said proviso can be interpreted in another way. While the meaning of the term ‘affect’ is clear, the legislative intent behind insertion of this provision also needs to be considered. It is introduced to safeguard the rights of other shareholders who may be prejudiced by such a variation. Another argument in its favour is, that only if the shareholders are negatively affected, then only they would want to oppose such a change. Therefore, only those who are negatively impacted should be taken into consideration. Who will decide whether a change is beneficial or prejudicial to a class of shareholders? Take a look at the following illustration: There are two groups of shareholders in company XYZ. Group ‘A’ controls 51% of voting rights in the company and is holding equity shares with differential voting rights. Group ‘B’ is a company holding regular equity shares and it controls 49% of voting rights in the company. Now, the rights attached to shares held by Group A are varied. As a result of the variation, Group ‘A’ controls only 40% of the voting rights, the remaining voting rights are now with Group ‘B’. Prima Facie, this looks to be beneficial for Group B. However, the question is - Do Group B shareholders want the additional voting rights? They may not. Because of the said change, Group B company will become the holding company (by virtue of having control over the composition of the Board) and therefore, Group B will be obliged to follow all norms related to holding company. The company XYZ may become 6.12

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the third layer of subsidiary (which may be prohibited by the Government under the Act), which will result in contravention of law and may subject Group B to penalties. Thus, "affecting rights of shareholders" is a very subjective term and is best left to the judgment of the shareholders. Thus, we can logically conclude that if a variation affects rights of any other class of shareholders in any manner, then their consent will be required.

6.7.2.2

Manner of approval from affected classes

As regards affected classes, the proviso requires that “the consent of three-fourths of such other class of shareholders shall also be obtained and the provisions of this section shall apply to such variation”. This proviso talks only about consent and not about a special resolution. However, it further stipulates that the provision of this section shall apply. However, we cannot interpret it to mean that approval may be taken by special resolution as it specifically provides for the consent route. This will however, create a predicament. In case of class whose rights are varied it can be held even by special resolution where decision is taken even by a small group who is present and voting whereas with respect to affected class the consent of persons who hold 3/4th of the issued share capital is required. A practical solution to this predicament may be to interpret “vary” in its broader sense as was originally envisaged (where vary included an impact on rights whether it is good or bad, whether beneficial or not). Thus, in this interpretation, it is likely that no class will be “affected” but rights of every class will be “varied”. For instance, consider voting rights of one class of equity shares are increased. This will automatically reduce the voting rights of another class. If we consider one class as the class whose rights are varied, then we have the consent and special resolution route for that class. However, for the other class will have to get consent to such variation. However, if we consider that rights of both classes are varied and take the wider interpretation of the term varied, then we can use the route of special resolution to take consent from both the classes and none of them will be considered to be “affected by variation”.

6.8

VARIATION BY OTHER PROVISIONS OF THE ACT

6.8.1

Variation v Merger

The rights of shareholders can be varied in numerous circumstances. Section 48 provides only one of the alternate routes available for variation when there are different classes of shares. However, that route does not prevent variation of class rights by other routes like merger and amalgamation where such variation is not prohibited. In Hindusthan Commercial Bank Ltd. v Hindusthan General Electrical Corporation Ltd (AIR1960Cal637: 64CWN458 : 64CWN458 : MANU/WB/0172/1960) the question arose as to when variation can be carried out in a merger. The Hon’ble High Court of Calcutta held that:

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“6. It should be noticed that there was no scheme of arrangement or compromise in the case of (1954) 1 Ch. 169. The special rights attached to a class of shares may lawfully be altered by the machinery of a scheme of arrangement and under Section 391 the Court may sanction a scheme which involves alteration of class rights. …. 27. The word, 'arrangement', in Section 391 is of wide import. By Section 390, 'arrangement' includes reorganisation of the share capital of the company by the consolidation of shares of different classes or by the division of shares into shares of different classes or by both those methods. The Court has the power to sanction a scheme of arrangement though the scheme modifies the special rights attached to a class of shares. In re: Hoare and Co. Ltd. and Reduced (1910) W. N. 87, Nevile J., sanctioned a scheme or arrangement which involved a reduction of capital and which modified the special rights attached to two classes of preference shares. The share capital was divided into preference shares of £ 10 each, A cumulative preference shares of £ 10 each and ordinary shares of £. 1 all fully paid up. The preference dividend was five per cent. The preference shares had priority in dividend and capital over the ordinary shares. The scheme provided for cancellation of the entire paid up capital of the ordinary shares and for extinction of those shares, for cancellation of the paid up capital of preference shares to the extent of £. 2 per share and for cancellation of the capital paid up on A preference shares of £.10 each to the extent of £.8-10. per share and for consolidation and conversion of the reduced shares into shares of £. 10 each all ranking pari passu as regards dividends and capital. The reduction there, as in this case, was conditional on the scheme of arrangement being approved by the shareholders of the company and sanctioned by the Court. The scheme provided for the extinguishment of all arrears of dividend on the two classes of preference shares and for issue of participation certificates to the two classes of shareholders. Palmer's Company Precedents, 16th Edition, pages 1103-1104, gives a form of an order sanctioning a scheme of arrangement and altering the rights of shareholders as fixed by the memorandum. The share capital of the company was divided into ordinary and deferred shares and the scheme varied the rights attached to ordinary shares by conferring on them a right to a preferential dividend at the rate of 7 1/2 per cent on their paid up capital in modification of Clause 5 of the memorandum. I am conscious that the majority required by Section 391(2) is the majority in number representing three-fourths in value of the class or members present and voting at the meeting whereas the majority required by the provision referred to in Section 106 is the majority of the three-fourths of the issued shares of the class. Considering that the majority required by Section 391(2) is less than the majority required by the provision referred to in Section 106. The Court is bound to scrutinise this scheme of arrangement with care. But the absence of approval of the scheme by the majority required by the

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provision referred to in Section 106 is no bar to the sanction of the scheme of arrangement under Section 391.”

6.8.2

Variation v Reduction

Variation of rights can even take place in a scheme of reduction. It is the interpretation of the author that if the provisions of reduction are complied with, then no separate procedure is contemplated by law for variation of rights. The above mentioned case of Hindusthan Commercial Bank Ltd relies on In re: Hoare and Co. Ltd. and Reduced ((1910) W. N. 87, Nevile J.) and provides an instance where the variation of rights took place by way of a reduction of capital. Observations The right to vary can be exercised if it does not otherwise result in reduction of capital. Thus, while redeemable preference shares can be converted into convertible preference shares, the vice versa is not permissible. Therefore, equity shares cannot be converted into redeemable preference share as it will otherwise result to reduction of capital.

6.9

OBJECTION TO VARIATION

Like sec 107 of the Companies Act, 1956, sec 48(2) under the Companies Act, 2013 also empowers the members to object to variation of their rights and to seek cancellation of the variation. However, in light of the insertion of the proviso to sec 48(1) in the Companies Act, 2013, the nature of this remedy and the members who are entitled to apply under sec 48(2) will change. This segment looks at this remedy in light of the new Act.

6.9.1

In which circumstances can one apply under section 48(2)?

The remedy to approach the Tribunal under sec 48(2) is available only when the class rights are varied under sec 48(1) and not otherwise. For instance, if class rights are varied under a merger or a scheme of reduction, then the remedy under sec 48(2) cannot be used and the members will have to take recourse available under those provisions. This is clear from the language used in sec 48(2) wherein it states “48(2) …. Consent to such variation or vote in favour”. Karnataka High Court confirmed this point of view in a case under sec 107 of the Companies Act, 1956. In the case of State of Karnataka v Mysore Coffee Curing Works Ltd. [19841 55 Comp Cas 70, the Karnataka HC held that sections 106 and 107 of the Act provide for a particular class of shareholders to move the court whenever the rights attached to that class of share were sought to be altered by the company, and in no other circumstances. The rights attached to ordinary equity shares include right to vote, right to receive dividends, right to maintain its face value, and the right to transfer the shares to another without restrictions. , Unless such rights are altered or varied by the

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company by resolution of the shareholders in accordance with the provisions of sec 106 of the Act, no action lies under sec 107.

6.9.2

Who can apply?

The Act provides that “Where the holders of not less than ten per cent of the issued shares of a class did not consent to such variation or vote in favour of the special resolution for the variation”. Thus, the following members have the right: −

Member must hold 10% of the issued share capital of a class.

−

Member must not have consented to such variation

− Member must not have voted in favor of the resolution Now a few questions arise in connection with locus of a member:

Decoding the Law  Can only members of that class whose rights are varied apply under sec 48(2)?  Can only members of the class that is affected apply within the meaning of proviso to sec 48(1)?  Can members of a class whose rights are neither varied nor affected according to the company and whose approval is not taken apply?  Can a member who has not participated in the general meeting of class or who has not conveyed his refusal to the variation apply under sec 48(2)? The Act uses the word “a class that did not consent….”. Thus, it clearly provides the remedy to the class whose rights are either varied or affected. However, if we interpret more broadly, it will also cover members of other classes as they have not consented to the variation. Whether their consent is required or not is irrelevant. The important test is whether they have given their consent or approval to the variation. Thus, by this interpretation, this remedy is also available to members of other classes that have not consented or been involved in the variation. Such class of members who does not belong to the class whose right is varied or affected will have a higher onus to show their reason for applying under sec 48(2). They will need to show the prejudice that is caused to their class. They may have to show how their class is affected and have to prove that company wrongly determined the classes that were affected.

6.9.2.1 When to object? The Companies Act, 2013 does not require a member to object to the variation or raise an objection at the meeting as a pre-condition for filing an application under sec 48(2). However, raising the objections at the stage when consent is sought shows the bona fides of the members objecting to the variation. Further, the law always favours a person who is vigilant about his rights and their infringement. Thus, by taking steps at the right time

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when the company proposes the question of variation and raising objections then will help the member put forth a strong case before Tribunal.

6.9.2.2 Joint application The application can be filed by one or more members having requisite percentage of issued share capital of a class. However, if the members consent and authorize one or more members to file, then one or more members can file the application and can attach the authorization/consent received from other members with their application. Rule 23A of NCLT Rules as amended by NCLT (Amendment) Rules, 2016 provides that the Tribunal may permit more than one applicants to be joined as a single petition, wherein it is satisfied, having regard to the cause of action and nature of relief prayed for, that there is an existence of common interests.

6.9.3

What is the time limit?

The application must be filed within 21 days. The Act states that: “Provided that an application under this section shall be made within twenty-one days after the date on which the consent was given or the resolution was passed, as the case may be, and may be made on behalf of the shareholders entitled to make the application by such one or more of their number as they may appoint in writing for the purpose.” Following question may arise in this regard:

Decoding the Law  When does the period of 21 days commence?  Is the date on which consent is received from affected shareholders relevant?  What if consents are taken on different dates? Then from which date is 21 days calculated?  Can Tribunal condone the delay in filing the application under sec 48? If the approval is obtained by special resolution, it is very easy to calculate the period of 21 days. However, if the approval is taken by consent, then the question of calculation of commencement of the period of 21 days should be considered as the shareholders may not be aware of the date when the company finally takes the consent. In this regards, it is pertinent to consider the ratio in In Re: Rampuria Cotton Mills Ltd. AIR1959Cal253 : 63CWN11 : 63CWN11 : MANU/WB/0063/1959 where the question arose as regards from which date to calculate the period of 21 days. Following are the important observations “Section 107 of the. Companies Act provides that if variation in the manner authorised by the Articles and in the manner contemplated in Section 106 takes place, then holders of not less than 10 per cent in the 6.17

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aggregate of the issued shares of that class who did not consent to or vote in favour of the resolution for the variation, may apply to the court to have the variation cancelled. The opening words of Section 107 "If in pursuance of any provision such as is referred to in Section 106 the rights attached to any class of shares are at any time varied" indicate that if a variation is effected by reason of the combined operation of Section 106 of the Act and the particular clause in the Memorandum or the Articles of Association of the company which authorised the variation, the variation can be said to be complete and effectually made. No other step need be taken to clothe the variation with the character of a full-fledged variation. It is quite clear from the reading of Section 106 and Section 107 of the Act that variation of a right of a class of shareholders can be effected by two different ways i.e. by consent given of the specified proportion and by sanctioning it by a resolution passed at a separate meeting of the holders of the shares of that class, not being less than 3/4th of the issued shares of that class. That a variation becomes complete by the very fact of consent of the requisition proportion being given to such variation is further made clear by Sub-section (2) of Section 107 of the Act which provides the period of limitation within which an application for cancellation of the variation can be made by the aggrieved shareholders. The said Subsection (2) is as follows: "An application under this section shall be made within 21 days after the date, on which the consent was given or the resolution was passed as the case may be ....."” This provision for calculation of the period of limitation of 21 days from the date of consent indicates that requisite consents itself completes the variation. Thus, under the old Act the period of challenging the variation is from the date when the variation becomes effective. Even under the Companies Act, 2013, we can consider that the date of 21 days begins from the date when the variation would otherwise become effective as the words under sec 48(2) are: “(2) Where the holders of not less than ten per cent. of the issued shares of a class did not consent to such variation or vote in favour of the special resolution for the variation, they may apply to the Tribunal to have the variation cancelled, and where any such application is made, the variation shall not have effect unless and until it is confirmed by the Tribunal” Thus, the Act defers the date on which the variation will become effective in the event an application challenging the same is filed. If such application is not filed, the variation will become effective on the date when the consents are received or the special resolution is passed. Thus, the period of 21 days may be calculated from the date when the variation is passed ie when the special resolution is passed or the date

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when the consents are received by the requisite number of members. That will be the date from which the 21 day window will begin.

6.9.4

Condonation of delay

Section 48(2) does not bar an application that is filed beyond 21 days. It simply provides the period of limitation of 21 days to challenge the decision. The Limitation Act, 1963 is applicable to the Companies Act, 2013. For calculating the period of 21 days, the provisions of Limitation Act may be taken advantage of. Further, if the said application is delay due to sufficient cause, then the applicant may take recourse of sec 5 of the Limitation Act for condonation of delay.

6.9.5

Powers of Tribunal and nature of reliefs

The application under sec 48(2) will essentially be for cancellation of variation. The Act itself provides the interim protection and no separate application is necessary. When an application challenging the variation is filed, then the variation will not be effective until the Tribunal confirms the said variation. If the application is filed beyond the period of 21 days, then the variation will take effect. The Tribunal in that event, if it deems fit, may stay the variation from taking effect till the date of Tribunal takes a decision. The Act reads as under: “….the variation shall not have effect unless and until it is confirmed by the Tribunal: Provided that an application under this section shall be made within twenty-one days after the date on which the consent was given or the resolution was passed….” The Tribunal will consider the reply of the company. It may also allow other class of shareholders to intervene. If after considering the say of all parties, the Tribunal is satisfied that the variation should be confirmed, then the Tribunal may confirm it. If it finds that the variation is not in order, the Tribunal may cancel the variation.

6.9.6

Time limit for completion of proceedings

Section 422 provides a time limit within which the Tribunal takes decisions. It provides that matters shall be decided within a period of three months. If matters are not decided within this period, then the period for deciding them can be extended by the president of the Tribunal for a further period of 90 days after recording the reasons for granting the extension. However, many court decisions in the past have held such kind of time limits to be directory.

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6.10

Chapter 6

PROCEDURE FOR OBJECTING TO THE VARIATION OF SHAREHOLDERS’ RIGHT

The procedure for challenging a variation is provided in the NCLT Rules as amended by NCLT (Amendment) Rules 2016 issued on 20th December 2016. 1. For a person entitled and eligible to object, if aggrieved by the variation, the procedure to be followed is specified in NCLT rule 68A read with other relevant provisions of NCLT Rules. 2. Eligible shareholders under sec 48(2) shall present the application in Form No. NCLT 1 within 21 days after the date on which the consent was given or the resolution approving the variation was passed. 3. The application is to be made in Form NCLT 1 and shall contain details regarding: a. the particulars of registration; b. the capital structure, the different classes of shares into which the share capital of the company is divided and the rights attached to each class of shares; c. the provisions of the memorandum or articles authorising the variation of the rights attached to the various classes of shares; d. the total number of shares of the class whose rights have been varied; e. the nature of the variation made, and so far as may have been ascertained by the applicants, the number of shareholders of the class who gave their consent to the variation or voted in favour of the resolution for variation and the number of shares held by them; f. the number of shareholders who did not consent to the variation or who voted against the resolution, and the number of shares held by them; g. the date on which the consent was given or the resolution was passed; and h. the reasons for opposing the variation 4. Where an application to cancel a variation of the rights attached to the shares of any class is made on behalf of the shareholders of that class entitled to apply for cancellation under sub-sec (2) of sec 48 by the letter of authority signed by the shareholders so entitled, authorising the applicant or applicants to present the application on their behalf, such letter of authority shall be annexed to the application, and the names and addresses of all the shareholders, the number of shares held by each of them, aggregate number of such shares held and percentage of the issued shares of that class shall be set out in the Schedule to the application. 5. As no specific documents are provided in Annexure B of NCLT Rules the default clause i.e. Serial No. 13 of Annexure B (inserted by NCLT Amendment Rules, 2016) will be applicable. It provided as follows:

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Variation of shareholders’ rights

•

Document and / or other evidence in support of the statement made in the application or appeal or petition, as are reasonably open to the petitioner(s);

•

Documentary evidence in proof of the eligibility and status of the petitioner(s) with the voting power held by each of them, wherever applicable;

•

Where the petition is presented on behalf of members, the letter of consent given by them, if applicable;

•

Statement of particulars showing names, address, number of shares held, and whether all calls and other monies due on shares have been paid in respect of members who have given consent to the petition being presented on their behalf;

•

Where the petition is presented by a member or members authorised by the Central Government, the order of the Central Government authorising the officer(s) or member or members to present the petition shall be similarly annexed to the petition;

•

Affidavit verifying the petition;

•

Evidence regarding payment of fee;

•

Memorandum of appearance with copy of the Board resolution or the vakalatnama, as the case may be;

•

Three copies of the petition;

6. Any other documents in support of the case. If it finds substance, the Tribunal shall serve a notice in the Form No. NCLT 5 to opposite party along with a copy of the application. The opposite party shall include the company. 7. If the company and the concerned persons against whom orders are sought fail to appear on the date specified in Form no. NCLT 5, then the Tribunal may dispose the application ex parte with such order as it thinks fit. 8. If the company and other respondent contests thereto, it may file a reply along with copies of such documents that it relies, on or before the date of hearing and such reply and copies of documents shall form part of the record. 9. Reply shall be served on the applicant and the applicant shall get an opportunity to rejoin his application. 10. The Tribunal shall notify to the parties the date of the hearing of the petition. 11. The applicant shall, at least 14 days before the date of the filing of the petition, advertise the application in Form No. 3A at least once in a vernacular newspaper being the principal vernacular language circulating in the district where the registered office of the company is situated and at least once in an English newspaper circulating in that district. Here the said advertisement shall be in

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accordance with rule 35 of the NCLT Rules, which is set out in detail in general procedures, dealt with in another Chapter. 12. It is possible that objections are received from persons whose interest is likely to be affected by the proposed application. If the applicant receives such objections, he/it has to serve a copy of the objection to the ROC/RD. The said objections have to be conveyed to them on or before the date of the hearing. 13. Where on the date fixed for hearing the petition or application or any other date to which hearing is adjourned, the applicant appears and respondent doesn’t appear when the petition is called for hearing, the Tribunal may adjourn the hearing or hear and decide the petition or the application ex-parte in exercise of the power conferred on it under sec 424(2)(f) of the Act. If the applicant fails to appear in such manner, the application may be dismissed. 14. If the circumstances of the case so require, the Tribunal may hold a trial and assess the nature and weight of evidence produced before it. It may call for witnesses, appoint commissions for recoding evidence as may be required. 15. The Tribunal at the time of hearing may decide who all need to be heard. Principles of natural justice require that the applicant and the opposing party need to be heard. However, if any objections are received from other parties or any other person seeks the permission of Tribunal to intervene in the matter, then the Tribunal may allow such party to be heard if it finds that such person is interested in the outcome of the application. After hearing the parties, if it is satisfied, having regard to all the circumstances of the case, that the variation would unfairly prejudice the shareholders of the class represented by the applicant, it may disallow the variation. If it feels that the variation should be allowed, and is not satisfied with the arguments of the persons who oppose the variation, it may confirm the variation. 16. The Tribunal may, at its discretion, make such orders as to cost as it thinks fit. 17. The Tribunal shall send a copy of every order passed to the parties concerned. 18. The Tribunal shall decide every petition or application as expeditiously as possible on perusal of documents, affidavits and other evidence, if any, and after hearing such oral arguments as may be advanced. 19. The company shall within 30 days of the date of the order of the Tribunal, file a copy thereof with the registrar. 20. If any person is aggrieved by the order, that person may file an appeal with the NCLAT. The parties who can be aggrieved can be wide. For instance, it can be a person of the class whose right are varied or the company or an applicant or an objector or a member who is from the affected class.

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Variation of shareholders’ rights

6.11

COMPARISON CHART - VARIATION OF SHAREHOLDER'S RIGHT

6.11.1

Comparison of New Act with Old Act

Particulars New Act Old Act Variation of 48(1) 106 shareholders' rights (New Act)

Remarks Similar. However a proviso is added with regard to the additional consent to be taken of the affected class due to such variation. This may increase number of approvals required.

Dissentient 48(2) shareholders Order of Tribunal 48(3) binding on all shareholders

107(1), 107(2) -

CourtTribunal. Similar

ROC filing Default

107(5) 107(5)

6.11.2

48(4) 48(5)

Newly inserted. However, decision under Old Act was also binding on shareholder of that class. Now, decision binding on all shareholders. Similar Penalties enhanced

Comparison of Old Act with New Act

Particulars

Old Act New Act

Remarks

Alteration of rights of 106 holders of special classes of shares (Old Act)

48(1)

Similar. A proviso is added with regard to the additional consent to be taken of the affected class due to such variation.

Rights of Dissentient 107(1) shareholder (Old Act) Application By dissentient shareholder – effect on variation

48(2)

CourtTribunal. Similar

Time period for making application

107(2)

Proviso 48(2)

Consideration while taking decision

107(3)

-

Similar Deleted. No limits on the dimensions that can be considered by Tribunal while passing an order.

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Chapter 6

Particulars

Old Act New Act

Remarks

Decision to be binding

107(4)

-

Deleted. However, decision of Tribunal will be binding on all shareholders until it is challenged in the manner provided by the Act (sec 48(3) of the Companies Act, 1956).

Penalty

107(5)

48(4) & 48(5)

CourtTribunal. The limit of Fine has been enhanced from INR 50 to INR 25,000 Which may extend to INR 5 lakhs

6.11.3

Comparison of New Rules with Old Rules

Particulars

New Rules (NCLT Rules as amended in December 2016) Application to 68A(1) cancel variation of rights (New Rules)

6.11.4

66(1)

68A(2)

66(2)

68A (3) to (5)

-

• •

CourtTribunal Under New Rules the application needs to be filed instead of the petition.

The "Petitioner" is replaced by the "Applicants". • Details to be provided have been modified, Newly inserted •

Comparison of Old Rules with New Rules

Particulars

Petition to cancel variation of rights (Old Rules)

6.24

Old Rules Remarks (Company Court Rules)

Old Rules (Company Court Rules) 66(1)

NCLT Rules Remarks As amended in December 2016) 68A (1) • CourtTribunal • Under New Rules the application needs to be filed instead of the petition.

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Variation of shareholders’ rights

Particulars

6.11.5

Old Rules (Company Court Rules) 66(2)

NCLT Rules Remarks As amended in December 2016) 68A(2) • The "Petitioner" is replaced by the "Applicants". • Such application shall be in Form No. NCLT 1.

Corresponding Forms under New Act & Old Act

Particulars

Old Forms

New Forms

Application to cancel variation of rights

No Prescribed Format

Form No. NCLT 1 in NCLT Rules

6.12

SCHEDULE I

Statutory rights of member under Companies Act

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Explanation of the Table The table above shows the rights attached to different levels of shareholding. At each level the shareholder can enjoy the rights of that level and the rights of every level below that level. A shareholder or a group holding 95% voting power can enjoy all rights, which are mentioned in the box. The person holding more than 75% voting rights can exercise the right to pass any decision requiring a special resolution or ordinary resolution and can also exercise rights of minority shareholders and individual shareholder are mentioned in the row above, ie those rights which are available to person holding 95% shares. This table is only a short simplistic summary to understand the nature of rights available to shareholders. In practice, the percentages have to be calculated as a percentage either of the total share capital or total voting right or total equity share capital. Thus, manner of calculating percentage especially in case of minority rights (10%) threshold is different in different cases. Further, some of the provisions are not rights but are in the nature of remedies.

6.12.1

Appendix A: Corporate Transactions Requiring Special Resolution

1. To make provisions for entrenchment referred to in sec 5(3) of the Companies Act, 2013 by an amendment in the articles by a special resolution in the case of a public company : Sec 5(3). 2. To change the registered office of a company outside the local limits of the city, town or village – sec 12(5). 3. To alter memorandum of the company : Sec 13(1). 4. To alter objects of the company if it still has an unutilized amount raised from the public through a prospectus : Sec 13(8). 5. To alter articles of a company including alteration leading to conversion of the company : Sec 14(1). 6. To vary the terms of a contract referred to in the prospectus : Sec 27(1). 7. To issue Global Depository Receipts (GDR’s) in a foreign country : Sec 41. 8. To vary the rights attached to a class of shares : Sec 48(1). 9. To issue sweat equity shares : Sec 54(1)(a). 10. To issue further shares to employees under employees’ stock option scheme : Sec 62(1)(b). 11. To issue further shares to any other person : Sec 62(1)(c). 12. To approve terms of issue of debentures or taking loans having an option to be converted into share capital : Sec 62(3) proviso. 13. To reduce share capital of the company : Sec 66(1). 6.26

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Variation of shareholders’ rights

14. To approve a scheme making provision of money for purchase of or subscription for any shares by trustee for benefit the of employees : Sec 67(3)(b). 15. To buy-back shares or other securities : Sec 68(2)(b). 16. To issue debentures with an option to convert them into shares, partly or wholly, at the time of their redemption : Sec 71(1). 17. To keep registers or copies of returns at any other place in India where more than one-tenth of the members entered in the register reside : Sec 94(1) proviso. 18. To appoint another auditor in place of retiring auditor and to provide that the retiring auditor shall not be re-appointed : Sec 139(9)(c). 19. To remove auditor appointed under sec 139 before the expiry of his term : Sec 140(1). 20. To appoint more than fifteen directors by a company : Sec 149(1)(b). 21. To re-appoint an independent director : Sec 149(10). 22. To specify lesser number of companies in which a director of the company may act as director : Sec 165(2). 23. To authorize Board to exercise certain powers : Sec 180(1). 24. To approve any scheme for advancing loans by company to directors : Sec 185(1)(a)(ii). 25. To approve any loan/guarantee to be given exceeding the limits laid down in sec 186(2) : Sec 186(3). 26. To approve contract or arrangement : Sec 188(1)(g) proviso. 27. To appoint as managing director, whole-time director or manager a person who has attained the age of seventy years : Sec 196(3)(a) proviso. 28. To determine remuneration payable to directors, managing director, whole-time director or manager (if articles require a special resolution) : Sec 197(4). 29. To determine that affairs of the company ought to be investigated by Central Government : Sec 210(1)(b). 30. To determine that affairs of the company ought to be investigated by Serious Fraud Investigation Office : Sec 212(1)(b). 31. To apply to the Registrar to remove the company’s name from the Register of Companies : Sec 248(2). 32. To approve scheme of amalgamation of a sick company with any other company : Sec 262(2) proviso. 33. To resolve that the company be wound up by the Tribunal : Sec 271(1)(b). 34. To wind up a company voluntarily : Sec 304(1)(b).

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35. To sanction receipt of compensation by the Company Liquidator for transfer of any interest of the transferor company or for entering into any agreement for the same : Sec 319(1). 36. To determine the manner of raising purchase money if Company Liquidator elects to purchase member’s interest : Sec 319(4). 37. To sanction certain powers to be exercised by the Company Liquidator : Sec 343(1)(b). 38. To determine the manner in which the books and registers of a company which is wound up voluntarily may be disposed of : Sec 347(1)(b). 39. To adopt Table F in Schedule I : Sec 371(3)(a).

6.12.2

Appendix B: Corporate Transactions Requiring Ordinary Resolution

1. To change the name of a company within a period of 3 months on the directions given by the Registrar : Sec 4(5)(ii)(b)(i). 2. To rectify the name of a company within a period of 3 months on directions given by the Central Government : Sec 16(1). 3. To issue preference shares : Sec 55. 4. To alter share capital of a limited company by altering its articles & memorandum : Sec 61(1). 5. To authorize the company to capitalize its profits or reserves for the purpose of issuing fully paid-up bonus shares, on the recommendation of the Board : Sec 63(2)(b). 6. To accept deposits from its members, including the provision of security, if any, or for the repayment of such deposits with interest : Sec 73(2). 7. For the following ordinary businesses – i. Consideration of financial statements and the reports of the Board of Directors and auditors; ii. Declaration of any dividend; iii. Appointment of directors in place of those retiring; iv. Appointment of and the fixing of the remuneration of the auditors : Sec 102(2). 8. To impose reasonable restrictions regarding inspection of minutes book by members : Sec 119(1)(b). 9. Rights relating to the Auditors: (a) To provide that the company can have more than one auditor; (b) To provide for audit partner rotation; 6.28

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(c) To appoint an auditor within 90 days from the expiry of thirty days from the date of incorporation of company if the Board has failed to appoint an auditor within the first 30 days. 10. Right to determine the remuneration of Cost Accountant. 11. Right to approve profit related commission to be provided to independent directors. 12. Right to pass a resolution for dissolution of the company if the majority of members of the company, after considering report of the Company Liquidator, are satisfied that the company shall be wound up. 13. Provisions for entrenchment can be made either on formation of a company or by an amendment in the articles as agreed to by all the members of the company in the case of a private company and by a special resolution in the case of a public company. 14. To fix the remuneration of the auditor : Sec 142(1). 15. To appoint Directors : Sec 152(2). 16. If there are no specific provisions in articles for appointment of directors other than retiring directors then in that event for appointment of all directors in general meeting. : Sec 152(6)(b). 17. To appoint any person as director of a company : Sec 160(1). 18. To authorize the Board to appoint an alternate director : Sec 161(2). 19. To remove a director, not being a director appointed by the Tribunal under sec 242, before the expiry of his tenure after giving him a reasonable opportunity of being heard : Sec 169. 20. To appoint a director to fill a casual vacancy created by retirement of a director who was appointed in a general meeting : Sec 169(5). 21. To impose restrictions and conditions on the exercise by the Board of any of the powers specified in this sec 179 : Sec 179(4). 22. To make contributions to bona fide and charitable funds : Sec 181. 23. To make contributions to the National Defence Fund : Sec 183(1). 24. To approve proposals regarding all the transactions as mentioned in sec 191(1), prior to making payment to director for loss of office, etc : Sec 191(1). 25. To grant prior approval for non-cash transactions involving directors by both holding and subsidiary companies : Sec 192(1). 26. To approve the appointment of Managing Director or Manager, the terms and conditions of such appointment and remuneration : Sec 196(4). 27. To authorise the payment of remuneration exceeding 11% as total managerial remuneration in public company subject to the approval of Central Government : Sec 197(1). 6.29

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28. To give any directions to the liquidator by the creditors or contributories at any general meeting : Sec 292. 29. To pass a resolution requiring the company to be wound up voluntarily as a result of the expiry of the period for its duration, if any, fixed by its articles or on the occurrence of any event in respect of which the articles provide that the company should be dissolved : Sec 304(a). 30. To appoint a Company Liquidator : Sec 310. 31. To appoint committees in a company where there are no creditors and it is considered appropriate to supervise the voluntary liquidation and assist the Company Liquidator in discharging his functions : Sec 315.

6.12.3

Appendix C: 10% Shareholding

Following rights can be exercised by shareholder(s) holding 10% stake in the company: 1. A person holding 10% of the paid-up share capital having voting rights is entitled to requisition an extra-ordinary general meeting. 2. Shareholders holding 10% of the paid-up share capital in aggregate have the right to apply to the Tribunal to cancel the variation where they do not consent to the same. 3. Member or members holding 10% of total paid up share capital carrying voting rights have the right to move a resolution at the General Meeting and they may circulate a statement explaining the resolution. 4. Members holding 10% of the total paid up share capital have the right to apply to the Tribunal for relief in the case of oppression & mismanagement. 5. A Poll can be demanded by the members having 10% of the total voting power or holding shares on which amount paid up is equivalent to Rs. 5 Lakhs or such higher amount as may be prescribed. 6. Members holding 10% of the total paid-up capital have the right to apply to the Tribunal for conducting an investigation in to the affairs of the Company. 7. The Tribunal, if by a reference made to it by the Central Government or in connection with an inquiry or investigation into the affairs of the company or any complaint made to it by members as specified in sub-sec (1) of sec 244, is satisfied that the removal, transfer or disposal of funds, assets, properties of the company takes place in a manner prejudicial to the interests of the company or shareholders, may by order direct that transfer, removal or disposal shall not take place during such period not exceeding 3 years or may take place subject to the conditions and restrictions as the tribunal may deem fit.

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6.12.4

Variation of shareholders’ rights

Appendix D: Rights of Every Member

1. Every Shareholder has a right to inspect the registers. (a) This right includes a right to inspect (b) Register of members. (c) Register of charges and instruments of charges (d) Register of directors. (e) Annual returns. (f) Copies of contracts, where a contract of service with a managing or whole-time director is in writing or where such a contract is not in writing, a written memorandum setting out its terms. 2. Right to vote. 3. Right to inspect and obtain copies of the minutes of general meetings. 4. Right to obtain copies of Memorandum and Articles of Association of the company. 5. Right to receive notice of general meetings. 6. Right to receive dividend, if declared. 7. Right to interest if the dividend is paid after the due date. 8. Right to receive reimbursement of legal expenses incurred in pursuing class action suits as may be sanctioned by the Tribunal from the Investor Education and Protection Fund. 9. Right to share certificates within 3 months of allotment. 10. Right to have his/her name entered in the register of members. 11. Right to receive copies of the financial statements of the company. 12. Right to receive auditor's report. 13. The right to receive bonus shares, if issued. 14. Right to free transferability of shares. 15. Right to apply for rectification of register of members including: (a) Right to appeal to the registrar where the company refuses to enter name in register of members. (b) Right to appeal against wrongful removal of name from register of members. 16. Right to appeal to the Tribunal if the company refuses/fails to register the transfer of shares. 17. Right to propose any person as director.

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18. Right to receive duplicate share certificate (if the original certificate is defaced, lost, destroyed, mutilate etc.) 19. Right to apply to the Tribunal for holding an annual general meeting (AGM), if the company fails to convene the same. 20. A member who is entitled to attend and vote at the meeting has a right to appoint a proxy. 21. A member entitled to vote can inspect proxy lodged at any time during 24 hours preceding the meeting and during the meeting by giving prior intimation of his desire to inspect proxy. 22. Right to propose a candidature for the position of director. 23. Under sec 213(b), a single member can apply for investigation into the affairs of the company, if he is able to convince the Tribunal that it is necessary to do so. 24. A person authorised by the Central Government may apply to the Tribunal for winding up of the company on just and equitable grounds. 25. Right to share in the surplus on winding up of the company. 26. Right to apply to the Tribunal or to a competent court outside India (as specified by the Central Government by notification), in respect of foreign members or debenture holders residing outside India, for rectification of register.

6.13

FURTHER READING

(a) Dr. K. R Chandratre, Corporate Restructuring, Law, Practice & Procedures, 2nd Edition 2010, Bharat’s. (b) K. R. Sampath, Law and Procedure for Mergers, Amalgamations, Takeovers & Corporate Restructure, Snow White.

6.32

Chapter 7

Transfer and Transmission of Securities 7.1

INTRODUCTION

Companies are entitled to issue a wide variety of securities. The Companies Act, 1956 provided certain rights and remedies to buyers and sellers of shares and debentures. As the number and variety of securities grew the nature and scope of remedies was also revised in the Companies Act, 2013 to cater to new requirements.

7.2

OVERVIEW OF CHANGES

7.2.1

Scope and applicability of section 58 and section 59 have changed

The applicability of several provisions have changed from Companies Act, 1956. For instance, under the Companies Act, 1956, the remedy for refusal to transfer or transmission were restricted only to shares and debentures. The provisions for refusal to transfer and transmit under Companies Act, 2013 Act extends to all securities. The provision for rectification under the old Act was applicable only for rectification of shares (and not securities). An appeal against refusal could be filed by transferor or transferee, but in the new Act, appeal against refusal to transfer or transmit can be filed only by the transferee. Further, steps to remedy contravention of law in case of rectification of register on transfer of securities could be sought only against public companies under the Companies Act, 1956, but can be initiated now, under the Companies Act, 2013, against private companies as well.

7.2.2

Changes in timelines

The period for conveying refusal by company and period for filing appeal has been revised both for private and public company.

7.2.3

Contract or arrangement

This section gives express recognition to contracts or arrangements for transfer of securities entered into between two or more persons with respect to shares of a public company and thus, clears any doubts about its enforceability. 7.1

NCLT and NCLAT Law Practice and Procedure, 7e

7.2.4

Chapter 7

Companies (Amendment) Act, 2020

The Committee to Review Offences under Companies Act, 2013 in its report dated August 2018 recommended that the penalties and imprisonment provisions with respect to sec 59(5) should be retained as they relate to non-compliance with order of Tribunal. However, the legislature in its endeavour to decriminalize Companies Act, 2013 has vide Companies (Amendment) Act, 2020 omitted sec 59(5) which provided for penal consequences. By virtue of the 2020 Amendment, the defaults under sec 59 are now brought under the in-house adjudication mechanism under sec 454 and there are civil consequences to the non-compliance of sec 59. The recommendation for decriminalisation of sec 56 which deals with procedure for transfer of securities have been accepted.

7.2.5

Significant change in scope of power of Tribunal

Ammonia Supplies judgment [Ammonia Supplies Corpn. (P) Ltd. v Modern Plastic Containers (P) Ltd., MANU/SC/0585/1998 : 1998 (7) SCC 105] was a landmark judgement under the Companies Act, 1956 where the Apex Court held that complicated questions of law and ownership of shares cannot be adjudicated by the Company Law Board. The Apex Court has reversed the said ruling in several important decisions. Please see synopsis of Shashi Prakash Khemka (Dead) By Lrs. v Nepc Micon and Adesh Kaur v Eicher Motors Ltd. And Others, ((2019) 18 SCC 569) given in this chapter.

7.3

APPEAL AGAINST REFUSAL TO TRANSFER/TRANSMIT

Section 58 reads as follows in this regard: “Section 58: Refusal of registration and appeal against refusal (1) If a private company limited by shares refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any securities or interest of a member in the company, it shall within a period of thirty days from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferor and the transferee or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal. (2) Without prejudice to sub-section (1), the securities or other interest of any member in a public company shall be freely transferable: Provided that any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract. (3) The transferee may appeal to the Tribunal against the refusal within a period of thirty days from the date of receipt of the notice or in case no notice has been sent by the company, within a period of sixty days from the

7.2

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Transfer and transmission of securities

date on which the instrument of transfer or the intimation of transmission, as the case may be, was delivered to the company. (4) If a public company without sufficient cause refuses to register the transfer of securities within a period of thirty days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, is delivered to the company, the transferee may, within a period of sixty days of such refusal or where no intimation has been received from the company, within ninety days of the delivery of the instrument of transfer or intimation of transmission, appeal to the Tribunal. (5) The Tribunal, while dealing with an appeal made under sub-s (3) or subsection (4), may, after hearing the parties, either dismiss the appeal, or by order— (a) direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within a period of ten days of the receipt of the order; or (b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved. (6) If a person contravenes the order of the Tribunal under this section, he shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.” Observation Under the Companies Act, 1956, for a private company, the provision related to rectification of register, or for refusal to transfer or transmit securities was provided in sec 111, and for a public company under sec 111A. The Companies Act, 2013 is differently arranged, where the provisions for refusal are placed in sec 58 and those for rectification are in sec 59.

7.3.1

Distinction between remedy under section 58 and section 59

Section 58 deals with refusal to transfer or transmit securities by a public company or a private company, while sec 59 deals with rectification of register of members. Under the Companies Act, 2013, remedy for refusal to transfer and transmit is made available to all types of securities. Thus, any person holding any security like share, debentures, any instrument convertible into shares, warrants etc. can avail the remedy if the company refuses to transfer or transmit the security. However, the provision with respect to rectification under sec 59 uses the words “register of member” in sec 59(1) and thus is applicable only to shares where it is equity or preference shares. 7.3

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The appeal against refusal to transfer can be made only by the transferee whereas the remedy for rectification can be sought by many more people, specified in sec 59. There is a time limit within which a person can appeal against the refusal or neglect to transfer or transmit securities but the rectification of members’ register can take place at any time and no time limit is provided for making such application. Appeal under sec 58 lies only to Tribunal. However, appeal under sec 59 can lie with the Tribunal or it may even be given to competent courts outside India (in case of foreign members and debentures holders1)

7.3.2

Securities of a private company (Section 58(1))

7.3.2.1 Restrictions on transfer/transmission of shares The Companies Act, 2013 (as with the Companies Act, 1956), contemplates that private limited company restrict the right to transfer of shares by their articles. The restriction on transfer of shares is an important ingredient of any private company. As per sec 2(68) of the Companies Act, 2013 : “private company means a company having a minimum paid-up share capital as may be prescribed, and which by its articles,— (i) restricts the right to transfer its shares; …..” Thus, the shares of private company are not freely transferable but are subject to restrictions set out in the articles. Section 58 also contemplates restrictions placed on the transfer of shares in other circumstances, namely: “58. (1) If a private company limited by shares refuses, whether in pursuance of any power of the company under its articles or otherwise…” Thus, it recognizes that restrictions can be placed even by contracts and agreement, for instance, right of first refusal provided in a contract, tag along or drag along clauses in contract with investors, etc. Thus, the Act recognizes that the refusal may take place even on account of such contractual clauses. However, the reasons for refusal should be justifiable. The term “otherwise” cannot allow the Board of Directors to refuse transfer or transmission arbitrarily.

7.3.2.2 Restrictions on other securities Similarly, the Act recognizes that there can be restrictions placed on other securities in the articles and other contract and agreements. The refusal to transfer or transmit other securities can take place on account of such restrictions. Further, the board of directors (or any other person who is authorized by the company to decide transfer/transmission), 1

7.4

The term debenture holders which is included in section 59 is misplaced. The reasons are discussed in succeeding paragraphs.

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Transfer and transmission of securities

may at their discretion refuse the transfer/transmission of securities. Such decisions can be challenged by the transferee.

7.3.2.3

Interest of member: a grey area

Section 111(1) of Companies Act, 1956 used the words: “(1) If a company refuses…to register the transfer of, or the transmission .., any shares or interest of a member…” Section 58 of the Companies Act, 2013 uses the words: “58. (1) If a private company limited by shares refuses... to register the transfer of, or the transmission …, any securities or interest of a member in the company, …” Private companies are of two types – one which has a share capital in which members hold shares and companies in which there is no share capital which are limited by guarantee where members hold “interest”. Under the Companies Act, 1956, the wording were correct. However, under the Companies Act, 2013, the words “private company limited by shares” is used instead of just “private company”. Thus, a member who holds interest in a private company which has no share capital will have no remedy under sec 58. In fact the procedure under sec 56 in now made applicable even to transfer of interest of a member in a company having no share capital. However, the remedy under sec 58 is not extended to them. Thus, we have to ask:  Is a member of a private company not having share capital, without any remedy against refusal to transfer or transmit their interest? Section 59 applies to rectification of register of members maintained by all types of private companies whether having share capital or not. . Thus, a member of a private company not having share capital can apply for rectification of register of members.

7.3.2.4

Who can challenge?

Section 58(3) uses the term “The transferee may appeal to the Tribunal against the refusal within a period.... the date on which the instrument of transfer or the intimation of transmission…” Section 58(3) raises the following questions:

Decoding the law  Under sec 111 of the Companies Act, 1956, even a transferor could appeal. Under the new Act, only transferee is specified in sec 58(3). If only the transferee can appeal, what rights are left with the transferor?  What is the rationale behind allowing a transferor to file for rectification but not appeal against refusal to transfer shares?

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 Transferor and transferee is the terminology used for transfer and not for transmission. Section 111 of the Companies Act, 1956 used the term “the person who gave intimation of the transmission by operation of law” and gave him the power to appeal. What is the impact of not including him as a person entitled to appeal under sec 58(3)? The Companies Act, 2013 uses only the word “transferee”. Thus, in relation to transfer of securities, only the person who is entitled to the security will have the right to apply as he is the one who will suffer if the transfer is not effected. Section 59 protects and gives a member who has transferred shares (i.e. transferor) the right to seek rectification of register of members. However, as the rectification can be sought only of register of members, transferor of other securities has no right under Companies Act and might have to seek civil remedies. Now an obvious question emerges:  Why is this benefit of seeking rectification extended to transferor when his right to challenge the refusal is taken away? The answer lies in understanding the scheme of the Companies Act, 2013. Under this Act, there are provisions where a member is liable and may face civil consequence by remaining a member in the company. For instance, under sec 7(7) the liability of a member can be made unlimited, if the Tribunal finds grounds for deregistration of the company. In winding up, present members and past members (who were members for certain specified period of time) are liable to pay for calls. Thus, a member may be prejudiced if his name continues to be in the register of members; hence, the transferor has a right to seek rectification of register of members. Thus, while the right to challenge transfer under Section 58 is withdrawn, the right to seek rectification of registers is retained. When a person transfers his share, he gives away his interest and the only person who has interest in those shares is the transferee and he is given the right to appeal. It seems that the Act has accidently omitted to give right to the person who is seeking transmission. The term was rightly used in sec 111(2) of Companies Act, 1956 “The transferor or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, may appeal”. The Tribunal may interpret the term transferee in a broad sense to include even a person seeking transmission. A person seeking transmission of shares has remedies even under sec 59 dealing with rectification of register of member. But, unless the term “transferee” is broadly interpreted, it will greatly prejudice the people seeking transmission of other securities, as the Companies Act, 2013 does not provide any right to these people to appeal.

7.3.2.5 Time limits A private limited company is given a period of 30 days to intimate refusal. The notice in case of transfer must be sent to the transferor as well as to the transferee. In case 7.6

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Transfer and transmission of securities

of transmission, the notice must be sent to the person who has intimated about the transmission. The reasons for refusal should be informed to the parties concerned. The period of appeal is 30 days. The said period of appeal under sec 58(3) begins to run from one of the two dates: (a) the date of receipt of the notice (b) in case no notice has been sent by the company, within a period of sixty days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, was delivered to the company. In the first as well as the second period specified above, the stress is on the term ‘delivered’.

Manner of calculation of timelines Section 20 read with r 35 of the Company Incorporation Rules, 2014, contains provisions regarding serving of notices. However, they deal with service rules applicable only to serving of notice to company, its officer, members and to Registrar. They do not apply to delivery of letters to any other person. Section 20 read with r 35 with respect to delivery are as follows: (a) When the letter is served by post, the time at which the letter would be delivered in the ordinary course of post. (b) When the letter is served through courier, the acknowledgement receipt will specify the delivery date. (c) In any other case of transmission by other modes, there are no specific time limits mentioned. So, the same shall be assumed upon the receipt of the notice by the concerned person.

7.3.3

Securities of a public company

Section 58 provides that “…the securities or other interest of any member in a public company shall be freely transferable: Provided that any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract.” Firstly, under the Companies Act, 1956 only shares and debentures were required to be freely transferable. Section 111A provides that: “(2) Subject to the provisions of this section, the shares or debentures and any interest therein of a company shall be freely transferable …” In the Companies Act, 2013, under sec 58, a public company is required to provide free transferability of all securities. However, a proviso is inserted in sec 58(2) which provides that “Provided that any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract.” 7.7

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The proviso raises a few questions:

Decoding the law  Why is the proviso applicable only to public companies, inserted in this sec 58(2)?  What is the impact of insertion of this proviso?  To what extent can free transferability of shares be restricted?  To what extent can free transferability of other securities be restricted by contract or agreement? Section 2(71) states that ‘public company’ “means a company which— (a) is not a private company…” Thus, a public company by inference does not restrict the right to transfer its shares by the articles. Free transferability of shares is a basic ingredient of a public company. However, restriction of transfer of other securities is not a basic feature of company; thus, by contract or agreement, there can be several restrictions placed on transfer of other securities. But the transferability of shares cannot be curtailed. It seems as though the free transferability provision is extended to all securities. Thus, proviso to sec 58(2) gives a company liberty to curtail this freedom by way of a contract or arrangement. The term used is “contract and arrangement with two or more persons” in sec 58. One aspect of this is contract between the security holder and company which we have analysed. Other types of contract and arrangement may be between two security holders who are bound by some instrument that they have executed (like a debenture trust deed), or between two shareholders (like share purchase agreement or private equity arrangement) or between a security holder and bank (e.g. when loan is taken against a security which is provided as a security or collateral). This kind of contract or agreement can be recognized by the public company and the transferability will be subject to such contract and agreement. The restrictions may not be in articles. In Bajaj Auto’s case, the Bombay High Court held that the proviso simply and expressly provides the position of law which prevailed under sec 111A of the Companies Act, 1956. A detailed analysis of this provision and the proviso to sec 58(2) is made by the Bombay High Court in Bajaj Auto Limited’s case decided in 2015 which deals with the history of insertion of this proviso. The important excerpts of this case are provided in Para 7.7 of this chapter which provides a complete understanding of the background and interpretation of sec 58(2).

7.3.3.1 Reasons for refusal Section 58(4) deals with transfer/transmission of securities. A public company cannot refuse to register transfer of securities “without sufficient cause”.

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Transfer and transmission of securities

Does the public company have to furnish reason(s) for refusal? Section 58(4) uses the term “without sufficient cause”. Thus, unlike a private company, the public company not only has to furnish a reason, but also provide a cogent reasoning for refusal to transfer/transmit the share/securities. If the company fails to transfer/transmit the securities, then the Act provides that the transferee can apply to Tribunal. Again in this case, the term “person who applies for transmission” is missing and thus, transferee may have to be read in a wider sense. Even in the case of a public company, the transferor of securities (except the transferor of shares as discussed in the earlier paragraphs dealing with securities) has no rights to file the appeal. This aspect has been discussed in detail in the section dealing with private companies in preceding paragraphs.

7.3.3.2 Timelines The public company has to transfer the securities within a period of thirty days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, is delivered to the company. The manner of calculating the timelines in accordance with sec 20 is the same as discussed above. The transferee can file an appeal within a period of sixty days from the date when the company intimates him about the refusal to transfer/transmit securities. If no intimation has been received from the company, then the appeal is to be filed within ninety days of the delivery of the instrument of transfer or intimation of transmission.

7.3.4

Reliefs

The Tribunal, while dealing with an appeal under sec 58(3) (in respect of a private company) or sec 58(4) (in respect of a public company), may, after hearing the parties, either dismiss the appeal, or by order— (d) direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within a period of ten days of the receipt of the order; or (e) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved.

7.3.5

Interim reliefs

The Companies Act, 2013 does not contain any provision where the Tribunal is empowered to grant interim relief with respect to proceedings under sec 58 and sec 59. In the Companies Act, 1956, sec 111 and sec 111A provided an express power, which is removed in the new Act. However, the power to grant interim reliefs in provided in the NCLT Rules. The nature of these interim relief is similar to those contained in sec 111 and sec 111A of the Companies Act, 1956. However, a question can arise whether power to grant interim relief by the Central Government through rules is legal, when the reference to interim reliefs is expressly deleted in the 7.9

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Companies Act, 2013. One counter argument to this challenge will be sec 424(2)(h) which empowers the central government to vest powers of civil courts in the Tribunal.

7.3.5.1 Can interim reliefs other than those specified in rules be granted? One view of the courts is that unless expressly provided for, the Tribunal cannot grant interim reliefs. They cannot do so even under the “inherent power of Tribunal”. The Shaw Wallace and Co. Ltd. v Union of India (UOI) MANU/WB/0376/1998 : 2CWN11 : (1999)ILR 2Cal429 case may be useful in this regard where it was held as follows: “59. ….Since Section 408 vests the Central Government and not the Company Law Board with power to appoint additional directors to the Board of the Company on the order of the Company Law Board to that effect, we are unable to accept Mr. Mitra's submissions that the Company Law Board was entitled to pass the impugned order in exercise of inherent powers. Even if, having regard to reg. 44 of the Company Law Board Regulations, 1991, the Company Law Board is vested with inherent powers to make such orders as may be required for the ends of justice or to prevent abuse of the process of the Board, such power cannot be exercised in excess of the powers flowing from the statute itself. Such power has to be exercised by the Board in aid of and not de hors the provisions of the Statute and, in any event, such exercise of power conferred by reg. 44 cannot override the provisions of the Statute.”

7.3.6

Penalty

If a person contravenes the order of the tribunal under this section, he shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees. The Companies Act, 2013 provides a penalty of fine with imprisonment and thus it is not compoundable. Under the Companies Act, 1956, contravention of this provision was a compoundable offence. This penal provision has been retained.

7.4

RECTIFICATION OF REGISTER OF MEMBERS “Rectification of register of members: 59. (1) If the name of any person is, without sufficient cause, entered in the register of members of a company, or after having been entered in the register, is, without sufficient cause, omitted therefrom, or if a default is made, or unnecessary delay takes place in entering in the register, the fact of any person having become or ceased to be a member, the person aggrieved, or any member of the company, or the company may appeal in

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Transfer and transmission of securities

such form as may be prescribed, to the Tribunal, or to a competent court outside India, specified by the Central Government by notification, in respect of foreign members or debenture holders residing outside India, for rectification of the register. (2) The Tribunal may, after hearing the parties to the appeal under subsection (1) by order, either dismiss the appeal or direct that the transfer or transmission shall be registered by the company within a period of ten days of the receipt of the order or direct rectification of the records of the depository or the register and in the latter case, direct the company to pay damages, if any, sustained by the party aggrieved. (3) The provisions of this section shall not restrict the right of a holder of securities, to transfer such securities and any person acquiring such securities shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal. (4) Where the transfer of securities is in contravention of any of the provisions of the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992 or this Act or any other law for the time being in force, the Tribunal may, on an application made by the depository, company, depository participant, the holder of the securities or the Securities and Exchange Board, direct any company or a depository to set right the contravention and rectify its register or records concerned. (5) If any default is made in complying with the order of the Tribunal under this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both.” Observation Section 59 needs to be carefully analysed. Section 59(1) deals with register of members and members. Thus, it seems logical that it is applicable only to shares. However, in sec 59(1), the last few lines uses the term “debenture holders”, which creates some confusion whether this section was intended to be applicable only to shares or did the legislature intend to extend it even to rectification of register of debenture-holders (like under the Companies Act, 1956, through sec 111A(8)). Now, under the Companies Act, 2013, sec 59(3) uses the term “securities” which results in further confusion as to whether this section was intended to apply for all the securities. However, sec 59(3) also specifies “voting rights” and their suspension. Thus, one may argue that sec 59(1) might have been intended only for shares, as only shares have voting rights. This is corroborated by the fact that there is no express 7.11

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reference to register of debenture holders or register of other security holders and there is no provision similar to sec 111A (8) under the Companies Act, 2013.

7.4.1

Rectification of register of members under section 59(1)

7.4.1.1 Which registers can be rectified? Under sec 59(1) of the Companies Act, 2013, only rectification of register of members can be sought. Section 88 provides different types of registers that are maintained by the company with respect to securities. It includes: (a) register of members indicating separately for each class of equity and preference shares held by each member residing in or outside India; (b) register of debenture-holders; and (c) register of any other security holders. However, sec 59(1), as explained, applies only to rectification of register of members.

7.4.1.2 Under what circumstances? Section 59(1) specifies the following circumstances when a person can apply for rectification of register: (a) If the name of any person is, without sufficient cause, entered in the register of members of a company. (b) If the name of any person after having been entered in the register, is, without sufficient cause, omitted therefrom. (c) If a default is made in entering in the register, the fact of any person having become or ceased to be a member. (d) If unnecessary delay takes place in entering in the register, the fact of any person having become or ceased to be a member. In Sanjay Mukim v United Spirit Limited and Ors. [MANU/CL/0046/2015, C.P. No. 7/2014-CB(Mad)] it is held that – “The rectification of the register of members either under section 111(4) of the Companies Act, 1956 or under section 59(1) of the Companies Act, 2013 would arise only when the petitioner has lodged a valid share certificate and the respondents have unnecessarily delayed the transfer or refused to transfer. The petitioner has not lodged the new share certificates issued by the 1st Respondent and the related transfer deed thereon. As the petitioner has not lodged a valid share certificate and transfer deed and the refusal by the respondents are not without reason, the petitioner is not entitled for rectification of the register of members

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Transfer and transmission of securities

and consequently the issue of share certificate and dividend and other benefits due thereon does not arise.”

7.4.1.3 Who can file an appeal for rectification? The persons who can apply for rectification of register of members is much wider than the set of persons who can appeal against refusal to transfer shares. (a) The person aggrieved – In case of a transfer, the transferor as well as the transferee have a right to apply. A transferor will also suffer if his name is allowed to be continued after he has ceased to be a member as he can become liable to pay money or becomes liable to other liabilities by virtue of his shareholding. Thus, if the company fails to remove his name, he can also be a person aggrieved. (b) Any member of the company. (c) The company.

7.4.1.4 To whom does the appeal lie? The appeal may lie to the tribunal. However, if the central government has by notification provided that a competent court outside India can take up the matter for rectification of register, then foreign members or debenture holders residing outside India can apply there for rectification of the register. The term debenture holder referred here may cause some confusion. However, sec 59 (1) uses the term register of members. Thus, one must interpret that the debenture holder considered here has the right to apply for rectification of register of members, if he can show that he is a ‘person aggrieved’.

7.4.1.5 Nature of reliefs Section 59(2) provides for relief that can be provided in an appeal filed under sec 59(1). If the Tribunal finds that there is no merit in the matter, it may dismiss the appeal; however, if it finds that rectification is necessary, it can direct the company to register the fact of the transfer or transmission. The said order must be complied within ten days of the receipt of the order. The Tribunal may also direct the rectification of records of the depository or the register maintained by the company. If it is the company which maintains the records, then the company can be required to pay for damages sustained by the aggrieved party.

7.4.1.6 Interim reliefs The Act is silent about whether or not interim reliefs can be provided or about the nature of interim reliefs that can be granted. During the pendency of an appeal before the Tribunal, the provisions of this section do not restrict the right of a holder of securities to transfer such securities and any person acquiring such securities shall be entitled to voting rights unless the voting rights have been suspended by an order of the Tribunal. The

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discussion on permissibility to grant interim reliefs and decision in the Shaw Wallace case (supra) will be useful.

7.4.2

Rectification where transfers are in violation of law under section 59(4)

Section 59(4) deals with the instance where an appeal can be made to the Tribunal for rectification of register. This rectification stands on a different footing from the rectification of register contemplated under sec 58(1).

7.4.2.1 Which register? Here the word used is ‘register’ and ‘securities’. Thus, the term register has to be read widely to include not only register of members, but also other the register namely register of debenture holders and register of other securities as is provided under sec 88.

7.4.2.2 Under what circumstances? To be successful in an application under sec 59(4), one must show that: (a) There is transfer of security. It can be any security including a share, debenture etc. (b) Such transfer is in contravention of any provision of the law namely: i.

Securities Contracts (Regulation) Act, 1956

ii. The Securities and Exchange Board of India Act, 1992 iii. Companies Act, 2013 iv. Any other law for the time being in force The term “law” is not defined in the Act. However, this term generally has a wide connotation. General Clauses Act, 1897 defined “Indian law” in sec 3(29) which reads as follows: “"Indian law" shall mean any Act, ordinance, regulation, rule, order, bye-law or other instrument which before the commencement of the Constitution had the force of law in any Province of India or part thereof, or thereafter has the force of law in any Part A State or Part C State or Part thereof, but does not include any Act of Parliament of the United Kingdom or any Order in Council, rule or other instrument made under such Act;” The definition of the term “law” is defined in Article 13 of the Constitution of India as follows: “(3) In this article, unless the context otherwise requires,— (a) “law” includes any Ordinance, order, bye-law, rule, regulation, notification, custom or usage having in the territory of India the force of law;”

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7.4.2.3 Who can make an application? The application under sec 58(4) can be made by (a) the depository, (b) company, (c) depository participant, (d) the holder of the securities, or (e) the Securities and Exchange Board. Here the application cannot be made by the transferor. As a transferor has already sold his securities, he will not be a “holder of securities”. Here the reference to company refers only to the company whose register is sought to be rectified.

7.4.2.4 Relief The Tribunal can on application, if it finds that such transfer of securities in contravention of any law as alleged, direct a company or a depository to set right the contravention and rectify its register or records concerned.

7.4.3

Difference between rectification sought under section 59(1) and section 59(4)

An appeal under sec 59(1) can be filed only for rectification of register of members, whereas an appeal under sec 59(4) can be for rectification of register of any security of the company. Under sec 59(1), the applicant has to only show that there is incorrect entry or delay in making an entry or omission/failure in making an entry. In sec 59(4), it is appeal with respect to a “transfer of securities” and not transmission or any other transaction. In the appeal it should be shown that the transfer is in contravention to some law. There are limited people who can apply under sec 59(1) but in sec 59(4) more people including the SEBI is authorized to challenge the transfer of securities.

7.4.4

Time limit for filing application for rectification

There is no time limit specified for filing an application for rectification of register under sec 59(1) or under sec 59(4). However, the Limitation Act, 1963 will apply.

7.4.5

Penalty

If any default is made in complying with the order of the Tribunal under sec 59, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both.

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7.5

CASE LAWS AND THEIR APPLICABILITY

7.5.1

Part I: Case laws related to nature and scope of sections 111 and 111A

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In the first part, an analysis is provided of the cases analysing the nature and scope of remedy under sec 111 and sec 111A 7.5.1.1

Case 1

N.R. Harikumar v WW Apparels (India) Private Limited and Ors. MANU/TN/0894/2015 : 2015-2-LW987 : (2015)5MLJ422 A. Compliance with Articles “23. I have carefully considered the rival submissions. There is no second opinion about the fact that the Articles of Association of a Private Company constitute a contract inter se between the shareholders. Therefore, any transfer of shares should be in accordance with the Articles of Association. As held by the Supreme Court in Smt. Claudie Lila Parulakar Vs Sakal Papers Pvt. Ltd. [MANU/SC/0227/2005 : AIR 2005 SC 4074], the requirement of the Articles of Association must be complied with, before a valid transfer could be effected.” B. Joint holding: “36. Now, I look at this issue from another angle. Assuming the situation where one co-trustee/joint shareholder is not willing to support the claim of the other aggrieved co-trustee/Petitioner, the question then arises for consideration is as to whether it would not be open for the aggrieved Co-trustee/Petitioner in her individual capacity as a joint member in the Register of Members to institute this petition? I have given my serious thought to the question. In my view, such a member in the capacity of he/she being a Co-trustee would be entitled to maintain the petition. Further, it is not necessary for such Co-trustee/Petitioner to implead the other co-trustee(s) who are not willing to support his/her claim. The reason is obvious. There may be chances that the other co-trustee for some ulterior purpose might have colluded with the wrong doers i.e. the management of the Company. In that case, if the Petitioner/Co-trustee is deprived of filing of a petition for redressal of his/her grievances by way of rectification of Register Members, it would imply that such Petitioner/Cotrustee is remediless. It is a settled proposition that a party cannot be left without remedy under law. It is also fundamental law that no party can be compelled to invite evidence against himself/herself. It is also pertinent to mention here that the parties, who, according to the Respondents, are the necessary and proper parties have not approached this Board till date for their impleadment as a party in this petition despite having knowledge of the instant proceedings. Therefore, in my view, the Contesting Respondents are not entitled to contend that the petition suffers from non-joinder of necessary and proper parties.” 7.16

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Applicability: Principles established in Part A of this judgment will be applicable as in the case of a private limited company the transfer is subject to the restrictions placed in Articles and the Tribunal will consider the compliance with Articles before passing any decision. Principles laid out in Part B of this case will also be applicable as the Companies Act, 2013 permits joint holding. No specific conditions/restrictions are placed on a joint owner for applying under Companies Act, 2013.

7.5.1.2

Case 2

Gaurishankar Neeklanth Kalyani and Ors. v Sulochana Neeklanth Kalyani and Ors. MANU/CL/0020/2015, CLB-Mum A. Compliance with Transfer Formalities: “94. It is an established proposition of law, as held in (i) Shirish Finance Investment (P) Ltd. v M. Sreenivasulu Reddy MANU/MH/0545/2001: 2002(1) Bom C.R. 419, and (ii) Mannalal Khethan v Kedarnath Khetan MANU/SC/0157/1976: AIR [1977] SC 56, that for a valid transfer of shares the execution of transfer deeds under section 108 of the (1956) Act is a mandatory requirement under law. According to the said decisions, it is also necessary that the Board of Directors of the company must approve the company after receiving the requisite transfer deeds and thereafter only the entry in the share certificates can be made and changes in the Register of Members of the Company can be made.” B. Limitation Period “87. It is true that the provisions contained in Section 111(4) of the Act (Companies Act, 1956), do not specifically provide the period of limitation. However, it is a settled proposition of law that if no limitation period is prescribed, in that case Article 137 of the Limitation Act could be applicable. In terms of Article 137 of the Limitation Act, 3 years period is prescribed to an aggrieved party to approach a competent forum, which in this case is CLB, for redressal of his/her grievances seeking appropriate relief.” Applicability −

The transfer must be in accordance with law. Under the new Act, the formalities for transfers have changed and certain provisions pertaining to transfers have been deleted. However, the basic principle enunciated here is applicable.

−

The provisions of Limitation Act, 1963 are applicable as specifically stated in sec 433 which specifies that “433. The provisions of the Limitation Act, 1963 shall, as far as may be, apply to proceedings or appeals before the Tribunal or the Appellate Tribunal, as the case may be”. Thus, there is no debate about its applicability. Even in the new Companies Act, 2013, the provision of Art. 137 of Limitation Act, 1963 will apply.

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7.5.1.3 Case 3: Jurisdiction is exclusive Jai Mahal Hotels Pvt. Ltd. v Rajkumar Devraj and Ors. 2015(10)SCALE14 : MANU/SC/1059/2015 “17. Thus, there is a thin line in appreciating the scope of jurisdiction of the Company Court/Company Law Board. The jurisdiction is exclusive if the matter truly relates to rectification but if the issue is alien to rectification, such matter may not be within the exclusive jurisdiction of the Company Court/Company Law Board.” Applicability: Section 430 provides that no appeal shall lie in any court or other authority and no civil court shall have any jurisdiction in respect of any matter in respect of which the Tribunal or the Appellate Tribunal is empowered by or under this Chapter and no injunction shall be granted by any court or other authority in respect of any action taken or proposed to be taken in pursuance of any power conferred by or under this Chapter. Thus, with respect to the Tribunal, the principle of this case law will apply. If the cause of action is purely a question for rectification of register, then only the Tribunal is empowered to exclusively deal with this issue. In light of recent decisions where the powers of NCLT are extended to even decide complicated questions of facts, the jurisdiction of civil court is further curtailed. Please see the table of latest judgements for further study.

7.5.1.4 Case 4: Composite Petition Neo Finance Pvt. Ltd. and Ors. v Rakesh Soni and Ors. MANU/CL/0040/2015, C.P. No. 15 of 2014(CLB-MUM) Composite petition can be filed for rectification of register of members alongwith an application for oppression and mismanagement. Applicability: Applicable, even under the 2013 Act composite petitions can be filed provided they are arising out of a single cause of action.

7.5.1.5 Case 5: Complicated Question Ammonia Supplies Corpn. (P) Ltd. v Modern Plastic Containers (P) Ltd. MANU/SC/0585/1998 : 1998 (7) SCC 105, Standard Chartered Bank v Andhra Bank Financial Services Ltd. MANU/SC/2534/2006 : 2006 (6) SCC 94, Luxmi Tea Co. Limited v Pradip Kumar Sarkar MANU/SC/0290/1989 : 1989 Supp. (2) SCC 656 and Bajaj Auto Ltd. v N.K. Firodia MANU/SC/0036/1970 : 1970 (2) SCC 550, 557. Under sec 111 of the Companies Act 1956, the proceedings are of a summary nature and complicated questions of title cannot be adjudicated upon in the said jurisdiction.

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In Standard Chartered Bank (supra), scope of sec 111(7) of Companies Act, 1956 was considered. It was observed that jurisdiction being summary in nature, a seriously disputed question of title could be left to be decided by the civil court. It was observed: “29.....The nature of proceedings Under Section 111 (of 1956 Act) are slightly different from a title suit, although, Sub-section (7) of Section 111 (of 1956 Act) gives to the Tribunal the jurisdiction to decide any question relating to the title of any person who is a party to the application, to have his name entered in or omitted from the register and also the general jurisdiction to decide any question which it is necessary or expedient to decide in connection with such an application. It has been held in Ammonia Supplies Corpn. (P) Ltd. v Modern Plastic Containers (P) Ltd. that the jurisdiction exercised by the Company Court Under Section155 of the Companies Act, 1956 (corresponding to Section 111 of the present Act(of 1956 Act), before its amendment by Act 31 of 1988) was somewhat summary in nature and that if a seriously disputed question of title arose, the Company Court should relegate the parties to a suit, which was the more appropriate remedy for investigation and adjudication of such seriously disputed question of title.” Applicability: In the first edition of this book, the following was the analysis about the applicability of this section “The Companies Act, 2013 provides more powers to the Tribunal and Appellate Tribunal as compared to the powers vested in the Company Law Board. The Tribunal is empowered to take up even matters like winding up where the proceedings are not summary in nature. Thus, in light of the new powers, the Tribunals and the Apex Court may take a different view while dealing with cases involving complicated factual matrix. However, Tribunals cannot take up issue where there are issues that cannot be dealt with by the Tribunal e.g. if shares are transferred under a Will which is challenged. Such issue will go to the concerned courts that are empowered to deal with such issues.” During the last five years, there have been significant decisions on the applicability of these judgements. The Apex Court and Tribunals have in several judgements held that in light of significant powers conferred on NCLT under Companies Act, 2013, NCLT can deal with complicated questions like legality of Board resolution, fraud in transfer of shares. A list of recent case laws in attached in the Table given below.

7.5.1.6 Case 6 a. Bharamgouda Adgouda Patil and Ors. v Sanjay Founders Pvt. Ltd. and Ors. MANU/MH/1866/2015, CP 17 of 2007 “John Tinson and Co. Pvt. Ltd. vs. Surjeet Malhan MANU/SC/0331/1997 : AIR 1997 Supreme Court 1411 and Bhubaneshwar Singh vs. Kanthal India Ltd. MANU/WB/0140/1982 : 1986Company Cases, Vol. 59, page 46 in 7.19

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support of his case that transfers of shares in contravention of the Articles of Association are invalid.” Applicability: The principle that transfer of shares in contravention of articles of association is invalid is applicable.

7.5.1.7 Case 7 ARG Auto Components (P.) Ltd. v Atlas Pet Plas Industries Ltd. MANU/CL/0001/2015 : [2015]126CLA12(CLB) : [2015]130SCL77(CLB) “10. As to Section 111A(2)(of 1956 Act), it says the shares are freely transferable, the proviso to sub-section (2) says, when the company refuses to register transfer of shares without sufficient cause, the aggrieved will get a right to appeal before CLB, it is pertinent to note, it talks of refusal of registering transfer of shares, therefore this proviso could be invoked in pre-registration of transfer, not in the case of allotment. 11. As to Section 111A(3) (of 1956 Act), it speaks of post registration cases, but this provision is limited to where transfer or transmission is registered in violation of SEBI Act or SICA Act or any other law for the time being in force, but not in the cases of wrong allotment or fraudulent allotment. 12. There is no provision in section 111A (of 1956 Act) analogous to subsection (4) of Section111 of the Act (of 1956 Act), therefore there being no provision under section 111A (of 1956 Act) to go beyond transfer and transmission cases, I believe CLB is not conferred with jurisdiction under section 111A (of 1956 Act) either to say allotment is invalid or valid. In view of the same, this Bench is of the opinion that the issue being related to allotment of the shares to the petitioner, the impugned allotment of shares being in relation to the Public Limited Company, Company Law Board has no jurisdiction to adjudicate as to whether allotment made to the petitioner is valid or not. However the petitioner is at liberty to proceed before civil court over this issue of allotment of shares.” Applicability: This case is not applicable as the law on this point has changed. This case helps to understand the scope and difference between the old and new provisions. Under sec 59, the provisions for rectification of register under sec 59(1) and sec 59(4) are applicable to both private and public companies.

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7.5.2

Transfer and transmission of securities

Part II: Case laws related to refusal to transfer and transmission of securities

7.5.2.1 Where refusal to transfer and transmission is valid: a. Vardhman Publishers Limited v Mathrubhumi Printing and Publishing Company Limited [1991] 71 Comp Cas 1(Ker) Held: The decision of the Board of Directors of the company refusing to register the transfer of those shares where the share transfer forms are not duly stamped is valid. Applicability: Principle applicable. b. Shailesh Prabhudas Mehta v Calico Dyeing and Printing Mills Limited [1994] 80 Comp Cas 64(SC) Held: Refusal to transmit shares was held to be bona fide if the said decision was a proper and commercial decision keeping in view the interest of the management of the Company. Applicability: Principle applicable. c. Dinesh Gandhi v Bayer Diagnostics India Limited [2002] 111 Comp Cas 547 (CLB) Held: Refusal valid when, documents lodged for registration 5 years after the delivery, and change in company name in the meantime. Applicability: Principle will be applicable. However, it remains to be tested. In any case, principle of delay and latches and Limitation Act will apply. This development of law in this regards in discussed in the table of latest judgement. d. Rangpur Tea Associations Limited v Makkanlal Samaddar [1973] 43 Comp Cas 58 (Cal) Held: If the AOA of the company gives absolute discretion to the directors of the company to refuse registration, exercise of such power is bonafide. In exercising the power to refuse registration, the grounds on which exercise of the power can be upheld is the interest of the company and of the shareholders as a whole. Applicability: Principle applicable. e. Shapoorji Pallonji Finance Limited v Mideast (India) Ltd. [2002] 110 Comp Cas 868 (CLB) Held: In case of sick company, BIFR consent also needs to be taken. Applicability: Principle may not be applicable as the law for sick company has completely changed.

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7.5.2.2 Where refusal to transfer and transmission is invalid f. Bajaj Auto Limited v N.K.Firodia [1971] 41 Comp Cas 1(SC) Held: Directors of the appellant-company did not act in a bona fide manner or in the general interest of the company by refusing to register the transfer of shares applied for by the respondents. Applicability: Principle applicable. g. Tarlok Chand Khanna v Raj Kumar Kapoor [1983] 54 Comp Cas 12 (Delhi) Held: Refusal not in accordance with the provisions of the article is invalid. Applicability: Principle applicable. h. Killick Nixon Limited v Dhanraj Mills Pvt. Ltd. [1983] 54 Comp Cas 432 (Bom) Held: The contract between the transferor and the transferee being complete when the transfer instrument is executed, all that is necessary is to intimate to the company the fact of the said transfer. By getting his name registered in the register of members, the transferee only perfects his title to the shares and becomes entitled in his own right to claim all the privileges which were hitherto claimed by the transferor in his name. It is, therefore, not correct to say that there is a contract between the transferee and the company when the board of directors accept the transfer of shares and decide to enter the name of the transferee in the register of members. When the transferee intimates a transfer to the company, the company merely either recognises such transfer or refuses to recognise it. When, however, it recognises the transfer, it recognizes and after such as was executed on the date, it was so executed and after such recognition, the transferee perfects his title as the legal holder thereof notwithstanding the fact that he is in enjoyment of all the rights as against the transferor as the beneficial owner thereof. If this is so, then further, all that the company is required to do on the date it accepts the transferee under such deed as its members without investigating further as to whether the transferee named in the deed is in fact capable of accepting the transfer or the company. The company is not bound to go beyond the deed of transfer and to embark on its own on an inquiry into the validity of the transfer on the said count. The company would be perfectly justified in acting on the transfer deed as it is presented to it and proceeding on the basis that what is represented by the transfer deed is true." Applicability: Principle applicable. i. Mathew Michael v TEKOY (India) Ltd. [1990] 69 Comp Cas 145 (Ker) Held: Discretion not to be exercised arbitrarily, capriciously or corruptly. Applicability: Principle applicable.

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j. Bede Steamship Company Limited [1970] 1 Ch 123 (CA) Held: Board has no power to refuse to register a transfer merely on the ground that they would not permit the holder of the large number of shares to split his holding by Transfer. Applicability: Principle applicable. k. Satyanarayana Rathi v Annamalaiar Textiles Private Limited [1999] 95 Comp Cas 386 (CLB)

Held: Transfer in violation of articles impermissible. Applicability: Principle applicable. l. Vikas Jalan v Hyderabad Industries Limited [1997] 88 Comp Cas 551 (CLB) Held: The question whether a company should be concerned about consideration was considered in Deepak Associated Paper Mills (Company Law Board decision, page 169) wherein a similar case arose and the Company Law Board held that refusal on this ground was not proper. If adequate stamp duty has been paid on shares then there is no violation of the Indian Stamp Act relating to payment of duty. Mere technical objections where the transferee has otherwise complied with the law cannot be considered. Once a shareholder decides to transfer the shares and has received valuable consideration, especially in the case of a listed company, the instruments are always signed in blank and the transferor would not know the name(s) of the transferee or be aware of any person to whom ultimately the shares were sold and whose name is entered in the transfer form. Applicability: Principle applicable. m. M.G. Amirthalingam v Gudiyatham Textiles Private Ltd. [1972] 42 Comp Cas 350 (Mad) Held: If the AOA gives unfettered discretion to directors with regard to refusal to register transfers, the court would interfere on proof of bad faith. Applicability: Principle applicable. n. Kumar Exporters P. Ltd. v Naini Oxygen and Acetylene Gas Ltd. [1986] 60 Comp Cas 984 (All) Held: Continuous refusal by the persons who are in the management of the company to register the shares, with an ulterior motive of retaining the control over the affairs of the company, is proper ground for the court to interfere and grant relief under sec 397 and sec 398 (of Companies Act, 1956). Applicability: Principle applicable.

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o. Deccan Cements Ltd v Geekay Exim (India) Ltd. [2002]112 Comp Cas 616(CLB) Held: The court held that despite shares offered as collateral security and failure of company to repay deposit, refusal on ground of criminal proceedings is not concerned with registration of transfer of shares. Applicability: Principle applicable. p. Anil.R.Chhabria v Finolex Industries Ltd [2009]99 Comp Cas 168(CLB) Held: the court held that refusal of company to transmit the shares was not bonafide, hence direction to register was given. Applicability: Principle applicable. q. Maruti Udyog Ltd v Pentamedia Graphics Ltd [2002]111Comp Cas 56(CLB) Held: “The CLB has held in a number of cases that apart from the grounds mentioned in Section 111A, a public company cannot refuse to register transfer of shares on any other grounds whatsoever. In the circumstances, the mere stop transfer advice at the instance of the third respondent, in our view is not a 'sufficient cause' for refusing to register the transfer in respect of the impugned shares in favour of the petitioner. The case laws cited supra by the counsel for the third respondent can be distinguished from the facts of the present case, especially the petitioner has not chosen to enforce the security through a competent court of law. Hence, the decisions cited supra do not come to aid of the company. We are, therefore, of the view that the company shall register the transfer of shares in favour of the petitioner. The Public Company refusing to register merely on the stop transfer advise does not constitutes the ’sufficient cause’. A Pledgee has the option of retaining the shares without registering the transfer in his name or getting the shares registered. 2. One of the objections taken by the learned counsel for the respondents is that, even assuming that the case is that of a pledge, the petitioner being a pledgee cannot dispose of the shares pledged without notice to the pledger. He relied on a number of cases on this proposition. Unlike other movable goods, in normal commercial practice, when shares are pledged with blank transfer forms, the pledgor has the option of retaining the shares without registering the transfer in his name or get the shares registered in his name. Both the practices are common. Registering the shares in the name of the pledgor does not in any way constitute a sale requiring notice to be given to the pledgor. Therefore, by getting the shares registered in its name, the petitioner-company cannot be deemed to have effected a sale. Even though, it was contended by the learned counsel that board of directors of the petitioner-company has passed a resolution to sell the shares, yet mere passing of resolution does not amount to a sale. Further, in the present petition what we are concerned is whether the action of the company in not registering the shares when they were lodged for registration is with sufficient cause or not. The company is a listed company and as per the listing agreement if a transferor desires to stop the registration, the company can do so only if the transfer or obtains a 7.24

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restraint order from a competent court within 15 days. In the present case, the company has returned the share certificate merely on the basis of a letter from the third respondent. Such return of the share certificates along with the instrument of transfer amounts to a deemed refusal and as such the proviso to Section 111A(2) are squarely applicable in this case. Since the shares of a public company are freely transferable the company is not concerned with the inter se disputes, if at all any, between the transferor and transferee and as such should not have returned the share certificate to the petitioner without registration. The ground on which the shares were returned does not constitute 'sufficient cause'. Accordingly, as directed by the learned Member, the company should register the transfer of the impugned shares within 30 days from the date of lodgement of the same with the instrument of transfer.” Applicability: Principle applicable. r. Shyama Prasad Mudrarka v Calcutta Stock Exchange Association Ltd. [2002] 108 Comp Cas 703 (CLB) Held: The Transferee can come to Company Law Board only after expiry, to two months, whether the company sleeps over/refused transfer within or after two months and when the transfer is refused without sufficient cause. Shares of a public limited company are freely transferable. It can be refused only on the grounds as set out in sub sec (2) of sec 111A (of Companies Act, 1956). Applicability: Principle applicable. s. V.B. Rangaraj v V.B. Gopalakrishnan and Ors. MANU/SC/0076/1992, AIR1992 SC453 : [1992]73Comp Cas201(SC) : JT1991(4)SC430 : (1992)IIMLJ11(SC) : 1991(2)SCALE1135 : (1992)1SCC160 : [1991]Supp3SCR1 Held: “In Re Swaledale Cleaners Ltd. (1968) 1 All ER 1132 it was held that it is well-established that a share in a company is an item of property freely alienable in the absence of express restrictions under the Articles. This view is reiterated in Tett v Phoenix Property and Investment Co. Ltd. and Ors. 1986 2 SCC 99. In Chapter 16 of Gore-Browne on Companies (43rd Ed.) while dealing with transfer of shares it is stated that subject to certain limited restrictions imposed by law, a shareholder has prima facie the right to transfer his shares when and to whom he pleases. This freedom to transfer may, however, be significantly curtailed by provisions in the Articles. In determining the extent of any restriction on transfer contained in the Articles, a strict construction is adopted. The restriction must be set out expressly or must arise by necessary implication and any ambiguous provision is construed in favour of the shareholder wishing to transfer. In Palmer's Company law (24th Ed.) dealing with the 'transfer of shares' it is stated at page 608-9 that it is well-settled that unless the Articles otherwise provide the shareholder has a free right to transfer to whom he will. It is not necessary to seek in 7.25

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the Articles for a power to transfer, for the Act (the English Act of 1980) itself gives such a power. It is only necessary to look to the Articles to ascertain the restrictions, if any, upon it. Thus a member has a right to transfer his share/shares to another person unless this right is clearly taken away by the Articles. In Halsbury's Laws of England (4th Ed.) para 359 dealing with 'attributes of shares' it is stated that "a share is a right to a specified amount of the share capital of a company carrying with it certain rights and liabilities while the company is a going concern and in its winding. The shares or other interest of any member in a company are personal estate transferable in the manner provided by its articles and are not of the nature of real estate". Dealing with 'restrictions on transfer of shares' in Penington's Company Law (6th Ed.) at page 753 it is stated that shares are presumed to be freely transferable and restrictions on their transfer are construed strictly and so when a restriction is capable of two meanings, the less restrictive interpretation will be adopted by the court. It is also made clear that these restrictions have to be embodied in the Articles of Association.” “6. Whether under the Companies Act or Transfer of Property Act, the shares are, therefore, transferable like any other movable property. The only restriction on the transfer of the shares of a company is as laid down in its Articles, if any. A restriction which is not specified in the Articles is, therefore, not binding either on the company or on the shareholders. The vendee of the shares cannot be denied the registration of the shares purchased by him on a ground other than that stated in the Articles.” Applicability: This case has to be read in light of the Companies Act, 2013, which allows additional reasons for refusing transfers. For instance, transfer can even be refused if it is against a contract entered into between two persons (proviso to sec 58(2) discussed in Annexure A). Case Digest of Recent Judgment on Transfer and Transmission Name of case

Particulars

B and A Packaging India Ltd. v.Amrex Marketing P. Ltd. and Ors., [2017] 203 Comp Cas 454 (NCLT) Kolkata.

From the records, the Tribunal held that Petitioner and Respondents admitted that share transfers were effected in violation of Takeover Regulations, 2011. In this case, the Tribunal directed the company to buy back the shares acquired in violation of the Takeover Regulations. It further held that company shall buy-back the shares at the rate prevailing at the time of presentation of petition or at market value, whichever is higher. P.S: This matter was carried in appeal and appeal was dismissed by NCLAT [Amrex Marketing P. Ltd and Ors. v B and A Packing (India) Ltd. [2017] 204 Comp Cas 1 (NCLAT)]. Further, similar order passed in IFB Agro Industries Limited vs. SICGIL India Limited and Ors.

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Particulars (2017) 203 Com Cas 463 (NCLT) Kolkata for violation of Takeover Regulation, 1997 and Insider Trading Regulations, 1992.

Mohan Paul v. City Hospital P. Ltd. And Ors. [2017] 203 Comp Cas 516 (NCLT) Chennai

Facts: The son of TMP sought transmission of shares of the TMP on TMP’s death. The company rejected the request to transmit the same on the ground that said shares were subject to an attachment by court as the deceased was an absconding accused. Held: The Tribunal relied on the Apex Court judgement in Mrs. V.G. Peterson v O V Forbes [AIR 1963 SC 692] wherein it was held that attachment subsists only so long as the contemnor is alive. NCLT held that this ratio is applicable in this case. It was held that order of attachment under Section 83 of the Cr.PC will be lifted on the death of TMP. In light of the above, the company was ordered to effect transmission of shares. Cost of Rs. 50,000/- was imposed on the Respondent company. P.S.: The order was carried in appeal. The NCLAT upheld the order on merit. However, impugned order was set aside so far it related to the costs imposed. [City Hospital P. Ltd. And Others. v Mohan Paul and Ors.[2017] 205 Comp Cas 3 (NCLAT)]

Rajesh Kapoor v Tirupati Balaji Hotel P Limited [2017] 204 Comp Cas 303 (NCLT) Allahabad

Facts: The Petitioner sought transmission of shares under a will by way of a petition under sec. 111. On that date, a civil suit was pending where the authenticity of the will was under challenge. Held: The NCLT observed that the will in question was not probated by a competent court. It further observed that authenticity and validity of the will was seriously disputed by the respondents and a civil suit for cancellation of the said will was pending in civil court. NCLT relied on judgement of Apex Court in Jai Mahal Hotels P Limited v. Rajkumar Devraj [2015] 193 Comp Cas 214 (SC) and other judgements of high courts and held that present petition is premature.

Shashi Prakash Khemka (Dead) By Lrs. v NEPC Micon (Now Called NEPC India (2019) 18 SCC 569 (on 8 January, 2019)

This is a landmark judgement in which Apex Court has reversed the long standing view taken in Ammonia Supplies Corporation P Limited v Modern Plastic Container P Limited, (AIR 1998 SC 3153). The Supreme Court had observed that if a dispute had emerged after the 2013 Act, the civil suit remedy would be completely barred and the power would be vested with the National

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Particulars Company Law Tribunal under Section 59 of the said Act. Held: The Apex Court held as under “5. The learned counsel has also drawn our attention to Section 430 of the Act, which reads as under: “430. Civil court not to have jurisdiction.—No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal.” The effect of the aforesaid provision is that in matters in respect of which power has been conferred on NCLT, the jurisdiction of the civil court is completely barred. 6. It is not in dispute that were a dispute to arise today, the civil suit remedy would be completely barred and the power would be vested with the National Company Law Tribunal (NCLT) under Section 59 of the said Act. We are conscious of the fact that in the present case, the cause of action has arisen at a stage prior to this enactment. However, we are of the view that relegating the parties to civil suit now would not be the appropriate remedy, especially considering the manner in which Section 430 of the Act is widely worded. 7. We are thus of the opinion that in view of the subsequent developments, the appropriate course of action would be to relegate the appellants to remedy before NCLT under the Companies Act, 2013. In view of the lapse of time, we permit the appellants to file a fresh petition within a maximum period of two months from today.

MRF Ltd. and Ors. v Oriental Insurance Co. Ltd and Ors. [2017] 204 Comp Cas 16 (NCLAT)

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Facts: Insurance company after settling the claim of insured and being subrogated to the rights in shares filed a petition for rectification of register after a lapse of nearly 19 years. Held: NCLAT observed that Limitation Act, 1963 or Section 433 of Companies Act, 2013 is not applicable to petition filed under Section 59 prior to June 1 2016. However, NCLAT held that the matter cannot be accepted on account of unexplained delay and latches.

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Name of case

Particulars

Hasmukh Bachubhai Baraiya v Symphomy Limited and Ors (2018) 209 Comp Cas 605 (NCLT) AHM

Facts: There was civil suit pending with respect to the shares which one of the parties claimed had been transferred to him (‘Transferee’). In the meantime, the Transferor has filed an application for issue of duplicate certificate. The Company refused to issue duplicate certificates when the title of the shares was in dispute. It directed both parties to resolve their dispute as regards ownership of shares and send the order of a competent civil court. A petition came to be filed under Section 56, 58 and 59 by the transferor who claimed he had not sold the shares. He filed the case for issue of duplicate share certificates and for release of unclaimed dividends on those shares. Held: Section 58 can be invoked only in case of refusal of registration of transfer of shares by the company. The NCLT observed that this was not the case as in this matter there company has not refused to insert the name in the register of members. Section 59 deals with rectification of register if the name of register of members if the name of the person is without sufficient cause entered or removed from register of members or undue delay is caused making entry in the register of member. The case of the petitioner does not fall in any of these categories. The NCLT relied on the judgement of Ammonia Supplies Corporation P Limited v Modern Plastic Container P Limited (AIR 1998 SC 3153). In this case, it was held that issues of rectification will be exclusive dealt with by Tribunal (it was earlier the company court). If there are peripheral issues of title, then such other issues have to be dealt with by civil court. Thus, the NCLT held that title dispute of the shares would have to be decided by the civil court. It further held that there is no specific provision under which a case can be filed for refusal of the company to issue duplicate share certificates. Thus, the Petition was dismissed.

Hasmukh Bachubhai Baraiya v Symphomy Limited and Ors (2018) 209 Comp Cas 621 (NCLAT)

Facts: The appeal against the abovementioned order of Ahmedabad NCLT was filed. Held: The appeal was dismissed. However, NCLAT held that if the suit is decreed in favour of the appellant, the holder/owner of the certificate may move to the company for issue of duplicate share certificate and this will be a fresh cause of action.

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Sunil Sen v Symphony Limited and Ors. (2018) 209 Comp Cas 624 (NCLAT)

Facts: The appellant sought rectification of register. The appellants address had changed and hence the revised share certificates which were sent after the share split were returned to the company undelivered. These shares were shown as sold in the records of register and transfer agents. The SEBI had instituted a suo motu proceeding against R3 who was a share transfer agent for R1 company. R3 was suspected to have indulged in illegal activities of transferring and dealing with shares and E&Y was appointed as an auditor to report on suspicious dealings (audit report) of R3. Held: NCLAT held that Appellant was entitled to rectification of register to include his name on the basis of following facts: a. The appellant was able to show from the audit report that the transaction pertaining to the transfer of shares of the appellant was shown as suspicious. b. The share transfer form has no signature of transferor and witness and also no distinctive numbers of shares were mentioned. c. share certificate which were undelivered were shown to be handed over to some unidentified person as per the records. d. less stamp duty was paid. Despite all these facts, the shares were allowed to be transferred by the R3. Thus, the NCLAT held that on the basis of these facts, it is evident that Appellant has not transferred his shares and his name was ordered to be inserted on the register of members subject to giving an indemnity bond. P.S.: Also see another case against the same company where rectification was allowed on the basis of similar facts by NCLAT. M. Kondappa v Symphony Limited and Ors (2018) 210 Com Cas 25 (NCLAT)

Adesh Kaur v Eicher Motors and Ors (2018) 207 Com Cas 144 (NCLT) ND

Facts: The Petitioner continued to be in possession of the original share certificates of R1. R-7 an impersonator fraudulently applied for change of address and thereafter asked for issue of duplicate share certificate which he later sold. The Petition was filed under Section 59 for rectification of register to record the Petitioner’s name as shareholder and to recover the entitlement such a dividends, rights, bonus shares or similar entitlements. Petitioner has also filed police complaint as regards the fraud. R-1 denied responsibility and laid the blame squarely on the

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Particulars register and transfer agents and objected to the said petition on the ground that the facts are disputed, complicated and beyond the summary jurisdiction of Tribunal. Held: NCLT held that the share certificates and her oral testimony prove that Petitioner is a shareholder and nothing else is required. It further held that as per SEBI (Registrar to an Issue and Share Transfer Agent) Regulations, 1993 there was no due diligence done at the time of recording the change in address and issue of duplicate share certificate. SEBI guidelines provide that the company is liable for the acts of its agents and thus R1 company cannot shirk their responsibility towards shareholders. It mandates that under such circumstances the respondent company has to make good the loss to the Petitioner. Accordingly, the Tribunal allowed the Petition for rectification of register and also held that Petitioner would get all the benefits and entitlements with respect to those shares.

Eicher Motors Ltd v Adesh Facts: The case referred to above was challenged in the Kaur and Ors. (2018) 207 NCLAT. Inter alia the order was objected on following Comp Cas 150 (NCLAT) grounds - from records it is clear that it is a case of fraud and forgery - shares are dematerialised so a case of rectification of register of members does not arise - The details of the fraud are before the SEBI and it is also verifying the matter Held: The appeal was allowed. NCLAT held that this was not a fit case for exercise of power under Section 59 by relying on the ratio in Ammonia Supplies Corporation P Limited v Modern Plastic Containers P Limited. It observed that from the records it was evident that certain procedures were not followed and duplicate share certificates were already issued. Police complaint was already filed and pending for forgery and impersonation and matter was also before SEBI. Thus, the order for rectification cannot be ordered on the sole ground that original shareholder is in possession of original share certificates. P.S. Order reversed by SC Adesh Kaur v Eicher SC upheld the order of NCLT and rejected the stand taken Motors Ltd. and Others, by NCLAT. It held that NCLT was correct in deciding the [2018] 210 Comp Cas matter and not relegating the appellant to any further 7.31

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719, SC/JULY, 2018/CA, 2013 (Civil Appeals Nos. 19426 and 19427 of 2017)

proceedings as this is an open and shut case of fraud and could be tried by NCLT under section 58/59. SC further observed that procedure contemplated under RTI circular dated May 9 2001 for issuance of supplicate shares was not followed. When duplicate shares were issued, stock exchanges were not informed neither was advertisement issued in newspaper. Thus, the company was directed rectify its register and add the name of the original shareholder who was defrauded. Hence, appeal allowed.

Kamlesh Kalidas Shah v State Bank of India (2018) 207 Comp Cas 243 (NCLT) – ND

Facts: The shares transfers were refused to be considered by SBI on account of mismatch of signatures of transferor. Petition came to be filed after 18 years from the year of refusal. The Petitioner however showed that a civil suit as well as a criminal complaint was filed. The case was filed under section 111A the Companies Act, 1956. SBI challenged the maintainability of the petition on the ground that provisions of transfer does not apply to it as it is enacted under the State Bank of India Act, 1955 (SBI Act). This petition came up before the NCLT after the notification of relevant provisions of Companies Act, 2013. Held: The NCLT held that the provisions of the Companies Act, 2013 are applicable to banking companies under Section 1(4)(c). It held that out of the 200 shares on which petition is filed, the proof of lodgement is shown only for 100 shares and thus, only the refusal of 100 shares can be considered. As regards limitation, the NCLT held that the provision of 1956 Act will apply as petition is filed before the commencement of provision of Section 58 and 59 and thus provision of Limitation Act does not apply. Thus, Petition was partly allowed with respect to 100 shares.

Mackintosh Burn Limited v Sarkar and Chowdhury Enterprises P Limited. (2018) 208 Com Cas 209 (SC)

Facts: The shares transfer was refused on the ground that shares were sought to be purchased by the company which was controlled by competitors. This was an appeal against an order of Calcutta High Court under 10F. The original petition was filed under the 1956 Act. Held: The SC set aside the order of Calcutta HC and relegated the matter back to NCLT. It observed that right to refuse registration of transfer on sufficient cause is a question of law and whether the cause shown for refusal is sufficient or not in a given case can be a mixed question of law and facts.

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Cheran Properties Limited v Kasturi and Sons Limited and Ors. (2018) 208 Com Cas 496 (SC)

Facts: The appeal arises from an order of NCLAT which upheld the decision of NCLT, Chennai. The issue of ownership of shares with respect to a share purchase agreement was decided by way of an arbitration award. The said award was challenged but was upheld by higher forums. Accordingly, KSL who as per the award was entitled to shares, filed a petition inter alia under sec 111 of the Companies Act, 1956 for rectification of register of SPIL. The order passed in the petition was challenged on various grounds. Held: The Apex Court held that NCLAT was correct to permit effectuating the share transfer as per the award. The recourse of remedy of section 111 was an appropriate remedy. The arbitration award has a character of a decree of a civil court and is capable of being enforced as if it were a decree. Armed with a decree, KSL was entitled to seek rectification. The court rejected the submission that such proceeding was barred under section 42 of Arbitration and Conciliation Act, 1996. It held that as per the award, share certificates were to be handed over to KSL. However, mere transfer of share certificates will not constitute due implementation of the award and thus a proceeding under section 111 of the 1956 Act was appropriate. It further held that under section 36 of the Arbitration and Conciliation Act, 1996, an award has the same legal force and can be enforced in the same manner as a court decree and thus, the remedy under section 111 could be resorted to. Accordingly, the appeal challenging order of NCLAT was dismissed.

Lanka Venkata Naga Muralidhar v Vestal Educational Services Private Limited and Ors (2018) 206 Com Cas 370 (NCLT) HYD

Facts: The Petitioner claimed that he had lent money which the Respondents has wrongly appropriated towards allotment of shares. He filed for rectification of register as he has not applied for allotment of shares but had given the money as a loan to the company and sought return of money. The company had also belatedly filed PAS-3 showing allotment of shares. Held: The petitioner has correctly approached under section 59 as he has objections to be shown as shareholder with respect to the disputed allotment. It was held that the company as an afterthought had given the “loan” a colour of “share allotment money”. The company was unable to show compliance of the provision of section 62 as regards further allotment of shares. Further, the Petitioner also

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Particulars brought to the notice of the NCLT that action was taken by the ICSI against the company secretary who certified the form of these disputed allotment of shares. It was held that company has not followed the provision of section 62 for issue of impugned allotment of shares and consent of the petitioner was not sought. Thus, the allotment of shares was declared null and void and company was directed to return the loan with interest and rectify its register of members. P.S. This decision was challenged in NCLAT but the appeal was dismissed.

Vestal Educational Services P. Ltd v Shri Lanka Venkata Naga Muralidhar and Others [2018] 211 Comp Cas 764 Company Appeal (At) No. 65 Of 2018 NCLAT/NOVEMBER, 2018/CA, 2013

Issue: The appellant company defaulted in paying instalments as agreed upon on a term loan of Rs. 10 crore from a bank. Later on the bank loan under compromise was settled from Rs. 7.25 crore to Rs. 5.50 crore. The director of the company approached one of the shareholders and erstwhile director to lend amount of Rs. 1.54 crores. Later on, despite of several reminders the amount was not repaid by the company. It was found that the amount lent was converted into equity shares without the knowledge of lending director and without any intimation or authorisation to him. Hence, a petition was filed u/s 59. NCLT allowed the petition, on the ground that the company had not produced any evidence to show the basis on which loan was converted into equity. This order was challenged. Held: NCLAT upheld the order of NCLT holding that there was no material on record to show any consent of the lender to convert the loan into equity. The appellant sought to introduce new documents like resolutions, letter of offer in the NCLAT to show that lender had consent to conversion. However, NCLAT did not allow new documents to be inserted at the stage of appeal especially when the veracity of documents was questionable. For instance, the company was unable to show that the letter of offer was sent to the first respondent by the registered post or speed post or through electronic mode. Also, no documentary evidence that the first respondent consented or rejected such offer. Hence, appeal was dismissed. `

S. Ramesh v South Travancore Hindu College Association (2018) 206 Com Cas 415

Facts: The Petitioner acquired shares through his parents. He lost the share certificates (1st Certificate) and was issued a duplicate share certificate (2nd certificate). Petitioner lost the 2nd share certificate had asked for and

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(NCLT) Chennai

was allotted a new duplicate share certificate (3rd certificate). The petitioner came to know that in the records of the company a person (R3) claimed to have purchased the shares whereas he had not sold the shares. A civil suit and complaint came to be filed initially. The civil courts directed Petitioner to approach the then CLB. The petitioner approached NCLT. During the course of the civil suit, the R3 has sold the shares to another person who was not a party to the case. Held: The NCLT found that the alleged share transfer claimed by R3 was null and void on various grounds which include: 1. The shares transfer was effected on the basis of 2nd certificate. The NCLT held that it is a well settled procedure that once a duplicate share certificate is issued for an earlier share certificate, the earlier certificate is deemed to be cancelled and no share transfer will be entertained on the basis of earlier share certificate. 2. R3 claimed that he had paid the consideration money of 75,000/- for shares in cash which is contrary to the provisions of Income-tax Act and further R3 has not produced any proof of the same. 3. The company failed to produce the share transfer deed by which R3 claimed to have sold shares to a third party and that transfer was also in a short period after the share transfer were challenged by Petitioner and thus company ought to have played a neutral role. The third party never challenged nor sought impleadment in this case which showed that there might to be collusion. On the basis of these facts, the Petition was allowed and register of member was directed to be rectified to delete the name of the third party and include the name of Petitioner with respect to the shares in question.

Ramalakshmi v Texline Fabrics India P Limited and Ors. (2018) 206 Com Cas 430 (NCLT) Chennai

Facts: The petitioner sent a letter for getting share certificates with respect to her shares in 2014. In response, she was informed that her shares were transferred in 2009. The Petitioner preferred a case under Section 58 and 59 of the Companies Act in 2015. Respondent raised the issue of limitation. Held: NCLT held that petition is maintainable and not barred by limitation. Petitioner became aware that her

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Particulars shares were transferred only in 2014. NCLT further held that the transfer is illegal and ought to be set aside. This was based inter alia on following facts which were noticed by the NCLT: a. company has taken contrary stands as regards share transfer forms. In one letter they claimed they had them and in their reply in NCLT they claimed that transfer deeds were lost by R4. There is no record to show that petitioner was approached for fresh transfer deeds. In the absence of transfer deeds as claimed, the company even failed to confirm from the Petitioner to verify the veracity of the purported transfer of shares. Further, no FIR was produced by R4 to show loss of transfer deeds. b. The company also failed to show any proof that share certificate were ever dispatched to the Petitioner in the first place. On the basis of these facts, the Company was directed to rectify the register in favour of Petitioner and to pay costs of the litigation to Petitioner. Issue: The petitioner and respondent no 13 subscribed to compulsorily convertible debentures of respondent company. The terms of the investment agreement were incorporated in the AOA of the company wherein it was provided that the company should covert the debentures into equity shares upon receipt of written notice by the debenture holders. The petitioner and respondents issued a letter to the promoters and respondents to convert of debentures into equity shares. Later, the petitioner and respondent no 13 informed the respondent company that they were not going ahead with conversion. Despite this the conversion of the debentures into equity shares of respondent no 2 was authorised. The petitioner filed petition u/s 59 of the Act challenging the conversion and seeking rectification of register of the company. Held: Dismissing the petition, 1) it was held that all the contentious issues raised in the petition except examining whether there was sufficient cause to enter the names of petitioner in the register of members of the company was beyond the scope of the Tribunal u/s 59. It was open for petitioner to invoke petition u/s 241 or through Arbitration.

MAIF Investments India P. Ltd v IND-Barath Power Infra Ltd and Others [2020] 218 Comp Cas 314 (C. P. No. 248/HDB/2018) NCLT/AUGUST, 59 2018/Section CA,2013

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Particulars 2) The relief of rectification could not be granted unless and until the board resolution is declared invalid. P.S. This order was reversed by NCLAT

MAIF Investments India P. Ltd v Ind-Barath Power Infra Ltd and Others, [2020] 218 Comp Cas 337 Comp Cas 314 (NCLT) reversed. NCLAT/MAY, 59 of 2019/Section CA,2013

Facts: NCLT refused to allow the petition under Section 59 challenging the conversion of debentures into equity. Issue: Can NCLT which exercises the widest possible powers in a matter u/s 241 and 242 of the act be treated as unequipped only because the petition is u/s 59 of the Act? Held: Allowing the petition, NCLAT held that 1) that there were no complex questions involved and even if they exist, the NCLT and in an appeal, the Appellate Tribunal, are empowered to consider the entry made in the register of members. 2) The Board meeting was invalid as it required the consent of nominee director of investor which was missing. His consent for conversion was missing. There was recorded opposition to conversion as well. NCLAT held that respondents were not entitled to contend that section 59 could not be resorted to if the equity was cancelled. There was no substance in the argument that cancellation would amount to reduction in capital u/s 66 and hence beyond the scope of Section 59. Directions were given for cancellation of entry of the name of appellant in the register of members of the company against the compulsorily convertible debentures.

T. Vinayak Ravi Reddi and Others v Deccan Chronicle Holdings Ltd. and Others [2020] 218 Comp Cas 371 T. P. No. 149/HDB/2016 C.P. No. 4/111/BB/2014 NCLT/JANUARY, 2020/Section 111 of CA,1956

Issue: While the petition filed u/s 111 of CA, 1956 was pending, the company underwent CIRP process and a new promoters (successful resolution applicant) became the shareholders as a result of the CIRP process. Held: Dismissing the petition, NCLT held that the resolution plan was approved in respect of the company. The petitioners ceased to have any interest in the company which had undergone the corporate insolvency resolution process. As a result, the petitioners has no locus standi to continue the proceedings and the relief sought for by the petitioners became infructuous.

Neel Rajesh Shah v United Spirits Ltd and Others [2020] 218 Comp Cas 405 C. P. No. 7 of 2017 NCLT/MARCH,

Issue: The original shareholder died and there was a dispute in his family about the properties of the deceased. These issues were finally settled and the legatee (Petitioner) filed for transmission of shares in his name. It was found that an imposter claiming to be a shareholder

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2019/Section 58 of CA, had already taken duplicate shares and dealt with these 2013 shares. The company and register and transfer agent refused to acknowledge the legatee as a shareholder and refused to transmit shares. Numerous documents were shown by the legatee to show his entitlement to the shares. Legatee finally filed a petition under section 58 seeking direction to the respondent company to register the petitioner as the true and lawful owner of the shares in question and to re-issue them to the petitioner in dematerialized form along with all benefits that arose during the period. The respondent contended that the claim of the petitioner was false since the original allottee’s name and address at the time of allotment of shares differed. Held: Several documents were placed before NCLT to show that the deceased was the original shareholders. The delay in applying for transmission was caused due to internal family dispute about the property of deceased. It was observed that the company and its registrar and transfer agent were liable for illegal issue of duplicate shares to respondent no 3( as at that time the original shareholder had already expired). NCLT held that they were liable to compensate to persons, whoever had transacted and suffered by way of trading on dematerialised shares of the company. That the succession certificate issued by the High Court became final and none including the respondents had questioned the certificate and thus it was binding on the parties concerned. Company was directed to transfer shares to the petitioner/legatee. The petitioner was held to be entitled to all corporate benefits arising from one year before filing the petition ( as he has delayed in applying for transmission of shares the benefit for the entire period was not granted). The court held that company was free to invoke the indemnity bond given by the person who has requested for duplicate shares. DLF Ltd and Another v Satya Bhushan Kaura and Another, [2020] 218 Comp Cas 470 Company Appeal (AT) No. 14 of 2019 NCLAT/JANUARY,

7.38

Facts: The original shareholder died intestate in 1987. The deceased held 150 shares which after split and bonus issue then became 6000 shares. In and around September 2007, DLF made a right issue offer where holder of 1 share of DLF was entitled to 2 shares of DLF at the price of Rs. 2 each. The legal heir of the deceased held about the right issue and applied to DLF regarding allotment of 66,000

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2020/Section 58 OF CA, shares alongwith DD of 1.2 lakh. DLF directed the legal 2013 heir to produce order of the court and affidavit cum indemnity bond. the legal heir informed that an application was filed in court for letter of administration. DLF at that time informed the legal heirs that as they had applied to court the final decision on grant of right issue was subject to court direction. In 2012 a letter of administration were granted. In 2012, DLF refused to transfer the 60,000 right issue but agreed to transfer 6000 shares. The company petition was filed in 2013 as DLF to grant the shares under rights issue to the legal heirs. Issue: The main issue is regarding the entitled on right issue of 60,000 against the shares of 6000 held by the deceased shareholders. Held: The NCLAT held that once DLF directed the legal heirs to adopt a certain course of action for procurement of the shares and once they have in good faith adopted that route, DLF cannot resile back from its stand. It cannot approbate and reprobate. The Tribunal held that DLF without sufficient cause refused to register the transfer of shares entitled under right issue. Legal heirs were entitled to receive right shares. The Tribunal directed the company to register the transfer and respondent were directed to make payment for 60,000 shares at Rs. 2 per shares and execute the transfer deed to the extent of entitlement of respondent no 2 in accordance with the terms of letter of administration. NCLAT further held that when the letter of administration had been issued, it meant that the company was discharged from its liability. By insisting on production of affidavits and indemnity bonds again and again in spite of production of letter of administration clearly established that the company was harassing the poor investors. The act of appellants were liable to pay costs. Amrex Marketing P Ltd v Akal Spring Ltd. and Others., [2020] 218 Comp Cas 617 C. A. No. 67 of 2017 NCLT/SEPTEMBER, 2019

Facts: Applicant made his request for transfer of shares in November 2011. There was no response and hence again a request for transfer of shares was made in October 2014. In June 2015, respondent company advised to submit new form of transfer. In June 2016, applicant sent the correct share transfer form but in August 2016 company refused to transfer the shares. Aggrieved by the decision, the applicant approached NCLT on or about 17th March 2017 and filed an application for condonation of delay

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Particulars alongwith the appeal. This application for condonation of delay as per rule 32 and rule 153 of the NCLT rules was filed and the same was challenged by the company. Issue: The respondent company contended that the delay was not bona fide and that there were no valid reasons to condone the delay challenging the refusal to register the transfer the shares in the name of the applicant and an application for condonation of delay in filing the appeal. Held: The delay deserves to be condoned 2016 as the matter needs to be contested on merits and in accordance with the law rather than be disposed of on technicalities and that too at the threshold. The delay can be condoned if valid reasons are shown for the same. The application for condonation of delay was allowed subject to deposit of cost of Rs. 25,000. P.S: Order upheld by NCLAT

Akal Spring Ltd and Others v Amrex Marketing P. Ltd.., [2020] 218 Comp Cas 623 Company Appeal (AT) No. 326 of 2019 NCLAT/NOVEMBER, 2019/CA,1956

Issue: CA, 1956 specifies no time limit in filing an appeal against the refusal by a company. However, CA, 2013 provide a time of 60 days from date of refusal or within 90 days of lodgement of instrument of transfer where there is no response form company. The Adjudicating authority condoned the delay of 186 days in filing the appeal. On appeal, it was contended that the Adjudicating Authority did not possess the power to condone the delay. Held: Dismissing the appeal, that the Tribunal exercised its jurisdiction by allowing the application subject to the deposit of Rs. 25,000 and this was not to be interfered with at this stage in the interest of justice. NCLAT held that Tribunal was within its power to condone delay and allow the application. It held that order did not suffer from any material irregularity or patent illegality in the eye of law.

R. Ajayender v Karvy Computershare P. Ltd And Others, [2019] 217 Comp Cas 378 C. P. No. 419/58/Hdb/2018 NCLT/OCTOBER, 2019/Section 58 of CA, 2013

Facts: The father of the petitioner purchased 100 shares in a company by paying full consideration through a share broker from the first registered joint holder but being ignorant of the procedure, he failed to request the company for transfer of physical shares in its own name. Later he approached the company registrar but the original transfer form and original shares were returned by the company registrar stating it as bad delivery on account of mismatch of the signature. The petition was filed seeking registration of these shares and for allotment of bonus shares and all benefits accruing on these shares to the Petitioner. Held: In the petition u/s 58, it was held that the company

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Particulars registrar and share transfer agent to transfer the share certificate from its first registered holder to the petitioner and further allot bonus shares and all other benefits in favour of the petitioner. The transferor had not lodged any complaint either with the company registrar or the share transfer agent about the loss of share certificate. The company registrar was to transfer the 100 shares in favour of applicant after he submits an indemnity bond.

Vikram Jairath And Another v Middleton Hotels P. Ltd And Others, [2019] 216 Comp Cas 235 G. A. No. 552 of 2019 with C. S. No. 34 of 2019 and G. A. No. 1 of 2019 HC/MARCH, 2019/CA,2013

Facts: The plaintiff held pledged shares which were to be transferred in Plaintiff’s name if the company failed to repay loan. The company defaulted in loan repayment and further refused to transfer the shares subsequent to invocation of pledge by plaintiff. While this issue had arisen, the capital of the company was sought to be increased by promoters to negate the effect of transfer of pledged shares. A civil suit was filed and interim relief were sought for staying certain resolutions for increasing capital of the company and for allotting further shares. Another application was filed in NCLT for refusal to transfer pledged shares. Issue: Whether the application before NCLT and High Court on the basis of same facts but different cause of actions can be allowed to continue parallelly? Held: During the hearing on interim relief, in the prima facie view of the High Court, considering section 430, section 58 and rule 70(5)(b) of the NCLT rules, NCLT is empowered to decide any question on rectification of shares and pass any interim order and is empowered to decide issues relating to transfer of shares, registration and rectification and transfer of shares under an oral or written contract. High Court does not have the jurisdiction. Further, High Court observed that similar interim reliefs were sought in two different forum which could not be allowed. The powers in relation to section 58 and 59 are provided to NCLT and are extremely wide. The entire philosophy of CA, 2013 is that all matters relating to companies shall be handled by NCLT except certain matters which are not yet transferred as per section 434 of the act. All issues relating to transfer of shares, registration and rectification of register of members and any matter incidental thereto including oppression and mismanagement would be retained by the Tribunal.

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Smiti Golyan And Another v Nulon India Ltd and Others, [2019] 214 Comp Cas 576 Company Appeal (AT) No.222 of 2018 NCLAT/MARCH,2019/C A,1956

Facts: Petition was filed on the grounds that the shares in the name of the petitioner no. 1 were illegally transferred. It was directed by the Tribunal to the company to rectify its register of members as the company failed to show the transfer deed. Held: When the management of the company was under appellants, the company filed returns showing the petitioner as shareholder and then rectified returns showing that the petitioner was no more a shareholder. The appellants had taken different and contradictory defences. First, they claimed that it was in normal and general practice that the shares were transferred. Later, they claimed that shares with transfer forms were handed over. Thereafter, they took a stand that a gift deed was executed Finally, they claimed that, records were lost and took help of a vague first information report. NCLAT noted the change in stands and dismissed the appeal with costs.

Vestal Educational Services P. Ltd v Shri Lanka Venkata Naga Muralidhar and Others [2018] 211 Comp Cas 764 Company Appeal (At) No. 65 Of 2018 NCLAT/NOVEMBER, 2018/CA, 2013

Issue: The appellant company defaulted in paying instalments as agreed upon on a term loan of Rs. 10 crore from a bank. Later on the bank loan under compromise was settled from Rs. 7.25 crore to Rs. 5.50 crore. The director of the company approached one of the shareholders and erstwhile director to lend amount of Rs. 1.54 crores. Later on, despite of several reminders the amount was not repaid by the company. It was found that the amount lent was converted into equity shares without the knowledge of lending director and without any intimation or authorisation to him. Hence, a petition was filed u/s 59. NCLT allowed the petition, on the ground that the company had not produced any evidence to show the basis on which loan was converted into equity. This order was challenged. Held: NCLAT upheld the order of NCLT holding that there was no material on record to show any consent of the lender to convert the loan into equity. The appellant sought to introduce new documents like resolutions, letter of offer in the NCLAT to show that lender had consent to conversion. However, NCLAT did not allow new documents to be inserted at the stage of appeal especially when the veracity of documents was questionable. For instance, the company was unable to show that the letter of offer was sent to the first respondent by the registered

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Particulars post or speed post or through electronic mode. Also, no documentary evidence that the first respondent consented or rejected such offer. Hence, appeal was dismissed. `

Sangeeta Maheshwari v Premsagar Agricultural P. Ltd And Others, [2018] 211 Comp Cas 71 Company Appeal (Atl No. 11 Of 2018 NCLAT/OCTOBER, 2018/CA, 2013

Facts: The appellant was issued shares in the family company of her husband. Subsequently she was divorced in 2001. She was under the impression that after divorce she continued to hold the shares. In 2015, appellant ask company to send her share certificated. When company did not respond, she conducted a search and also filed a complaint with ROC. It was found that her shares were transferred. She filed a petition in NCLT in 2016. During the proceedings, the company was unable to produce the original share transfer form with her signatures to show that she had transferred her shares. However, NCLT dismissed the petition on the sole ground of limitation holding that petition is hit by delay and laches. Issue: Whether the Tribunal erred in dismissing the petition on the ground of limitation? Held: The shares were transferred in the favour of members of Agal family ( in-laws of appellant). NCLAT observed that (i) there was no transfer deed carrying the signature of appellant (ii) company failed to give notice to the appellant that the shares were transferred to third respondent without transfer deed. (iii) The company failed to ask the purported transferee to lodge a FIR intimating that the transfer deed was lost if that was the claim made (iv) company failed to give notice in the newspaper that the shares had been received by the respondent for transfer without a transfer deed (v) company was controlled by Agal family. NCLAT held that Tribunal erred in dismissing the appeal on ground of limitation and held that transfer of shares were held to be illegal. Considering these facts, the appellant was found to be a rightful holder of shares. Order of NCLT was set aside.

Relisys Medical Devices Ltd v Dr Raju Reddy, [2018] 211 Comp Cas 83 C P. No. 35/59/Hdb/2017 NCLT/OCTOBER, 2017/CA, 2013

Facts: The company had inadvertently issued shares at a price less than the fair value which was in violation of FEMA guidelines. When they approached RBI for compounding, RBI directed them either to unwind the excess shares or to bring in additional funds equivalent to the shares allotted. To comply with the RBI order, the company filed an application under Section 59 for rectification of register and for cancellation of excess shares allotted. 7.43

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Particulars Issue: Can you seek cancellation of shares as a part of rectification of register of companies or do you have to file a petition for reduction of shares? Held: NCLT dismissed the petition under Section 59. It held that in this case, there is no question of transfer of shares and subsequent registration or cancellation of shares. In this case neither the company nor the shareholders in an aggrieved party and no one has a grievance against the other. It is observed that the company had failed to follow the FEMA regulations. The company did not take actions for reduction of capital as is contemplated in MOA and AOA of the company for reduction of capital. Further, it admitted to the violation of the foreign regulations. Therefore, the petition u/s 59 was not maintainable. P.S: This order was challenged in NCLAT. NCLAT modified the above order.

Relisys Medical Devices Ltd v Dr Raju Reddy [2018] 211 Comp Cas 92 C P. No. 387 Of 2017 NCLAT/MAY, 2018/CA, 2013

Issue: The shares were allotted in excess to the shareholders. RBI advised the company to unwind the excess shares allotted or bring in additional funds equivalent to the shares allotted and there after apply for compounding. The Tribunal dismissed the petition as it held that company had the liberty as per its MOA to apply for reduction of capital. Thus, it held that petition u/s 59 was not maintainable. Hence, appeal. Held: NCLAT observed that such cancellation of shares could be done under Section 59 of the companies act. It directed that the company should take steps to cancel the excess shares allotted and transfer the funds to share premium account. It further directed that company can unwind the excess shares allotted. The balance sheets must be refiled after incorporating entries for cancelation of excess shares. The company was directed to comply with all other legal formalities as per law and CA, 2013. The order of NCLT modified.

Shree Kumar Mundra v Spell Organics Ltd and Others [2018] 211 Comp Cas 177 C. P. No. 15/04/2016 NCLT/MAY,2018/CA, 2013

Issue: The petitioner claimed that his shares held in the respondent company were lost or untraceable since April, 2016 and requested for issue of duplicate share certificates. Since, the company failed to issue duplicate share certificate, the petitioner filed a petition u/s 46 and 56 of the CA, 2013. It was claimed by the respondent that the petitioner falsely contended the share certificates were lost or misplaced. In fact, these shares were given by

7.44

Chapter 7

Name of case

Transfer and transmission of securities

Particulars petitioner to the respondent as security for the corporate guarantee for a loan availed by the company in which the petitioner and his wife had substantial interest. Held: It was not equitable to direct the respondents to hand over the share certificates over which they assert their lien without the outstanding liability under corporate guarantee being paid. The entitlement of the respondent to recover their claim is already a subject matter of adjudication. On payment of the guaranteed debt in full, the surety is entitled to all securities assigned to him, which can only be after it adjudicated by a civil court. Case dismissed.

Shree Kumar Mundra v Spell Organics Ltd and Others, [2018] 211 Comp Cas 181 Company Appeal (AT) No. 219 of 2018 NCLAT/OCTOBER, 2018/CA, 2013

Issue: The petitioner falsely claimed that shares held in the respondent company were lost or untraceable since April, 2016 whereas those shares were pledged. NCLT dismissed the claim and this appeal came to be filed. Held: NCLAT dismissed the appeal with costs. It held that appellant had concealed the facts that civil proceedings in the High Court were pending and the disputes regarding pledge need not be entered into in this application. The appellant had failed to make out a case u/s 46 or 56 of the act and had not approached the Tribunal with clean hands. He suppressed the earlier litigation and had claimed that the shares were lost and later claimed theft. The respondents had justifiable reason to show they were in possession of the shares and they should not be directed to hand over the shares. Order of NCLT affirmed.

MAIF Investments India P. Ltd v Ind-Barath Power Infra Ltd and Others, [2020] 218 Comp Cas 314 C. P. No. 248/Hdb/2018 NCLT/AUGUST, 59 of 2018/Section CA,2013

Issue: The petitioner and respondent no 13 subscribed to compulsorily convertible debentures of respondent company. The terms of the investment agreement were incorporated in the AOA of the company wherein it was provided that the company should covert the debentures into equity shares upon receipt of written notice by the debenture holders. The petitioner and respondents issued a letter to the promoters and respondents to convert debentures into equity shares. Later, the petitioner and respondent no 13 informed the respondent company that they were not going ahead with conversion. Despite this the conversion of the debentures into equity shares of respondent no 2 was authorised. The petitioner filed petition u/s 59 of the Act challenging the conversion and seeking rectification of register of the company. Held: Dismissing the petition, 1) it was held that all the contentious issues raised in 7.45

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Particulars the petition except examining whether there was sufficient cause to enter the names of petitioner in the register of members of the company was beyond the scope of the Tribunal u/s 59. It was open for petitioner to invoke petition u/s 241 or through Arbitration. 2) The relief of rectification could not be granted unless and until the board resolution is declared invalid. P.S: This order was reversed by NCLAT

MAIF Investments India P. Ltd v Ind-Barath Power Infra Ltd and Others, [2020] 218 Comp Cas 337 Comp Cas 314 (NCLT) reversed. NCLAT/MAY, 59 of 2019/Section CA,2013

Facts: NCLT refused to allow the petition under Section 59 challenging the conversion of debentures into equity. Issue: Can NCLT which exercises the widest possible powers in a matter u/s 241 and 242 of the act be treated as unequipped only because the petition is u/s 59 of the Act? Held: Allowing the petition, NCLAT held that 1) that there were no complex questions involved and even if they exist, the NCLT and in an appeal, the Appellate Tribunal, are empowered to consider the entry made in the register of members. 2) The Board meeting was invalid as it required the consent of nominee director of investor which was missing. His consent for conversion was missing. There was recorded opposition to conversion as well. NCLAT held that respondents were not entitled to contend that section 59 could not be resorted to if the equity was cancelled. There was no substance in the argument that cancellation would amount to reduction in capital u/s 66 and hence beyond the scope of Section 59. Directions were given for cancellation of entry of the name of appellant in the register of members of the company against the compulsorily convertible debentures.

T. Vinayak Ravi Reddi and Others v Deccan Chronicle Holdings Ltd. and Others, [2020] 218 Comp Cas 371 T. P. No. 149/Hdb/2016 C.P. No. 4/111/Bb/2014 NCLT/January, 2020/Section 111 of CA,1956

Issue: While the petition filed u/s 111 of CA, 1956 was pending, the company underwent CIRP process and a new promoters (successful resolution applicant) became the shareholders as a result of the CIRP process. Held: Dismissing the petition, NCLT held that the resolution plan was approved in respect of the company. The petitioners ceased to have any interest in the company which had undergone the corporate insolvency resolution process. As a result, the petitioners has no locus standi to continue the proceedings and the relief sought for by the petitioners became infructuous.

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Transfer and transmission of securities

Name of case

Particulars

Neel Rajesh Shah v United Spirits Ltd and Others, [2020] 218 Comp Cas 405 C. P. No. 7 of 2017 NCLT/MARCH, 2019/Section 58 of CA, 2013

Issue: The original shareholder died and there was a dispute in his family about the properties of the deceased. These issues were finally settled and the legatee (Petitioner) filed for transmission of shares in his name. It was found that an imposter claiming to be a shareholder had already taken duplicate shares and dealt with these shares. The company and register and transfer agent refused to acknowledge the legatee as a shareholder and refused to transmit shares. Numerous documents were shown by the legatee to show his entitlement to the shares. Legatee finally filed a petition under section 58 seeking direction to the respondent company to register the petitioner as the true and lawful owner of the shares in question and to re-issue them to the petitioner in dematerialized form along with all benefits that arose during the period. The respondent contended that the claim of the petitioner was false since the original allottee’s name and address at the time of allotment of shares differed. Held: Several documents were placed before NCLT to show that the deceased was the original shareholders. The delay in applying for transmission was caused due to internal family dispute about the property of deceased. It was observed that the company and its registrar and transfer agent were liable for illegal issue of duplicate shares to respondent no 3( as at that time the original shareholder had already expired). NCLT held that they were liable to compensate to persons, whoever had transacted and suffered by way of trading on dematerialised shares of the company. That the succession certificate issued by the High Court became final and none including the respondents had questioned the certificate and thus it was binding on the parties concerned. Company was directed to transfer shares to the petitioner/legatee. The petitioner was held to be entitled to all corporate benefits arising from one year before filing the petition ( as he has delayed in applying for transmission of shares the benefit for the entire period was not granted). The court held that company was free to invoke the indemnity bond given by the person who has requested for duplicate shares.

DLF Ltd and Another v Facts: The original shareholder died intestate in 1987. The Satya Bhushan Kaura and deceased held 150 shares which after split and bonus issue

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Particulars

Another, [2020] 218 Comp Cas 470 Company Appeal (AT) No. 14 of 2019 NCLAT/JANUARY, 2020/Section 58 OF CA, 2013

then became 6000 shares. In and around September 2007, DLF made a right issue offer where holder of 1 share of DLF was entitled to 2 shares of DLF at the price of Rs. 2 each. The legal heir of the deceased held about the right issue and applied to DLF regarding allotment of 66,000 shares alongwith DD of 1.2 lakh. DLF directed the legal heir to produce order of the court and affidavit cum indemnity bond. the legal heir informed that an application was filed in court for letter of administration. DLF at that time informed the legal heirs that as they had applied to court the final decision on grant of right issue was subject to court direction. In 2012 a letter of administration were granted. In 2012, DLF refused to transfer the 60,000 right issue but agreed to transfer 6000 shares. The company petition was filed in 2013 as DLF to grant the shares under rights issue to the legal heirs. Issue: The main issue is regarding the entitled on right issue of 60,000 against the shares of 6000 held by the deceased shareholders. Held: The NCLAT held that once DLF directed the legal heirs to adopt a certain course of action for procurement of the shares and once they have in good faith adopted that route, DLF cannot resile back from its stand. It cannot approbate and reprobate. The Tribunal held that DLF without sufficient cause refused to register the transfer of shares entitled under right issue. Legal heirs were entitled to receive right shares. The Tribunal directed the company to register the transfer and respondent were directed to make payment for 60,000 shares at Rs. 2 per shares and execute the transfer deed to the extent of entitlement of respondent no 2 in accordance with the terms of letter of administration. NCLAT further held that when the letter of administration had been issued, it meant that the company was discharged from its liability. By insisting on production of affidavits and indemnity bonds again and again in spite of production of letter of administration clearly established that the company was harassing the poor investors. The act of appellants were liable to pay costs.

Amrex Marketing P Ltd v Akal Spring Ltd. and Others, [2020] 218 Comp Cas 617

Facts: Applicant made his request for transfer of shares in November 2011. There was no response and hence again a request for transfer of shares was made in October 2014. In June 2015, respondent company advised to submit new

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Name of case

Transfer and transmission of securities

Particulars

C. A. No. 67 of 2017 NCLT/SEPTEMBER, 2019

form of transfer. In June 2016, applicant sent the correct share transfer form but in August 2016 company refused to transfer the shares. Aggrieved by the decision, the applicant approached NCLT on or about 17th March 2017 and filed an application for condonation of delay alongwith the appeal. This application for condonation of delay as per rule 32 and rule 153 of the NCLT rules was filed and the same was challenged by the company. Issue: The respondent company contended that the delay was not bona fide and that there were no valid reasons to condone the delay challenging the refusal to register the transfer the shares in the name of the applicant and an application for condonation of delay in filing the appeal. Held: The delay deserves to be condoned 2016 as the matter needs to be contested on merits and in accordance with the law rather than be disposed of on technicalities and that too at the threshold. The delay can be condoned if valid reasons are shown for the same. The application for condonation of delay was allowed subject to deposit of cost of Rs. 25,000. P.S: Order upheld in NCLAT

Akal Spring Ltd and Others v Amrex Marketing P. Ltd, [2020] 218 Comp Cas 623 Company Appeal (AT) No. 326 of 2019 NCLAT/NOVEMBER, 2019/CA,1956

Issue: CA, 1956 specifies no time limit in filing an appeal against the refusal by a company. However, CA, 2013 provide a time of 60 days from date of refusal or within 90 days of lodgement of instrument of transfer where there is no response form company. The Adjudicating authority condoned the delay of 186 days in filing the appeal. On appeal, it was contended that the Adjudicating Authority did not possess the power to condone the delay. Held: Dismissing the appeal, that the Tribunal exercised its jurisdiction by allowing the application subject to the deposit of Rs. 25,000 and this was not to be interfered with at this stage in the interest of justice. NCLAT held that Tribunal was within its power to condone delay and allow the application. It held that order did not suffer from any material irregularity or patent illegality in the eye of law.

R. Ajayender v Karvy Computershare P. Ltd and Others [2019] 217 Comp Cas 378 C. P. No. 419/58/Hdb/2018\ NCLT/October,

Facts: The father of the petitioner purchased 100 shares in a company by paying full consideration through a share broker from the first registered joint holder but being ignorant of the procedure, he failed to request the company for transfer of physical shares in its own name. Later he approached the company registrar but the original transfer form and original shares were returned by the company 7.49

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Particulars

2019/Section 58 of CA, registrar stating it as bad delivery on account of mismatch 2013 of the signature. The petition was filed seeking registration of these shares and for allotment of bonus shares and all benefits accruing on these shares to the Petitioner. Held: In the petition u/s 58, it was held that the company registrar and share transfer agent to transfer the share certificate from its first registered holder to the petitioner and further allot bonus shares and all other benefits in favour of the petitioner. The transferor had not lodged any complaint either with the company registrar or the share transfer agent about the loss of share certificate. The company registrar was to transfer the 100 shares in favour of applicant after he submits an indemnity bond. Vikram Jairath and Another v Middleton Hotels P. Ltd and Others, [2019] 216 Comp Cas 235 G. A. No. 552 of 2019 with C. S. No. 34 of 2019 and G. A. No. 1 of 2019 HC/MARCH, 2019/CA,2013

7.50

Facts: The plaintiff held pledged shares which were to be transferred in Plaintiff’s name if the company failed to repay loan. The company defaulted in loan repayment and further refused to transfer the shares subsequent to invocation of pledge by plaintiff. While this issue had arisen, the capital of the company was sought to be increased by promoters to negate the effect of transfer of pledged shares. A civil suit was filed and interim relief were sought for staying certain resolutions for increasing capital of the company and for allotting further shares. Another application was filed in NCLT for refusal to transfer pledged shares. Issue: Whether the application before NCLT and High Court on the basis of same facts but different cause of actions can be allowed to continue parallelly? Held: During the hearing on interim relief, in the prima facie view of the High Court, considering section 430, section 58 and rule 70(5)(b) of the NCLT rules, NCLT is empowered to decide any question on rectification of shares and pass any interim order and is empowered to decide issues relating to transfer of shares, registration and rectification and transfer of shares under an oral or written contract. High Court does not have the jurisdiction. Further, High Court observed that similar interim reliefs were sought in two different forum which could not be allowed. The powers in relation to section 58 and 59 are provided to NCLT and are extremely wide. The entire philosophy of CA, 2013 is that all matters relating to companies shall be handled by NCLT except certain matters which are not yet transferred as per section 434 of the act. All issues

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Particulars relating to transfer of shares, registration and rectification of register of members and any matter incidental thereto including oppression and mismanagement would be retained by the Tribunal.

Smiti Golyan and Another v Nulon India Ltd and Others, [2019] 214 Comp Cas 576 Company Appeal (At) No.222 Of 2018 NCLAT/March,2019/Ca, 1956

Facts: Petition was filed on the grounds that the shares in the name of the petitioner no. 1 were illegally transferred. It was directed by the Tribunal to the company to rectify its register of members as the company failed to show the transfer deed. Held: When the management of the company was under appellants, the company filed returns showing the petitioner as shareholder and then rectified returns showing that the petitioner was no more a shareholder. The appellants had taken different and contradictory defences. First, they claimed that it was in normal and general practice that the shares were transferred. Later, they claimed that shares with transfer forms were handed over. Thereafter, they took a stand that a gift deed was executed Finally, they claimed that, records were lost and took help of a vague first information report. NCLAT noted the change in stands and dismissed the appeal with costs.

Adesh Kaur v Eicher Motors Ltd. and Others, [2018] 210 Comp Cas 719 Civil Appeals Nos. 19426 and 19427 of 2017 SC/JULY, 2018/CA, 2013

SC upheld the order of NCLT and rejected the stand taken by NCLAT. It held that NCLT was correct in deciding the matter and not relegating the appellant to any further proceedings as this is an open and shut case of fraud and could be tried by NCLT under Section 58/59. SC further observed that procedure contemplated under RTI circular dated May 9 2001 for issuance of supplicate shares was not followed. When duplicate shares were issued, stock exchanges were not informed neither was advertisement issued in newspaper. Thus, the company was directed rectify its register and add the name of the original shareholder who was defrauded. Hence, appeal allowed.

Vestal Educational Services P. Ltd v Shri Lanka Venkata Naga Muralidhar and Others, [2018] 211 Comp Cas 764 Company Appeal (AT) No. 65 of 2018 NCLAT/NOVEMBER, 2018/CA, 2013

Issue: The appellant company defaulted in paying instalments as agreed upon on a term loan of Rs. 10 crore from a bank. Later on the bank loan under compromise was settled from Rs. 7.25 crore to Rs. 5.50 crore. The director of the company approached one of the shareholders and erstwhile director to lend amount of Rs. 1.54 crores. Later on, despite of several reminders the amount was not repaid by the company. It was found that the amount lent was converted into equity shares without

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Particulars the knowledge of lending director and without any intimation or authorisation to him. Hence, a petition was filed u/s 59. NCLT allowed the petition, on the ground that the company had not produced any evidence to show the basis on which loan was converted into equity. This order was challenged. Held: NCLAT upheld the order of NCLT holding that there was no material on record to show any consent of the lender to convert the loan into equity. The appellant sought to introduce new documents like resolutions, letter of offer in the NCLAT to show that lender had consent to conversion. However, NCLAT did not allow new documents to be inserted at the stage of appeal especially when the veracity of documents was questionable. For instance, the company was unable to show that the letter of offer was sent to the first respondent by the registered post or speed post or through electronic mode. Also, no documentary evidence that the first respondent consented or rejected such offer. Hence, appeal was dismissed. `

Sangeeta Maheshwari v Premsagar Agricultural P. Ltd and Others, [2018] 211 Comp Cas 71 Company Appeal (ATL No. 11 of 2018 NCLAT/OCTOBER, 2018/CA, 2013

7.52

Facts: The appellant was issued shares in the family company of her husband. Subsequently she was divorced in 2001. She was under the impression that after divorce she continued to hold the shares. In 2015, appellant ask company to send her share certificated. When company did not respond, she conducted a search and also filed a complaint with ROC. It was found that her shares were transferred. She filed a petition in NCLT in 2016. During the proceedings, the company was unable to produce the original share transfer form with her signatures to show that she had transferred her shares. However, NCLT dismissed the petition on the sole ground of limitation holding that petition is hit by delay and laches. Issue: Whether the Tribunal erred in dismissing the petition on the ground of limitation? Held: The shares were transferred in the favour of members of Agal family (in-laws of appellant). NCLAT observed that (i) there was no transfer deed carrying the signature of appellant (ii) company failed to give notice to the appellant that the shares were transferred to third respondent without transfer deed. (iii) The company failed to ask the purported transferee to lodge a FIR intimating that the transfer deed was lost if that was the claim made (iv) company failed to give notice in the newspaper that

Chapter 7

Name of case

Transfer and transmission of securities

Particulars the shares had been received by the respondent for transfer without a transfer deed (v) company was controlled by Agal family. NCLAT held that Tribunal erred in dismissing the appeal on ground of limitation and held that transfer of shares were held to be illegal. Considering these facts, the appellant was found to be a rightful holder of shares. Order of NCLT was set aside.

Relisys Medical Devices Ltd v Dr Raju Reddy, [2018] 211 Comp Cas 83 C P. No. 35/59/HDB/2017 NCLT/OCTOBER, 2017/CA, 2013

Facts: The company had inadvertently issued shares at a price less than the fair value which was in violation of FEMA guidelines. When they approached RBI for compounding, RBI directed them either to unwind the excess shares or to bring in additional funds equivalent to the shares allotted. To comply with the RBI order, the company filed an application under Section 59 for rectification of register and for cancellation of excess shares allotted. Issue: Can you seek cancellation of shares as a part of rectification of register of companies or do you have to file a petition for reduction of shares? Held: NCLT dismissed the petition under Section 59. It held that in this case, there is no question of transfer of shares and subsequent registration or cancellation of shares. In this case neither the company nor the shareholders in an aggrieved party and no one has a grievance against the other. It is observed that the company had failed to follow the FEMA regulations. The company did not take actions for reduction of capital as is contemplated in MOA and AOA of the company for reduction of capital. Further, it admitted to the violation of the foreign regulations. Therefore, the petition u/s 59 was not maintainable. P.S: This order was challenged in NCLAT. NCLAT modified the above order.

Relisys Medical Devices Ltd v Dr Raju Reddy, [2018] 211 Comp Cas 92 C p. No. 387 of 2017 NCLAT/MAY, 2018/CA, 2013

Issue: The shares were allotted in excess to the shareholders. RBI advised the company to unwind the excess shares allotted or bring in additional funds equivalent to the shares allotted and there after apply for compounding. The Tribunal dismissed the petition as it held that company had the liberty as per its MOA to apply for reduction of capital. Thus, it held that petition u/s 59 was not maintainable. Hence, appeal. Held: NCLAT observed that such cancellation of shares could be done under Section 59 of the companies act. It 7.53

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Particulars directed that the company should take steps to cancel the excess shares allotted and transfer the funds to share premium account. It further directed that company can unwind the excess shares allotted. The balance sheets must be refiled after incorporating entries for cancelation of excess shares. The company was directed to comply with all other legal formalities as per law and CA, 2013. The order of NCLT modified.

Shree Kumar Mundra v Spell Organics Ltd and Others, [2018] 211 Comp Cas 177 C. P. No. 15/04/2016 NCLT/MAY,2018/CA, 2013

Issue: The petitioner claimed that his shares held in the respondent company were lost or untraceable since April, 2016 and reuested for issue of duplicate share certificates. Since, the company failed to issue duplicate share certificate, the petitioner filed a petition u/s 46 and 56 of the CA, 2013. It was claimed by the respondent that the petitioner falsely contended the share certificates were lost or misplaced. In fact, these shares were given by petitioner to the respondent as security for the corporate guarantee for a loan availed by the company in which the petitioner and his wife had substantial interest. Held: It was not equitable to direct the respondents to hand over the share certificates over which they assert their lien without the outstanding liability under corporate guarantee being paid. The entitlement of the respondent to recover their claim is already a subject matter of adjudication. On payment of the guaranteed debt in full, the surety is entitled to all securities assigned to him, which can only be after it adjudicated by a civil court. Case dismissed. P.S. This order was upheld by NCLAT

Shree Kumar Mundra v Spell Organics Ltd and Others, [2018] 211 Comp Cas 181 Company Appeal (At) No. 219 Of 2018 NCLAT/October, 2018/Ca, 2013

Issue: The petitioner falsely claimed that shares held in the respondent company were lost or untraceable since April, 2016 whereas those shares were pledged. NCLT dismissed the claim and this appeal came to be filed. Held: NCLAT dismissed the appeal with costs. It held that appellant had concealed the facts that civil proceedings in the High Court were pending and the disputes regarding pledge need not be entered into in this application. The appellant had failed to make out a case u/s 46 or 56 of the act and had not approached the Tribunal with clean hands. He suppressed the earlier litigation and had claimed that the shares were lost and later claimed theft. The respondents had justifiable reason to show they were in possession of the shares and they should not be directed to hand over the shares. Order of NCLT affirmed.

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Transfer and transmission of securities

7.6

PROCEDURE FOR REFUSAL TO TRANSFER OR TRANSMIT SECURITIES

7.6.1

Company Law Board (CLB)

Before its dissolution, the power to decide cases falling under sec 58 and sec 59 was vested with the CLB which continued till the constitution of NCLT. This was done vide Companies (Removal of Difficulties) Order, 2013 dated 28 September 2013. The petition under these sections were filed in Form No. 7 in Annexure II of CLB Regulations as amended on 28 January 2015.

7.6.2

National company law tribunal (NCLT)

For the purpose of seeking relief against refusal by the company to transfer/transmit securities (sec 58) or for the purpose of rectification of register of members (sec 59), a petition has to be filed. Rule 70 of NCLT Rules provides for specific formalities to be complied with. This has to be read with the NCLT Rules as a whole to determine the procedure for obtaining such relief. Unless otherwise provided, the NCLT Rules, Forms and Annexures are mentioned in this procedure. The key highlight in the procedure are as follows: 1. The petition under sec 58 and under sec 59 shall set out relevant facts making out a case. The petition shall be made to the Tribunal in the Form No. NCLT. 1 of NCLT Rules with the documents to be attached as mentioned in the Annexure-B of NCLT Rules. 2. The petitioner should be advertise the petition at least 14 days before the hearing date in accordance with the Rules (namely Rule 35). 3. Where any objection is received from a person whose interest is likely to be affected, a copy of the objections shall be served on the ROC on or before the date of hearing by the Petitioner. 4. The Tribunal may, while dealing with a petition under sec 58 or sec 59, can do the following, if it deems fit: •

Pass any appropriate order

•

Pass any interim order, including any orders as to injunction or stay , as it may deem fit

•

Such orders to cost as it thinks fit

•

Incidental or consequential orders regarding payment of dividend or the allotment of bonus or right shares

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Observation The power to pass interim order was specifically provided to CLB under the Companies Act, 1956. This provision was removed (as can be seen from the comparison chart). In view of this, the permissibility and power of the Tribunal to pass such interim orders may be tested. For any petition under sec 59, the Tribunal can1. Decide any question relating to the title of any person who is a party to the petition to have his name entered in, or omitted from the register 2. Generally decide any question which is necessary or expedient to decide in connection with the application for rectification A quick look at the comparison chart reveal that this provision was earlier a part of sec 111 and sec 111A of the Companies Act, 1956. The reference to these powers have been deleted from the Act and is now placed in the NCLT. Rules. The impact of such change and nature and extent of these powers that can be enjoyed by the Tribunal may get tested. The decision of the Tribunal is final on any such petition.

7.7

FREE TRANSFERABILITY OF SHARE OF PUBLIC COMPANY

The recent case law of Bajaj Auto in 2015 deals with the analyses of the history of sec 58. It deals with the provisions of sec 22A of SCRA, then analyses sec 111A which was introduced in Companies Act, 1956 at the time when sec 22A of SCRA was deleted. It then analyses sec 58 that is introduced in the new Act and the proviso to sec 58(2) which recognizes contracts and agreement entered into between two persons that may restrict transferability. It holds that sec 58 merely clarifies and codifies the existing legal position regarding such pre-emption agreements. In other words, what was implicit in the provisions of sec 111A of the Companies Act, 1956 has now been made explicit in sec 58 of the Companies Act, 2013. The important excerpts of Bajaj Auto Ltd. v Western Maharashtra Development Corporation Ltd MANU/MH/0820/2015 : 2015(4)ARBLR470(Bom) : 2015(4)Bom CR499, are given below: “22. Having said this, we shall now turn our attention to certain statutory provisions. Before we deal with the provisions of section 111A, we must make a note of the provisions of section 22Aof the Securities Contracts (Regulation) Act, 1956 which was inserted in the said Act by the Securities Contracts (Regulation) (Amendment) Bill, 1985 and was a predecessor to 7.56

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section 111A of the Companies Act. Section 22A as introduced by the said Amendment Bill read as under:"22-A. Free transferability and registration of transfers of listed securities of companies. (1) In this section, unless the context otherwise requires,(a) "company" means a company whose securities are listed on a recognised stock exchange; (b) "security" means security of a company, being a security listed on a recognised stock exchange but not being a security which is not fully paid up or on which the company has a lien; (c) all other words and expressions used in this section and not defined in this Act but defined in the Companies Act, 1956 (1 of 1956) shall have the same meanings as are assigned to them in that Act. (2) Subject to the provisions of this section, securities of companies shall be freely transferable. (3) Notwithstanding anything contained in its articles or in Section 82 or Section 111 of the Companies Act, 1956 (1 of 1956), but subject to the other provisions of this section, a company may refuse to register the transfer of any of its securities in the name of the transferee on any one or more of the following grounds and on no other ground, namely:(a) that the instrument of transfer is not proper or has not been duly stamped and executed or that the certificate relating to the security has not been delivered to the company or that any other requirement under the law relating to registration of such transfer has not been complied with; (b) that the transfer of the security is in contravention of any law; (c) that the transfer of the security is likely to result in such change in the composition of the Board of Directors as would be prejudicial to the interests of the company or to the public interest; (d) that the transfer of the security is prohibited by any order of any court, tribunal or other authority under any law for the time being in force. (4) A company shall, before the expiry of two months from the date on which the instrument of transfer of any of its securities is lodged with it for the purposes of registration of such transfer, not only form, in good faith, its opinion as to whether such registration ought not or ought to be refused on any of the grounds mentioned in sub-section (3) but also-

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(a) if it has formed the opinion that such registration ought not to be so refused, effect such registration; (b) if it has formed the opinion that such registration ought to be refused on the ground mentioned in clause (a) of sub-section (3), intimate the transferor and the transferee by notice in the prescribed form about the requirements under the law which has or which have to be complied with for securing such registration; and (c) in any other case, make a reference to the Company Law Board and forward copies of such reference to the transferor and the transferee. (5) Every reference under clause (c) of sub-section (4), shall be in the prescribed form and contain the prescribed particulars and shall be accompanied by the instrument of transfer of the securities to which it relates, the documentary evidence, if any, furnished to the company along with the instrument of transfer, and evidence of such other nature and such fees as may be prescribed. (6) On receipt of a reference under sub-section (4), the Company Law Board shall, after causing reasonable notice to be given to the company and also to the transferor and the transferee concerned and giving them a reasonable opportunity to make their representations, if any, in writing by order direct either that the transfer shall be registered by the company or that it need not be registered by it. (7) Where on a reference under sub-section (4) the Company Law Board directs that the transfer of the securities to which it relates(a) shall be registered by the company, the company shall give effect to the direction within ten days of the receipt of the order as if it were an order made on appeal by the Company Law Board in exercise of the powers under Section 111 of the Companies Act, 1956 (1 of 1956); (b) need not be registered by the company, the company shall, within ten days from the date of such direction, intimate the transferor and the transferee accordingly. (8) If default is made in complying with the provisions of this section, the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees. (9) If in any reference made under clause (c) of sub-section (4) of this section, any person makes any statement (a) which is false in any material particular, knowing it to be false; or (b) which omits any material fact knowing it to be material,

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he shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine. (10) For the removal of doubts, it is hereby provided that nothing in this section shall apply in relation to any securities the instrument of transfer in respect whereof has been lodged with the company before the commencement of the Securities Contracts (Regulation) Amendment Act, 1985." (emphasis supplied) 23. The statement of objects and reasons indicate that the purpose for incorporating section 22A in the Securities Contracts (Regulation) Act, 1956 was that at the said time, section 82 and section 111 of the Companies Act, 1956 permitted the Board of Directors of companies to assume powers under the Articles of Association to refuse registration of transfer of securities without assigning any reason. Though there was a provision for an appeal to the Company Law Board against such refusal, it placed an undue burden on an aggrieved person who often happened to be a small investor. The Legislature also felt that the position at that time was not conducive to free marketability of listed securities and healthy growth of the capital markets. In view thereof, the Legislature felt that unrestricted transferability was particularly necessary for securities of public companies which are listed on the Stock Exchanges. It was in this context that the Legislature proposed the amendment to the Securities Contracts (Regulation) Act, 1956 by insertion of section 22A, to ensure free transferability of securities of public companies whose securities were listed on the Stock Exchanges. 24. On a reading of section 22A as it stood then, it is clear that the provisions therein applied only to public companies whose shares were listed on the recognised Stock Exchanges. The provision in section 22A(2) that securities of public companies shall be freely transferable, was made only as the basis for the consequential provisions in sections 22A(3) to (9) to provide for free transferability by restricting the entitlement of public companies (through their Board of Directors) to refuse registration of transfers only in four stipulated circumstances [section 22A, subsection (3)]. This is also borne out by the statement of objects and reasons discussed above. In other words, section 22A(2) provided for free transferability and the actual steps taken to provide for the same were set out in sections 22A(3) to (9). 25. The wordings of section 22A as well as the objects and reasons discussed above make it clear that section 22A was introduced to ensure that the Board of Directors of public companies exercising powers under its Articles of Association, do not place an undue burden on small investors by refusing to transfer shares without assigning any reason. In 7.59

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light of the language of section 22A as well as the statement of objects and reasons, we do not read section 22A(2) to mean that it would affect the right of individual shareholders to deal with their own shares on such terms and conditions as they deem fit or to enter into any consensual arrangement/agreement regarding their own shares by way of sale, pledge, pre-emption or otherwise. 26. Once the context in which section 22A had been inserted is understood, it cannot be said that two individual shareholders entering into a consensual agreement to deal with their shares in a particular manner, either in praesenti or at a future date, would impinge or violate the concept of free transferability as contemplated under section 22A(2) . The purpose of the said provision, as we understand it, was to ensure that the Board of Directors of the company cannot refuse transfer of shares except on the grounds specified in the said section. This does not mean that if an individual shareholder enters into a separate agreement with another shareholder to deal with his specified shares in a particular manner, the same would violate the concept of free transferability as envisaged under section 22A. 27. We have come to this conclusion because we find that shares of a company are movable property and the right of the shareholder to deal with his shares and/or to enter into contracts in relation thereto (either by way of sale, pledge, pre-emption etc.), is nothing but a shareholder exercising his property rights. Such contracts voluntarily entered into by a shareholder for his own shares giving rights of pre-emption to a third party/another shareholder, cannot constitute a restriction on free transferability as contemplated under section 22A. In fact, such contracts (either by way of sale, pledge or pre-emption) are entered into by a shareholder in exercise of his right to freely deal with and/or transfer his own shares. 28. Having said this, we now turn our attention to section 111A of the Companies Act. By the Depositories Act, 1996 the entire scheme/provisions of section 22A of the Securities Contracts (Regulation) Act, 1956 were deleted and simultaneously section 111A was inserted in the Companies Act. For ready reference, section 111A as it stood prior to its amendment in 2003, reads thus: 111-A. Rectification of register on transfer. (1) In this section, unless the context otherwise requires, "company" means a company other than a company referred to in subsection (14) of Section 111 of this Act. (2) Subject to the provisions of this section, the shares or debentures and any interest therein of a company shall be freely transferable:

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Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the Company Law Board and it shall direct such company to register the transfer of shares. (3) The Company Law Board may, on an application made by a depository, company, participant or investor or the Securities Exchange Board of India, if the transfer of shares or debentures is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made thereunder, or the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), or any other law for the time being in force, within two months from the date of transfer of any shares or debentures held by a depository or from the date on which the instrument of transfer or the intimation of the transmission was delivered to the company, as the case may be, after such inquiry as it thinks fit, direct any depository or company to rectify its register or records. (4) The Company Law Board while acting under sub-section (3), may at its discretion make such interim order as to suspend the voting rights before making or completing such enquiry. (5) The provisions of this section shall not restrict the right of a holder of shares or debentures, to transfer such shares or debentures and any person acquiring such shares or debentures shall be entitled to voting rights unless the voting rights have been suspended by an order of the Company Law Board. (6) Notwithstanding anything contained in this section, any further transfer, during the pendency of the application with the Company Law Board, of shares or debentures shall entitle the transferee to voting rights unless the voting rights in respect of such transferee have also been suspended. (7) The provisions of sub-sections (5), (7), (9), (10) and (12) of Section 111 shall, so far as may be, apply to the proceedings before the Company Law Board under this section as they apply to the proceedings under that section. (emphasis supplied) By the amendment in 2003, the words "Company Law Board" appearing in section 111A were substituted with the word "Tribunal". However, this amendment is not germane for the purposes of the present Appeal.

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29. On reading section 111A four things become clear. Firstly, unless the context otherwise requires, it applies only to public companies [subsection (1) read with section 111(14)]. Secondly, subject to the other provisions of section 111A, the shares or debentures and any interest therein of a company shall be freely transferable [sub-section (2)]. Thirdly, if a company, without sufficient cause, refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the Company Law Board and the Company Law Board shall thereafter direct such company to register the transfer of shares [proviso to sub-section (2)]. In other words, the company cannot refuse transfer of shares without sufficient cause. Fourthly, if the transfer of shares or debentures is in contravention of any of the provisions of SEBI Act, 1992 or SICA, 1985 or any other law for the time being in force, then the Company Law Board may, after such inquiry as it thinks fit, on an application made by the depository or company or participant or investor or the Security Exchange Board of India, direct any depository or company to rectify its register of records [sub-section (3)]. Sub-sections (4), (5), (6) and (7) are not really germane to the issue involved in this Appeal. 30. As stated earlier, section 22A was inserted in the Securities Contract (Regulation) Act, 1956 which inter alia provided that subject to the provisions of that section, the securities of public companies would be freely transferable and the company could refuse the transfer only on four specific grounds as set out in sub-section (3) thereof. It thus follows that the provisions of section 22A were intended to regulate the right of the Board of Directors of public companies whose securities were listed on the stock exchange to refuse transfer of shares. The provisions of the said section was not to restrict the rights of the shareholders to deal with their shares or to enter into consensual agreements/arrangements regarding their shares either by way of pledge, sale, pre-emption or otherwise. We find that even the sweep of section 111A of the Companies Act is the same as section 22A of the Securities Contracts (Regulation) Act, 1956. Subsection (2) opens with the expression "subject to the provisions of this section". In other words, it is a provision re-stating that the shares or debentures and any interest therein of a company shall be freely transferable subject, however, to the other provisions of section111A. The proviso to sub-section (2) reinforces that section 111A is to regulate the powers of the Board of Directors of the company regarding transfer of shares or debentures or any interest therein of a company. As set out in the proviso to sub-section (2), the Board of Directors can refuse to register transfer of shares only if sufficient cause to do so is made out. Section 111A and more particularly sub-section (2) thereof, is not a provision to curtail the rights of the shareholders to enter into a 7.62

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consensual agreement/arrangement with a purchaser in relation to their specific shares. The right to enter into a consensual agreement/arrangement must prevail so long as it is in conformity with the Articles of Association, the provisions of the Companies Act and Rules, and other governing laws. Therefore, the expression "freely transferable" appearing in sub-section (2) of section 111A cannot be construed to mean that it also intends to take away the right of shareholders to enter into consensual agreements/arrangements with the purchaser in relation to their specific shares. 31. We are of the view that if the legislature intended to take away that right, it would have made an express provision in that regard. It is now quite well settled by the Supreme Court that the Legislature does not interfere with the freedom of contract generally except when warranted by public policy and the Legislative intent in that regard is expressly made manifest. [See Byram Pestonji Gariwala v Union Bank of India MANU/SC/0485/1991 : (1992) 1 SCC 31]. The Supreme Court has also further expounded that while enacting a statute, Parliament cannot be presumed to have taken away the right in property and deprivation of a legal right existing in favour of a person. [See ICICI Bank Ltd.v SIDCO Leathers Ltd. MANU/SC/2337/2006 : (2006) 10 SCC 452]. 32. The concept of free transferability would mean that a shareholder has the freedom to transfer his shares on terms defined by him, provided the terms are consistent with the Articles of Association as well as the Companies Act and Rules and other governing laws. The fact that the shares of a public company can be subscribed to by the public, unlike in the case of a private company, does not in any way whittle down the right of a shareholder of a public company to arrive at a consensual agreement/arrangement (either by way of sale, pledge, pre-emption etc.) with a third party or another shareholder, which is otherwise in conformity with the Articles of Association, the Companies Act and Rules, and any other governing laws. 33. Whilst taking this view, we are supported by a judgment of the Division Bench of this Court in the case of Messer Holdings Ltd. In the facts of that case also there was a similar clause (clause 6.1) as the one in the present case (clause 7) and the shares under dispute were of a public company. Clause 6.1 in the facts of that case also provided that neither party shall sell any shares in the company held or acquired by it without first offering the shares to the other party. The offer was to be in writing and was to set out the price and other terms and conditions. In the event the offeree did not agree to purchase the shares so offered, the offerer was free to sell the shares to any person (other than a competitor of the offeree), but at the same price and on the same terms and conditions as offered to the offeree. The identical argument that was made before us was also made before the 7.63

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Division Bench in Messer Holdings Ltd. It was contended before the Division Bench that by virtue of section 111A of the Companies Act, clause 6.1 itself was illegal and void, as it infracted the principle of free transferability of shares as set out in section 111A(2). After considering the provisions of section 22A of the Securities Contracts (Regulation) Act, 1956 (as it stood prior to its deletion), as well as the provisions of section 111A of the Companies Act, the Division Bench of this Court negated the aforesaid contention. In paragraph 51 of the judgment, after reproducing section 111A, the Division Bench held as under:"Even the sweep of Section 111A is the same as Section 22A of the Securities Contracts Act. In that, it is a provision regarding rectification of register on transfer. Sub-Section (2) opens with the expression "subject to the provisions of this section" In other words, it is a provision restating that the shares or debentures and any interest therein of a company shall be freely transferable subject, however, to the stipulation provided in the other part of Section 111A of the Act. The proviso to subsection (2) reinforces the position that Section 111A is to regulate the powers of the Board of Directors of the company regarding transfer of shares or debentures and any interest therein of a company. The Board of Directors cannot refuse to register transfer of shares unless there is sufficient cause to do so. In other words, the setting in which Section 111A is placed in part IV of the Act under heading "transfer of shares and debentures" it is not a provision to curtail the rights of the shareholders to enter into consensual arrangement with the purchaser of their specific shares. The right to enter into consensual arrangement must prevail so long as it is in conformity with the terms of Articles of Association and other provisions of the Act and the Rules. Whereas, Section 111A is a provision mandating the Board of Directors of the company to transfer shares in the name of the transferee, subject to the stipulations in Section 111A of the Act. The expression "freely transferable" therein is in the context of the mandate against the Board of Directors to register the transfer of specified shares of the members in the name of the transferee, unless there is sufficient cause for not doing so. The said provision cannot be construed to mean that it also intends to take away the right of the shareholder to enter into consensual arrangement/agreement with the purchaser of their specific shares. If the legislature intended to take away that right of the shareholder, it would have made an express provision in that regard. Reliance has been rightly placed on the decision of the Apex Court in the case of Byram Pestonji Gariwala (supra) which takes the view that the freedom of contract generally, the legislature does not interfere except when warranted by public policy, and the "legislative 7.64

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intent is expressly made manifest" Even in the case of ICICI Bank Ltd. (supra), the Apex Court has in unmistakable terms expounded that while enacting a Statute, Parliament cannot be presumed to have taken away a right in property and deprivation of legal right existing in favour of a person. That cannot be presumed in construing the Statute. In fact, it is the other way round and a contrary presumption must be raised. The concept of free transferability of shares of a public company is not affected in any manner if the shareholder expresses his willingness to sell the shares held by him to another party with right of first purchase (preemption) at the prevailing market price at the relevant time. So long as the member agrees to pay such prevailing market price and abides by other stipulations in the Act, Rules and Articles of Association there can be no violation. For the sake of free transferability both the seller and purchaser must agree to the terms of sale. Freedom to purchase cannot mean obligation on the shareholder to sell his shares. The shareholder has freedom to transfer his shares on terms defined by him, such as right of first refusal, provided the terms are consistent with other regulations including to repurchase the shares at the prevailing market price when such offer is made. The fact that shares of public company can be subscribed and there is no prohibition for invitation to the public to subscribe to shares, unlike in the case of private company, does not whittle down the right of the shareholder of a public company to arrive at consensual agreement which is otherwise in conformity with the extant regulations and the governing laws." (emphasis supplied) We are in full agreement with the aforesaid reasoning of the Division Bench. 34. It is important to note that the judgment and order impugned before us was also relied upon by one of the parties before the Division Bench in Messer Holdings Ltd. After dealing with the same in great detail, the Division Bench at paragraph 57 expressly disagreed with the reasoning given in the judgment and order impugned before us. The relevant portion reads thus:"57.The Learned Single Judge has then distinguished the exposition in Madhusoodhanan's case on the basis that the Karar referred to therein was an agreement between particular shareholders relating to the transfer of the specified shares. It is noted that in that case the company was a private company and restriction on the right of the shareholders to transfer shares and prohibit invitation to the public to subscribe for shares and debentures of the company is materially different. The main thrust is that in case of public company there can 7.65

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be no restriction whatsoever and if any other argument was to be accepted, it would mean that Section 111A is being read as being subject to a contract to the contrary. The notification dated June 27, 1961 has been discarded on the opinion that, that cannot have any bearing in relation to Section 111A of the Companies Act as it is issued in exercise of powers under Depositories Act, 1996. With utmost humility at our command, we do not agree with this reasoning of the Learned Single Judge in the case of WMD Corporation Ltd. (supra) for the reasons recorded hitherto." (emphasis supplied) 35. Faced with the judgment in Messer Holdings Ltd., Mr. Khambatta, the learned senior counsel appearing on behalf of the Respondent, submitted that whether a particular clause was a restriction on transferability of shares had to be necessarily decided on a case to case basis. He submitted that the facts in the case of Messer Holdings Ltd. were materially different than the ones before us. The first distinguishing feature he pointed out was that, under Clause 6.1 in Messer Holdings Ltd., there was no restriction on price whereas Clause 7 of the Protocol Agreement before us compelled the Respondent to sell the shares at a price not determined by the Respondent but determined through the process of arbitration. According to Mr. Khambatta, this was a very significant distinguishing feature. We cannot agree. We do not think that this distinguishing feature can make any difference to the ratio laid down in Messer Holdings Ltd. Once it is held that consensual agreements/arrangements entered into by the shareholders of a public company with a third party regarding his own specified shares (either by way of sale, pre-emption or otherwise), do not impinge on free transferability of shares as contemplated under section111A, this so called distinction pails into insignificance. If the parties are free to enter into a consensual arrangement which does not infract free transferability as contemplated under section 111A, we see no reason to hold that merely because the price of the shares is to be determined by the process of arbitration, the same would to be in violation of section 111A. The fact that the price of the shares is to be determined by the process of arbitration is also a term of the very same consensual arrangement which is not violative of the provisions of section 111A(2). We, therefore, find no substance in this argument. 36. The second distinguishing feature that Mr. Khambatta sought to highlight is that in the facts of our case, this consensual arrangement as set out in clause 7 of the Protocol Agreement was also incorporated in Articles of Association of MSL whereas that was not the case before the Division Bench in the case of Messer Holdings Ltd. In furtherance of this argument, Mr. Khambatta submitted that the Protocol Agreement

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and more particularly Clause 7 thereof, was incorporated into the Articles of MSL and was therefore subsumed therein and did not independently survive. Once it was subsumed in the Articles and the same could not be incorporated the Articles of a public company, the same could not re-emerge in a different avatar, was the submission. We cannot agree with this argument. Merely because the Protocol Agreement was incorporated into the Articles of MSL, does not mean that the Protocol Agreement by itself (or clause 7 thereof) ceased to exist. The Protocol Agreement governs the rights and liabilities of the parties thereto and would continue notwithstanding the fact that they were incorporated in the Articles of MSL. Therefore, even if we are to assume that such a clause was not permissible in the Articles of a public company, that would not in any way destroy the rights created under the said Agreement inter-se between the parties. The rights and liabilities created under the said Protocol Agreement would continue to bind the parties thereto. Even if we are to hold that the company (namely MSL) was not bound by the terms of the Protocol Agreement, it would only mean that if the Respondent sought to sell their shareholding in breach of Clause 7 of the Protocol Agreement, the company (MSL) would not be in a position to refuse such transfer, in the absence of any Court or other judicial authority granting an injunction restraining it from doing so. This does not mean that the parties to the Protocol Agreement cannot, in appropriate proceedings, seek to enforce its terms. It is one thing to say that the said clause will not bind the company and it is wholly another to contend that the said clause would not bind the parties thereto. We are, therefore, of the view that notwithstanding the fact that the Protocol Agreement was incorporated in the Articles of Association of MSL, the same would not change the nature of that agreement namely being a consensual agreement/arrangement entered into between the parties determining the manner in which each party is allowed to dispose of its particular shareholding. At the highest and assuming everything in favour of the Respondent, it could be only be held that such a clause would not bind the company. However, it would certainly bind the parties to the Protocol Agreement. We, therefore, find no substance in this argument. 37. Even otherwise, we find force in the argument of Mr. Chinoy that such a clause (clause 7), even if incorporated in the Articles of Association of a public company, would not in any way violate the principles of free transferability of shares as contemplated under section 111A of the Companies Act. Clause 7 of the Protocol Agreement and which finds place in the Articles of MSL by virtue of incorporation of the Protocol Agreement in its Articles, only sets out how the Respondent and the Appellant are to deal with their respective shareholdings. It is not a 7.67

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blanket pre-emption clause which binds all the shareholders of MSL to sell their shares only to other members of MSL, which clauses are incorporated in the Articles of Association of a private company. Preemption clauses in the Articles of a private company are in the nature of a blanket restriction on all its members, and such clauses if incorporated in the Articles of a public company would certainly amount to a restriction on free transferability of shares as envisaged under section111A. However, that is not the case before us. Clause 7 of the Protocol Agreement and which has been incorporated in the Articles of Association of MSL, only relates to the shareholding of the Appellant and the Respondent and their rights and liabilities in relation thereto. It does not in any way affect the rights and/or liabilities of the other members of MSL. In this view of the matter, we are of the view that merely because Clause 7 of the Protocol Agreement was incorporated in the Articles of MSL, would not invalidate the same. We are also persuaded to take this view because we find that in today's global reality, joint ventures are extremely common and clauses similar to Clause 7 of the Protocol Agreement may become necessary to ensure that a joint promoter of a company does not sell his shareholding to a competitor who then possibly could get control of his rival. In this view of the matter and looking to the totality of the facts and circumstances of the case, we are clearly of the view that Clause 7 of the Protocol Agreement does not in any way impinge upon the principle of free transferability of shares as contemplated under section 111A of the Companies Act, 1956. 38. We must also mention here that agreements like the one contained in clause 7 of the Protocol Agreement before us, have now been expressly made a part of section 58 of the Companies Act, 2013. Section 58 of the Companies Act, 2013 reads as under:"58. Refusal of registration and appeal against refusal.(1) If a private company limited by shares refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any securities or interest of a member in the company, it shall within a period of thirty days from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferor and the transferee or to the person giving intimation of such transmission, as the case may be, giving reasons for such refusal. (2) Without prejudice to sub-section (1), the securities or other interest of any member in a public company shall be freely transferable:

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Provided that any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract. (3) The transferee may appeal to the Tribunal against the refusal within a period of thirty days from the date of receipt of the notice or in case no notice has been sent by the company, within a period of sixty days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, was delivered to the company. (4) If a public company without sufficient cause refuses to register the transfer of securities within a period of thirty days from the date on which the instrument of transfer or the intimation of transmission, as the case may be, is delivered to the company, the transferee may, within a period of sixty days of such refusal or where no intimation has been received from the company, within ninety days of the delivery of the instrument of transfer or intimation of transmission, appeal to the Tribunal. (5) The Tribunal, while dealing with an appeal made under subsection (3) or sub-section (4), may, after hearing the parties, either dismiss the appeal, or by order (a) direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within a period of ten days of the receipt of the order; or (b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved. (6) If a person contravenes the order of the Tribunal under this section, he shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees." (emphasis supplied) 39. Sub-section (2) of section 58 specifically provides that without prejudice to sub-section (1), the securities or other interest of any member in a public company shall be freely transferable. However, the proviso to the said section stipulates that any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract. Before the Companies Act, 2013 came into force, the 57th Report of the Parliamentary Standing Committee on the Companies Bill 2011, at pg. 86 thereof, noted that the proviso to section 58 "simply seeks to codify the pronouncements made by various Courts holding that contracts relating to transferability of shares of a company entered into by one or more 7.69

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shareholders of a company (which may include promoter or promoter group as a shareholder) shall be enforceable under law." Keeping in line with the proviso to section 58(2) of the Companies Act 2013, the Securities And Exchange Board of India has also issued a notification dated 3 October 2013 being Notification No.LAD-NRO/GN/2013-14/26/6667 which declares that no person in the territory to which the Securities Contracts (Regulation) Act, 1956 extends, shall save with the permission of the Board, enter into any contract for sale or purchase of securities other than a contract falling under any one or more of the following namely: (a) Spot delivery contract; (b) contracts for sale or purchase of securities or contracts in derivatives, as are permissible under the said Act or the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the rules and regulations made under such Acts and rules, regulations and bye-laws of a recognised stock exchange; (c)

contracts for pre-emption including right of first refusal, or tagalong or drag-along rights contained in shareholders agreements or articles of association of companies or other body corporate;

(d) ............................ 40. On reading section 58 and the above Notification issued by the Securities and Exchange Board of India, we are of the view that section 58 merely clarifies and codifies the existing legal position regarding such pre-emption agreements. In other words, what was implicit in the provisions of section 111A of the Companies Act, 1956 has now been made explicit in section 58 of the Companies Act, 2013.”

7.8

COMPARISON CHART — REFUSAL TO TRANSFER OR TRANSMIT SECURITIES

7.8.1

Comparison of New Act with Old Act

Particulars

New Act

Old Act

Remarks

Refusal of registration and appeal against refusal

58(1)

111(1)

•

Shares Securities.

•

No specific reference of debentures in new act. But the term securities is included.

•

Time Limit reduced with regard to refusal of

Refusal by private company

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Particulars

Transfer and transmission of securities

New Act

Old Act

Remarks registration by the company i.e. from 2 months to 30 days in new Act.

Free transferability 58(2) of shares of public company. Appeal against refusal in case of private company

58(3)

Refusal by public company

58(4)

Order in Appeal

58(5)

Penalty

58(6)

111A(2)

Similar. Proviso is added. However, proviso simply recognises existing implied law (See Appendix A)

111(2)&(3) ●

Proviso of 111A(2)

111(5) 111(9)

CLBTribunal

●

Under New Act only Transferee has the power to make an appeal before the Tribunal which was earlier with the transferor, transferee or the person who gave the intimation of the transmission by the operation of law. Time limit to appeal before tribunal has been reduced i.e. from 2 month to 30 days from the date of receipt of notice and where no notice of refusal sent by the company from months to 60 days from the date on which instrument of transfer or the intimation of transmission delivered to the company.

●

Shares Securities

●

Time limit reduced from 2 months to 30 days for public company to show sufficient cause for refusal of registration.

●

Similar

●

CLBTribunal

Under New Act, the list of defaulter can be the any person 7.71

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Particulars

New Act

Old Act

Chapter 7

Remarks and not only the officers of the company and the punishment with respect to the said section is enhanced thereto. Imprisonment provisions inserted. Now it is a noncompoundable offence.

Relief for Rectification of register

59(1)

111(4)

●

●

Under the Old Act, the company referred therein was only Private company. Here no such specifications. Application can be made even in respect of public company. Powers switched over from CLB to Tribunal or competent court outside India specified by the CG by notification, in respect of foreign members or debenture holders residing outside India.

Nature of Order

59(2)

111(5)

● ●

CLBTribunal Here the Tribunal can also direct the Rectification of the records of the depository

Impact on Voting Rights

59(3)

111A(4)

●

There is a drafting change in the section. Under New act the direct emphasis laid is on the entitlement of the rights of the holder of the securities until and unless suspended by the tribunal. Under the old act the emphasis laid is on the Power of the CLB to pass such interim order of suspension of voting rights before the completion of the enquiry which is not there under the new act. Power to pass order of suspension by Tribunal may get tested.

●

7.72

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Transfer and transmission of securities

Particulars

New Act

Old Act

Remarks

Transfer in Contravention

59(4)

111A(3)

● ● ●

●

59(5)

Penalty

111A(7) read with 111(9)

●

●

7.8.2

CLB  Tribunal Shares or Debentures Securities Under New act, the tribunal can also direct the company or depository to set right the contravention. Applicable to all companies. Also applicable to private companies. Here the Penalty imposed on the company and the officer has been enhanced and also alternatively the penal liability can also be imposed on the officers i.e. imprisonment up to 1 year on contravention of the said section of Companies Act, 2013. Here penalty compoundable

Comparison of Old Act with New Act

Particulars Power to refuse registration and appeal against refusal.

Old Act New Act 111(1)

58(1)

Refusal to Register by private companies Right to appeal

Remarks ● ●

Shares Securities. No mention of debentures in new Act but securities include debentures.

Time Limit reduced with regard to refusal of registration by the company i.e. from 2 months to 30 days. 111(2)

58(3)

● ●

CLBTribunal Under New Act only Transferee has the power to make an appeal before the tribunal which was earlier with the transferor, transferee or the person who gave

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Old Act New Act

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Remarks the intimation of the transmission by the operation of law.

Time Period for making appeal

111(3)

58(3)

● ●

CLBTribunal. Time limit to appeal before tribunal has been reduced i.e. from 2 month to 30 days from the date of receipt of notice and where no notice of refusal sent by the company from months to 60 days from the date on which instrument of transfer or the intimation of transmission delivered to the company.

Instances where 111(4) rectification can be sought

59(1)

●

Under the Old act, the company referred therein was only private company. New Act places no such specifications. Powers switchover from CLB to Tribunal or competent court outside India specified by the CG by notification, in respect of foreign members or debenture holders residing outside India.

●

Nature of Order

111(5)

58(5)

Under old act, the section only applies to the private company but the corresponding section under new act has no such restriction.

Interim Orders

111(6)

-

Deleted. The powers of the Tribunal to pass interim order in absence of this clause will be tested.

Incidental Order

111(7)

-

● ●

●

7.74

Deleted The deletion of this clause may create confusion of the powers of Tribunal vis-a-vis powers of civil courts. Deletion may create confusion about the scope of power of Tribunal while dealing with such cases.

Chapter 7

Particulars

Transfer and transmission of securities

Old Act New Act

Rectification of register of debentures holders

111(8)

Penalty

111(9)

-

Remarks ● ● ●

58(6)

●

●

Deleted Only register of members can be rectified. Register of securities cannot be rectified Under New Act, the list of defaulter can be the any person and not only the officers of the company. Penalty enhanced

Manner of making application

111(10)

-

● ●

Deleted No impact in view of NCLT Rules that determine procedure

Alternate Relief

111(11)

-

● ●

Deleted Nature and Scope of Tribunal to pass alternate relief will be tested. It will be considered whether such deletion leads to an implication that such power is taken way.

●

Default

111(12)

-

Deleted

Restrictions in Articles of private company

111(13)

-

● ●

Applicability

111(14)

-

Deleted

Rectification of register on transfer Applicability

111A(1)

-

Deleted

Deleted Private companies can continue to refuse transfer if the same are violative of its articles.

Free transferability 111A(2) 58(2) of shares of public company

Shares Securities

Refusal to Register Proviso 58(4) 111A(2)

● ●

Shares Securities Time limit reduced from 2 months to 30 days for to show sufficient cause for refusal of registration. 7.75

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Particulars Illegal Transfer Transaction

Chapter 7

Old Act New Act 111A(3) 59(4)

Remarks ● ● ● ●

CLB  Tribunal Shares or Debentures Securities Now applicable to all companies Under New act, the tribunal can also direct the company or depository to set right the contravention

Power to pass interim order suspending voting rights

111A(4) -

Deleted

Impact of interim order

111A(5) 59(3)

● ●

Deleted. In the specific power as given under 111A(4), power of Tribunal to pass interim order suspending voting rights need to be tested.

Permissibility to 111A(6) Transfer Impact of transfer voting rights

Deleted

Applicability of provisions of sec 111 of Companies Act, 1956

● ●

7.9

111A(7) -

Deleted As sec 58 and sec 59 of Companies Act, 2013 are revised, this clause was unnecessary.

FURTHER READING (a) Section 58 and 59 commentary from A Ramaiya, Guide to the Companies Act, Eighteenth Edition, LexisNexis; (b) Section 111 & 111A of 1956 Act of A Ramaiya, Guide to the Companies Act, Sixteenth Edition, 2010, Wadhwa & Company.

7.76

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Reduction of capital 8.1

INTRODUCTION

Reduction of share capital is a process of decreasing a company's share capital by way of cancellation of shares or repurchase of shares or by any other permissible way. Companies do the reduction of capital for numerous reasons, which includes increasing shareholders’ value by means of more efficient capital structure. This Chapter discusses the applicability of sec 66 to different kinds of reduction and analyses the provisions for reduction of capital under this section. Section 66 of Companies Act, 2013 was notified on 15th December 2016 alongwith National Company Law Tribunal (Procedure for Reduction of Share Capital of Company) Rules, 2016.

8.2

OVERVIEW OF CHANGES

8.2.1 Single procedure Under the old Act, there were two different procedures for reduction of capital. To determine which procedure was to be followed, the company had to test whether the reduction involved diminution of share capital or return of capital to the shareholders. If the reduction involved financial outgo and diminution of share capital, then the old Act provided a long process that involved considering the objections of the creditors. However, in the event there was no financial outgo or diminution of liability, then a fast track procedure was provided wherein the aforesaid procedure involving creditor was not required to be followed. The new Act makes no such distinction and provides only one procedure for reduction.

8.2.2 Representation of authorities Under the old Act, ROC, the Central Government and the Securities and Exchange Board of India played no role in the process of reduction. Even the petition for reduction was not required to be served on them. However, under the new Act, they will have a say in the matter of reduction. The Act provides for deemed approval, which will ensure that there are no delays in the process of reduction.

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8.2.3 Certificate not a conclusive proof Under the old Act, after the High Court order sanctioning the reduction is filed with ROC, the ROC gives a certificate of registration which was a conclusive proof that all the requirement of this Act were complied with. Now, under the new Act, the order and minutes have to be filed with ROC but the certificate issued by ROC is not a conclusive proof. This will affect the finality of such reduction. Though there is no express provision in this regard, it is possible to question the reduction at a later date, if it is found that procedure and other requirements for reduction have not been complied with.

8.2.4 Restrictions on reduction A company that has defaulted in repayment of deposits or interest payable thereon is prohibited from reducing the share capital until the default subsists.

8.2.5 Removal of the words "and reduced" The old Act contained a provision wherein the words "and reduced" would need to be added to the company's name. In the new Act, this provision has been dispensed with.

8.2.6 Articles irrelevant Under the old Act, the company could not reduce its capital unless such power was specified in the article. The new Act does not require specific authorization in the articles.

8.2.7 Companies (Amendment) Act, 2020 The Committee to Review Offences under the Companies Act, 2013 in its report dated August 2018 recommended that the penalties and imprisonment provisions with respect to sec 66 be retained. However, the legislature in its endeavour to decriminalize Companies Act, 2013 has vide Companies (Amendment) Act, 2020 omitted sec 66(11) which provided for penal consequences. By virtue of the 2020 Amendment, the defaults under sec 66 are now brought under the in-house adjudication mechanism under sec 454 and there are civil consequences to the noncompliance of sec 66.

8.3

MEANING AND SCOPE OF REDUCTION OF CAPITAL

Section 66 of the Companies Act, 2013 deals with the reduction of capital. It states as follows: “66. Reduction of share capital (1) Subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited by guarantee and having 8.2

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Reduction of capital

a share capital may, by a special resolution, reduce the share capital in any manner and in particular, may— (a) extinguish or reduce the liability on any of its shares in respect of the share capital not paid-up; or (b) either with or without extinguishing or reducing liability on any of its shares— (i)

cancel any paid-up share capital which is lost or is unrepresented by available assets; or (ii) pay off any paid-up share capital which is in excess of the wants of the company, alter its memorandum by reducing the amount of its share capital and of its shares accordingly: Provided that no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of this Act, or the interest payable thereon. (2) The Tribunal shall give notice of every application made to it under sub-section (1) to the Central Government, Registrar and to the Securities and Exchange Board, in the case of listed companies, and the creditors of the company and shall take into consideration the representations, if any, made to it by that Government, Registrar, the Securities and Exchange Board and the creditors within a period of three months from the date of receipt of the notice: Provided that where no representation has been received from the Central Government, Registrar, the Securities and Exchange Board or the creditors within the said period, it shall be presumed that they have no objection to the reduction. (3) The Tribunal may, if it is satisfied that the debt or claim of every creditor of the company has been discharged or determined or has been secured or his consent is obtained, make an order confirming the reduction of share capital on such terms and conditions as it deems fit: Provided that no application for reduction of share capital shall be sanctioned by the Tribunal unless the accounting treatment, proposed by the company for such reduction is in conformity with the accounting standards specified in section 133 or any other provision of this Act and a certificate to that effect by the company’s auditor has been filed with the Tribunal. (4) The order of confirmation of the reduction of share capital by the Tribunal under sub-section (3) shall be published by the company in such manner as the Tribunal may direct.

8.3

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(5) The company shall deliver a certified copy of the order of the Tribunal under subsection (3) and of a minute approved by the Tribunal showing— (a) the amount of share capital; (b) the number of shares into which it is to be divided; (c) the amount of each share; and (d) the amount, if any, at the date of registration deemed to be paidup on each share, to the Registrar within thirty days of the receipt of the copy of the order, who shall register the same and issue a certificate to that effect. (6) Nothing in this section shall apply to buy-back of its own securities by a company under section 68. (7) A member of the company, past or present, shall not be liable to any call or contribution in respect of any share held by him exceeding the amount of difference, if any, between the amount paid on the share, or reduced amount, if any, which is to be deemed to have been paid thereon, as the case may be, and the amount of the share as fixed by the order of reduction. (8) Where the name of any creditor entitled to object to the reduction of share capital under this section is, by reason of his ignorance of the proceedings for reduction or of their nature and effect with respect to his debt or claim, not entered on the list of creditors, and after such reduction, the company commits a default, within the meaning of section 6 of the Insolvency and Bankruptcy Code, 2016, in respect of the amount of his debt or claim,— (a) every person, who was a member of the company on the date of the registration of the order for reduction by the Registrar, shall be liable to contribute to the payment of that debt or claim, an amount not exceeding the amount which he would have been liable to contribute if the company had commenced winding up on the day immediately before the said date; and (b) if the company is wound up, the Tribunal may, on the application of any such creditor and proof of his ignorance as aforesaid, if it thinks fit, settle a list of persons so liable to contribute, and make and enforce calls and orders on the contributories settled on the list, as if they were ordinary contributories in a winding up. (9) Nothing in sub-section (8) shall affect the rights of the contributories among themselves. (10) If any officer of the company— (a) knowingly conceals the name of any creditor entitled to object to the reduction; 8.4

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Reduction of capital

(b) knowingly misrepresents the nature or amount of the debt or claim of any creditor; or (c) abets or is privy to any such concealment or misrepresentation as aforesaid, he shall be liable under section 447. 11) If a company fails to comply with the provisions of sub-section (4), it shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees.”

8.3.1 Meaning of reduction Reduction is the process of reducing the share capital of the company. Under the Act, the reduction of share capital is allowed only by following stringent conditions to ensure that share capital is not reduced by the company to the prejudice of the creditors. However, there are certain exceptions where the capital can be reduced without following the process contemplated under sec 66 of the Companies Act, 2013. These instances are specifically set out in the Act and are discussed herein below.

8.3.2 Applicability/non applicability of section 66 8.3.2.1 Only share capital Many provisions of the Companies Act, 2013, that were erstwhile applicable only to shares under the Companies Act, 1956, have been extended to all the securities. However, sec 66 is still applicable only in case companies having share capital. It is not applicable to a company limited by guarantee which does not have share capital. There is no specific provision for reduction of member’s interest in case of such companies and thus change including reduction in extent of members’ interest will have to be dealt in accordance with the constitutional documents of such companies that do not have share capital.

8.3.2.2 No application in mergers The provisions for reduction of capital are no longer applicable in the cases where reduction of capital is a part of a scheme for compromise and arrangement. [Explanation to sec 230(12)]. Section 230(12) as on 10th October 2018 is yet to be notifed.

8.3.2.3 Redemption Proviso to sec 55 provides that the redemption of preference shares under this section shall not be deemed to be reduction of the share capital of the company.

8.3.2.4 Court directed purchase in oppression and mismanagement The Tribunal has the power to direct purchase of shares by the company (sec 242(2)(c)) in matters of oppression and mismanagement with a view to provide relief to the aggrieved party. Section 66 is not applicable in those cases. 8.5

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8.3.2.5 Securities premium account The amount which is collected as premium on shares cannot be appropriated for any purpose other than those set out in sec 52 without following the procedure of reduction of capital. It may be noted that like the provision of reduction of capital, the restriction of appropriating the amount of securities premium is also applicable only to the shares.

8.3.2.6 Cancellation of unissued shares Section 61(1)(e) permits cancellation of shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled. So, basically it provides for cancellation of unissued capital which is shown in authorised capital but which is not taken up or promised to be taken up by any party.

8.3.3 Companies who can reduce capital Following companies are eligible for capital reduction: •

Company limited by shares;

•

Company limited by guarantee and having share capital.

8.3.4 Manner of reduction In the Companies Act, 2013, we will invariably ask the following questions:  Whether we will be able to reduce the share capital in the same manner, as we were able to reduce it earlier?  Are there any new ways of reducing capital contemplated in the Act?  Can we take benefit of the decisions under the old Act?

8.3.4.1 Whether we will be able to reduce the share capital in the same manner, as we were able to reduce it earlier? The Act provides complete freedom to the company to determine the mode of reduction of share capital by using the words "reduce the share capital in any manner". Companies can opt for reduction in capital in various ways like returning the excess capital, writing off the losses, separating a specific group of shareholders from the company (targeted reduction as discussed below in case of Sandvik Asia). Some of the modes of reduction are specified in the Act (in sec 66(1)). However, the Act does not restrict the reduction to those modes only. The company is given liberty to reduce the capital in any manner. The examples of different type of reduction are explained later in this chapter.

8.6

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Reduction of capital

8.3.4.2 Are there any new ways of reducing capital contemplated in the Act? Section 100 of the Companies Act, 1956 providess a wide latitude as regards the manner of reduction. Section 66 is equally wide. It does not contemplate any new methods of reduction of the share capital. However, like Section 100 of the old Act is is equally wide. In this chapter, we have given a case digest for reduction which shows that varierty of ways in which companies have reduced share capital. The Act however priovides additional provisions where share capital can be reduced at the behest of Tribunal without following the procedure of sec 66. For example, in class action or deregistration of the company, it is possible that the Tribunal may order for purchase of shares.

8.3.4.3 Can we take benefit of the decisions under the old Act? There are several decisions under the old Act wherein different types of schemes of reduction of capital are allowed. The benefit of the decisions can be taken as regards the types of reduction. For instance, in the Jubilant Clinsys Limited case (discussed in case digest of this chapter), NCLT has considered judgements of variety of High Courts while considering the scheme for reduction of preference share capital. However, as regards procedure, they have changed. There are certain limitations in placing reliance on old judgment for procedures to be complied for different types of schemes of reduction. For instance, sec 101(2) of the Companies Act, 1956, provided for cases wherein dispensation can be sought from complying with the detailed procedure of identifying creditors and settling their claims & objections. However, the said sub-section is deleted in the new Act. Only power to dispense certain requirement is seen in the Rules. This is in contrast to the old Act. Thus, the scope, extent and permissibility of dispensing with the procedures contemplated under sec 66 are still unclear. For instance, NCLT gereally does not consider reducing the 3 months period between admission of petition and final hearing. For instance, in Adata Technology India P limited (NCLT/MUM -CP/80/66/MB/MAH/ 2017), the application for early hearing before completion of 3 months was rejected. The cases where dispensation is given for different types of scheme of reduction (from complying with various procedure under 1956 Act) is thus being reconsidered in light of the Companies Act, 2013. Thus, applicability of cases like In Re: Rallis India Limited [IV (2005) BC 187 : 2005 (3) BomCR 618 : 2005 125 CompCas 268 Bom : (2005) 5 CompLJ 234 Bom : 2005 59 SCL 219 Bom] (which allowed dispensation from filing company summons for direction (company application)) with should be tested under the new Act.

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8.3.4.4 Types of reduction Extinguish or reduce the liability on any of its shares in respect of the share capital not paid-up Example: Each share of the company is of INR 10 each and the amount of INR 6 is paid up on each of this share category. Thus, INR 4 is the amount that every shareholders is liable to pay. The company by way of reduction, •

can reduce this liability from INR 4 per share to INR 3 per share by extinguishing the liability of INR 1 per share or

•

It can extinguish the liability of INR 4 per share and declare that the share will be of INR 6 each fully paid up.

Either with or without extinguishing or reducing liability on any of its shares cancel any paid-up share capital which is lost or is unrepresented by available assets; or Example: A company has a paid up capital of INR 1 lakh comprising of 10,000 shares of INR 10 each fully paid up. It has a loss in its books of accounts and intends to write off INR 40,000. The company in this case can reduce the paid -up capital to INR 6 per share by writing off INR 4 per share and make the shares INR 6 per share fully paid up. Either with or without extinguishing or reducing liability on any of its shares pay off any paid-up share capital which is in excess of the wants of the company, Example: If the company is cash rich and it does not have any profitable avenues to employ the cash available to it, it may decide to pay the shareholders a part of the capital. The company may have a capital of INR 10 Lakhs divided into 1 Lakh shares of INR 10 each fully paid up. It may decide to return INR 5 per share i.e. INR 5 lakhs and thereafter, its paid up capital will be INR 5 lakhs comprising of 1 lakh shares of INR 5 each fully paid up. The reduction can be done in any manner. There are no set rules for reduction. It can be a combination of one of the modes of reduction contemplated under section 66(1) or any other mode. Example 1: The Securities Premium Account (SPA) can be used for any purpose other than those set out in the sec 52 of the Act by following the provisions of sec 66. For instance, SPA used for setting off the losses shown in the balance sheet. Example 2: The subscribed, issued and paid up equity share capital of the ABC Ltd. will be reduced from INR 1 crore divided into 10 lakhs equity shares of INR 10 each to INR 60 lakhs divided into 6 lakhs equity shares of INR 10 each by cancelling and extinguishing the paid up equity share capital of INR 40 lakhs divided into 4 lakhs equity shares of INR 10 each. The said reduction shall be effected by cancelling and extinguishing the paid up equity share capital of INR 40 lakhs divided into 4 lakhs equity shares of INR 10 8.8

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Reduction of capital

each on proportionate basis 40% of the existing paid up share capital of the company and returning to shareholders an amount of INR 15 per equity share of INR 10 each so cancelled and extinguished at a premium of INR 5. Therefore, this shall mean that any shareholder who at the record date has 10 shares shall after reduction hold 6 shares of INR 10 each aggregating to INR 60, thereby cancelling and extinguishing the 4 shares and shall be paid INR 60 for such 4 shares at the rate INR 10 for each share that is cancelled and extinguished at a premium of INR 5. Example 3: The paid up equity share capital of the ABC Ltd. will be reduced from INR 1 crore divided into 10 lakhs equity shares of INR 10 each to INR 10 lakhs divided into 10 lakhs equity shares of INR 1 each by cancelling the paid up Equity Share Capital which has been lost or is unrepresented by available assets, to the extent of INR 9 per share upon each of the 10 lakhs equity shares which have been issued and by reducing the nominal amount of all the shares from INR 10 to INR 1 per share. There shall be no change in the number of shares and no. of shareholders consequent upon the reduction. Therefore, post reduction shall indicate that the paid up equity share capital of the company shall be reduced to INR 10 lakhs. The Shareholders holding 10 shares will continue to hold 10 shares but the value of the shares will now be INR 1 instead of INR 10. The said share capital that is reduced will be appropriated for cancelling the capital that is lost and unrepresented by available assets of the company. Example 4: Paying off any paid up share capital which is in excess of the wants of the company. The paid up shares capital of the company i.e. INR 1 crore divided into 1 lakh Equity Shares of INR 100 each, is in excess of want of the company. The reduction with regard to the face value of share was made from INR 100 to INR 2 per share by paying off INR 98 per share to the respective shareholders in cash/cheque. Thus, the company will have to pay an amount equal to INR 98 lakhs (i.e. INR 98 per share for 1 lakh equity shares). Therefore now the value of shares held by the shareholders aggregating to INR 2 lakhs (i.e. 1 lakh equity shares of INR 2 each) Example 5: A company has issue, subscribed and paid up capital of INR 1 lakh equity shares having a face value of INR 10 each, which the company intends to reorganise into 40,000 equity shares of INR 10 each fully paid up. The company can do the same by cancelling a sum of INR 6 from every paid up equity share of INR 10 and thereafter consolidating the equity shares to make each share of INR 10 each fully paid up. Thus, the number of shares in the company i.e. after reduction the capital of the company will be of 40,000 fully paid equity shares of INR 10 each aggregating to INR 4 lakhs. Example 6: In Sandvik Asia Limited v Bharat Kumar Padamsi and Ors. [2009] 92 SCL 272 The Division Bench of the Bombay High Court approved a resolution passed by Sandvik Asia Limited (“Company”) for reduction of capital under sec 100 8.9

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of the Companies Act, 1956 by cancelling the shares held by and making payment to, minority shareholders. The company had been de-listed from the stock exchanges with effect from September 9, 2002. The promoter shareholding in the company was 95.54% and the remaining 4.46% was held by the non-promoter minority shareholders. The company had proposed a resolution for reduction of its paid up equity share capital by paying off to holders of equity shares (other than promoter shareholders) an amount of INR 850 per share and extinguishing such shares in accordance with the provisions under sec 100 of the Companies Act, 1956. The question was raised in this case whether a company is free to choose its mode or extent of reduction of capital under sec 100 of the Companies Act, 1956 and whether the mode adopted in the present matter was fair to the minority shareholders. The Division Bench held that a company can reduce its capital in any manner under sec 100 of the Companies Act, 1956. Further, the Bench held that the only objection that needs to be addressed is whether it is unfair and inequitable to wipe out a class of shareholders i.e. non promoter shareholders. With regard to the issue of fairness the Division Bench relied on the decision of the Supreme Court in the case of Ramesh B. Desai which was based on the observation of the House of Lords in the case of British and American Trustee and Financial Corporation Limited v Couper [(1894) A.C. 399 (HL)] and in the case of Poole and Ors v National Bank of China Limited [(1907) A.C. 229 (HL)] which cases observed that: i. the statute does not prescribe the manner in which reduction is to take place, ii. that the policy of the legislations is to entrust with the majority, the right to decide whether there should be reduction of capital and how it should be carried out and lastly, iii. that the objection to the capital reduction was made by an insignificant number of shareholders who did not demand and had never demanded better pecuniary terms, and any insistence by them on retaining their holdings without substantiating their ground for the same, which in all reasonable probability can never bring any profit to them, may be detrimental to the company. One of the other contentions of the Respondents was as follows- “…This separate class meeting (in addition to the general meeting of all shareholders under sec 100 of the Companies Act, 1956) would be a minimum fairness requirement to ensure that the resolution affecting the shares of minority shareholders is not determined by the majority promoters, who though unaffected, would be able to decide the fate of the minority shareholder… Regarding the above contention the Division Bench supported the contention of the Appellant that: “Section 100 of the said Companies Act does not contemplate separate class meetings of distinct classes of shareholders of a company.” On the basis of the above and considering that the overwhelming majority 8.10

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Reduction of capital

of the minority shareholders had voted in favor of the reduction, the division bench held that it would not be justified in withholding the sanction to the reduction and allowed the appeal setting aside the order of the single bench. Thus, the companies are at liberty to use any mode of reduction that were previously used and also reduce share capital in number of new ways as courts have given wide amplitude to the word “in any way”. Some of the cases decided by NCLT’s give a brief glimpse of ways in which share capital can be reduce. Case digest for reduction of capital Court/Month. Name of case Year of Case/Relevant Provision (date of the decision) Brief law point covered NCLT/Mum/ 12.12.2017

Salgaocar Corporation (P) Ltd., CP 289/66/NCLT/MB/ Disproportionat e reduction of MAH/2017 share capital

NCLT/MUM/ 6.12.2017 CP/263/2017

Particulars

Petitioner was a closely held family company. In this case, there was a family settlement arrived at in pursuance of which it was agreed to selectively reduce shares of certain shareholders within the family. Thus, the Tribunal allowed reduction of a part of the issued, subscribed and paid up shares belonging to specified shareholders without consideration. The said cancellation of share capital was in accordance with the family settlement and consent terms which were arrived at between the family members in the Bombay High Court.

Highway Concession In this case the Tribunal approved reduction One Private Limited, in the amount of share capital as per the CP 263/2017 special resolution. The special resolution provided reduction from Rupees Fifty Four Crores Fifty Lakhs Fifteen Thousand and Thirty Rupees only consisting of 5,45,01,503 (Five crores Forty Five Lakhs one Thousand Five Hundred and Three) Equity shares of Rs.l0 (Rupees Ten) each fully paid up to Rs 45,73,55,250/- (Rupees Forty Five Crores Seventy Three Lakhs Fifty Five Thousand Two Hundred and Fifty only) comprising of 4,57,35,525 (Four Crores Fifty Seven Lakhs Thirty Five Thousand Five Hundred and

8.11

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Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered

Name of case

Chapter 8

Particulars

Twenty Five) Equity shares of Rs. 10 (Rupees Ten) each fully paid up. Further, there will be reduction in the securities premium account not exceeding Rs. 33,82,91,431 and payment of cash to the shareholders amounting to Rs. 42,58,51,211/-. The regional director had raised several objections which were duly responded by the Petitioner by giving necessary undertakings. For instance, as there were non-resident shareholder, the company undertook to compliance of FEMA Regulations and filing of Form FC-TRS pertaining to pay-out to foreign shareholders with RBI. In the special resolution an approximate value of reduction of Securities premium was mentioned which was a upper limit. It was clarified that in the minutes to order, the exact amount of utilisation of securities premium account was specified. NCLT/Mum/ 6.12.2017

Adata Technology In this case the issued, subscribed and paid up India (P) Limited, share capital of the Petitioner Company being CP/80/2017 Rs. 27,54,05,500/- (consisting of 2,75,40,550 Equity Shares of INR l0 each fully paid-up) was allowed to be reduced to Rs. 2,04,05,500 consisting of 20,40,550 Equity Shares of CP/80/2017 INR 10 each fully paid up) on account of cancellation of Equity Share Capital by paying off excess capital. Paying off excess capital The regional director had raised several objections which were duly responded by the Petitioner by giving necessary undertakings. For instance, in this case undertaking was given to comply with provisions of Income Tax Act. In this case both the director were Chinese Residents and the Petitioner Company undertook to comply with applicable provisions of Companies

8.12

Chapter 8

Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered

Reduction of capital

Name of case

Particulars

Act, 2013. The RD also questions the source of paying of the share capital to which the Petitioner company indicated, that it will be done from existing cash and cash equivalent. NCLT/MUM/ 16.11.2017 CP/227/2017 Reduction equity shares held by one shareholder

Intelenet Global Services Private Limited, CP/227/2017

In this case application was filed for confirmation of the special resolution for proposed reduction of share capital which would result in return of capital in excess of the requirements of the petitioner Company and would result in restructuring of its Balance Sheet. The reduction of capital in the manner proposed would enable the Petitioner Company to have a rational capital structure which is commensurate with its business and assets. Thus, in this case, reduction was approved to reduce the Issued, Subscribed and paid-up Equity Share Capital of the Company by cancellation / reduction of 2,299,379 (Twenty Two Lacs Ninety Nine Thousand Three Hundred and Seventy Nine) Equity Shares of Rs. 10/- each held by Indianet Bidco Pte Limited at a premium of Rs. 430.90 per share and the company would pay a sum of 1,013,796,201.10 (Rupees One Hundred One Crore and Thirty Seven Lacs Ninety Six Thousand Two Hundred One and paise Ten only ) to Indianet Bidco Pte. Limited for the aforesaid reduction of capital Thus, resultantly, the issued, subscribed and paid share capital of the Petitioner Company was reduced from Rs. 930,333,040/- to Rs. 907,339,250/- (divided into 90,733,925 Equity Shares of Rs. 10/- each) on account of cancellation of Equity Share Capital. Further, the Securities Premium Account of the Petitioner Company was reduced to Rs. 6,935,588,688.90/- from Rs. 7,926,391,100/-.

8.13

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered NCLT/MUM/ 3.11.2017

NCLT/Mum/ 27.9.2017 Reduction 8.14

Name of case

ACF Arts Properties Limited, NCLT/MUM/ 3.11.2017

Chapter 8

Particulars

and In this case, it was decided by the shareholders P to reduce share capital from Rs.10,80,000/(Rupees Ten Lakhs Eighty Thousand only) consisting of fully paid up 10,800 Equity shares of Rs. 100/ (Rupees Hundred) each to Rs. 42,000/- (Rupees Forty-Two Thousand only) consisting of fully paid up 420 Equity shares of Rs. 100/- (Rupees Hundred) each, without making any payment to equity shareholders for the equity shares so cancelled and extinguished. The shareholders whose shares are cancelled shall be those whose names appear in the register of members of the Company, as on 31st March, 2016 and shall specifically exclude those shares that are issued and allotted post 31st March, 2016. The amount equivalent to the amount of share capital so reduced shall be credited to the Capital Reserve Account. It is observed that the cancelled shares belong to individuals of the same family and it's their decision to reduce the Share Capital. Thus, in this case the Tribunal allowed selective extinguishment and cancellation of 10,380 (Ten Thousands Three Hundred and eighty) fully paid up equity shares of a 100/ - (Rupees Hundred) each held by Ajit Singh, Jasjit Singh and Jasjit Singh HUF having an aggregate paid up value of Rs. 10,38,000/- (Rupees Ten Lakhs Thirty-Eight Thousand). The amount of share capital so reduced would be credited to capital reserve in the books of the company at the time of giving effect to the capital reduction.

A2Z Online Services Private Limited, NCLT/Mum/27.9.20 of 17

In this case, the Petitioner company wanted to cancel upto a maximum of 1,030,000 equity shares of Rs. 10/- each out of the existing paid up equity share capital of Rs. 10,420,730/-

Chapter 8

Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered selective shareholding held by shareholder who have acquired shares before a particular date

NCLT/MUM/ 23.8.2017 CP 33 of 2017

Reduction of capital

Name of case

Particulars

divided into 1,042,073/- equity shares of Rs. 10 each and such reduction was proposed to be effected by cancellation of equity share capital without making any payment to equity shareholders against the equity shares so cancelled and extinguished. The shareholders who were entitled to such cancellation were those whose names appeared in the register of member of the company on the date prior to 31st March 2017. It however specifically excluded shares held by Premsagar Infra Realty Pvt Limited and those shares which are issued and allotted post 31st March 2017. The amount equivalent to the share capital so reduced was to be credited to Capital Reserve Account. The said reduction was allowed. Kolon Investments In this case, it was proposed to reduce paid up Private Limited, CP equity share capital of the company of 33 of 2017 Rs. 1,52,00,000/- not by way of diminution in the par value per share but by way of cancellation of equity shares held by the equity shareholders as enlisted in Annexure 1 of that Petition and pursuant to receipt of their respective consents for cancellation of equity shares; against each shares cancelled by the Petitioner Company, it was proposed to provide the respective shareholders with debt receipts as per terms provided in Annexure – 2 of the Petition. Such capital reduction will be adjusted against the profit and loss account and consequently issued, subscribed and paid up capital of the company is hereby reduced from 2,77,60,000 divided into 27,76,000 equity shares of Rs. 10/- each fully paid to rs.1,25,60,000/- divided into 12,56,000 equity shares of Rs. 10/- fully paid. The Tribunal allowed the said reduction whereby paid-up equity share capital consisting of 15,20,000 8.15

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Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered

Name of case

Chapter 8

Particulars

equity shares of Rs.10/- each of the Company was reduced by providing debt receipt equivalent to 2% of face value of equity shares that were to be cancelled. NCLT/MUM/ Archroma India Tribunal allowed the company to reduce its 16.8.2017 Private Limited, capital from 2,68,035 comprising of 2,68,035 shares of Rs. 1/- each to Rs.1,84,015/- divided CP/357 of 2017 CP/357 of 2017 into 1,84,015 equity shares of Rs. 1 each. The securities premium account amounting to Rs. 49,99,19,000/- pursuant to capital reduction. Thus, pursuant to capital reduction there would be a payment of cash amounting to Rs. 50,00,03,020 to the shareholders of the company. NCLT/Mum/ 22.6.2017 CA/2/2017

NCLT/CAL/ 11.1.2018

Petronet India In this case the share capital of the company Limited, CA/2/2017 was reduced from 100 crore divided into 10 crore shares of 10 rupees each to 1 crore rupees share divided into 10 crore equity shares of RS. 0.1/- each. The reduction is effected by paying off/returning paid up share capital to the extent of Rs. 9.90/- per share.

Arjun Associates In this case, one of the shareholders (NK) had Private Limited, purchased shares at a premium for CP/355/KB/2017 consideration other than cash (being paintings and sculptures). In a settlement arrived by the CP/355/KB/201 shareholder with the Income Tax Settlement 7 Commission he had agreed to cancel the share purchase and treat the transaction as null and void. The company also consented to the cancellation of shares of NK. Thus, it was decided the approach the Tribunal (a) for reduction of capital by cancellation of the said share capital held by NK (b) reduction in the amount of securities premium account to the extent of the premium considered for this share transaction of NK. Thus, in accordance with the direction of the IT Settlement 8.16

Chapter 8

Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered

Reduction of capital

Name of case

Particulars

Commission, the application was filed for seeking approval of the Tribunal for reduction of capital and the same was confirmed. NCLT/Chd/ 17.1.2018

Saraswati Packaging Industries Pvt. Ltd., CP/146/Chd/Hry/20 CP/146/Chd/Hr 17 y/2017

In this case, the Applicant company was a Pvt. Ltd. Co. with an authorised share capital of ₹75 lakhs divided into 75000 equity share of ₹100/each. The company proposed to reduce the fully paid up equity share capital of the company from ₹55,96,000/- (Rupees Fifty Five Lacs Ninety Six Thousands) divided into 55960 equity shares of ₹ 100/- each to ₹26,01,000/- (Rupees Twenty Six Lacs One Thousand Only) divided into 26010 equity shares of ₹100/- each fully paid and simultaneously issue equivalent to 6% noncumulative redeemable preference shares of ₹100/- each to the holder of equity share capital by the amount of which their capital has been issued. The reduction was confirmed.

NCLT/Mad/ 12.1.2018

In this case, the Petitioner company sought reduction/cancellation of Compulsorily Convertible Preference Shares of Rs.100/each held by the CCPS holders at a premium of INR 10,539.77 per share. The company offered a consideration of INR 4,45,48,717/at a price of INR 10,639.77 per share which included a premium of INR 10,539.77 per share to the CCPS holders for the aforesaid reduction of capital subject to the payment of taxes as may be applicable. In this case, RD had raised several objection which were duly responded. One objection was that CCPS can be converted into equity shares and that it cannot be redeemed at a premium and thus the scheme is against the terms of agreement which were framed at the time of issuance of CCPS. However, it was argued that as all

Cloudcherry Analytics Private Limited, CP/20/66/2017 CP/20/66/2017

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Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered

Name of case

Chapter 8

Particulars

shareholders have agreed to this reduction, there cannot be any valid objection to their misusing their right to modify the terms of the issuance of the CCPS. Another objection was with respect to the premium being paid on the CCPS. However, the Petitioner company had clarified that the premium per share was the same as was received from CCPS holders at the time of their issuance. The company further clarified that no creditors have raised any objection to the said scheme and other shareholders have also approved the reduction. Thus, this objections was also duly responded by the Petitioner Company. Accordingly, NCLT approved the reduction. NCLT/ALL/ Jubilant Clinsys 7.7.2017 Limited, CA/94/ALL/20 CA/94/ALL/2016 16

8.18

In this case the Petitioner company has two types of optionally convertible noncumulative redeemable preference shares. The company wanted to reduce share capital by extinguishing these preference shares. The same was to be effected by making payment to the preference shareholders. In this RD had raised objections. One of the objections was as regards compliance of FEMA/RBI guidelines as applicant company was WOS of a foreign company. Company gave an undertaking to this effect. In this case, NCLT considered a series of high court judgements like Elpro International Ltd (Bom HC), Hindustan Commercial Bank Ltd (Cal HC), Panruti Industrial Co. Limited (Mad HC), Reckitt Benckiser (India) Ltd (Del HC) as regards approval of reduction of capital. NCLT approved the reduction wherein all the preference share capital of the company was cancelled by paying of the preference shareholders.

Chapter 8

8.4

Reduction of capital

RESTRICTIONS/CONDITIONS FOR REDUCTION

There are few changes in the law on reduction. Certain additional conditions are inserted and many of the previous conditions have been retained.

8.4.1 Default in payment of deposits Companies that are defaulting on repayment of deposits have been disallowed from reducing the share capital. “66(1) ….Provided that no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of this Act, or the interest payable thereon.”  The default may be with respect to deposits that are accepted under the Companies Act, 2013 (as defined in the new Act read with the rules issued thereunder) or accepted under the Companies Act, 1956 (as defined in the old Act read with rules issued thereunder).  The said proviso is applicable to the entire section. It is thus applicable to any type of reduction even if it does not involve repayment of capital or extinguishment of liability. The company cannot even reduce the capital that is lost or unrepresented by its assets.  The restriction continues only so long as the deposits or interest thereon are in arrears. If the arrears are cleared, then the company can reduce its capital thereafter.

8.4.2 Notice to authorities (Section 66(2)) The Companies Act, 2013 calls for the views of statutory authorities on reduction of capital before the Tribunal permits such reduction. The statutory authorities have a say in the reduction process. If they find that reduction is for any collateral purpose or for defeating any provisions of any Act, they may object to the reduction. The Tribunal is required to give the notice to • The Central Government, • ROC; • SEBI( for listed company); The authorities and the creditors have a period of 3 months from the date of receipt of the notice, to make their representation and to raise objections. If no representation is received from the aforesaid entities, it shall be deemed that there is no objection to the reduction.

8.4.3 Auditors certificate Section 66(3) requires that company should provide an auditor’s certificate: “(3) The Tribunal may, if it is satisfied that the debt or claim of every creditor of the company has been discharged or determined or has been 8.19

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secured or his consent is obtained, make an order confirming the reduction of share capital on such terms and conditions as it deems fit: Provided that no application for reduction of share capital shall be sanctioned by the Tribunal unless the accounting treatment, proposed by the company for such reduction is in conformity with the accounting standards specified in section 133 or any other provision of this Act and a certificate to that effect by the company’s auditor has been filed with the Tribunal.” This section places the following conditions on the company:  The company in its application for reduction must set out that the accounting treatment is in accordance with the accounting standards.  It should be certified by the auditors that the proposed accounting treatment is in conformity with the accounting standards specified in sec 133 and other provisions of the Act.  Thus, the company must attach the auditor’s certificate certifying the treatment to the accounts.

8.5

APPROVALS FOR REDUCTION

For reduction to be effected, the approval of the shareholders and Tribunal is necessary.

8.5.1 Approval from shareholder Like the Companies Act, 1956, a special majority must approve the decision for reduction of capital.

8.5.2 Approval from Tribunal The Tribunal has to approve the reduction of capital for it to be effective. While passing an order the Tribunal shall inter alia take into consideration the following aspects: • Representation made by the creditors, statutory authorities and the company; • Whether the creditor’s interest is protected. For this, it may check whether debt of every creditor is discharged or determined or has been secured or his consent is obtained; • Accounting treatment is in accordance with the Accounting Standards. The order granting reduction may be made by the Tribunal subject to such terms and conditions as the Tribunal deems fit. Under this clause, wide powers are given to the Tribunal to ensure that the interest of creditors is protected. For instance, the Act has deleted the mandate of inserting the words "and reduced" to the name of the company reducing its capital. However, the Tribunal may require the company to insert the said statement for some time. It may make provisions to safeguard the interest of creditors. 8.20

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Reduction of capital

If any creditor or authority objects to the reduction, the Tribunal has to ensure that the interest of every person is taken into consideration. The order of confirmation of the reduction of share capital needs to be published in the manner as may be directed by the Tribunal.

8.6

LIABILITY OF MEMBERS

A member of the company, past or present, shall not be liable to any call or contribution in respect of any share held by him exceeding the amount of difference, if any, between the amount paid on the share, or reduced amount, if any, which is to be deemed to have been paid thereon, as the case may be, and the amount of the share as fixed by the order of reduction. Illustration: If the shares of INR 10 fully paid up are converted to shares of INR 5 fully paid up, then the member will not be liable to pay any further amount.

8.6.1 Unpaid creditors-liability of members If a debt of a creditor whose name is not entered in the list of creditors remains unpaid and the company commits a default in payment of debt within the meaning of sec 6 of Insolvency and Banktruptcy Code, 2016, then in such a case, the members will be liable to pay the debt. The liability is limited to the amount which the member would be otherwise liable to pay in the event of winding up. Even if the company is wound up, the calls can be made on members.

8.7

FRAUD ON CREDITORS

An officer shall be liable for fraud in the following events: • knowingly conceals the name of any creditor who is entitled to object to the reduction; • knowingly misrepresents the nature or amount of the debt or claim of any creditor; or • abets or is privy to any such concealment or misrepresentation as aforesaid, Penalty has significantly increased. Under the Companies Act, 1956, it was imprisonment upto one year or fine or both. Now, it has become non compoundable. Under the Companies Act, 2013, officer in default shall be liable for fraud (which is a cognizable offence) and with imprisonment ranging from six months to ten years and fine which may extend upto three times the amount involved in fraud.

8.8

PROCEDURE FOR REDUCTION OF SHARE CAPITAL

The procedure for reduction is set out in National Company Law Tribunal (Procedure for reduction of share capital of Company) Rules, 2016 [“RSC Rules”] effective from December 15, 2016. The rule numbers mentioned herein are from the RSC Rules. 8.21

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Secton 66 of the Companies Act, 2013 has changed, consequential changes have been made in the RSC Rules also. Thus the corresponding procedure itself has been changed. For instance, under the old Act, there was a provision for seeking dispensation from the long procedure of reduction in few instances, which were set out in sec 101(2) of the old Act. There is no sub section which corresponds to this section in the new Act and its corresponding rules. Another instance is where the provision in the old Act for adding the term “and reduced” is deleted in the new Act. However, the reference to this term can be seen only in the Form No. RSC – 6 (Order of the Tribunal) and nowhere else.Thus, power of the Tribunal to do the same in absence of corresponding section in the Act can be questioned. In the author’s view, as the powers under sec 424(2) (h) allow government to notify additional powers to be granted to Tribunal. Under this powers, the Central Government has allowed the power to dispense and power to impose conditions like directing to use the words “and reduced”. 1. Send notices to directors to hold board meeting as per sec 173(3) for considering reduction of capital. Every officer of the company who is duty bound to give notice and who fails to do so, shall be liable to a penalty of INR 25,000 under sec 173(4). 2.

Hold Board Meeting. Inter alia following points can be considered: • Approve the scheme of the reduction of share capital, if any or the draft resolution for reduction. • Take on record Notice, Agenda and decide date, venue, time and address of the general meeting. • Authorize any person to do all acts, deeds, matters, and things that may be necessary to carry out the reduction of capital. 3. The Reduction under sec 66 of the Act may be effected in any manner as contemplated under sec 66(1). 4. Issue notice in terms of sec 101 in writing or through electronic mode at least 21 clear days before the meeting. The notice proposing the special resolution will be sent alongwith suitable explanatory statement. Explanatory statement will be prepared in terms of sec 102. No specific reference in made in the Act or rules about the contents of the said statement and thus, information necessary to take a reasoned decision should be given.

5. Hold general meeting and pass special resolution with 3/4th majority. [Section 114(2)] 6. File Form No. MGT 14 within 30 days of holding of the general meeting with the registrar of companies after the payment of requisite fees. [Section 117(3)]. 7. If default is made in complying with aforesaid requirement of filing form MGT14 before the expiry of the prescribed period, the company shall be liable to pay additional fees under sec 403. The company after the grace period of 270 days shall be liable for punishable with fine which shall be not less than INR 5 lakhs but which may extend to INR 25 lakhs and every officer of the company who is 8.22

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in default, including liquidator of the company, if any, shall be punishable with fine which shall not be less than INR 1 lakh but which may extend to INR 5 lakhs. [Section 117(2)] 8. File an application in Form No. RSC 1 to confirm a reduction of share capital along with the prescribed fees of Rs. 5000/- [Rule 2(1)] 9. The application shall be accompanied inter alia with the following documents [Rule 2(2)]: • The list of creditors duly certified by the Managing Director or in his absence by the two directors, as true and correct, which is made on a date not earlier than fifteen days prior to the date of filing of an application showing the details of the creditors of the company, class wise indicating their names, addresses and amount owned to him. • Declaration by a director of the Company to the effect that the Company is not in arrears in the repayment of deposits or the interest thereon on the date of filing application. • Certificates of auditor to the effect that: − List of creditors is correct; − Company is not in arrears in the repayment of deposit and interest thereon, on the date of filing the application; and − Accounting treatment proposed by the company for reduction of share capital is in conformity with the Accounting standards 10. The Tribunal shall serve notice or direct that notice to be served to the Central Government, Registrar of Companies, to the Securities and Exchange Board of India, in case of listed companies, in Form No. RSC - 2, and to the creditors in Form No. RSC –3 seeking their representations and objections, if any, within 15 days of the submission of the application. [Section 66(2) read with rule 3]. The Tribunal may dispense with the requirement of giving notice to the creditors or publication of notice, if every creditor has been discharged or secured or given his consent.[Rule 3(6)]. 11. The notice to the creditors shall be sent, within 7 days of the direction given by the Tribunal or such other period as may be directed by the Tribunal to each creditor, whose name is entered in the list of creditors submitted by the company. The notice shall state about the presentation of the application and the amount of the proposed reduction of share capital and the amount or estimated value or the debt or the contingent debt or claim or both for which such creditor’s name is entered in the said list and the time within which the creditor may send his representations and objections. [Rule 3(2)] 12. Advertisement of notice: Tribunal shall also give directions for the publication of the notice. Notice shall be advertised in Form No. RSC - 4 within 7 days from the date on which such directions are given in English language in a leading English newspaper and a leading vernacular language newspaper both having 8.23

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wide circulation in the State in which the registered office of the company is situated or such newspapers as may be directed by the Tribunal and for uploading on the website of the company, if any, seeking objections from the creditors and intimating about the date of hearing. [Rule 3(3)]. 13. The company or the person who was directed to issue notice and the publication in the newspaper shall, as soon as may be, but not later than 7 days from the date of issue of such notices, file an affidavit in Form RSC – 5 confirming the dispatch and publication of the notice. [Rule 3(5)] 14. Representation by ROC, SEBI and creditors shall be sent to NCLT within 3 months of receipt of notice and copy of which shall also be sent to the company. If no such representation has been received by the Tribunal within the said period, it shall be presumed that they have no objection. [Rule 4] 15. Company shall send the representation or objections so received alongwith responses thereto within 7 days of expiry of period upto which objections were sought.[Rule 5(1)] 16. Proceedings at the hearing of company application [Rule 5 & 6]: • The Tribunal may hold any enquiry on adjudication of claim and/or give direction for securing the debts of the creditors. • At the hearing of the application, the Tribunal may give such directions as may deem proper with reference to securing the debts or claims of creditors who do not consent to the proposed reduction, and the further hearing of the application maybe adjourned to enable the company to comply with such directions. 17. After hearing the parties concerned, the Tribunal may pass an order confirming the reduction of share capital and approving the minute in Form No. RSC- 6. Such order may also include such directions or terms and condition as the Tribunal deems fit. [Rule 6(1) & 6(2)].. 18. The company shall deliver to the registrar within 30 days of the receipt of order [Section 66(5)]:  Certified copy of the order;  Minute approved by the Tribunal. 19. The company shall deliver a certified copy of the order of the Tribunal under section 66(3) and of minute approved by the Tribunal to the ROC and file Eform INC-28 within 30 days of the receipt of order. The ROC shall issue a certificate to that effect in Form RSC-7 20. Subsequent to reduction, alter the Memorandum of Association or other papers and documents as may be required. 21. If the company makes any default regarding altering the memorandum such company and every officer in default shall be liable to a penalty of INR 1,000 for every copy of the memorandum issued without such alteration. [Section 15(2)] 8.24

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22. In accordance with the approved reduction, the company can refund capital, endorse share certificates or do any other thing as per the scheme/resolution of reduction. 23. Complete formalities of SEBI and stock exchange in case of listed share capital.

8.9

ADDITIONAL IMPORTANT DETAILS

8.9.1 Role of Tribunal (a) Tribunal upon receipt of application under sec 66(1) shall give notice of such application to: •

The Central Government;

•

Registrar;

•

Securities Exchange Board (In case of listed company);

•

Creditors.

(b) The recipient of such notice can also make representation within the period of three months from the date of receipt of such notice. (c) If received within the said period the representations made shall be considered by the Tribunal otherwise it shall be presumed that no such representation is made. (d) The Tribunal under sec 66(3) may make an order upon satisfaction that the debts or claims of every creditor of the company has been discharged or determined or has been secured or his consent is obtained. (e) No sanction of scheme unless the certificate by company’s auditor stating the complying of reduction with the as specified in section 133 or any other of the act under sec 66(3).

8.9.2 What does the list of creditor contain? There is no format for list of creditor (as was provided in the old Company ( Court) Rules). However, the RSC Rules provides the details that need to be covered: i. the list of creditors should be duly certified by the Managing Director, or in his absence, by two directors, as true and correct, ii. It should be made as on a date not earlier than fifteen days prior to the date of filing of an application iii. It should provide the details of the creditors of the company, class-wise, indicating their names, addresses and amounts owed to them;

8.9.3 Contents of petition 1. The application should state that the reduction will not affect the capacity of the company in satisfying the debts and the claims of every creditor of the company 8.25

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and at the time pf making an application to tribunal the Company has either discharged or determined or secured or obtained consent for, satisfaction of the debts and claims of the creditor. [a interpretation of sec 66(3)] 2. A certificate by company auditor should also be filed with the Tribunal indicating such reduction is in conformity with the accounting standards specified in sec 133 or any other provision of this Act.[Section 66(3)] 3. Form of minute proposed to registered should be set out in the application. 4. The list of creditors duly certified by the Managing Director or in his absence by the two directors, as true and correct, which is made on a date not earlier than fifteen days prior to the date of filing of an application showing the details of the creditors of the company, class wise indicating their names, addresses and amount owned to him. 5. Declaration by a director of the Company to the effect that the Company is not in arrears in the repayment of deposits or the interest thereon on the date of filing application. 6. Certificates of auditor to the effect that: • Company is not in arrears in the repayment of deposit and interest thereon, on the date of filing the application; and • Accounting treatment proposed by the company for reduction of share capital is in conformity with the Accounting standards. 7. Latest audited report of auditors with latest audited/unaudited financial statements depicting financial position of the company should also be attached. 8. Resolution for reduction should be attached with necessary documents evidencing the passing of the resolution. 9. Board resolution authorizing the person to file.

8.9.4 Contents of minutes (a) Name of the Company (b) amount of reduced share capital and its corresponding number of shares and value of each share; (c) Before reduction: amount of share capital and its corresponding number of shares and value of each share; (d) Total number of issued shares at the time of registration of the minute and distinctive number of such shares;

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8.10 COMPARISON CHART ON REDUCTION OF SHARE CAPITAL

8.10.1 Comparison of New Act (Companies Act, 2013) with Old Act (Companies Act, 1956) Particulars

New Act

Reduction of Share 66(1) Capital

Old Act

Remarks

100(1) &101(1)

• CourtTribunal. • Under new Act, the ‘authorisation by articles’ is deleted. Thus, no specific clause necessary in article for permitting reduction. • Also, a new pre-requisite i.e. no such reduction shall be made if the company is in arrears in repayment of any deposit accepted and interest payable thereon.

Manner of Reduction

Notice of application to made to various authorities & opportunity to oppose

66(2)

-

Newly inserted to safeguard interest of Government authorities.

Consideration by Tribunal before passing order

66(3)

102(1)

• Drafting Change. • CourtTribunal. • A new proviso stating that the reduction should be in conformity with the accounting standards specified in sec 133 and certificate to that effect must be filed by the company auditor to the Tribunal.

Publication of Order

66(4)

103(3)

Inserted in modified format.

ROC filing

66(5)

103(1)(b) • CourtTribunal. • Delivery of the order and minute shall be within 30 days of the receipt of the order by the company. Manner of filing and certification and • their implications changed.

Buy Back

66(6)

-

• Newly inserted.

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Particulars

New Act Old Act

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Remarks • How even under old Act provision for reduction were not applicable to buy back.

Liability of Members

66(7) ,(8) 104 & (9)

• Minute of reductionOrder of reduction. • CourtTribunal. • Rest of the provisions are similar.

Penalty

66 (10)

105

• Penalty enhanced. • Deemed to be fraud.

Non-compliance with order of Tribunal

66(11)

-

Newly inserted.

8.10.2 Comparison of Old Act with New Act Particulars

Old Act

New Act

Remarks

Special Resolution for Reduction of Share Capital Manner of Reduction

100(1)

66(1)

• CourtTribunal. • Under new Act, the ‘authorisation by articles’ is deleted.

Nomenclature of 100(2) resolution

-

• Deleted. • No significant impact.

Application to 101(1) court for confirming order

66(1)

Similar provision.

Non applicability 101 (2) of procedure

-

• Deleted. • Section 101(2) provided instance where the long procedure for reduction was not required to be complied. This clause is removed. • However, this has to be tested in Tribunal.

Exemption from 101(3) long procedure involving creditors

-

• Deleted. • Section 101(3) empowered Tribunal to dispense with long procedure for reduction in certain situation where it deems fit. This clause is removed.

8.28

Chapter 8

Particulars

Reduction of capital

Old Act

New Act

Remarks

Order 102(1) Confirming reduction and powers of Court on making such order

66(3)

• Drafting Change. • CourtTribunal. • A new proviso stating that the reduction should be in conformity with the accounting standards specified in sec 133 and certificate to that effect must be filed by the company auditor to Tribunal.

Insertion the term “any reduced” to the name of the company.

102(2)

-

No section under act

Period to use the 102(3) term “any reduced”

-

Deleted.

Registration of 103(1)(a) order and minute of reduction Production of order to ROC

-

Deleted.

ROC filing and ROC certification

103(1)(b)

66(5)

• CourtTribunal. • Delivery of the order and minute shall be within 30 days of the receipt of the order by the company. • Certificate provided by ROC is not a conclusive proof about the propriety of the reduction procedure.

When order confirming reduction will take effect

103(2)

-

No time provided when the reduction to take effect in new Act. Thus, will take effect from the date of the order by Tribunal allowing reduction.

Publication of Notice of Registration

103(3)

-

Deleted.

Certification

103(4)

66(5)

• Certificate provided by ROC is not a conclusive proof about the propriety of the reduction procedure. • Provision substantially changed.

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NCLT and NCLAT Law Practice and Procedure, 7e

Particulars

Old Act

Chapter 8

New Act

Remarks

Deemed Change 103(5) in Memorandum of Association

-

• Deleted. • The scheme of reduction should contain a provision that the order shall be deemed to be an approval for change in share capital clause of memorandum of association.

Alteration of Memorandum

103(6)

-

• Deleted. • Necessary orders should be sought from Tribunal to make alteration to memorandum or resolution be passed after the reduction of capital.

Liability of members in respect of reduced shares

104

66 (7), (8), • Minute of reductionOrder of (9) reduction. • CourtTribunal.

Penalty for 105 concealing name of creditor, etc.

66(10)

Punishment under the said section has been substituted by fraud from imprisonment which may extend to 1 year or with fine or with both.

8.10.3 Comparison of New Rules with Old Rules The new rules have changed quite significantly in line with the change in law. Thus, a rule by rule comparison was not feasible.

8.10.4 Comparison of Old Rules with New Rules The new rules have changed quite significantly in line with the change in law. Thus, a rule by rule comparison was not feasible.

8.10.5 Corresponding forms as per New Act Forms Particulars

Petition/Application to Confirm Reduction of Share Capital Summons for Direction/Notice of Admission Order upon Summons/ Notice of Admission List of Creditors

8.30

As per Old Act (Company Court Rules) Form No. 18

As per New Act (RSC Rules issued in December 2016) Form No. RSC -1

Form No. 19

-

Form No. 20

-

Form No. 21

-

Chapter 8

Reduction of capital

Forms Particulars

As per Old Act (Company Court Rules) Affidavit verifying List of Creditors Form No. 22 Notice to creditors Form No. 23 Advertisement of the Petition or List of Form No. 24 Creditors Affidavit of Proof of Service Form No. 25 Statement/Affidavit by company as to Form No. 26 the result of Rule 52 and 53(old act)/ 117 and 118(new Act) Notice to creditor Form No. 27 Proof of debt by creditor Form No. 28 Notice of the hearing of petition/ Form No. 29 Application Order Confirming the reduction of Form No. 30 Capital and approving of Minute Form of Minute Form No. 31 Notice of registration of the order and the minute

8.11 (a)

Form No. 32

As per New Act (RSC Rules issued in December 2016) Form No. RSC 3 Form No. RSC 4 Form No. RSC 5 Form No. RSC 6 Form No. RSC 6 Schedule Form No. RSC 7

FURTHER READING Section 66 commentary from A Ramaiya, Guide to the Companies Act, Eighteenth Edition, LexisNexis;

(b) Section 100 to 105 of 1956 Act of A Ramaiya, Guide to the Companies Act, Sixteenth Edition, 2010, Wadhwa & Company; (c)

Dr. K. R Chandratre, Corporate Restructuring, Law, Practice & Procedures, 2nd Edition 2010, Bharat's;

(d)

K. R. Sampath, Law And Procedure For Mergers, Amalgamations, Takeovers & Corporate Restructure, Snow White.

8.31

NCLT and NCLAT Law Practice and Procedure, 7e

8.32

Chapter 8

Chapter 9

Deposits: Delays and Defaults 9.1

INTRODUCTION

The law on deposits is quite distinct under the Companies Act, 2013 as compared to the Companies Act, 1956. The new Act has introduced significant changes through notifications, circulars and rules. This chapter focuses on remedies in cases of nonrepayment of deposits, extension of time and the instances and consequences where the company is not able to pay. It further looks at the options like class actions that are available to depositors who are aggrieved by the acts/omissions of the company which hurt their rights as depositors. Many of the provisions with respect to deposits have been notified to safeguard depositors’ interest. NCLT is empowered to deal with the grievances of the depositors under the Companies Act, 2013. However, as the time of notification, NCLT was not operational. Thus, Company Law Board (CLB) was empowered the power to decide the issue of repayment and deferment of payments until the constitution of NCLT. The provisions regarding deposits have been significantly modified under the new Act. This is in light of the various Ponzi schemes which have been discovered in the past. Many scams and frauds were discovered earlier but now, the Companies Act, 2013 has placed stringent restrictions on acceptance of deposits and non-repayment.

9.2

OVERVIEW OF CHANGES

9.2.1 The Banning of Unregulated Deposit Schemes Act, 2019 A new law has been introduced in February 2019 to ban unregulated deposit schemes and to protect the interests of depositors. This law inter alia excludes the deposits that are accepted under the provisions of Chapter V of the Companies Act, 2013 from the rigours of this Act. However, the law provides that all unregulated deposit schemes are banned. Thus, if the deposits are accepted contrary to the provisions of Companies Act, 2013, it is possible that they will be hit by this Act and in that event the regulator which is the Ministry of Corporate Affairs is then entitled to initiate criminal actions against such companies. The law further provides that no deposit taker, while accepting deposits pursuant to a Regulated Deposit Scheme (which includes deposits accepted under Chapter V of the Companies Act, 2013), shall commit any fraudulent default in the repayment or return of deposit on maturity or in rendering any specified

9.1

NCLT and NCLAT Law Practice and Procedure, 7e

Chapter 9

service promised against such deposit. Thus, an additional safeguard is created for the protection of depositors. 9.2.2

Bar on acceptance of deposits

The Act places a blanket bar on invitation, acceptance or renewal of deposits by any company except in accordance with the norms specified in Chapter-V dealing with deposits.

9.2.3 Provisions discontinued The Act has removed the concept of small deposits. Under the old Act, nonrepayment in certain cases was a cognizable offence. These provisions are discontinued in the new Act. However, the amended sec 212 provides that if fraud is found in acceptance, renewal or repayment of deposits, it will be considered as a cognizable offence.

9.2.4 Acceptance from members Acceptance of deposits from members by any company (private as well as public) can be made only if it is approved in a General Meeting. It cannot be done without complying with the numerous requirements specified in this regard including issuance of circular. However, vide notification dated 5 June 2015 as amended by notification dated 13 June 2017 and corrigendum dated 13 July 2017, the provision of section 73(2)(a) to (e) are not applicable to provide companies which fulfils the terms set out in the said notifications.

9.2.5 Default in payment Default in payment of deposits whether accepted under the old Act or new Act will make the company and its officer liable for various civil and criminal liabilities.

9.2.6 Fraud The concept of fraud on depositors is introduced in the Act and stringent penalties are provided for that.

9.2.7 Class action The depositors are empowered to file class-action suit. The details of the class suit are covered in the chapter dealing with remedies for investors.

9.3

OVERVIEW OF LAW ON DEPOSITS

The law on deposits is evolving, thus a chart has been inserted below to note the applicable circulars and sections and their current status. This is to ensure that we are discussing the law as it stands -

9.2

Chapter 9

Deposits: delays and defaults

Section/Rules/Circular/ Notification Section 2(31)

Particulars

Remarks

Definition of deposit

Notified on 1 April 2014

Sections 73 & 76

Acceptance of deposits from public

Notified on 1 April 2014

Section 74(1)

Repayment of deposits accepted before commencement of this Act

Notified on 1 April 2014 Notified on 6 June 2014 Notified on 12 September 2013 Notified on 1 April 2014 6 June 2014

Sections 74(2) and 74(3) Sections 447 & 448

Punishment for fraud and false statement Companies (Acceptance of Provides for procedure and Deposits) Rules, 2014 exemptions Removal of Difficulties (Second) Powers of NCLT under 73(4) and Order [SO 1428 (E)] dated 2 June 74(2) conferred on CLB 2014 and Removal of Difficulties (Fourth) Order [SO 1460 (E)] dated 6 June 2014 Companies (Acceptance of Change in rules inter alia for deposit Deposits) Amendment Rules, 2014 insurance Amendment to Company Law Amendment to CLB Regulations Board Regulations provide forms and procedure for filing application under section 2(41), 58, 59 73, 74, 76 of the Companies Act, 2013 with CLB. Companies (Acceptance of Changes in rules including Deposits) Amendment Rules, 2015 modification of the meaning of deposit (share application money related provision inserted in deposit definition) Companies (Acceptance of Inter alia meaning of deposit Deposits) Second Amendment modified (amounts from director and Rules, 2015 relative of director of private company removed from the purview of deposits) Notification – GSR 464(E) Non applicability of section 73(2) (a)(e) to private companies in certain situations General Circulars

Companies (Amendment) Act, 2015

6 June 2014 28 January 2015

31 March 2015

15 September 2015

5 June 2015

Deposits from members, directors and 30 March 2015 their relatives are not deposits under the Companies Act, 2013. If accepted under the Companies Act, 1956, disclosures should be given. Section 76A inserted 26 May 2015

9.3

NCLT and NCLAT Law Practice and Procedure, 7e Section/Rules/Circular/ Notification Notification S.O.1440(E)

Particulars

General Circular

Section 74(1)(b) clarified. Deposits accepted under the old Act can be paid as per the terms and conditions of the deposit. Meaning of deposit modified.

Companies (Acceptance of Deposits) Amendment Rules, 2016.

Companies (Acceptance of Deposits) Second Amendment Rules, 2017 Companies (Amendment) Act, 2017

Remarks

Commencement of certain provisions 29 May 2015 of Companies (Amendment) Act, 2015

Companies (Acceptance of Provisions of deposit insurance Deposits) Amendment Rules, 2017 diluted. Notification No. GSR 583(E)

Chapter 9

18 June 2015

29 June 2016 11 May 2017

The condition subject to which private 13 June 2017 limited companies are eligible to exemption form Section 73(1)(a) to (e) are revised. As the exemption from compliance of 19th September 2017 certain sections for specified companies including private companies were modified, the rules were consequently updated. Section 76A amended. 9th February 2018 Few changes are introduced by the Amendment Act of 2017. The changes are concerning alteration in conditions for acceptance of deposits, extension of time for repayment of deposits under old Act and increasing the penalties for non-repayment and violation Section 73, 74 amended. 15th August 2018

Companies (Amendment) Act, 2017 Companies (Acceptance of As the sections were amended, Notified on 5th July Deposits) Amendment Rules, 2018 consequential changes have been 2018 made to the rules. Forms updated and Effective on 15st substituted. August 2018 Companies (Acceptance of Monies received from real estate 22nd January 2019 Deposits) Amendment Rules, 2019 investment trust will not be considered as deposits. Form DPT-3 was changed and it was clarified that DPT-3 is filed only for providing particulars of transactions not considered as deposits.

9.4

Chapter 9

Deposits: delays and defaults

Section/Rules/Circular/ Notification General Circular No. 05/2019

Particulars

Remarks

Filing of one time return in DPT-3 12th April 2019 Form and extension of time for filing data on deposits. Companies (Acceptance of Timelines for disclosures under Sub- 30th April 2019 Deposits) Second Amendment rule (3) of Rule 16A were modified which dealt with disclosures of Rules, 2019 information on monies received from directors and relatives of directors. General Circular No. 11/2020 Relaxation of time period for creating 24th March 2020 deposit repayment reserve of 20% for deposits maturing during financial year 2020-2021. This was a special measure under Companies Act, 2013 in view of COVID-19 outbreak. General Circular No. 24/2020 Further extension of time granted for 19th June 2020 creation of deposit repayment reserve of 20% u/s. 73 (2) (C) of the Companies Act 2013. The time was extended to 30th September 2020. Companies (Acceptance of Relaxation were given to start-up for 7th September 2020 Deposits) Amendment Rules, 2020 accepting funds. General Circular No. 34/2020 Further extension of time given for 29th September 2020 creation of deposit repayment reserve of 20% u/s. 73 (2) (C) of the Companies Act 2013. Time was extended till 31st December 2020.

9.4

DEFINITION OF DEPOSITS

9.4.1

Definition under section 2(31)

Under the new Act, deposits have been defined in sec 2(31) as follows: “”deposit”includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India”

9.4.2

Items excluded from deposits

Deposit rule 2(c)1 has set out instances of receipt of money that do not fall under the category of deposits [as updated from time to time]. It reads as under -

1

Deposit Rules means Companies (Acceptance of Deposits) Rules, 2014 (as amended on 29th June 2016) unless otherwise specifically mentioned.

9.5

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Chapter 9

“Deposit” includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not includei. Any amount received from the central government or a state government, or any amount received from any other source whose repayment is guaranteed by the central government or a state government, or any amount received from a local authority, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature: ii. Any amount received from foreign Governments, foreign or international banks, multilateral financial institutions (including, but not limited to international Finance Corporation, Asian Development Bank, Commonwealth Development Corporation and International Bank for industrial and Financial Reconstruction), foreign Governments owned development financial institutions, foreign export credit agencies, foreign collaborators, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India subject to the provisions of Foreign Exchange Management Act, 1999 (42 of 1999) and rules and regulations made thereunder. iii. Any amount received as a loan or facility from any banking company or from the State Bank of India or any of its subsidiary banks or from a banking institution notified by the Central Government under section 51 of the Banking Regulation Act, 1949 (10 of 1949), or a corresponding new bank as defined in clause (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) or in clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980 (40 of 1980), or from a co-operative bank as defined in clause (bii) of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934); iv.

Any amount received as a loan or financial assistance from Public Financial Institutions notified by the Central Government in this behalf in consultation with the Reserve Bank of India or any regional financial institutions or Insurance Companies or Schedule Banks as defined in the Reserve Bank of India Act, 1934 (2 of 1934);

v.

Any amount received against issue of commercial paper or any other instruments issued in accordance with the guidelines or notification issued by the Reserve Bank of India; Any amount received by a Company from any other Company;

vi.

vii. Any amount received and held pursuant to an offer made in accordance with the provisions of the Act towards subscription to any securities, including share application money or advance 9.6

Chapter 9

Deposits: delays and defaults

towards allotment of securities pending allotment, so long as such amount is appropriated only against the amount due on allotment of the securities applied for; Explanation – For the purposes of this sub-clause, it is hereby clarified that – a. Without prejudice to any other liability or action, if the securities for which application money or advance for such securities was received cannot be allotted within sixty days from the date of receipt of the application money or advance for such securities and such application money or advance is not refunded to the subscribers within fifteen days from the date of completion of sixty days, such amount shall be treated as a deposit under these rules; Provided that unless otherwise required under the companies Act, 1956 (1 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or rules or regulation made thereunder to allot any share, stock, bond, or debenture within a specified period, if a company had received any amount by way of subscriptions to any shares, stock, bonds or debentures before the 1st April, 2014 and disclosed it in the balance sheet for the financial year ending on or before the 31st March, 2014 against which the allotment is pending on the 31st March, 2015, the company shall, by the 1st June, 2015, either return such amounts to the persons from whom these were received or allot shares, stock, bonds or debentures or comply with these rules. b. Any adjustment of the amount for any other purpose shall not be treated as refund. viii. Any amount received from a person who, at the time of the receipt of the amount, was a director of the company or a relative of the director of the private company; Provided that the director of the company or relative of the director of the private company, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from other and the company shall disclose the details of money so accepted in the Board’s report; ix.

Any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari passu with the first charge on any assets referred to in Schedule III of the Act excluding intangible assets of the company or bonds or debentures compulsorily convertible into shares of the company within ten year: 9.7

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Provided that if such bonds or debentures are secured by the charge of any assets referred to in Schedule III of the Act, excluding intangible assets, the amount of such bonds or debentures shall not exceed the market value of such assets as assessed by a registered valuer; ixa. any amount raised by issue of non-convertible debenture not constituting a charge on the assets of the company and listed on a recognized stock exchange as per applicable regulations made by Securities and Exchange Board of India.”; x. Any amount received from an employee of the company not exceeding his annual salary under contract of employment with the company in the nature of non-interest bearing security deposit; xi.

Any non-interest bearing amount received and held in trust;

xii. Any amount received in the course of, or for the purposes of, the business of the Company, a. As an advance for the supply of goods or provision of services accounted for in any manner whatsoever provided that such advance is appropriated against supply of goods or provision of services within a period of three hundred and sixty five days from the date of acceptance of such advance: Provided that in case of any advance which is subject matter of any legal proceedings before any court of law, the said time limit of three hundred and sixty five days shall not apply; b. As advance, accounted for in any manner whatsoever, received in connection with consideration for an immovable property under an agreement or arrangement, provided that such advance is adjusted against such property in accordance with the terms of agreement or arrangement; c. As security deposit for the performance of the contract for supply of goods or provisions of services; d. As advance received under long term projects for supply of capital goods except those covered under item (b) above; e. As an advance towards consideration for providing future services in the form of a warranty or maintenance contract as per written agreement or arrangement, if the period for providing such services does not exceed the period prevalent as per common business practice or five years, from the date of acceptance of such service whichever is less; f. As an advance received and as allowed by any sectoral regulator or in accordance with directions of Central or State Government; 9.8

Chapter 9

Deposits: delays and defaults

g. As an advance for subscription towards publication, whether in print or in electronic to be adjusted against receipt of such publications; Provided that if the amount received under items (a), (b) and (b) above becomes refundable (with or without interest) due to the reasons that the company accepting the money does not have necessary permission or approval, wherever required, to deal in the goods or properties or services for which the money is taken, then the amount received shall be deemed to be a deposit under these rules. Explanation – For the purposes of this sub-clause the amount shall be deemed to be deposits on the expiry of fifteen days from the date they become due for refund. xiii. Any amount brought in by the promoters of the company by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank subject to fulfilment of the following conditions, namely: a. The loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to contribute such finance; b. The loan is provided by the promoters themselves or by their relatives or by both; and c. The exemption under this sub-clause shall be available only till the loans of financial institution or bank are repaid and not thereafter; xiv. Any amount accepted by a Nidhi company in accordance with the rules made under section 406 of the Act. Explanation. – For the purposes of this clause, any amount, -a. Revived by the company, whether in the form of instalments or otherwise, from a person with promise or offer to give returns, in cash or in kind, on completion of the period specified in the promise or offer, or earlier, accounted for in any manner whatsoever, or b. Any additional contributions, over and above the amount under item (a) above, made by the company as part of such promise or offer, shall be considered as deposits unless specifically excluded under this clause xv. any amount received by way of subscription in respect of a chit under the Chit Fund Act, 1982 (40 of 1982);

9.9

NCLT and NCLAT Law Practice and Procedure, 7e

Chapter 9

xvi. any amount received by the company under any collective investment scheme in compliance with regulations framed by the Securities and Exchange Board of India; xvii. an amount of twenty five lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding ten years from the date of issue) in a single tranche, from a person. Explanation.- For the purposes of this sub-clause,I. “Start-up company” means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognized as such in accordance with notification number G.S.R. 127(E), dated the 19th February, 2019 issued by the Department for Promotion of Industry and Internal Trade; II. “Convertible note” means an instrument evidencing receipt of money initially as a debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of the start-up company upon occurrence of specified events and as per the other terms and conditions agreed to and indicated in the instrument. xviii. Any amount received by a company from Alternate Investment Funds, Domestic Venture Capital Funds, Infrastructure Investment Trusts, Real Estate Investments Trusts and Mutual Funds registered with the Securities and Exchange Board of India in accordance with regulations made by it.”

9.4.3

Definition of deposits for purpose of section 74

The definition of deposits for the purpose of sec 74, to determine repayment of deposit is same as the meaning of deposits under the Companies Act, 1956 read with the rules prescribed thereunder. Rule 2(b) of Companies (Acceptance of Deposits) Rules, 1975 defines deposits as under: “(b) "deposit" means any deposit of money with, and includes any amount borrowed by, a company, but does not include(i) any amount received from the Central Government or a State Government, or any amount received from any other source and whose repayment is guaranteed by the Central Government or a State Government, or any amount received from a local authority or a foreign Government or any other foreign citizen, authority or person; (ii) any amount received as a loan from any banking company or from the State Bank of India or any of its subsidiary banks or from a banking institution notified by the Central Government under section 51 of the Banking Regulation Act, 1949 (10 of 1949), or a corresponding new bank 9.10

Chapter 9

Deposits: delays and defaults

as defined in clause (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or from a co-operative bank as defined in clause (b-ii) of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934) ; (iii) any amount received as a loan from the Industrial Finance Corporation of India established under the Industrial Finance Corporation Act, 1948 (15 of 1948), or from a State Financial Corporation established under the State Financial Corporations Act, 1951 (63 of 1951), or from the Shipping Development Fund Committee constituted under section 15 of the Merchant Shipping Act, 1958 (44 of 1958) or from the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or from the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964), or from an Electricity Board constituted under the Electricity (Supply) Act, 1948 (54 of 1948) or from the Life Insurance Corporation of India constituted under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956), or from the Rehabilitation Industries Corporation of India Limited or the State Trading Corporation of India Limited or the Minerals and Metals Trading Corporation of India Limited or the Rural Electrification Corporation Limited or the Agricultural Finance Corporation Limited or the Industrial Reconstruction Corporation of India Limited or the Industrial Credit and Investment Corporation of India Limited or the National Industrial Development Corporation of India Limited or the Tamil Nadu Industrial and Investment Corporation Limited or the State Industrial and Investment Corporation of Maharashtra Limited "or from the General Insurance Corporation of India and its subsidiaries, namely, the National Insurance Company Limited, the New India Assurance Company Limited, the Oriental Fire and General Insurance Company Limited and the United Fire and General Insurance Company Limited" or from the Gujarat Industrial Investment Corporation Limited or from any financial company wholly owned by the Central Government or State Government or from the Oil Industry Development Board or Housing Development Finance Corporation Limited, or from any other Financial Company or Public Financial Institutions which may be notified by the Central Government in this behalf in consultation with the Reserve Bank of India. (iv) any amount received by a Company from any other Company. (v) any amount received from an employee of the company by way of security deposit ; (vi) any amount received by way of security or as an advance from any purchasing agent, selling agent, or other agents in the course of or for the purposes of the business of the company or any advance received against 9.11

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Chapter 9

orders for the supply of goods or properties or for the rendering of any service; (vii) any amount received by way of subscriptions to any shares, stock, bonds or debentures such bonds or debentures as are covered by subclause (x) pending the allotment of the said shares, stock, bonds or debentures and any amount received by way of calls in advance on shares, in accordance with the Articles of Association of the Company so long as such amount is not repayable to the members under the Articles of Association of the Company; (viii) any amount received in trust or any amount in transit ; (ix) any amount received by a private company from a person who, at the time of the receipt of the amount, was a director, relative of director or member: Provided that the director or member, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others; Explanation.-For the removal of doubts, it is hereby declared that any deposit received or renewed by a company before the commencement of the Companies (Acceptance of Deposits) Amendment Rules, 1978, shall continue to be governed by the rules applicable at the time of such deposit or renewal as the case may be. (x) any amount raised by the issue of bonds or debentures secured by the mortgage of any immovable property of the company or with an option to convert them into shares in the company provided that in the case of such bonds or debentures secured by the mortgage of any immovable property the amount of such bonds or debentures shall not exceed the market value of such immovable property"; (xi) any amount brought in by the promoters by way of unsecured loans in pursuance of stipulations of financial institutions subject to the fulfillment of the following conditions, namely:(a) the loans are brought in pursuance of the stipulation imposed by the financial institutions in fulfillment of the obligation of the promoters to contribute such finance ; (b) the loans are provided by the promoters themselves and/or by their relatives, and not from their friends and business associates ; and (c) the exemption under this sub-clause shall be available only till the loans of financial institutions are repaid and not thereafter. Explanation.-For the purpose of this sub-clause the term 'financial institution' shall mean:9.12

Chapter 9

Deposits: delays and defaults

(a) a public financial institution specified in or under section 4A of the Companies Act, 1956; (b) a State Financial, Industrial or Investment Corporation ; (c) the State Bank of India or a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959) ; (d) a nationalized bank, that is to say, a corresponding new bank as defined in section 2 of :(i) the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) ; or (ii) the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980); (e) the General Insurance Corporation of India established in pursuance of the provisions of section 9 of the General Insurance Business (Nationalization) Act, 1972 (57 of 1972); (f) the Industrial Reconstruction Corporation of India; or (g) any other Institution which the Central Government may, by notification, specify in this behalf.”

9.5

APPLICABILITY

Chapter V of the new Act, deals with the restrictions on issuance of deposits and conditions subject to which deposit can be issued. The terms and conditions mentioned in the said chapter are applicable to acceptance of deposit by all the companies except the companies that are expressly excluded.

9.5.1

Non applicability

Deposits under the Companies Act, 2013 applies to all the Companies other than: 1. A banking company; 2. A Non-Banking Financial Company (NBFC) as defined by Reserve Bank of India; 3. A Housing Finance Company registered with National Housing Bank; and 4. A Company specified by the Central Government after consultation with Reserve Bank of India. Thus, a banking company, NBFC and other notified companies can raise deposit in any manner, they may deem fit, subject to the restrictions placed by their sectoral regulators. The restrictions in this chapter will not apply to them. However, the disqualifications under other chapters will apply, unless mentioned otherwise. For instance, bonus shares cannot be issued in case of default in payment of interest or principal, unless prescribed otherwise either in the rules or in the definition. It will apply to the above companies. 9.13

NCLT and NCLAT Law Practice and Procedure, 7e

9.6

Chapter 9

PERMISSIBILITY TO ACCEPT/INVITE/RETAIN DEPOSITS

9.6.1

Who can accept/invite deposits and from whom?

Unless the rules prescribe otherwise, following companies can accept deposits: 1. Public company of prescribed net worth or turnover from public and members; 2. Public company from its members; 3. Private company from its members; 4. One man company from its member; 5. All other companies under the Act from their members. A company can accept the deposit from its members subject to compliance as required under sec 73(2) of the Act. However, vide Notification dated 5 June 2015 (amended in June 2016), the provision of sec 73(2)(a)-(e) are not applicable to private companies who fulfil the conditions set out in these notification and the rules. As per sec 76(1) of the Act and Deposit Rules, a public company fulfilling following conditions and which has obtained prior approval from its members by way of special resolution in general meeting shall be considered as Eligible Company who can accept the deposit from persons other than its Members subject to compliance as required in sec 73(2) of the Act and Deposit Rules and subject to such rules as the Central Government may, in consultation with the Reserve Bank of India, prescribe: •

A public company with Net worth of not less than INR 100 crores; or

•

A public company with Turnover of not less than INR 500 crores.

9.6.2

Retaining deposits under the Companies Act, 1956

9.6.2.1

Deposits which are not matured

As per the un-amended Companies Act, 2013, the deposits that were accepted under the Companies Act, 1956 and which were not matured and due on the date of the commencement of the Act, could be repaid as per the terms and conditions of those deposits. If the deposits are not paid on the date of their maturity, then they were required to be paid within a period of 1 year from the date they become due. This was a grace period, which was granted under the new Act. If the deposits are repaid within this extended period of 1 year, the author is of the opinion that the company will not be subject to any penalties under the Act. The depositors will not be able to approach the Tribunal in case of non-repayment of deposit within the 1 year grace period. Companies (Amendment) Act, 2017 changed the provision and it was made effective from 15th August 2018. The new period of repayment as inserted is as follows: “repay within three years from such commencement or on or before the expiry of period for which the deposits were accepted, whichever is earlier”. The new provision is differently 9.14

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worded. Under the new provision, there is no grace period. Thus, the deposits will have to be repaid on their maturity unless the date of maturity is beyond the period of 3 years in which case, they will be repaid in three years. Under sec 74 the new Act, the depositors under the old Act, have not been given any provision to approach the Tribunal for non-repayment of deposits. However, NCLT has now held that they can use sec 73(4) in case of non-repayment of deposits. Depositors can also file a class action, if the conditions under sec 245 are satisfied. The Act prescribes penalties including imprisonment to ensure repayment of these deposits. The company is permitted to apply to the Tribunal for extension of time, for repayment of old deposits. The extension of time that can be granted is left on the discretion of the Tribunal. The Tribunal will determine the extension, based on the facts and circumstance including financial condition of the company. Further, if the deposits are not repaid, all the fetters like non issuance of bonus shares, bar on buy back will be applicable to the company. If the deposits remain unpaid for 3 months after they become due, the company has to file a statement with the ROC, inter alia providing the following information: (a) All deposits accepted by the company; (b) Sums remaining unpaid; (c) Interest payable; (d) Arrangements for repayment.

9.6.2.2

Deposits remaining unpaid at the time of commencement

Section 74 of the Companies Act, 2013 is considered as the transitional provision, whereby the companies are required to fulfil the legal formalities for the deposits accepted under old Act. If a company has accepted any deposit before the commencement of new Act and the amount of deposit or part thereof or any interest due thereon remains unpaid or becomes due at any time thereafter, then the company has to: •

File DPT – 4 with the Registrar, a statement of all deposits accepted by the Company and sums remaining unpaid on such amount with the interest payable thereon alongwith the arrangements made for such repayment; and

•

Had to repay within 1 year from such commencement of new Act (i.e. by 31 March 2015) or on date where such deposit payment alongwith interest are due, whichever is earlier. This provision is changed w.e.f. 15th August 2018 to three year or maturity, whichever is earlier.

•

The MCA has clarified vide its General Circular 9/2015 dated 18 June 2015 that the terms of sec 74(1)(b) are deemed to be complied with, if the deposits accepted prior to 1 April 2014 are in accordance with the terms and conditions for which the deposits had been accepted. Thus, if it matures after March 2015, they can be paid on the date of their maturity as per the terms and conditions of that deposit. This is also specified in the explanation 9.15

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appearing in r 19 of the Companies (Acceptance of Deposits) Rules, 2014, which clarifies the conditions subject to which a company would be deemed to have complied with the requirements laid down in sec 74(1)(b). Power is given to the Tribunal, whereby on application by the Company and after considering the financial condition, the Tribunal may allow further time as it may consider reasonable, to repay the amount of deposit or part thereof and the interest payable thereon. If a company has failed to comply with sec 74, the company shall, in addition to the payment of deposit and interest due thereon, be punishable with fine which shall not be less than INR 1 crore but which may extend to INR 10 crores and every officer of the Company who is in default shall be punishable with imprisonment which may extend to 7 years or with fine which shall be not be less than INR 25 lakhs but which may extend to INR 2 crores or with both.

9.7

REMEDIES FOR DEPOSITORS 1. Application to tribunal for non-repayment In case of deposits accepted under the new Act, if a company fails to pay deposits accepted from its members, they can apply to the Tribunal. The depositors can ask not only for repayment of deposit but also for losses or damages incurred by them. Even the public at large, from whom the company has accepted such deposits, can apply to the Tribunal, in case of non-repayment of deposits. The Tribunal can pass such order as it may deem fit. Though not expressly mentioned, it seems that if the Tribunal thinks fit, it can grant grace period for repayment of the deposit after considering the financial condition of the company. If the company is not able to pay deposits on the prescribed maturity date, all the disqualification like bar on issuance of bonus shares etc. will apply to the company. Whether and in which circumstances a company can extend the time limit by agreement with the depositors is still unclear. 2. Class Action The depositors can file a class action for various wrongdoings by the company. In a class action, the depositors can inter alia seek compensation from the company, its directors, auditors, and many other people who were involved and a party to the wrongdoing. 3. Fraud in acceptance of Deposits For deposit accepted under old Act Special provisions have been inserted in case of fraud in acceptance of deposit, if it is discovered in case of deposits accepted before the commencement of the new Act. The said application can be filed by any person or group of person who have incurred a loss as a result of failure of

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the company to repay the deposit. The aggrieved person can be the depositors or a group of them. It can even be a member who can show that the value of shares was hampered as a result of the said fraud. The following order can be passed under this section if it is shown that:  The company has failed to repay the deposits or part thereof or interest thereon within 1 year or within the additional time limit granted to it by the Tribunal and;  It is proved that deposits were accepted with an intent to defraud depositors or for any fraudulent purpose. It both these conditions are satisfied, then in that case, every officer of the company who is responsible for such deposit shall be personally liable. Thus, his liability will be unlimited. For deposits accepted under new Act (Section 447 of new Act) If a fraud is proved in acceptance of deposits under the new law, then in that event, the person who is responsible will be liable to pay a fine which may be upto to three times the amount involved in fraud and with imprisonment ranging from 6 months to 10 years depending on the extent of the fraud. Section 76 A is inserted in the Act that provides a steep penalty for nonpayment of deposits or contravention of the provisions. “76A. Punishment for contravention of section 73 or section 76 Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under section 73 or section 76 or rules made thereunder or if a company fails to repay the deposit or part thereof or any interest due thereon within the time specified under section 73 or section 76 or rules made thereunder or such further time as may be allowed by the Tribunal under section 73— (a) the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees or twice the amount of deposit accepted by the company, whichever is lower, but which may extend to ten crore rupees; and (b) every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years and with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees: Provided that if it is proved that the officer of the company who is in default, has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under section 447.” The Companies Amendment Act, 2017 has made the contravention of sec 73 and 76 non-compoundable. Earlier it was fine or imprisonment or both for officer. Now, the offence is punishable with fine and imprisonment. 9.17

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4. False statement in circulars In case a person knowingly makes a material false statement or omits to state a material fact, then in that event then the person shall be charged for committing a fraud as mentioned above under sec 447 of the new Act.

9.8

RESTRICTIONS ON DEFAULTING COMPANIES

For any company that commits defaults in repayment of deposits and interest thereon, on due date or date as directed by the Tribunal, the consequences that follow are: i.

The company shall not accept or invite fresh deposits or renew existing deposits under sections 73 and 76 of the Companies Act, 2013; ii. A director of the company, which fails to repay the deposits accepted by it or interest thereon on due date and such default persists for 1 year or more, shall not be eligible to reappoint as a director of that company or appoint as a director in other company for a period of 5 years from the date of which said company defaults in terms of sec 164 of the Companies Act, 2013.The 2017 Amendment Act has introduced an exception wherein a new director appointed in a company which has default in repayment of deposits will not incur the disqualification for 6 month from the date of his appointment; iii. No company which is in default in the repayment of any deposits accepted before or after the commencement of the Act or in payment of interest thereon, shall give any loan or give any guarantee or provide any security or make an acquisition till such default is subsisting in terms of sec 186 of the Companies Act, 2013; iv. The company is prohibited from purchasing its own shares or other securities, directly or indirectly, as per sec 70 of the Companies Act, 2013; v. Company cannot reduce its capital under sec 66; vi. A Company that is in default in settling the dues to the deposit holders cannot pay remuneration to managerial personnel at the scale provided in Schedule V, which allows payment of remuneration of a certain scale in the event of loss or inadequate profit as per Schedule V of the Companies Act, 2013 with Central Government approval. The requirement of approval of Central Government is removed in 2018 by the Companies Amendment Act, 2017. However, even after the amendment to Schedule V by virtue of the notification dated 12 September 2018 read with Companies Amendment Act, 2017 the fetter on giving excess remuneration on companies which have defaulted in payment of deposits have been retained; and vii. The company that is in default in repayment of deposits cannot issue equity shares with differential rights as to dividend in terms of the Companies (Share Capital and Debentures) Rules, 2014.

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9.9

Deposits: delays and defaults

APPLICATION TO TRIBUNAL

9.9.1 Application in case of non- repayment of new deposits Section 73 of the Companies Act, 2013 provides for the following in this regard: “73. Prohibition on acceptance of deposits from public … (4) Where a company fails to repay the deposit or part thereof or any interest thereon under sub-section (3), the depositor concerned may apply to the Tribunal for an order directing the company to pay the sum due or for any loss or damage incurred by him as a result of such non-payment and for such other orders as the Tribunal may deem fit….” Section 58A of the 1956 Act provides for similar relief: “… (9) Where a company has failed to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the Company Law Board may, if it is satisfied, either on its own motion or on the application of the depositor, that it is necessary so to do to safeguard the interests of the company, the depositors or in the public interest, direct, by order, the company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order : Provided that the Company Law Board may, before making any order under this sub-section, give a reasonable opportunity of being heard to the company and the other persons interested in the matter.”

9.9.1.1 Who can apply? Depositors can apply under this section. The application can be made by a single depositor also. The Act read with the rules, has defined the term deposit and thus depositor has to be read in that context as a person who has given a depositor that is not excluded from the definition of deposit.

9.9.1.2 Depositor of which company? Section 73 deals with all types of companies and thus depositor of any company whether it is a private company, a public company or OPC or any other type of company are included. Section 73 deals with deposits accepted from members. Thus, the provision for seeking repayment sec 73 is available to them. Further, sec 76 provides that “(2) the provisions of this Chapter shall, mutatis mutandis, apply to the acceptance of deposits from public under this section.” Thus, the provision of thus even public can apply under sec 73(4) for recovery of their deposit. In Unitech Limited, it has been held that even depositors who have given deposit before the commencement of the Act, can apply for repayment under Section 73(4). 9.19

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9.9.1.3 Under what circumstances? A depositor can apply in the following circumstances: (a) a company fails to repay the deposit; (b) It fails to pay part of the deposit; (c) It fails to pay interest; (d) It fails to pay any part of the interest as per the accepted terms and conditions.

9.9.1.4 What reliefs? The depositor can apply for: (a) Repayment of the sum due to him; (b) Seek payment of losses and damages incurred by him as a result of such nonpayment; (c) Ask for other consequential reliefs.

9.9.1.5 Applicability This provision is a transitional provision. Thus, before 31 March 2015, many companies had sought extension of time. In view of the clarification, many companies will be able to pay the deposits on their due dates as per the terms on which the deposits were accepted. Thus, these provisions may be useful for payment of old deposit till the time the old deposits are paid. If the companies are not able to pay the deposits accepted under the Companies Act, 1956 on their due date, the extension of time must be sought.

9.9.2 Application for extension of time for company Section 74 provides as follows: “… (2) The Tribunal may on an application made by the company, after considering the financial condition of the company, the amount of deposit or part thereof and the interest payable thereon and such other matters, allow further time as considered reasonable to the company to repay the deposit ….”

9.9.2.1 Which companies can apply? Deposits under the Companies Act, 1956 Any company that has accepted deposits under the Companies Act, 1956 can apply for extension of time for repayment of deposit. It may be noted that under the old Act, the deposit that private company could take namely from members, directors and relative of director were exempt under the old Act read with rules. This exemption was later allowed even in new Act as regards deposits accepted prior to the commencement of the

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Companies Act, 2013. Thus, many companies which had filed application under Section 74 for extension of time to repay later withdrew the application.

Deposits under 2013 Act Section 76 read with sec 74(2) gives a public company right to approach the Tribunal for seeking extension of time for making repayment of public deposit. This right to seek time extension for repayment is not provided for repayment of deposit accepted from members by private and public companies. It needs to be seen, whether they are allowed to seek extension by the Tribunal.

9.9.2.2 To which forum will the application lie?

These sections became applicable in 2014. At that time, the provisions relating to Tribunal were not notified. Thus, until the NCLT was constituted, the powers granted to Tribunal under Chapter V were conferred upon the Company Law Board which was looking into repayment of deposits under the Companies Act, 1956. Vide Removal of Difficulties (Second) Order [S.O. 1428(E)] dated 2 June 2014 and Removal of Difficulties (Fourth) Order [S.O. 146O(E)] dated 6 June 2014, the CLB was empowered to exercise the powers of National Company Law Tribunal under sec 73(4) and sec 74(2) of the said Act, till the NCLT is constituted. Thus, a depositor was free to file an application under sec 73(4) of the said Act, with the Company Law Board if the company has failed to make repayment of deposits accepted by it. Further, the company could also file the application under sec 74(2) of the said Act, with the Company Law Board seeking extension of time in making the repayment. After 1st June 2016, the applications are filed with NCLT. Some of the cases dealt with by CLB and NCLT are discussed in this chapter.

9.9.2.3 Under what circumstances?

There is no bar on the time that can be granted by the Tribunal. However, the time should be ‘reasonable’. The reasonableness of the time depends on various factors. Further such time can be granted subject to such conditions as the Tribunal thinks fit (sec 74(2) read with sec 459). The Tribunal is required to consider a holistic perspective. They have to consider the following: (a) financial condition of the company; (b) the amount of deposit or part thereof and the interest payable thereon; (c) signs of improvement (d) the bona fides of company (e) track record in repayment of deposits (f) repayment schedule proposed by company (g) reasons for non-payment of deposits (h) and such other matters. In the cases where application is filed by the company, a public notice is issued. The depositors who object are heard or their objections are considered. In certain cases, the 9.21

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company agrees to make payment of objecting depositors. Further, there are instances where the depositor who are in need of money are directed by the Tribunal to be paid first on such depositors furnishing a proof of their ailments or hardship. Earlier CLB and now even NCLT directs setting up of a hardship committee in cases where the company is granted time. Such committee seeks to consider applications of depositors who are in urgent need of money for any purpose. On providing necessary proof of such hardship, their application for repayment is considered on priority basis. NCLT (earlier CLB) also can place conditions of the manner and sequence in which the deposits are to be repaid. The NCLT (earlier CLB) can direct that the deposit that mature first in time should be paid first. They can also direct in certain cases that assets of the company can be used to return money to the depositors and set up a sales committee to sell company’s asset, in order to return money to its depositors. In certain cases, where the CLB/NCLT saw that a company was perpetual defaulter or has not paid even its matured deposits, it refused to extend time and in some cases directed ROC to initiate prosecution.

9.10

CASE LAWS

9.10.1 Case laws under section 73 and 74 of the Companies Act, 2013 decided by CLB Case 1: M/s Billcare Ltd [CLB-Delhi: CP NO. 76 (MB) 2015] Section: 74 (2) Held: After taking an undertaking from managing director that INR 40 crores out of INR 140 crores will be paid within seven months, the CLB allowed the rest of the FD money to be paid after 8 months from that period. It also directed establishment of a hardship committee, to hold meeting every month to assess and notify progress to CLB. It further directed to repay deposits below INR 1 lakh and deposit of person above 70 years of age. Case 2: Elder Pharmaceutical Limited [CLB- MUM :CA – 50/2014] Section: Application under sec 58 A of the Companies Act, 1956 read with sec 74 (2) of the Companies Act, 2013 Held: In this case, there were more that 500-objections which were filed by depositors objecting the grant of extension of time to the Company for repayment. The CLB observed that the company had failed to make payments to depositors as per CLB’s earlier orders on the application of deposit holders. Thus, the company was directed to make payments immediately within 7 days to the depositors in whose favor earlier orders were passed. The company was directed to categorize the deposit holder in order to take decision on its sec 74 (2) applications. Case 3: Futura Polyesters Ltd. [CLB-MUM: CP – 53/2014] Section: Under sec 74 (3) 9.22

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Held: In this case, the company was provided a time of 6 months with a direction. If default is made, the same would be subjected to the consequences as per law. Case 4: Mayyar Fabrics Ltd., [CLB-MUM-CA 10/2014] Section: Under sec 74 (2) Held: The Company furnished no objection from deposit holders and sought extension of time for repayment. Time was granted without any condition in terms of the relief sought by them. Case 5: Pratibha Industries Ltd., [CLB-Mum :CA - 21/2015] Section: Under sec 74 (2) Held: The Company got an extension to pay fixed deposit holders at their respective date of maturity. The conditions inter-alia provided that the repayment shall be made in the order of date of maturity. The company was also permitted to make prepayment of deposit if funds are available. Another condition was that if the company fails to comply orders of CLB, then the further time granted in respect to the FD’s shall come to an end. Undertaking of MD/CEO was also taken. Case 6: M/s Ravalgaon Sugar Farms Ltd., [CLB Mum:CA - 9/2015] Section: Under sec 74 (2) Held: The Company was granted extension of time for repaying deposit holders after notice was published in newspaper and no objections were received. Case 7: Sardar Sarovar Narmada Nigam Ltd. [CLB MUM: CA 7/2015] Section: Under sec 74 (2) Held: This is a Government Company and it stated that it had raised funds inter-alia by way of public deposits under Shri Nidhi fixed deposits scheme for timely implementation of project of Sardar Sarovar Dam Project. It further stated that under certain schemes it was giving fixed deposit receipts to girls and other persons under schemes of Government of Gujarat. The company sought time for repayments and none of the deposit holders raised any objections on the notice being published in newspapers. Time was granted. Case 8: Unitech Ltd. [CLB- DEL: CP 10/18/2015] Section: Under sec 74 (2) Held: The CLB observed that the company had defaulted in repaying deposits that had already matured despite the company making profits. It further observed that there were numerous complaints from deposit holders. In this case, the company was directed to make payments to all mature deposits within 30 days. A committee was formed to inter-alia ascertain the progress in repayment. Case 9: Net 4 India Ltd. [CLB-DEL: CP 10/1/2015] Section: Under sec 74(2) 9.23

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Held: CLB observed that there was a prior order requiring the company to deposit INR 1.5 crores. The company, while the order was operational, made an offer to the deposit holders to take 50% of the principle amount as a full and final payment against the deposit and its interest. On the next date, the company suggested that the amount of INR 1.5 crores need not be deposited as many of the deposit holders (for whom the amount of INR 1.5 crores was directed to be set aside) were paid. Many depositors took the scheme, as they felt that the company would not be able to pay beyond that. In this case, the CLB directed the company not to give any misleading impression that such scheme offered (of paying only 50%) to the deposit holders was as per the scheme of CLB. Depositors were further allowed to approach hardship committee in case they have any grievances. Case 10: Jai Prakash Association Ltd. [CLB – DEL: CA 25/10/2015] Section: Under sec 74(2) Held: The Company was granted time to make repayment of FD’s. The CLB had observed that the company had made efforts in repaying existing deposits. It also noted that the Company had sort release of a loan form Bank for repayment of FD’s. CLB also observed the nature of business of applicant and the fact that funds were blocked in business it is further noted that Company had stop taking additional deposits. Case 11: Ansal Properties and Infrastructure Ltd., [CLB- DEL: CP 25/9/2014] Section: Under sections 73 & 74 of the Companies Act, 2013 Held: The Company provided elaborate reasons for seeking extension for time for repayment. The CLB appreciated that the company’s net profits were very low. However, its assets far exceeded its liabilities. It further observed that there was a large component of asset, which was work in progress for an ongoing project where there were substantial earning potential. It observed the present cash crunch was temporary. In this case, the Applicant Company was not allowed to reduce the rate of interest. However, the date for making payment was extended as per the scheme devised by the CLB.

9.10.2 Some case laws on deposits under the Companies Act, 1956 Case 1: M/s Birla Cotsyn India Ltd., [CLB-Mum: CA 5 of 2015] Held: This application under sec 58A (9) of the Companies Act, 1956 was filed by the company and was placed for hearing along with the application for fixed deposit holder’s under sec 58(9). The company specified that it was protected by relief undertaking status under Maharashtra Relief Undertaking Act. The company presented a scheme of reschedule-ment of payment to the depositors. The CLB by order, extended the time for payment and provided a schedule of repayment. It also setup a hardship committee and passed other incidental conditions.

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Case 2: Jorhat Tea and Industries (P) Ltd v State of Meghalaya [(2006) 72 SCL 310 (Gauhati)] Held: Here the petitioner seek quashing of the criminal proceedings with the High Court against the Company for not filing the return of deposits as envisaged under sec 58A of the Companies Act, 1956 and in this case, the Court dismissed the application with a view that the power of quashing criminal proceeding should be exercised very sparingly and with circumspection. Case 3: Additional Registrar of Companies v Perfect Benefit Fund Ltd. [(1999) 97 Comp. Case 731 (Madras)] Held: The offence alleged is technical in nature and delay in filing complaint against such offence is deliberate. Application for condonation of delay is not to be entertained. Here, there was absolutely no explanation for the delay in the application filed and therefore, in such circumstances, the order of the lower court dismissing the application could not be questioned, as it was a proper exercise of discretion by the lower court. When the applicant had no explanation to the offer, the offence alleged being a technical one, the application be dismissed. Case 4: Ali Jawab Ameerhasan Rizvi v Indo French Biotech Enterprise Ltd. [(2000) 25 SCL 272 (Bombay)] Held: The petition was filed by suppressing material facts which would otherwise raise prima facie serious doubts to plea of allurement and use of force by the Company. It was held that such petition for repayment of deposit of amount deposited deserved outright rejection. Case 5: Thapar Agro Mills Ltd [(1998) 93 Comp. Case (CLB – NB)] Held: The Northern Region Bench of Company Law Board has received a number of complaints for non-repayment of fixed deposits by the Company which also sought direction for repayment. The request of the company for rescheduling was rejected as the conduct of the company was found to be irresponsible. Case 6: Vilasini Jayaprakash v St. Mary’s Finance Ltd. [(2000) 99 Comp. Case (Kerala)] Held: It was held that no rescheduling was ordered where a scheme for arrangement with the depositors was pending before the High Court under sec 391 of the Companies Act, 1956 and the same was still not disposed off at the time of hearing. Case Digest – NCLT Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) NCLT/Mum/ Royal Twinkle Star Insolvency Resolution Process was initiated 3.11.2017 Club Limited against the company which had defaulted to pay depositors. The application was dismissed, Appl/576/MAH/20 NCLT/Mum/ 17 3.11.2017, and the depositors were given liberty to 9.25

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Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Section 73(4) Appl/576/MAH/2 approach the Insolvency Resolution 017 Professional with their claim. Section 73(4) Application No. Phadnis CIRP was initiated against the company. The 416, Properties Limited Application under Section 73 was dismissed Application No. with the liberty to the Applicant- Depositor to 573/MAH/2017 416, appear before the IRP with their claims. Section 73(4) 573/MAH/2017 Application No. Valecha Time of one and a half month was given to the 336 & 77 & Ors Engineering company to repay 57 depositors. /MAH/2017/6.10/2 Limited , Application No. 017 Section 73(4) & 74 336 & 77 & Ors /MAH/2017/6.10/ 2017 IA NO. 17 of 2017 Valecha The petition was filed on 17.4.2015 for in Engineering extension of time before CLB. It came up for TCP/5/74(2)/2016, Limited, IA NO. hearing on 21.1.2016 where company was Section 74(2) 17 of 2017 in asked to provide a plan for repayment. The TCP/5/74(2)/2016 matter again came up on 22.2.2016 where company agreed to pay starting from the month of March 2016. On 17th October 2016, 2 depositors filed an application under Section 73 and they were repaid. The NCLT asked the company to submit the details of payment as per the order in Section 74 petition. It was noticed that only 5% of the total amount outstanding was paid. Thus, CP/5/2016 for extension of time was dismissed for noncompliance of order dated 20/2/2016. The dismissal was challenged in the NCLAT. In the NCLAT the appeal was withdrawn as the company asked for liberty to seek modification of the NCLT order under Section 420(2). Accordingly, company had filed an application under Section 420(2) read with Rule 11 of NCLT Rules for seeking modification/clarification of the order dated 22.2.2016 and 20.12.2016. The NCLT held that Section 74 orders are like

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

Deposits: delays and defaults

Particulars

execution orders and an application could be filed in a changed situation or filed for further compliance depending on the facts of the case. In this case, the company has paid a further amount but the NCLT felt that the amount was not enough to give further time to the company. Thus, application for extension of time for repayment was dismissed. Application No. Birla Power As the respondent company has gone into 454/MAH/2017/ Solutions Limited , liquidation, the Petition was dismissed with Application No. liberty to the Petitioner- Depositors to proceed 1.12.2017 454/MAH/2017/1. with their claims before the liquidator. Section 73(4) 12.2017 CP No. 33 Premier Limited, On 1.5.2017, an order was passed directing the /MAH/2017/25.07 CP No. 33 company to pay principle amount alongwith /MAH/2017/25.07 interest on or before 9.6.2017. The company /2017 paid the deposits which were claimed. As /2017 Section 74(2) regards unclaimed deposits, the amount was kept in a separate bank account with the amount of deposit payable as per the contractual terms. In view of the above, the petition was disposed of with a direction not to withdraw monies from the separate bank account maintained for the depositors until all the unclaimed deposits are cleared. TCP No. 58/2015 Darshan Jewel The company was a private limited company Section 74(2) Tools Private and has accepted deposits from its Limited, TCP No. shareholders other than directors prior to 1st 58/2015 April 2014. Pursuant to the un-amended Section 74(2) the company had sought time to repay the said deposits on their due dates rather than within one year as the section 74 required. Subsequently, Government issued a circular where it was clarified that deposits accepted by private limited companies prior to 1st April 2014 from their members and directors and their relatives shall not be treated as deposits under the Companies Act, 2013 subject to certain disclosures. In light of the said circular, the petition was withdrawn as the amount due

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Particulars

to members was no longer considered as deposits. P.S.: Similar order in Khemka Klothings Private Limited (TCP/51/2015) CP No. 141/2016 Status Clothing The company has filed an application for Section 74(2) Company Limited , extension of time to repay its depositors. The CP No. 141/2016 company also filed consent letter from the depositor which mentioned the due date of repayment. In terms of the agreement, the extension of time for repayment was allowed. CA 67/2016 Iken Solutions Pvt Compounding of Section 75(1) was permitted Section 75 Limited, CA under Section 621A. 67/2016 TCP/129/2016 Manak Overseas Time was granted for repayment of depositors Section 74(2) Pvt. Limited, based on no objection certificate produced TCP/129/2016 from depositors. NCLT/CHD/CA IND Swift Limited Facts: The company had filed a company 8/2016 & CA , NCLT/CHD/CA petition under Section 58AA of the 1956 Act 39/2017 in 8/2016 & CA for extension of time to repay small depositors. 39/2017 in The company law board on 30th September CP/27/2/2013/ CP/27/2/2013/8.1 2013 allowed the scheme of repayment 8.12.2017 proposed by the company with certain terms 2.2017 and conditions. The company was inter alia asked to pay a nominal interest rate 8% from the date of maturity to the date of repayment alongwith the contracted rate of interest till the date of maturity. The company in 2016 filed an application seeking further extension of time for repayment of deposits. Under Section 74 read with Rule 11, 15 and 73 of the NCLT Rules read with Section 58AA of 1956 Act. In its application, it showed the cheques that were issued monthly to the depositors. When the application came up for hearing, direction were issued to publish advertisement and making the list of depositors available for public. Some of the depositors filed their objections. In this case ROC was given notice and ROC office filed their objection to 9.28

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

Deposits: delays and defaults

Particulars

extension of time. During the course of the matter, another CA 39/2017 came to be filed where the company gave a fresh scheme for rescheduling the outstanding payment. The NCLT noticed that the losses of this company have increased since 2013. The applicant company stated that fixed deposits had come down from 99 crore in 2012 to 29 crore in 2016. Issue: Can the applicant company now be permitted to implement the order of the year 2013 w.e.f. from the date of order passed by this Tribunal? Whether this miscellaneous application filed in CP No.27/02/2013 is at all maintainable in view of the circumstances of the case? Held: The court observed that section 74 is a stringent provision and has to be interpreted in the light of the objective of safeguarding the interests of the fixed deposit holders. When once the company had sought the sanction of the scheme from the Company Law Board by bringing its financial position to its notice at the relevant time in the year 2013 and got the relief of long extension, there is no reason to accept the plea for further extension, especially as prayed in the latest application undertaking to abide by the original scheme, but with effect from the date of order of this Tribunal. The Company Law Board while sanctioning the scheme of payment in the year 2013, directed the company to file the affidavit once in three months on the state of repayment of deposits i.e. on 01.01.2014 with the Company Law Board with copy to the Registrar of Companies. It was also directed that failure to comply with the order shall attract the penal provisions contained in Section 58A (10) and Section 274 (1) (g) of 1956 Act. Tribunal held that financial position of the company should not be the only consideration,

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

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Particulars

but the Tribunal must safeguard the interest of the deposit holders, who have already suffered such a huge delay. CLB has granted a liberal time limit and thus there is no question of another extension. The legislature has laid down severe punishment in case of failure of the company to make the payments to the deposit holders within the extended time and this provision has to be implemented in letter and spirit. Further Tribunal held that second application for further extension of time is not permissible. Several judgements were cited. For instance, In “Autolite India Limited” CA No.179/2013 in File No.15/56/97-CLB, decided on 02.06.2014 by the CLB after initially fixing the scheme of repayment, on application had extended the time further. Again the Hon’ble Calcutta High Court in “Assambrook Ltd. v Manju Devi Singhania” (2011) 166 Comp Cas 7, decided on 21.06.2011. In that case also the company applied to the Company Law Board under Section 58A (9) of 1956 Act seeking repayments. The company was directed to make payments as per the order with interest at the rate of 10% per annum beyond the date of maturity. Two applications for extension of time were allowed by CLB in that case. The Tribunal however held that the judgements were irrelevant as the ratio of this case was different. The Applicant also cited the case “Jaiprakash Associates Ltd.” CA 01/2016 in CA No.25/10/2014, decided on 17.06.2016, wherein it was noticed that the company had paid an amount of ₹208.85 crores from the date of last order of the Company Law Board dated 22.12.2015. It was alleged that the company had been trying hard to dispose of the assets namely 10 Cement Plants at various locations, but the process was not completed and further time was granted by the Board upto

9.30

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

Deposits: delays and defaults

Particulars

31.03.2017 to repay the dues aggregating ₹1079.31 crores. The Tribunal found that these judgements were not relevant and held that applicant company does not deserve any further extension of time even on facts. The company was directed to pay the arrears which remain pending till date to the depositors within a period of two months from the date of this order and was asked to keep on paying the rest of the amount strictly in terms of the order dated 30.09.2013 of the Company Law Board. NCLT/CHd/CA/13 Variar Benefit Applications were filed by numerous 0/ 2017 Fund Limited, depositors under Section 73(4), The defaulting NCLT/CHd/CA/1 company was a Nidhi company and it did not 18.12.2017 appear in the matters. The NCLT held that 30/2017 Section 73(4) respondent company was to repay deposits within the time specified in the order and further directed ROC to take appropriate action against the company and defaulting directors. NCLT/CHD/CP SRS Limited , At the time when this application was filed 21/2017 & Ors/ NCLT/CHD/CP already an order was passed in the Section 74(2) petition granting time to the company to 20.12.2017 21/2017 & Ors repay deposits. As time was extended by the Section 73(4) Tribunal and the time had not expired on the date of the hearing, the petitioner was disposed with liberty to approach the Tribunal again if need be. NCLT/CHD/CA SRS Limited, The petition under Section 74(2) came to be 106/2017 & Ors NCLT/CHD/CA filed in NCLT, New Delhi as the registered and CP 121/2016 106/2017 & Ors office of the company was in Haryana which and CP 121/2016 originally came in NCLT, New Delhi. The Section 74(2) company was a listed company which suffered losses on account of change in policies and other factors. The Board of directors devised a revised payment plan for depositors and the same was advertised. The application was thereafter filed in NCLT. The Tribunal asked the company to improve the repayment plan and finally on 20th October 2016 approved the

9.31

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

NCLT/ALL/ 37/2017 Section 74(2)

9.32

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Particulars

extension of time. At that time a hardship committee was also formed to enable early payment in hardship cases. The matter was to be listed quarterly for monitoring of payment. The company filed an application seeking relaxation is the interest component of two quarters after the demonitisation which was allowed on 2nd February 2017. The matter was transferred to Chandigarh NCLT due to the change in jurisdiction. The Company moved an application seeking further time. The court gave a detailed order on 20.12.2017 wherein it refused to grant further time inter alia holding that second extension is not permissible. It held that no further time be allowed to the company and asked the company to follow the schedule allowed by NCLT. It further directed ROC to launch prosecution on failure of the company to comply with the repayment plan. CP Jai Prakash Facts: In the earlier petition NCLT, Delhi has Associates granted extension of time for repayment upto 31st March 2017 and in the interim extension Limited, NCLT/ALL/ CP was granted by NCLT. The said order was 37/2017 taken in appeal and NCLAT had observed that no further extension be granted. The order of NCLAT was challenged in SC which had granted stay on order of SC. While the stay was pending another petition was moved in the NCLT seeking extension of time beyond 31st March 2017. During the time significant deposits had been paid. Issue: a. Whether a second petition is maintainable in light of the NCLAT order? b. Whether a fresh petition on similar grounds and circumstances for seeking further extension of time is maintainable or whether it operates as res judicata? Arguments: a. The company has paid a substantial amount from 2014 to March 2017. Even

Chapter 9

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

Deposits: delays and defaults

Particulars

after March 2017 till September 2017 a significant portion of O/S was paid. Only, few lakh rupees remained to be paid when the petition came up for hearing and they were withheld only due to lack of clearances from authorities. b. The reasons for delay in the previous company petition and this company petition were different. c. in the earlier company petition extension was requested only till 31st March 2017 whereas the prayer and the reasons in this company petition were different. Thus, principles of res judicata does not apply. d. The delay was caused due to delay in getting approvals in the scheme of arrangement for sale of unit. e. stay of the NCLAT order nullifies the order and acts as a plenary eclipse. Thus, the NCLAT order was due to the stay by SC not operative. [Smt Indira Gandhi vs, Raj Narain AIR 1975 SC 1590] f. the petitioner under sec 421 and 423 can only challenge the NCLT order. An application for further extension cannot be filed before appellate authorities. The order of NCLT is confined to extension till 31.3.2017. There is no reference of not granting any further extension. g. The ROC was also sent a notice and they observed that the matter can be considered on merits. Held: on the basis of the above submission, the payments which were made by the company between March 2017 and September 2017 were regularised by granting extension upto 13.9.2017. Further, the balance payments were asked to be deposited in a separate bank account with certain terms and conditions. NCLT/ALL/ CP Jai Prakash An application was filed by the depositor. The 65/2017/28.8.2017 Associates depositor claimed the maturity amount 9.33

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Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Section 74(2) Limited, (principle plus interest) plus interest at the rate NCLT/ALL/ CP of 12.5% per annum till realisation of amount. 65/2017/28.8.2017 The NCLT at the date of hearing observed that time was extension under Section 74(2) for repayment. It further observed that the maturity amount has been paid, Thus, petition was disposed of with liberty to the depositor to approach appropriate court for seeking interest after the maturity period. NCLT/AHM/CP Plethico Facts: Several depositors filed applications 47/2017 & Ors. Pharmaceuticals under Section 73(4). The NCLT noticed that payments were not made for several years. At Section 73 Limited, NCLT/AHM/CP the time when these petitions under Section 73(4) were filed, a petition for winding up was 47/2017 & Ors. admitted by Madhya Pradesh High court and a provisional liquidator was appointed. Further, an order was also passed under the State’s Relief Act wherein it was noticed that no coercive actions were to be taken against the company. Held: NCLT held that Section 446 of the Companies Act, 1956 is operative as provisional liquidator has been appointed. Thus, no suit or legal proceedings can be initiated without the leave of the High Court which was not taken in case of these applications. Thus, in view of the above it was held that applications cannot be proceeded with. Depositor Applicants were given liberty to approach HC for refund of deposit amount. NCLT/AHM/CP Neesa Leisure Facts: The company has earlier approached 2/2017 (sec. 73(3) Limited, CLB for extension of time for repayment & CP 11/2016 NCLT/AHM/CP which was rejected. A fresh company petition (74(2)) & Ors. 2/2017 (sec. 73(3) under Section 74 was filed in NCLT. The & CP 11/2016 company had hardly paid any depositor despite some orders of CLB under Section 73 wherein 17th January 2018 (74(2)) & Ors deposits were directed to be paid. Several Section 73 and 74 applications were filed under Section 73 by depositors wherein the company requested that these matters should be stayed till the Section 74 is decided. No concrete plan for repayment 9.34

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision)

Deposits: delays and defaults

Particulars

was produced. Issue: a. Whether the remedy to approach NCLT under Section 73(4) is applicable for deposits accepted prior to coming into force of Section 73 and 74? b. Whether pendency of Section 7 application under IBC will affect the applications under Section 73 and 74? Held: The company petition under Section 74 was rejected. NCLT held that depositors can file application under Section 73(4) even for deposits accepted prior to the coming in force of Companies Act, 2013. The pendency of Section 7 petition of IBC where no order has been passed will not affect the present application. Company was directed to repay the deposit amounts within 30 days. NCLT/AHM/TCP/ Madhya Pradesh A scheme for repayment of depositors was 143/2016 Industrial filed in MP HC. It was decided that company was ready to pay 75% of the principal. The CA/157/2016 C Development company agreed to pay the deposits holder 17.1.2018 Corporation Section 74(2) Limited, Company who approved the scheme as per the decision Appeal NO. 232 of namely 75 % of the principal. Further, as 2017 regards those who challenged the scheme. HC has directed petitioner to pay 40% of the principal amount as an interim measure. The company agreed to pay this amount. The other depositors who had challenged the scheme were directed to challenge the scheme approved by pursuing the writ petition already filed. NCLT/AHM/ CA Makson Nutrition Petition was filed to seek extension of time for 69/2015 Food India Private repayment of one deposit of 6 crores from one Limited, depositor. This deposit was accepted under the 16.5.2017 NCLT/AHM/TCP old act and as per the Section 74 was repayable Section 74(2) by March 2015. The company showed the /143/2016, expansion plans and investment and showed CA/157/2016 that it was unable to make payment within that time and requested for extension for till 31st March 2016. The time was extended. 9.35

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Chapter 9

Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) NCLT/ND/CA Bimla Kothari and Facts: There were more than 300 applications 41/2016 & CP Ors v Unitech which were received under Section 73(4) 124/2016 & ors Limited Along with which were considered. The company had other applications, initially approached CLB for extension of time 6.10.2016 NCLT/ND/CA which was rejected. Section 73(4) 41/2016 & CP Issue: Whether the remedy under Section 124/2016 & ors 73(4) is closed for deposits accepted prior to the notification of Companies Act, 2013? Whether these depositors now have to approach civil court? Held: Depositor under old Act can also approach NCLT under Section 73(4). Rule 9 of the Companies (Acceptance of Deposits) Rules, 2014 clarifies the applicability of the provisions of Section 73 and Section 74 to deposits accepted prior to coming into force of the Companies Act, 2013. The Tribunal accepted the undertaking of the Company to sell certain parcels of land and use the proceeds exclusively to liquidate the liability towards the present applicants. However, it held that this would not prejudice the rights of the applicant to recover their dues from any other tangible assets of the R1 company. The depositors had also raised concerns about directors absconding and siphoning of funds. The Tribunal held that these issues are beyond the scope of this matter. NCLT/ND/CA Unitech Limited, All the applications were allowed and 1/17 and NCLT/ND/CA directions were given to repay depositors. Ors./2.11.2017 Depositors were given liberty to recover their 1/17 and Ors amount with up to date interest. ROC was Section 73(4) directed to initiate prosecution against the respondent company and its directors. NCLT/ND/CA/124 Unitech Limited, The present set of petitions were allowed and / 2016 & others NCLT/ND/CA/12 depositors were given liberty to pursue /24.4.2017 4/2016 & others remedies for recovery of the amount. Section 73(4) NCLT/ND/CP/111/ Atlas Cycles The application for extension of time was 2016/7.11.2016 (Haryana) Limited allowed subject to the condition that there

9.36

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Deposits: delays and defaults

Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Section 74(2) , would be strict adherence with the time lines. NCLT/ND/CP/111 The company was required to submit a compliance report every succeeding month for compliance with terms of repayment. This matter was subsequently transferred to Chandigarh Bench. CP/109/2016/ Ansal Housing and The Company filed petition with a proposal for 3.10.2016 Construction repayment which did not find favour with the bench. Thus, a revised repayment schedule Section 74(2) Limited, CP/109/2016/3.10. was provided. Newspaper advertisements 2016 were given and objections were called for. The company showed its track records where it had not defaulted in the repayment of depositors in the past. The company also offered an additional rate of interest of 0.5% on account of delayed payment. Considering the facts of the case, the period was extended in a phased manner over 24 months. Provision was also directed to be made in Hardship cases.

9.11

PROCEDURE UNDER CHAPTER V

Procedure for filing with NCLT as well as CLB is provided hereunder.

9.11.1 Procedure under NCLT The Procedures can be understood by reading the provisions in Chapter V with NCLT Rules. Reference to the rules, form and annexures are of NCLT Rules are specified here unless provided otherwise. Rule 73 provides the rule for making an application under sec 73(4) or sec 76(2) read with sec 73(4), sec 74(2) and sec 76(2) read with sec 74(2). 1. Where a company fails to repay the deposits or any part thereof or any interest thereon, an application can be made by all or any of the depositor(s) concerned, or where the deposits are secured, by the deposit trustee. The Application must be made in Form No. NCLT 11 in duplicate and shall be accompanied by such documents as are mentioned in Annexure B. 2. A list of depositors must be attached to the application setting forth the following details in respect of every such depositor: (a) Full name, age, father’s/ mother’s/ spouse’s name, occupation and full residential address

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NCLT and NCLAT Law Practice and Procedure, 7e

(b) (c) (d) (e) (f)

Chapter 9

Fixed deposit receipt number as the case may be. Date of maturity; Amount due to such person by the company; Amount already paid by the company, if any; Total amount due as on the date of the application:

3. If the application is by the company for seeking time for repayment of deposit, or part thereof or interest, under sec 74(2) or under sec 76(2) read with sec 74(2), then alongwith the application, the company must file an affidavit stating that the list of depositor(s) is correct, and that the estimated value as given in the list of the amount payable to such depositors are proper estimates of the values of such debts and claims. The application under sec 73 and sec 76(2) read with sec 74(2) shall be in Form No. NCLT 1 and shall be accompanies by documents as per Annexure B. 4. The application made herein (a) Section 74(2) shall be served on the regional director and the registrar of companies before the date of hearing (b) Section 76(2) read with sec 74(2) shall be served on the regional director and the registrar of companies before the date of hearing. 5. The registrar of companies in consultation with regional director shall submit before the Tribunal, the report on the affairs of the company within 30 days from the date of the receipt of the application and Tribunal may consider such observations made by the registrar of companies before passing an order. 6. The NCLT Rules do not provide specifically in r 73, but as company is the opponent, the notice should be served on the company in Form No. NCLT 5 and it should get an opportunity to challenge the said application. It is also possible that company may file an application for deferring the payments and both the application may be heard together. A reverse situation is also possible, where the company is seeking extension. In that event, the view of depositor also should be considered before passing any decision extending the time. 7. If a reply is filed by the company, the depositor will get a chance to rejoin the same. 8. The Tribunal shall pass an appropriate order within a period of 60 days from the date of receipt of application. The time period is directory. 9. The Tribunal shall give a reasonable opportunity of being heard to the company and the other persons interested in the matter. 10. If the Tribunal considers that it is necessary to safeguard the interests of the company, the depositor(s), as the case may be, or in the public interest, direct, by order, the company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order. 9.38

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Deposits: delays and defaults

11. While passing such an order, the Tribunal shall consider the financial condition of the company, the amount or deposit or debenture or part thereof and the interest payable thereon.

9.12

FURTHER READING

Commentary on Part III of 1956 Act from A Ramaiya, Guide to the Companies Act, Sixteenth Edition, 2010, Wadhwa & Company.

9.39

NCLT and NCLAT Law Practice and Procedure, 7e

9.40

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Chapter 10

Tribunal Convened General Meetings 10.1

INTRODUCTION

General meetings are required to assess the opinion of shareholders from time to time. The Act mandatorily requires one meeting to be called, which is termed as the “annual general meeting” or ‘AGM’. Any other general meeting is termed as “extra ordinary general meeting” or ‘EOGM’. The Board of Directors is empowered to call these meetings. If they fail to do so, certain shareholders (holding a particular percentage of shareholding) are authorized to call EOGM. However, if the AGM or EOGM cannot be held, called or convened in the manner provided under the Act or the Rules by the Board or the Member due to certain extraordinary circumstances, then the Tribunal is empowered to convene general meetings under the Companies Act, 2013. The provisions for convening an annual general meeting and extra ordinary general meeting in the Companies Act, 2013 are almost similar to the provision provided in the Companies Act, 1956.

10.2

TRIBUNAL CONVENED AGM

As regards annual general meeting, sec 97 provides as under: “97. Power of Tribunal to call annual general meeting (1) If any default is made in holding the annual general meeting of a company under section 96, the Tribunal may, notwithstanding anything contained in this Act or the articles of the company, on the application of any member of the company, call, or direct the calling of, an annual general meeting of the company and give such ancillary or consequential directions as the Tribunal thinks expedient: Provided that such directions may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting. (2) A general meeting held in pursuance of sub-section (1) shall, subject to any directions of the Tribunal, be deemed to be an annual general meeting of the company under this Act.”

10.1

NCLT and NCLAT Law Practice and Procedure, 7e

10.2.1

Chapter 10

Highlights of section 97

(a) An application under sec 97 can be filed only by a member of the company; (b) Even a member having a single share can file such application; (c) Tribunal cannot take cognizance of this matter suo motu; (d) The application can be filed when a default is made for calling an AGM. There is no time limit provided in the Act; (e) The Act allows the Tribunal to grant even consequential reliefs. The nature of these reliefs sought may differ in the New Act, in view of the changes made in the disclosures that are required in the financial statements and the manner of convening and holding an AGM; (f) The Act does not prohibit calling of AGM of multiple past years in the same year; (g) The directions may be passed even against the directors or officers directing them to provide disclosures or send notices, as the case may be, to protect the interest of members and to comply with the intent of the Companies Act, 2013.

10.3

TRIBUNAL CONVENED EOGM

An EOGM is called to transact any special business. Under the Act, the Board, the shareholders and Tribunal are permitted to call an EOGM. Section 98 dealing with Tribunal convened EOGM reads as under: “98. Power of Tribunal to call meetings of members, etc (1)

10.2

If for any reason it is impracticable to call a meeting of a company, other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles of the company, the Tribunal may, either suo motu or on the application of any director or member of the company who would be entitled to vote at the meeting,— (a)

order a meeting of the company to be called, held and conducted in such manner as the Tribunal thinks fit; and

(b)

give such ancillary or consequential directions as the Tribunal thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act or articles of the company: Provided that such directions may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.

Chapter 10

(2)

Tribunal convened general meetings

Any meeting called, held and conducted in accordance with any order made under sub-section (1) shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted.”

10.3.1

Highlights of section 98

10.4

APPLICABILITY OF OLD CASE LAWS

(a) The application under this section can be filed by a director or members; (b) The Tribunal can also take a decision under sec 98 “suo motu”; (c) The persons other than directors or members may apply and convince the Tribunal on grounds why the Tribunal should exercise its suo motu powers under sec 98; (d) The person applying under sec 98 must convince the Tribunal that it is “impracticable to call a meeting”. This leaves the ambit of calling a meeting under sec 98 very wide.

The provisions of sec 97 and 98 of the Companies Act, 2013 are similar to the provisions of sec 167 and 186 of the Companies Act, 1956 respectively. Thus, the following questions will emerge:  As the sections are similar to the Old Act, can one safely rely on old case laws?  While these provisions have remained fairly unaltered, the other provisions have changed significantly. Inter alia, there are • Changes in manner of convening AGM and EOGM; • Changes in the nature of voting rights attached to different class of shares; • Changes in the disclosures required while convening AGM/EOGM; • Changes in nature of approvals required; • Changes in requirement of filing;  What is the impact of these changes on this remedy?  What additional reliefs can be sought from the Tribunal?  Can reliefs be sought for holding AGM/EOGM for a period with respect to the Old Act? This remedy was not used very frequently under the Old Act. Thus, the case laws on the same are limited. While the section remains the same, the provisions regarding calling of AGM and EOGM by directors and shareholders have undergone a change. Thus, while the case laws are relevant, their applicability has to be analysed keeping in view the changes in other provisions of the law. Further, due to additional requirement with respect to quorum, it may be possible to use these sections more often under the new law. In certain cases there can be a default in calling an AGM, for instance if all the shareholders are abroad, then it is not possible to hold a meeting in India. In such instances, the provision for holding an AGM cannot be complied with and recourse might have to be taken to these sections. Following are some of the case laws under the Companies Act, 1956 that provide some guidelines for using and interpreting the sections under the Companies Act, 2013. 10.3

NCLT and NCLAT Law Practice and Procedure, 7e

10.4.1

Chapter 10

Analysis of case laws

Case 1: National Textile Corporation (Uttar Pradesh) Ltd. v Swadeshi Polytex Ltd. and Ors. [Company Petition No. 9/167/97-CLB; MANU/CL/0018/1998] In this case, the CLB analysed the nature and extent of the powers under sec 167 of the Companies Act, 1956. The petitioner was a Government company that was holding shares in Swadeshi. In the board meeting held on 14 August 1997, the board of directors proposed to postpone AGM and seek extension of time thereof from the registrar of companies. No date of AGM was determined at that time. The petitioner filed the petition seeking calling of extension and also incidental relief that wanted certain director to be removed. However, subsequently a date was fixed for the AGM. Thus, the CLB went into the question as regards the nature of its power to call AGM and in which circumstances it can be entertained. Held: Company Law Board cannot direct company to hold meeting, if there is no default in holding an AGM. (1) That, the last annual general meeting was held in November 1996 and as the next one was scheduled for December 1997, the two conditions set forth in section 166 of the Companies Act, 1956 were satisfied. No default had taken place and the very essential condition for invoking the provisions of sec 167 did not exist. (2) That, the petition was premature and therefore, the incidental relief with regard to the appointment of an independent chairman could not be granted. (3) According to sec 167 of the Companies Act, 1956, the jurisdiction of the Company Law Board arises in the case of default in holding the AGM. The annual general meeting is an opportunity to take stock of the affairs of the company and carry out certain routine business. The objective of this section is to facilitate an annual meeting of the shareholders through the intervention of the Company Law Board, in case the directors fail to hold the annual general meeting in accordance with the provisions of sec 166 of the Companies Act, 1956. Section 166 provides for calling an annual general meeting which should satisfy two conditions, namely(a) there shall be an AGM every year; and (b) there shall not be a gap of more than 15 months between two annual general meetings. In the above circumstances, no default has occurred, as the wording of sec 167 with regard to default should be reckoned with reference to sec 166. Once a meeting satisfies the two conditions under the sec 166, there is no need for extension of time. The extension of time was indeed only to facilitate compliance with sec 210 of the Companies Act, 1956. Moreover, wherever procedural provisions have to be interpreted keeping in view the default and consequent penalties provided in the section, these have to be interpreted strictly. A default under sec 166 strictly has to be therefore related to the two conditions prescribed in that section. A non-presentation of accounts within 6 months of the closure cannot be interpreted as a default under sec 166 but may be considered as a default under sec 210. Any superimposition of a default under sec 210, 10.4

Chapter 10

Tribunal convened general meetings

while considering compliance under sec 166 will be doing violence to the provisions of sec 166. Case 2: Yogendra H. Desai v Spatial Holodynamics (India) (P.) Ltd [Company Application No. 1/167/CLB/WR/2002; MANU/CL/0059/2002] The applicant, Mr. D, a director and shareholder of the respondent company, was unable to hold a meeting of the board because of the non-cooperative attitude of other directors. Owing to the indifference of other directors, Mr. D resigned from his post and made an application to the CLB to invoke the provisions of sec 167 of the Companies Act, 1956. The company was regular in filing the statutory returns till year 1997. The Registrar affirmed the same and also reported that the company had not filed the statutory returns thereafter. The Registrar also reported that the last AGM of the company was held on 30 August 1997 and thereafter the company had failed to convene any annual general meeting i.e. from 31 March 1998 to 31 March 2001. This indicates that the company had come to a standstill position. It was also reported that the company was not doing any business and had closed down its business activities. Held: In the given context, if no direction was given under sec 167 of the Companies Act, 1956 for holding annual general meeting, it would be very much against the interest of the shareholders, creditors and public at large. It was also to be found that the criteria laid down under sec 167 for giving permission for holding the annual general meetings had been fulfilled. It would be just and proper to direct the company to call, hold and conduct the annual general meeting in respect of the financial years from 1998 to 2001 which has been long overdue to transact the normal business of the company. Case 3: Cannanore Whole Body C.T. Scan and Research Centre Pvt.Ltd. and Ors. v Mrs. Saibunnisa S.V. [C.A. No. 129/167/SRB of 1997; MANU/CL/0024/1998] Held: It was held that, a member and not the company is empowered to invoke the provisions of sec 167(1) of the Companies Act, 1956. Such application by the company is ab initio defective and it becomes bad in law. The company cannot seek directions against itself. The application filed by the company is not in consonance with the provisions of sec 167. Case 4: M. Sampath v AKMN Cylinders Pvt. Ltd. [(1998) 29 CLA 455 (CLB-SB)] Held: An applicant, whose membership has been disputed by the company by showing that he has transferred his entire shareholding, has no locus standi to make an application under sec 167 of the Companies Act, 1956. Case 5: The Madras High Court in Nungambakkam Dhanarakshaka Saswaiha Nidhi Limited v Registrar of Companies [[1972] 42 Comp Cas 632] This case deals with the unamended sec 167 of the Companies Act, 1956 where the power of calling AGM was with CG. Held: While dealing with an application seeking to invoke the inherent power of the court, it was observed that "exclusive power is conferred upon the Central Government (who at time has this power before it was given to CLB) to permit the calling of a 10.5

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general meeting in the case of default to hold the general meeting notwithstanding anything contained in the Companies Act or in the articles of association of the company". Case 7: Kerala High Court in R. Prakasam v Sree Narayana Dharma Paripalana Yogam [[1980] 50 Comp Cas 611] Held: The HC specifically observed, while dealing with a petition to exercise jurisdiction for intervention with regard to the conduct of the annual general meeting that "when Parliament addressed itself to the question of prescribing the minimum requirements for an annual general meeting it has also specified the Central Government (now the Company Law Board) as the authority competent to intervene where such requirements are not satisfied". Case Digest – NCLT Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered 2016 SCC Online Interport Global Facts: The company had two shareholders. NCLT 408 (MUM) Logistics Private Petitioner held 49% and Respondent NO. 2 Limited v held 51%. Each had one representative Netzland Wireless director. The company was incorporated India Pvt. Ltd. based on a JV agreement between the parties And Ors., 2016 and the same was terminated. The SCC Online Respondent NO. 2 was a German company NCLT 408 and they failed to cooperate despite several (MUM) notices. They also failed to appear in the Section 186 & 98 matter despite notices. The petitioner showed that there was complete deadlock in the company and Petitioner prayed that an order may be passed to call a general meeting of the shareholders to appoint a director to enable the board to complete necessary compliance and hold AGM for finalization of accounts. Held: NCLT held that it was impracticable to call a meeting and observed that ordinary business of the company had paralysed. It has become impracticable from a reasonable point of view to convene a meeting thus compelling the Petitioner to invoke the provisions of Section 186. Tribunal is statutorily required to intervene when there is a deadlock. Thus, the proposed director was

10.6

Chapter 10

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

Tribunal convened general meetings

Particulars

authorized to convene a meeting and it was held that the director so nominated in the petition shall be deemed to constitute a quorum for the meeting so held and the meeting so held under Section 98 be deemed to be duly called, held and conducted. The NCLT also directed that agenda for the meeting should be placed before the NCLT and after obtaining the approval the meeting could be conducted within 15 days. 2016 SCC Online Prem Anand v Facts: This matter was filed in CLB and then CLB 167 Prisha Corporate transferred to NCLT. A petitioner and R2 Services Private were the only shareholders. They was no Limited , 2016 dispute between them. The main contention SCC Online CLB of the Petitioner was that R3 and 4 who were 167 the directors have resigned and the company is Board less. As the company has no board it Section 186 is not possible to convene an EOGM. This was objected to by R3 and R4. According to them even though a company is boardless a meeting can be called by requisition of members. As btween the members they are holding requisite number of shareholding for calling EOGM, it is possible for them to hold an EOGM by requisition of members. Thus, the criteria of Section 186 of 1956 Act / 98 of the 2013 Act that it is impracticable to hold the meeting, is incorrect and Tribunal need not exercise powers under Section 186. Held: NCLT held that as it is possible for the member to convene a meeting by requisition and Section 168(3) of Companies Act, 2013 also empowers the promoter shareholder to appoint directors and there is no dispute between them. NCLT also referred to the Articles of Association which empowered members to call EOGM. Thus it held that it is not impracticable to hold a EOGM as law allows these members to hold meeting. Hence, this petition was dismissed. 10.7

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Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered 2017 SCC Online Kashinath Facts: The Petitioner was holding 30% NCLT 976 Rajgharia v shareholding. An oppression and Section 167(1) of Vishnu Properties mismanagement case was filed in 2012 1956 Act; Section & Industries P which was disposed of in terms of the 97(1) of 2013 Act Limited , 2017 consent terms in 2016. Due to the pendency SCC Online of litigation, no AGMs were held and no NCLT 976 annual accounts were prepared. The Petitioner claimed that after the disposal of the CP, the respondent company ought to have completed the pending annual accounts and held AGMs. IN these circumstances, a petition was filed under Section 97 of Companies Act, 2013 to issue directions to call annual general meetings Held: The Petitioner was allowed and respondent company was directed to call AGM for 5 years for approval of the Annual Accounts and other financial Reports. 2016 SCC Online IJM (India) Facts: Petitioner and R-2 has jointly NCLT 380 Infrastructure promoted SITCO and R-1 company and held Section 167 of Limited v 51% and 49% respectively. There were Companies Act, Swarnandhra difference between the parties as regards 1956 IJMII Integrated certain expenditures for the year 2011-12. Township Due to the same, Andhra Pradesh Housing Development Co. Board (R-2) who is the only other Pvt. Limited, 2016 shareholders failed to adopt the accounts in SCC Online the AGM for 2011-12 and the said AGM was NCLT 380 adjourned and subsequently sought to be held Section 167 of on 30th September 2014. At the adjourned Companies Act, meeting, R-2 was not present and meeting 1956 was dissolved. R-2 appointed auditors for conducting an audit in accounts since inception and special audit report was made available to the R-1 company. Nominee directors of R-2 also failed to attend board meeting which were finally held. APHB informed that after the creation of state of Telangana certain internal changed were taking place and new nominee directors were to be appointed. It stated in a letter that 10.8

Chapter 10

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

Tribunal convened general meetings

Particulars

annual accounts can be adopted only thereafter. The company informed them about the necessity for timely adoption of accounts. Applicant further pleaded that unless the meeting are allowed to be held for 31st March 2012 the accounts for later years are also held up. The petition was filed in 2014. The petitioner also stated that directors will face disqualification unless the accounts are adopted and filing are done. Issue: Whether NCLT has jurisdiction to entertain the petition? Whether Applicant was justified for not conducting board meetings/AGMs? Whether APHB is justified in not attending the board meetings/AGMs of SITCO? Whether Telangana Housing board is a necessary party? Held: NCLT held that it was empowered to direct holding of AGM. It was not justified for APHB to hold up the adoption of annual accounts. The applicant have shown their bona fide in trying to hold AGM/Board meeting. It further looked at the law on the creation of new state and companies act and held that Telanga Housing board was not a necessary party. NCLT excused the default in holding 9TH AGM and directed the R-1 company to hold 9th AGM after serving statutory notice on both the shareholders for adopting accounts for year ended 31st march 2012. The Telangana board which is successor to APHB is directed to depute nominee directors to the said proposed AGM of SITCO so as to fulfill the required quorum The meeting shall be chaired by such person as provided in the articles. 2017 SCC Online Pawan Kumar Facts: The Petition was filed in 2016. The NCLT 374 Gupta v Savitri Respondent company held AGM in 2014 but 10.9

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Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered Section 167 Textiles India Pvt. failed to hold AGM in 2015. Petitioner was Limited, 2017 originally one of the two director of the SCC Online company. CG who was the other director and NCLT 374 shareholders had filed an oppression and mismanagement case before CLB in 2015 which came to be dismissed by the CLB vide order dated 11th December 2015. Against the order of the CLB an appeal was filed in 2015. The dispute inter alia was pertaining to the audit of the accounts. A settlement was reached in the appeal and accordingly CG resigned as a director. Thus, consequently petitioner who left as the only director and he filed under Section 167 praying for an order directing holding of AGM. Held: AGM was directed to be held within 30 days on receipt of the order. A compliance report was to be submitted to the concerned ROC. NCLT observed that it is paramount as well as the intension of Companies Act to protect the functioning as well as the interest of the company. Therefore it is always desirable to convene and call all the meetings as prescribed under the Act so that company should not infringe the provision of the act or to be treated to be under default. Holding of AGM is a statutory obligation. 2017 SCC Online Punjab National Facts: The financial creditor filed an NCLT 11883 Bank v James application under Section 60 claiming that Private time for holding an AGM should be allowed NCLT, Chandigarh Hotels Section 60 of Limited, 2017 to be extended due to several factors Insolvency and SCC Online including the fact that there were more than bankruptcy code NCLT 11883, 3000 shareholders and the details of NCLT Chandigarh transactions were proving difficult to compile and the suspended board of directors were not cooperating. Held: The NCLT allowed time for holding the AGM by exercising powers under Section 60 (5)(c) of the Code. 10.10

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Tribunal convened general meetings

Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered NCLT/ND/CP Rattan Lal Garg Facts: Petitioners held 100% shares. They 211/2017 & Anr v claimed that they resigned as directors and Parmeshwar appointed other directors who were not Section 98 Buildtech P communicating and not cooperating for Limited, holding an EOGM. Hence this application NCLT/ND/CP was filed. 211/2017 Held: NCLT observed that shareholders are two in number and hold 100% of the share capital. Thus, under Section 100(4) and 1000(5), they can validly requisition a general meeting and a petition for this purpose is not required. The quorum is also fulfilled. Thus, Petition was dismissed as it was not impracticable to call a meeting. NCLT/MUM/CP/2 Sonali Nimish Facts: Petitioner and R-2 are the only 68/2017 Arora v Tresorie shareholder. Petitioner is holding around Traders P Limited 99% shares. She is also a director. She is Section 97 , seeking to hold a AGM for year 201, 2015 NCLT/MUM/CP/ and 2016. R2 despite receiving notices has remain absent for AGMs. One more prayer 268/2017 was that until the decision if the testamentary suit, the Petitioner be deemed to constitute a valid quorum for holding AGM. Held: Prayer for holding AGM was allowed based on the consent of both parties. Petitioner was allowed to attend in person or by proxy. It was recorded that consent by R2 to hold AGM would not prejudice his rights in respect of any suit or claim. Further, it is further observed that no concession be considered as granted in respect of any allegation in any legal proceeding. NCLT/HYD/CA73/ Dr. Subba Rao Facts: The petitioner and his group holds 2016 Pavuluri v Gagan 50% shareholding. The company application Section 97 Aerospace was filed under Section 97 to appoint any firm of chartered accounts as a statutory Limited, NCLT/HYD/CA7 auditors and to furnish their report to the shareholders for the years 2013-14, 2014-15 3/2016 and 2015-16. The application further prayed for R2 to 3 to extend full co-operation for 10.11

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

Chapter 10

Particulars

holding AGM and for appointment of Independent Advocate Commissioner as a Chairperson for conducting the AGM. Petitioner claimed that respondent have tried to thwart every attempt to get the account audited. AGM also could not be conducted due to non- cooperation of Respondents. Held: The NCLT allowed the Petition. It appointed an auditor for auditing the accounts and a chairperson for conducting AGM. Respondent were directed to extend full cooperation. Auditor was directed to take up auditing the accounts and all parties were directed to provide necessary documents. The process was directed to be completed in three months. NCLT/AHM/CP/52 Renu Yajnik v Facts: The Petitioner is a daughter of IS. The /17 Kruppa Paints Pvt. R2 is a step mother of Petitioner. The Limited & Anr , petitioner is holding 96% of the shares. IS Section 98 NCLT/AHM/CP/5 and R2 were directors of the company and 24.08.2017 after IS died R2 was the only director. The 2/17 petitioner without following the procedure sought to appoint herself and her husband as directors. The same was challenged by R2 by writing to MCA. The petitioner filed this petition praying to conduct general meeting for purpose of appointing the Petitioner as a director and with a further direction that one Member shall constitute quorum. Held: The Petitioner ought to have sent a requisition to hold general meeting to R2 under Section 100(2). This would have necessitated R-2 to act under Section 174(2). However, Petitioner approached the NCLT without giving such requisition under the assumption that there is no valid board. Section 174(2) enable the continuing directors to act notwithstanding any vacancy. Thus, after the death of IS, R-2 is entitled to increase the number of director or summon a 10.12

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Tribunal convened general meetings

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

Particulars

general meeting. Petitioner failed to send a valid requisition under Section 100(2). Further, it observed that conduct of Petitioner is questionable as it has approached the Tribunal after R2 filed a complaint against them in MCA. On the basis of these reasons, Petition was dismissed.

10.5

PROCEDURE FOR TRIBUNAL CONVENED GENERAL MEETINGS

NCLT Rules read with the sec 97 and 98 provide the procedure to be followed for AGM and EOGM that is sought to be convened by the Tribunal. Here, the Rules, Forms, Annexures that are referred are those provided in NCLT Rules, unless provided otherwise. Application under sec 97 for calling or obtaining a direction to call annual general meeting (Rule 74 of NCLT Rules): 1. An application under sec 97 for calling or obtaining a direction to call the annual general meeting of the company shall be made by any member of the company. Such application shall be made in Form No. NCLT 1 of NCLT Rules and shall be accompanied by the documents specified in Annexure B of NCLT Rules. 2. A copy of the application shall be served on the registrar of companies on or before the date of hearing. 3. The ROC can if it desires state its objections/observations. 4. Tribunal after hearing the applicant and the ROC (if he has stated any objection) may pass such order as it deems fit calling the annual general meeting. It can also issue consequential and incidental orders to effectively hold such meeting. 5. The Tribunal is required to follow the principles of nature justice, thus, though the rules do not provide, the Tribunal may send a notice to the company whose EOGM is sought to be called by the applicant. The company can be given the notice and may be allowed an opportunity to defend itself. However, this depends on the facts of the case.

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Application for obtaining an order for calling of general meeting (other than annual general meeting) under sec 98 (Rule 75 of NCLT Rules) 1. An application under sec 98 for obtaining an order for calling of a general meeting (other than AGM) shall be made by any director or member of the company who would be entitled to vote at the meeting. Such application shall be made in Form No. NCLT 1 and shall be accompanied by the documents specified in Annexure B of the NCLT Rules. 2. A copy of the application shall be served on the registrar of companies on or before the date of hearing. It is generally understood, though it is not provided in rules, that the ROC can state his objections/observations if he has any. 3. The Tribunal may after hearing the applicant, if it is satisfied that the Applicant has made out a good case, call the EOGM and pass such other consequential and incidental orders as may be necessary for effectively holding the EOGM. It can also hear the ROC, if he has any objections/observation before passing the order. 4. The Tribunal is required to follow the principles of natural justice, thus, though the rules do not provide, the Tribunal may send a notice to the company whose EOGM is sought to be called by the applicant. The company can be given the notice and may be allowed an opportunity to defend itself. However, this depends on the facts of the case.

10.6

COMPARISON CHART - HOLDING OF ANNUAL AND GENERAL MEETING OF MEMBERS

10.6.1

Comparison of New Act (Companies Act, 2013) with Old Act (Companies Act, 1956)

Particulars

New Act

Old Act

Power of Tribunal to call AGM

97

167

CLBTribunal.

Power of Tribunal to call meetings of members, etc.

98

186

CLBTribunal.

10.14

Remarks

Chapter 10

10.6.2

Tribunal convened general meetings

Comparison of Old Act with New Act

Particulars

Old Act

New Act

Power of CLB to call AGM

167

97

CLBTribunal.

Power of CLB to order meeting to be called

186

98

CLBTribunal.

10.6.3

Remarks

Comparison of New Rules with Old Rules

Particulars

New Rules

Old Rules

Application under sec 97 for calling or obtaining a direction to call AGM

74

-

Newly Inserted.

Application for obtaining an order for calling general meeting under sec 98

75

-

Newly Inserted.

10.7

Remarks

FURTHER READING

Commentary on sec 167 and 186 of the Companies Act, 1956 from A Ramaiya, Guide to the Companies Act, Sixteenth Edition, 2010, Wadhwa & Company.

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10.16

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Chapter 11

Reopening of Accounts and Revision of Financial Statements 11.1

INTRODUCTION

Several instances of falsification of books of accounts were noticed under the Companies Act, 1956. To counter this menace, several measures have been provided in the Companies Act, 2013. One such measure is the insertion of sections 130 and 131 read with sec 447, 448 in the New Act. Section 130 read with sec 131 are newly inserted provisions that prohibit the company from suo motu opening its accounts or revising its financial statements. This can be done only in the manner provided in the Act. Section 130 and 131 provides the instances where financial statements can be revised/reopened. Section 130 is mandatory, where the Tribunal or Court may direct the company to reopen its accounts when certain circumstances are shown. Section 131 allows company to revise its financial statement but do not permit reopening of accounts. The company can itself approach the Tribunal under sec 131, through its director for revision of its financial statement.

11.2

HISTORICAL TRIGGERS

In the past, there have been many instances, where companies and directors falsified the books of accounts and financial statements. Two sample cases are discussed below:

11.2.1

Satyam case

In case of Satyam, the books of accounts were cooked to show excess liquid assets. The books were manipulated by showing nearly INR 71.36 billion fake billings and cash. In this case, even the auditors were alleged to be hand in glove with the management to cover up the fraud and were accused of providing a misleading audit report.

11.2.2

Reebok

Reebok India had been accused by SFIO for falsifying its books of accounts to the tune of INR 1,400 crores by inflating its sales by INR 655 crores during the period 11.1

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2007 to 2011. Top executives of the company were involved in this, in order to get sales-linked incentive and bonuses.

11.3

REOPENING OF ACCOUNTS BY COURT’S OR TRIBUNAL’S ORDERS

Section 130 dealing with reopening of accounts by Court’s or Tribunal’s order provides as under: “(1) A company shall not re-open its books of account and not recast its financial statements, unless an application in this regard is made by the Central Government, the Income-tax authorities, the Securities and Exchange Board, any other statutory regulatory body or authority or any person concerned and an order is made by a court of competent jurisdiction or the Tribunal to the effect that— (i) the relevant earlier accounts were prepared in a fraudulent manner; or (ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements: Provided that the court or the Tribunal, as the case may be, shall give notice to the Central Government, the Income-tax authorities, the Securities and Exchange Board or any other statutory regulatory body or authority concerned and shall take into consideration the representations, if any, made by that Government or the authorities, Securities and Exchange Board or the body or authority concerned before passing any order under this section. (2) Without prejudice to the provisions contained in this Act the accounts so revised or re-cast under sub-section (1) shall be final.” Sections 130 as amended by Companies (Amendment) Act, 2017 vide Notification SO 630(E), dt. 9 February 2018 is given as under: “130. Re-opening of accounts on court’s or Tribunal’s orders (1) A company shall not re-open its books of account and not recast its financial statements, unless an application in this regard is made by the Central Government, the Income-tax authorities, the Securities and Exchange Board, any other statutory regulatory body or authority or any person concerned and an order is made by a court of competent jurisdiction or the Tribunal to the effect that— (i) the relevant earlier accounts were prepared in a fraudulent manner; or (ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements: 11.2

Chapter 11

Reopening of accounts and revision of financial statements

Provided that the court or the Tribunal, as the case may be, shall give notice to the Central Government, the Income-tax authorities, the Securities and Exchange Board or any other statutory regulatory body or authority concerned or any other person concerned and shall take into consideration the representations, if any, made by that Government or the authorities, Securities and Exchange Board or the body or authority concerned or the other person concerned before passing any order under this section. (2) Without prejudice to the provisions contained in this Act the accounts so revised or re-cast under sub-section (1) shall be final. (3) No order shall be made under sub-section (1) in respect of re-opening of books of account relating to a period earlier than eight financial years immediately preceding the current financial year: Provided that where a direction has been issued by the Central Government under the proviso to sub-section (5) of section 128 for keeping of books of account for a period longer than eight years, the books of account may be ordered to be re-opened within such longer period.”

11.3.1

Similar provisions under the UK law

There is a provision in the UK Companies Act, 2006 for defective accounts in Chapter 11. But the provisions are materially different from each other. However, the rationale behind the provisions appears to the same.

11.3.2

Bar on reopening

The Act provides as follows: “(1) A company shall not re-open its books of account and not recast its financial statements, unless….” Thus, the company cannot, suo motu, reopen its books of accounts or recast its financial statements. Thus, after the commencement of this section, the books of accounts of the company and the financial statement cannot be changed unless it is done in accordance with any other provision of the Act.

11.3.2.1 Applicability to books maintained under the Companies Act, 1956 The Companies Act, 2013 uses the word ‘books of accounts’ and ‘financial statement’. It does not refer to the books of any specific year. Thus, in view of the author, the bar on reopening of accounts will apply from the date of commencement, to every book of accounts whether it is kept/maintained before or after the commencement of this section. Similarly, the term financial statement will mean any financial statement of the company of any year. This view is further supported by the fact that wherever the Companies Act, 2013 has desired to make any distinction 11.3

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between the old act and the new act, it has made such distinction very clear. For example, different set of provisions are specified for deposits accepted under the Old Act and those accepted under the New Act. However, as no provision is made for accounts maintained under old and New Act, it will be applicable to books maintained under new and Old Act.

11.3.3

Application by authorities or any person concerned

The right to apply for such reopening is given to the following authorities/persons: (a) Central Government; (b) the Income-tax authorities; (c) SEBI; (d) any other statutory regulatory body or authority; or (e) Any person concerned. The right to reopen is given to an unidentified set of statutory regulatory authorities over and above the three authorities mentioned above. It does not state whether that authority should be regulating the company or regulating any aspect or affairs of the company. Thus, this section can be used by a wide variety of authorities like CBEC, RBI, IRDA, Provident Fund Regulatory Authority.

11.3.3.1 Meaning of ‘person concerned’ This right is also given to 'any person concerned'. This term is not defined in the Act. “Person concerned” can include any person who is associated with the company whether as a banker or shareholder or director or creditor or lender etc. Such person should be associated to the company and should be able to show some concern or interest in the company. Such person should be able to establish his bona fides that why such application is filed by him and how he is affected by such accounts not being properly kept. By using the term “person concerned”, it seems that the legislature wanted to provide this relief to all the stakeholders of the company, who have an interest in ensuring that the company does not misstate its account or present an incorrect picture to the stakeholder who may make decisions on the basis of such statement. For instance, the shareholder may be taking a decision whether to stay invested in the company or to exit. The lender may take a decision whether to give additional funding to the company or not and whether the funds are being used for the purpose for which they were lent or not.

11.3.4

Court/Tribunal

The section uses the words “an order is made by a court of competent jurisdiction or the Tribunal”. Thus an order for reopening or recasting can be made by a court or the Tribunal. In this case, in view of the context, the meaning of the term “Tribunal” may have to be considered in the boarder sense to include any Tribunal whether constituted under this Act or not. It is possible that even Tribunal like CESTAT and

11.4

Chapter 11

Reopening of accounts and revision of financial statements

ITAT may have such powers and in that event the term Tribunal may have to be read in the broader sense. Section 130 may also be read as empowering NCLT to reopen account. It further, retains the power of other courts of competent jurisdiction to reopen books of account.

11.3.5

Circumstances

The reopening of accounts/recasting of financial statement is allowed only in certain situations that are set out in the Companies Act, 2013. In other instances, in the author’s view, even court of competent jurisdiction cannot order reopening /recasting of account. The jurisdiction of the courts is barred. Such Tribunal/Court should make any of the following orders: “an order is made by a court of competent jurisdiction or the Tribunal to the effect that— (i) the relevant earlier accounts were prepared in a fraudulent manner; or (ii) the affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements …”

11.3.5.1 Account prepared in fraudulent manner The first type of order deals with a situation of fraud. For interpreting the term “account prepared in fraudulent manner” one should look at the definition of fraud provided in the sec 447 read with sec 448. Section 447 defines fraud and sec 448 makes sec 447 applicable to any wrongful action made with respect to any document of the company. Thus, the two sections can be used for understanding the scope and meaning of the term fraudulent manner.

Deemed Frauds Section 448 of the Companies Act, 2013 deems certain actions to be frauds and will be dealt with as frauds. It provides as follows “448. Save as otherwise provided in this Act, if in any return, report, certificate, financial statement, prospectus, statement or other document required by, or for, the purposes of any of the provisions of this Act or the rules made thereunder, any person makes a statement,— (a) which is false in any material particulars, knowing it to be false; or (b) which omits any material fact, knowing it to be material, he shall be liable under section 447.” Meaning of fraud The Companies Act, 2013 has defined fraud under sec 447 of the Act as follows: “… 11.5

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“fraud” in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss; …” The term “wrongful gain” means "the gain by unlawful means of property to which the person gaining is not legally entitled". “Wrongful loss” is defined to mean "loss by unlawful means of property to which the person losing is legally entitled." The analysis of this definition brings out the following highlights of this definition: In relation to the company The Act covers only those frauds which have occurred in relation to the affairs of the company or in relation to affairs of a body corporate. The fraud need not be on the company but with respect to something concerning the company like its shares and other securities, its public offer, its business, its creditors or its directors, officers, advisors. Act or Omission The fraud may be performed in any of the following ways: (a) An act. For example, a financial advisor may provide false information and do false promises to an investor in order to induce him for investing in some security. (b) An omission. For example, failure to provide complete details about the object in the prospectus. (c) Concealment. For example, concealing the name of a creditor in case of reduction of capital or merger, concealing the fact that the company has incurred losses, concealing the true state of affairs of the company. (d) Abuse of a position. for example, a promoter using his dominant position to carry on unlawful and fraudulent business activities through company Person Fraud may be committed by any person. Thus, not only an individual but also a company, partnership firm, body corporate, association of persons, joint ventures or any other entity may be charged for fraud. However, in case of an artificial person, only monetary penalty can be imposed. Accessory A person, who aids and abets the commission of a fraud, is also liable for fraud. Thus, all the agents, consultants, or advisors who are party to the fraud and have in some manner, connived to or assisted in perpetrating the fraud, will also be held liable for fraud.

11.6

Chapter 11

Reopening of accounts and revision of financial statements

Intention The said act or omission should be done with intent to deceive, to gain undue advantage or to injure the interests of the company or shareholders or creditors or any other person who is a stakeholder. Thus, the intent to deceive is important. The person who is accused should have a mala fide intention. In the criminal law practice, this is the most difficult aspect to prove. And the proof must be beyond reasonable doubt1. Gain or loss inconsequential It is immaterial whether or not there is any wrongful gain or wrongful loss. In cases of 'cheating' under the India Penal Code (cheating is used to charge and punish many types of corporate frauds), it is necessary to show damage or harm caused by the fraudulent actions. However, under the Act, it is not required to show that there has been a loss caused to any party or any gain made by the accused.

11.3.5.2 Mismanagement of affairs Reopening is possible even in case of mismanagement of the affairs of the company. The term mismanagement of affairs is used in sec 241 and was also included in sec 398 of the Companies Act, 1956. The term as interpreted there may be of assistance in analyzing the circumstances in which books can be opened on this ground. Further, the case laws under sec 398 of the Companies Act, 1956 explain what constitute will be useful. A detail discussion on mismanagement of affairs is provided in Chapter on “oppression and mismanagement”.

11.3.6

In which event can one apply for reopening?

From the above discussion, it is clear that the application for reopening to the Tribunal can be made if: A. The relevant earlier accounts were prepared in a fraudulent manner; or B. The affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of financial statements. Such order can be passed, if the Tribunal finds any of the two situations to be true. It is not necessary that this application needs to be a separate and distinct application. It can be a part of another application. For instance, the application for reopening can be one of the remedy sought, as a part of oppression and mismanagement application filed by a shareholder.

1

The standard that must be met by the prosecution's evidence in a criminal prosecution: that no other logical explanation can be derived from the facts except that the defendant committed the crime, thereby overcoming the presumption that a person is innocent until proven guilty. (http://legal-dictionary.thefreedictionary.com)

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11.3.7

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At what point of time?

Another important aspect is till when one can apply for reopening or recasting. With respect to the other courts, the relevant laws read with the limitation Act will determine, till when such court can grant reopening/recasting. However, with respect the Tribunal, the provision of Limitation Act will apply. The Act does not prohibit the reopening at any stage. Thus, even if the account are approved by the shareholder or filed with the ROC, an application can be made for reopening of the Accounts.

11.3.8

Notice to whom?

If such application for reopening is made, notice shall be given to: A. Central Government, B. the Income-tax authorities, C. the Securities and Exchange Board of India, or D. any other statutory regulatory body or authority concerned.

11.3.9

Implication of order reopening/recasting

The Tribunal can pass an order, if it is satisfied that a case has been made out for reopening. Such reopening, if it is made on a finding that statements have been fraudulently prepared, can expose company and concerned officials to criminal prosecution for fraud under the Act.

11.3.10 Who should be heard? The said order shall not be passed unless the Tribunal considers the representations made by statutory bodies. The principles of natural justice also require that the Tribunal serve a notice of the said application to the company and also to its directors. This is necessary because if the accounts are reopened, it may create other implications and consequences for the directors. Thus, the natural justice will demand that the notice of such application be given to all the persons who are likely to be affected. Further, as per the author’s view, it is possible that even a director who is not a party to this application under sec 130 may file an appeal, as he will be person aggrieved. If the accounts are reopened, in relation to the accounts which have been approved by the Board of Directors, the Board is likely to face consequences under other provisions of the Act and thus, the Board can challenge the said decision of the Tribunal before the Appellate forum.

11.3.11 Pros and cons This power is an important weapon in the hands of stakeholders against financial misstatements/irregularities. It will be particularly useful in case of closely held companies wherein shareholders allege mismanagement of affairs of the company. 11.8

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Reopening of accounts and revision of financial statements

However, this power given to stakeholders is likely to be abused by unscrupulous elements to harass and arm-twist companies. Case digest for reopening of accounts Court/Month. Year Name of Case Particulars of Case/Relevant Provision; (date of the decision) Brief law point covered NCLT/Jan 19/SEC Union of India, Facts: The Petition has been filed by Union 130/ (01.01.2019) MCA - Petitioner v of India, MCA through Regional Director, Infrastructure Western Region, against Infrastructure Leasing & Leasing and Financial Services Limited, Financial Services IL&FS Financial Services Limited and Ltd - R1 IL&FS Transportation Networks Ltd under IL&FS Financial Section 130(1) of the Companies Act, 2013 Services Limited - seeking permission for: R2 1. Re-opening of the Books of account and re-casting thereof including financial IL&FS statements of the Respondents for the Transportation past five Financial Years viz. from Networks Ltd - R3, CP 4506/2018 Financial Year 2012-2013 to Financial Year 2017-2018. 2. Appointing such person/firm of Chartered Accountants to recast the accounts/financial statement of the Respondents for the past five Financial Years viz. from Financial Year 20122013 to Financial Year 2017-2018. 3. It was also requested to pass the order under Section 130 relating to the reopening of the accounts of the Respondent Companies on the basis of Preliminary report of ICAI and the report of SFIO. This application was opposed by the exdirectors and auditors of ILFS companies. They sought permission to file reply. Their preliminary grievance was that investigation proceedings against the companies are still pending and thus it cannot be concluded that accounts of the company are prepared in a fraudulent manner. Issue: Whether for invoking powers under Section 130, it is a precondition to hold that accounts were prepared in a fraudulent 11.9

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Court/Month. Year Name of Case of Case/Relevant Provision; (date of the decision) Brief law point covered

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Particulars

manner? Held: NCLT held that on perusal of Section 130 it is not necessary to opine that accounts were prepared in fraudulent manner. There are two pre-conditions for re-opening and even if one is satisfied, the Tribunal is empowered to reopen accounts. NCLT further observed that at this stage no opinion is being made on allegations against the auditors and this order without prejudice to their rights. It would not affect the proceedings against auditor that were ongoing in ICAI and that matter could be decided on its own merits. The petition filed under Section 130 of the Companies Act, 2013 for re-opening the books of accounts and recasting the financial statements of the Respondents for the past five financial years, viz. from Financial Year 2012-13 to Financial Year 2017-2018 has been allowed and Central Government was directed to appoint Chartered Accountants to recast the accounts/financial statements of all the three companies. It further held that an order for recasting the accounts will have no bearing on the main Company petition which is pending under Section 241-242 of the Companies Act, 2013. P.S: This order was challenged in NCLAT and SC. However, the order was upheld. NCLAT/ Jan19/ Sec Hari Sankaran v Issue: Due to mis-management of 130/ (31.01.2019) Union of India ‘Infrastructure Leasing & Financial Services Ministry of Limited’, ‘IL&FS Financial Services Corporate Affairs Limited’ and ‘IL&FS Transportation & Ors., Company Networks Limited’ (1st, 2nd and 3rd Appeal (AT) No. Respondents respectively), the Union of 29 of 2019 India, Ministry of Corporate Affairs filed petition u/s 133 of Companies Act, 2013 before the NCLT, Mumbai Bench (hereinafter referred to as ‘Tribunal’) 11.10

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Court/Month. Year Name of Case of Case/Relevant Provision; (date of the decision) Brief law point covered

Particulars

wherein the Tribunal passed order dated 1st January, 2019, now the appellant who was the former vice-president and Director of IL&FS, challenged the order of NCLT (1.01.2019) on the ground that the impugned order was passed ex-parte through notice, and the Appellant sought time to file reply, but NCLT went ahead with the impugned order. Held: NCLAT held that even if the Appellant wanted to file reply-affidavit, there is no ground on which the impugned order could be said to be illegal and hence refused to remand the matter to NCLT. P.S: This order was challenged in SC and was upheld. From the orders that were found by the author, it is observed that the auditors did not challenge the NCLT. This is understandable as the NCLT has expressly reserved their rights and permitted them raise their pleas in the proceedings pending before ICAI. SC/June19/Sec 130/ Hari Sankaran v. SC while upholding the order of NCLT and (04.06.2019) Union of India, NCLAT observed as follows: Civil Appeal No. “10. … At this stage, it is required to be noted 3747 of 2019 that as per Section 130 of the Act, the Tribunal may pass an order of reopening of accounts if the Tribunal is of the opinion that (i) the relevant earlier accounts were prepared in a fraudulent manner; OR (ii) the affairs of the company were mismanaged during the relevant period casting a doubt on the reliability of the financial statements. Therefore, the word used is “OR”. Therefore, if either of the conditions precedent is satisfied, the Tribunal would be justified in passing the order under Section 130 of the Act. Considering the order passed by the Tribunal passed under Section 130 of the Companies Act, it appears that the learned Tribunal has passed the order on being 11.11

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Court/Month. Year Name of Case of Case/Relevant Provision; (date of the decision) Brief law point covered

NCLT/Mar20/Sec 130/05.03.2020

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Particulars

satisfied with respect to the second part of Section 130 of the Companies Act. It is also required to be noted that the learned Tribunal has also taken note of the preliminary report submitted by the ICAI with respect to the earlier accounts were being prepared in a fraudulent manner. On a fair reading of Section 130 of the Companies Act, if the Tribunal is satisfied that either of the conditions precedent is satisfied, the Tribunal would be justified in passing the order under Section 130 of the Companies Act. 11. Considering the facts narrated hereinabove and the preliminary reports of SFIO and ICAI which came to be considered by the learned Tribunal and considering the specific observations made by the learned Tribunal while passing the order under Section 241/242 of the Companies Act and considering the fact that the Central Government has entrusted the investigation of the affairs of the company to SFIO in exercise of powers under Section 242 of the Companies Act, it cannot be said that the conditions precedent while invoking the powers under Section 130 of the Act are not satisfied. We are more than satisfied that in the facts and circumstances of the case, narrated hereinabove, and also in the larger public interest and when thousands of crores of public money is involved, the Tribunal is justified in allowing the application under Section 130 of the Companies Act, which was submitted by the Central Government as provided under Section 130 of the Companies Act.” Union of India, Facts: The allegations against C G Power Ministry of initially came to light when the auditors of Corporate Affairs v CG Power, M/s. Chaturvedi & Shah, CG Power & Chartered Accountant resigned before the

Chapter 11

Reopening of accounts and revision of financial statements

Court/Month. Year Name of Case Particulars of Case/Relevant Provision; (date of the decision) Brief law point covered Industrial Solution expiry of their tenure leaving a casual Ltd Ors, vacancy and therefore the said Company C.P.4127/130/2019 appointed Respondent No. 14 — M/s. K.K. 05.03.2020 Mankeshwar & Co., as statutory auditor. There was management dispute in CG Power. The then management caused an inquiry to be made through a law firm and filed a complaint about financial irregularities with SEBI. Further, RD issued instructions to ROC to initiate inquiry under Section 206(1) of the Companies Act, 2013 against the Respondent No. 1 Company. The Petitioner submitted that the ROC after completion of the inquiry, submitted its report dated 05.11.2018 under section 208 of the Companies Act, 2013 and found various discrepancies. Central Government also ordered investigation of affairs of company and its subsidiary through SFIO on 6.11.2019. While all these investigation and inquiry proceedings were pending, a company petition was been filed under Section 130 of the Companies Act, 2013, by Union of India(UOI) and Ministry of Corporate affairs(MCA) seeking re-opening of the books of account and recasting of financial statements of CG Power and Industrial Solutions Limited (Respondent No. 1 Company) and its subsidiary companies for the past 5 (Five) Financial Years viz. from Financial Year 2014-2015 and also to permit the Central Government to appoint such person/firm of Chartered Accountants for the said purpose. Held: Company Petition was allowed. NCLT held that the law provides that even if there a doubt on the fairness of the financial statement, this is enough to order reopening of accounts. The Tribunal observed that the management of the company itself has

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Court/Month. Year Name of Case of Case/Relevant Provision; (date of the decision) Brief law point covered

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reported irregularities. Tribunal observed that management has conducted its own investigation but this should not be sole basis for Central Government to take any action, the CG should conduct its own investigations in an impartial manner. Based on the outcome of investigating Agency’s Report due action be initiated against the erring/defaulting individuals found involved in fraud and irregularities committed by them while conducting the affairs of the Respondent No. 1 Company and its subsidiary companies. Thus, NCLT allowed the prayer and ordered reopening of the books of account and recasting of financial statements of CG Power and Industrial Solutions Limited and its subsidiary companies for 5 (Five) years ended as on 31st March 2019.

11.4

VOLUNTARY REVISION OF FINANCIAL STATEMENTS OR BOARD’S REPORT.

Section 131 provides that: “(1) If it appears to the directors of a company that— (a) the financial statement of the company; or (b) the report of the Board, do not comply with the provisions of section 129 or section 134 they may prepare revised financial statement or a revised report in respect of any of the three preceding financial years after obtaining approval of the Tribunal on an application made by the company in such form and manner as may be prescribed and a copy of the order passed by the Tribunal shall be filed with the Registrar: Provided that the Tribunal shall give notice to the Central Government and the Income tax authorities and shall take into consideration the representations, if any, made by that Government or the authorities before passing any order under this section: Provided further that such revised financial statement or report shall not 11.14

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Reopening of accounts and revision of financial statements

be prepared or filed more than once in a financial year: Provided also that the detailed reasons for revision of such financial statement or report shall also be disclosed in the Board's report in the relevant financial year in which such revision is being made. (2) Where copies of the previous financial statement or report have been sent out to members or delivered to the Registrar or laid before the company in general meeting, the revisions must be confined to— (a) the correction in respect of which the previous financial statement or report do not comply with the provisions of section 129 or section 134; and (b) the making of any necessary consequential alternation. (3) The Central Government may make rules as to the application of the provisions of this Act in relation to revised financial statement or a revised director's report and such rules may, in particular— (a) make different provisions according to which the previous financial statement or report are replaced or are supplemented by a document indicating the corrections to be made; (b) make provisions with respect to the functions of the company's auditor in relation to the revised financial statement or report; (c) require the directors to take such steps as may be prescribed.”

11.4.1

Comparison with UK Law

Section 454 of the UK Companies Act, 2006 provides for voluntary revision and Indian provisions are substantially similar to this provision.

11.4.2

Exception

This section, to certain extent is an exception carved out to sec 130(1), which provides that books of accounts shall not be reopened and financial statement shall not be recast. However, it allows revision and not reopening. The meaning of the term reopening, recasting and revision is not provided in the Act and thus generally accepted definitions shall be considered.

11.4.3

Which documents?

The Act permits revision of financial statements and Board Report after seeking approval of Tribunal. In this regard, some important aspects of sec 131 are as follows:  It only permits revision of financial statement and Board Report;  It does not permit reopening of books of accounts;  It permits revision but not recasting of financial statement;

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 The nature & scope for revision is further confined in sec 131(2), if the copies of the financial statement or report have been sent out to members or delivered to the registrar or laid before the company in general meeting. The time when this section read with sec 131 become applicable is important. A reading of the two sections imply that these sections that bar reopening and revision, without the consent of the Tribunal, apply once the books or financial statement are passed by the Board of Directors and the financial statements are either filed or made available to outsiders including the shareholders.

11.4.4

Which event?

These documents can be revised, if it appears to the directors of the company that 1. The financial statement of the company; or 2. The report of the Board, do not comply with the provisions of sec 129 or sec 134 of the Act. The Act permits application to the Tribunal only on these grounds. However, a reading of sec 131(1) with sec 131(2) implies that the prayer for revision can be sought in the application for any type of revision. It need not be confined to revision only for the purpose of complying with sec 129 and sec 134. However, if the situation as contemplated in sec 134(2) exists i.e. if the reports are filed or placed before the members, then, the nature of revision is permissible only to a limited extent ie only for complying with sec 129 and sec 134.

11.4.5

For which period is the revision permissible?

Voluntary revision is permissible in respect of financial statements or board reports prepared in the preceding 3 financial years.

11.4.6

Prior approval of tribunal

Such revision is possible only if it is approved by the Tribunal on an application made by the company in such form and manner as may be prescribed and a copy of the order passed by the Tribunal shall be filed with the Registrar.

11.4.7

Right to be heard

Such application shall not be decided until the notice is given to the Central Government and the Income tax authorities and their representations shall be taken into consideration.

11.4.8

Finality

The revised financial statement or report shall not be prepared or filed more than once in a financial year.

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11.4.9

Reopening of accounts and revision of financial statements

Reporting

The detailed reasons for revision of such financial statements or report shall also be disclosed in the Board's report in the relevant financial year for which such revision is being made.

11.4.10 Impact of this provision The impact of this section must be analysed from different angles:  Will filing this application amounts to an admission that financial statements are incorrectly prepared?  Such admission that financial statements are incorrect prepared is likely to attract penal consequences under the Companies Act, 2013. Is there any safeguard against such prosecution? The application filed seeking permission to revision must specify how the financial statements or the Board's Report do not comply with the provisions of sec 129 or sec 134. Thus, by making an application, the company and its officials are admitting to the contravention to these sections. The said sections do not safeguard the company or its officials from inadvertent errors and omissions. Thus, revision under this section may not prevent criminal and civil liability that may result from such contraventions. The admission by the officer may in fact make it easier to fasten the company with the liability. Thus, it will be safe to file an application for compounding along with an application under this section. The company should also seek consequential reliefs to enable it to file such revised returns to ROC and other concerned authorities. Case digest for Revision of Financial Statements Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered NCLT/AHM Cherntex Materials Facts: The company sought revision of /4.7.2017 Pvt. Limited, Director’s Report dated 12.8.2015 for the NCLT/AHM financial year ended 31.3.2015 in order to CP/66/2017 /4.7.2017 comply with the provisions of section Section 131 134(3). Copy of the Board resolution alongwith draft of the revised report was attached to the petition. The company contended that due to accidental and inadvertent mistake there was a noncompliance with the provisions of Section 134(3) of the Companies Act, 2013. The affidavit of proof of service on the RD, 11.17

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

NCLT/AHM /7.2.2018 CP/222/2017 Section 131

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Particulars

Income Tax and Auditor was filed. None appeared. Publication was made and filed. Held: NCLT allowed the petition. It observed that as per provision of Section 131 of the Companies Act, 2013 revised financial statements or revised report in respect of any of these preceding financial years can be filed by the Board of Directors of the Company to revise the report of the Board if it does not comply with the provision of Section 129 or 134 of the Companies Act, 2013. Jay Chemicals Facts: The company filed a petition in 2017. Industries Limited , It sought revision of the Board report for the v ROC, Gujarat, year ended 31.3.2015 for the reason that NCLT/AHM there was an omission in the Board report in /7.2.2018 , respect of reasons for not spending full CP/222/2017 amount on Corporate Social Responsibility. In the Board report the company had given details of the amount spent and amount unspent for the FY 2014-15. Only the reasons for not spending the entire amount were not mentioned. The ROC had issue a show cause notice dated 4.10.2016 to the company as to why the company and its officers should not be prosecuted for the violation of Section 134(8) of the Companies Act, 2013. The company replied to this letter. Notice of the petition was given to Auditor, Income Tax department and Regional Director and notice was published in the newspaper. The auditor sent a no objection letter. Held: The NCLT allowed the petition and directed the company to place the revised report before the General Meeting of the Company. It further held that this order permitting the revision of Board report for the year ending 31.3.2015 will not come in

Chapter 11

Reopening of accounts and revision of financial statements

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

NCLT/CHD/ /14.12.2017 CP/156/2017 Section 131

Particulars

the way of prosecution against the company and its officer under Section 134(8) of the Companies Act, 2013. Vivo Mobile India Facts: The company sought revision of Private Limited, financial statements for the financial year NCLT/CHD/ ended 31.3.2016. The company after filing its financial statement for year ended /14.12.2017, 31.3.2016 found that an error had crept in the CP/156/2017 financial statement with regard to the recognition of the purchases made by the company during the financial year 2015-16 having been made with in line with the Accounting Statement (AS) 2 as notified in accordance with law. The cost of purchases should as per law exclude refundable taxes but accidently it was wrongly booked for FY 2015-16 including refundable taxes. This resulted in non-presentation of the true and fair view of the financial statements. The board took note of this in their meeting held on 1st June 2017. The proposed copy of the financial statement after revision of the financial year 2015-16 and resolution were annexed to the petition. The financial statement for the year ended 31.3.2016 and the revised financial statement was audited by the same auditor. Before the matter was listed the notice of the hearing was published and notice of the petition was directed to be served on Regional director and Income Tax department(IT). IT and RD did not objected to the petition. Held: The petition was allowed. The petitioner company was permitted to file the revised financial statement for the year 2015-16 in the manner prayed for and the petitioner was ordered to deliver the copy of the order to the ROC. Revised financial statements were directed to be filed with ROC within one month. 11.19

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Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered NCLT/HYD/ Urenok Software Facts: The company had entered into a /13.11.2017 Solutions Private transaction with its related party (Soham Limited v Registrar Online). This transaction was such that CP/79/2017 of Companies, compliance of Section 188 of the Act was Hyderabad , not required. As per section 134(h) r/w Rule Section 131 NCLT/HYD/ 8 of the Companies (Accounts) Rules, 2014, it is required that company should disclose /13.11.2017, the details of material related party CP/79/2017 transactions whether the transaction are within /not within the arm length in the Board report of the company in form AOC2. The company had disclosed all the other related party transactions except the related party transaction entered into with Sohan Online. Therefore, the Board of Director decided to rectify the disclosures in AOC-2 for the financial year 2014-15 to ensure the compliance by the board resolution passed dated 7th August 2017. The revision is restricted to the directors’ report of the company. The proposed board report does not affect the interest/rights of any stake holders. The company published general notice as per rule 35 of the NCLT rules. The ROC in their letter observed that matter may be decided on merits and the applicant company shall be directed to file revised directors’ report after the confirmation of NCLT. Applicant company and ROC confirmed that company wants to revise its board report for the FY 2014-15 for complying the related party transaction in AOC-2 and further confirm that there is no revision in financial statement of the Applicant company and the proposed revision does not affect the Interest/rights of shareholders. Held: NCLT allowed the prayer for revision. It observed that the revision in the board

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Reopening of accounts and revision of financial statements

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

Particulars

report is to make proper disclosure about the related party transaction and to reflect transparency to the all the stakeholders. Thus, the present applications to permit revision of board report of the company for financial year 2014-15 for disclosing the related party transaction in form of AOC-2 was allowed with a direction to file revised form AOC-4 for the financial year 2014-15 with the registrar of companies with modified board report within one month from the date of receipt of the copy of the order. Further, the application company was directed to ensure full compliance with Rule 77 of NCLT Rules especially sub rule 7, 8 and 9. (2018) 210 Com Regional Director v Facts: The company sought revision of Cas 347 (NCLAT) Om Shakthy financial statements. The company made Agencies, (2018) regional director southern region, the roc and 210 Com Cas 347 income tax respondents. None of them filed 6.8.2018 Company Appeal (NCLAT), their objection and hence the right to file NO. 232 of 2017 Company Appeal reply/objections was forfeited. However, NO. 232 of 2017 company did not implead Central Section 131 Government as a party. A appeal came to be filed in this matter. Held: NCLAT allowed the appeal. It held that Central Government has not delegated the powers under Section 131 to regional director and hence central government is a necessary party. Direction was given to implead Central Government through its secretary, Ministry of Corporate Affairs, 5th Floor, A wing, Shastri Bhavan, Dr. R.P. Road, new Delhi as a party respondent.

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11.5

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PROCEDURE FOR REOPENING OF BOOKS OF ACCOUNTS

NCLT Rules as amended by NCLT (Amendment) Rules 2016 issued in December 2016 provided a specific procedure for application under sec 130 (namely Rule 76A). This has to be read alongwith the general procedure prescribed in NCLT Rules as far as may be relevant for determining the procedure for reopening of accounts. Here, unless provided otherwise the Rules, Forms and Annexures from NCLT Rules are mentioned. 1. An application under sec 130(1) for obtaining an order of re-opening of books of account and recasting of financial statement of a company shall be filed to the Tribunal in Form No. NCLT 9 of NCLT Rules (Rule 76A). 2. The petition/application shall be filed by an eligible person. 3. The detailed set of documents/details is not set out in rule 76A. However, in the view of the author, inter alia, the application can set forth the following particulars: (a) financial year or period to which such accounts relates; (b) the name and contact details of the Managing Director, Chief Financial Officer, Company Secretary and officer of the company responsible for making and maintaining such books of accounts and financial statement; (c) where such accounts are audited, the name and contact details of the auditor or any former auditor who audited such accounts; (d) copy of the board resolution passed by the Board of Directors; (e) grounds for seeking reopening of books of accounts or recasting of financial statements. It should inter alia make a case that: a. The relevant earlier accounts were prepared in a fraudulent manner; b. The affairs of the company were mismanaged during the relevant period, casting a doubt on the reliability of the financial statements. 4. Upon hearing the petition or any adjourned hearing thereof, the Tribunal may pass such an order, subject to such terms and conditions, as it thinks fit after taking into consideration the representations, if any made by the statutory authorities specified above.

11.6

PROCEDURE FOR VOLUNTARY REVISION OF FINANCIAL STATEMENTS OR BOARD’S REPORT

Section 131 read with rule 77 of NCLT Rules is relevant for determination of the procedure where it appears to the director of a company that the financial statement of

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the company or the report of the board do not comply with the provisions of sec 129 or sec 134. The rules mentioned here in below are from NCLT Rules unless specified otherwise. 1. The application shall be filed in Form No. NCLT – 1 within fourteen days of the decision taken by the Board. 2. In case the majority of the director of company or the auditor of the company has been changed immediately before the decision is taken to apply under sec 131, the company shall disclose such facts in the application. 3. The application shall, inter alia, set forth the following particulars, namely;a. financial year or period to which such accounts relates; b. the name and contact details of the Managing Director, Chief Financial Officer, directors, Company Secretary and officer of the company responsible for making and maintaining such books of accounts and financial statement; c. where such accounts are audited, the name and contact details of the auditor or any former auditor who audited such accounts; d. copy of the board resolution passed by the Board of Directors; e. grounds for seeking revision of financial statement or Board’s Report. 4. The company shall at least fourteen days before the date of hearing advertise the application in accordance with rule 35. 5. The Tribunal shall issue notice and hear the auditor of the original financial statement, if present auditor is different and after considering the application and hearing the auditor and any other person as the Tribunal may deem fit, may pass appropriate order in the matter. The objections of any person who objects to the said revision may also be considered. 6. A certified copy of the order of the Tribunal shall be filed with the registrar of companies within thirty days of the date of receipt of the certified copy. 7. On receipt of approval from Tribunal a general meeting may be called and notice of such general meeting along with reasons for change in financial statements may be published in newspaper in English and in vernacular language. 8. In the general meeting, the revised financial statements, statement of directors and the statement of auditors may be put up for consideration before a decision is taken on adoption of the revised financial statements. 9. On approval of the general meeting, the revised financial statements along with the statement of auditors or revised report of the Board, as the case may be, shall be filed with the registrar of companies within thirty days of the date of approval by the general meeting.

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11.7

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FURTHER READING

Commentary on sec 447 from Insights into New Company Law, 1st Edition 2013, Prachi Manekar, Lexis Nexis.

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Chapter 12

Tribunal directed investigations 12.1

INTRODUCTION

Chapter XIV provides for elaborate provisions for inquiry, inspection and investigation by the Tribunal into the affairs of a company in certain circumstances. This chapter provides insights into different aspects of the investigation ordered by the Tribunal.

12.2

OVERVIEW OF CHANGES

12.2.1

Dilution of eligibility criteria

Under the Companies Act, 2013, only 100 members (as against 200 members required under the Companies Act, 1956) are required to apply for an investigation into the affairs of a company. Further, the power to apply for an investigation is given to any person who is able to convince the Tribunal that circumstances exist for initiating investigation proceedings. In a series of recent judgements, the resolution professionals have also sought to take recourse of sec 213 in CIRP process to unearth frauds.

12.2.2

Power to freeze assets

The Tribunal is given the power to freeze assets of the company which can not only be used when the company is under investigation, but can also be initiated at the insistence of a wide variety of persons in certain situations.

12.2.3

Restriction of securities

The restriction earlier could be imposed only on shares. Now, the Tribunal can impose restrictions on any security of the company.

12.2.4

Constitution of SFIO

The constitution and powers of the Serious Fraud Investigation Office (SFIO) are now recognized in the Companies Act, 2013. However, the Tribunal cannot direct the Central Government to refer any matter to SFIO. The Central Government has sole discretion to determine the matters that will be assigned/referred to SFIO

12.2.5

Application for investigation

Earlier, an application for investigation to the Tribunal could be made only by members that have a requisite number of shares. Under the Companies Act, 2013, the 12.1

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application can be made even by a creditor or lender or by any person.

12.2.6

Scope of investigation

An investigation can be conducted even abroad. Provisions are made to take as well as provide assistance to investigation agencies and courts of other countries with respect to investigation proceedings.

12.2.7

Investigation order in CIRP process

Several orders have been passed recently, where NCLT has directed investigation to be conducted while dealing with proceedings under IBC. This aspect has been a subject matter of several litigations. NCLAT has confirmed the power of NCLT to concurrently exercise powers under the Companies Act, 2013 and IBC.

12.2.8

Penalties

Under the Companies Act, 2013 and the first two amendments to this act, the penalties had been enhanced. However, thereafter vide Companies (Amendment) Act of 2019 and 2020, the penalities were reduced and in certain cases completely removed and replaced with civil consequences (penalities as adjudicated by ROC). By the amended Act of 2015, any type of fraud covered under sec 447 has been made a cognizable offence (amended sec 212).

12.3

POWER OF THE TRIBUNAL

Chapter XIV provides several powers to the Tribunal in connection with investigations. The most important powers that are conferred to the Tribunal are: (a) power to order investigation (b) power to investigate into the ownership of the company (c) power to impose restriction on securities (d) power to freeze assets of the company

12.3.1

Investigation by the tribunal

The Companies Act, 2013 gives the Tribunal and Central Government power to investigate. The Tribunal can initiate an investigation in situations set out in sec 213. If the Tribunal directs an investigation, then the Central Government is required to appoint an inspector to carry out the investigation.

12.3.1.1 Who can apply? Members [Section 213 (a)] “213. Investigation into company’s affairs in other cases The Tribunal may,— (a) on an application made by— 12.2

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(i) not less than one hundred members or members holding not less than one-tenth of the total voting power, in the case of a company having a share capital; or (ii) not less than one-fifth of the persons on the company’s register of members, in the case of a company having no share capital, and supported by such evidence as may be necessary for the purpose of showing that the applicants have good reasons for seeking an order for conducting an investigation into the affairs of the company; or The application under this section can be made by a member fulfilling the criteria set out in sec 213(a) namely: (a) The application can be made by not less than 100 members or by members who hold not less than one-tenth of the total voting power in the case of a company having a share capital. Here, the percentage of holding is with reference to the voting power. This may create impediments for shareholders holding shares with differential voting rights whose shares are more but voting rights are limited; (b) In the case of a company having no share capital, the application can be made by members accounting for not less than one-fifth of the total number of persons on the company’s register. The application should be supported by evidence. Such evidence should show that the members have a prima facie case for investigation. They should be able to show good reasons for seeking an order for conducting an investigation into the affairs of the company.

Any person [Section 213 (b)] “…(b) on an application made to it by any other person or otherwise, if it is satisfied that there are circumstances suggesting that— (i) the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the company was formed for any fraudulent or unlawful purpose; (ii) persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or (iii) the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company, order, after giving a reasonable opportunity of being heard to the parties concerned, that the affairs of the company ought to be investigated by an inspector or inspectors appointed by the Central Government and where such 12.3

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an order is passed, the Central Government shall appoint one or more competent persons as inspectors to investigate into the affairs of the company in respect of such matters and to report thereupon to it in such manner as the Central Government may direct.” Any person can apply. The Act does not even require that the person should be interested in the affairs of the company or should be concerned with the company. Such person only has to convince the Tribunal that the circumstances set out in sec 213(b) exist. Such applications can also be made by banks and financial institutions who have lent money to the company. The Tribunal has even ordered investigation on an application preferred by resolution professional. The member who does not fulfil the shareholding limits specified in sec 213(a) may also apply under this clause. The Tribunal can also suo motu take cognizance of the need to investigate into the affairs of the company when the material before it suggests existence of circumstances specified in sec 213(b). Any of three circumstances set out below can be a good ground for applying to the Tribunal: (a) The business of the company is being conducted with an intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the company was formed for any fraudulent or unlawful purpose; (b) persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or (c) the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing director or other director, or the manager, of the company. While the grounds are similar to the grounds provided under the Companies Act, 1956, persons other than members did not have a right to apply under the Companies Act, 1956. However, under the Companies Act, 1956, the Tribunal/Court could take suo motu cognizance on the basis of the circumstances mentioned above. Further, the term fraud will have to be understood by a different connotation in view of the insertion of the definition of fraud in sec 447. The definition and interpretation of the term has been considered in the chapter dealing with the reopening of accounts.

12.3.1.2

Who will be notified?

The Tribunal must give an opportunity of being heard to the “parties concerned”. Thus, the Tribunal should ideally provide an opportunity to be heard to the company and also to other person who may be implicated if the contentions in the application are proved. The proceedings under sec 213 can result in prosecution for fraud under sec 447 in certain situations provided in proviso to sec 213. Thus, the person concerned should be given an opportunity to be heard before any order for

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investigation is taken by the Tribunal. Kindly see the judgements given in the table where NCLAT has held that principles of natural justice is ought to be followed and opportunity ought has to be given to affected parties.

12.3.1.3

Order of investigation (Section 213)

If the Tribunal is satisfied that an order ought to be passed for an investigation, the Tribunal can direct the Central Government to appoint an inspector. The power to decide on the inspector to be appointed lies with the Central Government. The Tribunal has no say as regards the person who will be appointed as inspector. The report of the inspector will be provided to the Central Government who, in turn, will provide the same to the company. The Tribunal has no say whether the work of investigation should be given to any inspector or SFIO should be involved. This is left to the sole discretion of the Central Government. However, the inspector must be appointed when the Tribunal directs the Central Government to do so (sec 210). The time limit for such appointment is not provided. The Tribunal can, by the order directing an investigation provide a time limit within which the Central Government must appoint an inspector.

12.3.1.4

Security for costs (Section 214)

If an investigation is ordered by the Tribunal, the Central Government may require the applicant to give such security not exceeding INR 25,000. The exact amount is notified by the rules. It is INR 10,000 where the turnover of the company is less than INR 50 crores, INR 15,000 where the turnover is between INR 50 crores and INR 200 crores and INR 25,000 for a turnover beyond INR 200 crores. The said payment may be directed to be paid for covering the costs and expenses of the investigation and such security shall be refunded to the applicant if the investigation results in prosecution.

12.3.2

Investigation into ownership of a company

The Tribunal can direct the Central Government to appoint an inspector to investigate into the affairs of the company. Section 216 provides as under: “216. Investigation of ownership of company (1) Where it appears to the Central Government that there is a reason so to do, it may appoint one or more inspectors to investigate and report on matters relating to the company, and its membership for the purpose of determining the true persons— (a) who are or have been financially interested in the success or failure, whether real or apparent, of the company; or (b) who are or have been able to control or to materially influence the policy of the company. (c) who have or had beneficial interest in the shares of a company or who are or have been beneficial owners or significant beneficial owner of the company. 12.5

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(2) Without prejudice to its powers under sub-section (1), the Central Government shall appoint one or more inspectors under that sub-section, if the Tribunal, in the course of any proceeding before it, directs by an order that the affairs of the company ought to be investigated as regards the membership of the company and other matters relating to the company, for the purposes specified in sub-section (1). (3) While appointing an inspector under sub-section (1), the Central Government may define the scope of the investigation, whether as respects the matters or the period to which it is to extend or otherwise, and in particular, may limit the investigation to matters connected with particular shares or debentures. (4) Subject to the terms of appointment of an inspector, his powers shall extend to the investigation of any circumstances suggesting the existence of any arrangement or understanding which, though not legally binding, is or was observed or is likely to be observed in practice and which is relevant for the purposes of his investigation.” This power is in addition to the power of the Tribunal to direct an investigation under sec 213. This investigation is with a specific objective of understanding the membership of the company and is directed to understand whether they are persons who are financially interested in the success or failure, whether real or apparent, of the company, or who are or have been able to control or to materially influence the policy of the company. There is no specific provision for making an application by any person to apply to the Tribunal to conduct such type of investigation. It can be included in the application made to the Tribunal by the person referred to in sec 213 who is eligible to apply. This provision has given the Tribunal the power to suo motu apply to the Central Government to investigate into the ownership. When the Tribunal directs the Central Government to investigate, the Central Government will appoint an inspector. The Central Government cannot restrict the scope of the investigation as provided in sec 216(3). It is the Tribunal that can specify the nature and scope of investigation that it desires.

12.3.3

Freezing of assets of company on inquiry and investigation (Section 221)

The Tribunal has the power to freeze the assets of the company.

12.3.3.1

Who can apply?

The following can apply to the Tribunal for freezing of assets: (a) the Central Government; (b) the Tribunal if found appropriate in connection with any inquiry or investigation into the affairs of a company under this chapter; (c) a group of members, through a complaint, whose number complies with that specified under sec 244(1). The complaint can be made by the following members: 12.6

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Company having share capital •

100 members or one-tenth of the total number of its members whichever is less, or

•

any member or members holding not less than one-tenth of the issued share capital of the company.

Company not having share capital •

One-fifth of the total number of its members:

(d) creditor having one lakh amount outstanding against the company (e) any other person

12.3.3.2

Under what circumstances?

Such application can be filed when the applicant has reasonable grounds to believe that the removal, transfer or disposal of funds, assets and properties of the company is likely to take place in a manner that is prejudicial to the interests of the company or its shareholders or creditors or in public interest. Freezing of assets is a very harsh order on the company, and thus it is possible that the Tribunal may require the applicant to provide good grounds before seeking such a remedy.

12.3.3.3

Nature of order

If the Tribunal is satisfied, the Tribunal can restrain the company from transferring, removing or disposing of its assets. Such order can be made to be effective for a period not exceeding three years. The Tribunal can allow the transfer or disposal subject to certain conditions and restrictions. This provision gives right to freeze assets only of the company. This does not extend to the officer of the company or other entities.

12.3.3.4

Penalty for contravening the order of the Tribunal

If the company contravenes the order of the Tribunal, it shall be punishable with fine which shall not be less than INR 1 lakh but which may extend to INR 25 lakhs and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than INR 50,000 but which may extend to INR 5 lakhs, or with both.

12.3.4 12.3.4.1

Imposition of restrictions upon securities (Section 222) Who can impose restriction?

The Tribunal is empowered to impose restrictions on securities. This power is not provided to the Central Government.

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Who can apply?

Any person is permitted to apply for imposition of securities. The Act does not use the term “person interested” but just states “any person”. A single shareholder or creditor can also apply under this section. Further, in the case of an investigation into the ownership of a company, such restrictions can be imposed as this will ensure that no unscrupulous person is able to get away by selling their securities.

12.3.4.3

Under what circumstances?

The order under this section can be passed by the Tribunal if it is convinced, based on the material produced before it, that there is a good reason to find out the relevant facts about any securities issued or to be issued by a company and is of the opinion that such facts cannot be found out unless certain restrictions, as it may deem fit, are imposed.

12.3.4.4

Nature of order

The Tribunal may direct that the securities shall be subject to such restrictions as it may deem fit for such period not exceeding three years as may be specified in the order. The term used in this section is “securities”. Thus, the order can be passed against shares, debentures and depository receipts of any other securities. Further, this power to pass the order extends even to listed companies and if justifiable reasons are shown, trading in shares or other securities can also be suspended. The Tribunal at its discretion can impose a complete ban on the transfer of securities or can also place conditions or restrictions on dealings in all or any securities of the company. It may be noted that this order under sec 222 is in the form of an interim order to find out facts about a security that is issued or to be issued. This is not a stand-alone remedy that can be sought in vacuum. This section contemplates the existence of another proceedings wherein the Tribunal is convinced that it is necessary to hold further inquiry into the securities that are already issued or to be issued.

12.3.4.5

Penalty

Where securities in any company are issued or transferred or acted upon in contravention of an order of the Tribunal under sec 222(1), the company shall be punishable with fine which shall not be less than INR 1 lakh but which may extend to INR 25 lakhs and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than INR 25,000 but which may extend to INR 5 lakhs, or with both.

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12.4

INSPECTORS

12.4.1

Who can be an inspector?

There is no qualification provided for an inspector and he can be any person who is appointed by the Central Government. However, the Act prohibits any firm, body corporate or other associations from being appointed as an inspector. (sec 215)

12.4.2 12.4.2.1

Powers of inspectors Calling for information and documents from officers, employees and agents

Section 217 sets out the duties of officers, employees and agents. It provides as follows: “(1) It shall be the duty of all officers and other employees and agents including the former officers, employees and agents of a company which is under investigation in accordance with the provisions contained in this Chapter, and where the affairs of any other body corporate or a person are investigated under section 219, of all officers and other employees and agents including former officers, employees and agents of such body corporate or a person— (a) to preserve and to produce to an inspector or any person authorised by him in this behalf all books and papers of, or relating to, the company or, as the case may be, relating to the other body corporate or the person, which are in their custody or power; and (b) otherwise to give to the inspector all assistance in connection with the investigation which they are reasonably able to give.” This duty is cast on current and former officers, employees and agents. The definition of the term ‘officer’ under the Companies Act, 2013 is revised. Thus, while the provision is same, its interpretation is different and it includes more people who are obliged to provide information. Officer under sec 2(59) of the New Act is defined as follows: “officer includes any director, manager or key managerial personnel or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act;” The term “agent” is a very wide term and can include any person who is appointed by the company. Section 182 of the Indian Contract Act, 1872 defines an agent to be “a person employed to do any act for another, or to represent another in dealing with third persons”. Thus, an agent includes an individual, partnership or company or otherwise. It can include experts, consultants, bankers and others who are appointed by the company. For instance, if the work of maintaining the register is provided to 12.9

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the register and transfer agent (RTA), then even this agency will be included within the scope of agent. They are required to provide all assistance and provide such information as is available with them.

Exceptions Section 227 has carved out two exceptions where the persons specified therein will not be required to provide information or documents. Section 227 provides as under: “Nothing in this Chapter shall require the disclosure to the Tribunal or to the Central Government or to the registrar or to an inspector appointed by the Central Government— (a) by a legal adviser, of any privileged communication made to him in that capacity, except as respects the name and address of his client; or (b) by the bankers of any company, body corporate, or other person, of any information as to the affairs of any of their customers, other than such company, body corporate, or person.” Certain safeguards are provided for legal advisors and bankers. The legal advisor shall not be obliged to provide any privileged information. However, the Act requires that the name and address of their client can be required to be disclosed. The Act uses the term client and not clients. Thus, one may interpret that it refers only to the name and address of the person whose is under investigation. Further, if the whereabouts of the company or its directors are unknown, then in that case, the legal advisor will be obliged to provide their whereabouts. The extent of the information that is required to be provided by the banker is confined to affairs of the company, body corporate, or other person under investigation. They are not required to reveal any details, including the names of other clients.

12.4.2.2

Seeking information and documents from others

The inspector, under sec 217 may require any body corporate, other than a body corporate referred to in sec 217(1), to furnish such information to them, or produce such books and papers before them or any person authorized by them, as he may consider necessary, if the furnishing of such information or the production of such books and papers is relevant or necessary for the purposes of the investigation. For instance, if the inspector requires information from suppliers of the company, they can approach them if they are body corporates or an agent of the company. However, if such suppliers are not a body corporate (say, they are partnership firms), then the inspector cannot approach them.

12.4.2.3

Custody of books and papers

The inspectors can keep custody of any books and papers that are produced by the officers, employees, agents or bodies corporate specified in sections 217(1) and 217(2)

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for a period of 180 days but not beyond this period. However, they are empowered to call for such books again, if so required, for a further period of 180 days.

12.4.2.4

Examination

The inspector can examine any current or former officers, employees or agents of the company. However, if they intend to inspect any other person, they can do so only with the prior approval of the Central Government. Such examination can be in relation to the affairs of the company, or other body corporates or persons, as the case may be. For the purpose of investigation, they may require any of those persons to appear before them personally. However, if the investigation is being conducted by SFIO, the prior approval of the Central Government is not necessary for investigating such other persons. Instead, the prior approval of Director, SFIO, must be taken. The notes of any examination shall be taken down in writing and shall be read over to, or by, and signed by, the person examined, and may thereafter be used in evidence against them.

12.4.2.5

Powers of the civil court

The inspector, being an officer of the Central Government, making an investigation under this chapter shall have all the powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit in respect of the following matters, namely: (a) the discovery and production of books of account and other documents, at such place and time as may be specified by such person; (b) summoning and enforcing the attendance of persons and examining them on oath; and (c) inspection of any books, registers and other documents of the company at any place.

12.4.2.6

Penalty

The Act provides harsh penalties under sec 217(5). It provides that if any director or officer of the company disobeys the direction issued by the inspector under this sec 217, then the director or the officer shall be punishable with imprisonment which may extend to one year and with fine which shall not be less than INR 25,000 but which may extend to INR 1 lakh. Further, if a director or an officer of the company is convicted of an offence under this section, the director or the officer shall, on and from the date on which he is so convicted, be deemed to have vacated his office as such and on such vacation of office, shall be disqualified from holding an office in any company. Further, sec 217(8) provides that if any person fails without reasonable cause or refuses— (a) to produce any book or paper which is their duty to produce; 12.11

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(b) to furnish any information which is their duty to furnish; (c) to appear before the inspector personally when required to do so or to answer any question put to them by the inspector; or (d) to sign the notes of any examination; he shall be punishable with imprisonment for a term which may extend to 6 months and with a fine which shall not be less than INR 25,000 but which may extend to INR 1 lakh, and also with a further fine which may extend to INR 2,000 for every day after the first during which the failure or refusal continues.

12.4.2.7

Assistance from other authorities

The officers of the central government, state government, police or statutory authority are duty bound to provide assistance to the inspector for the purpose of inspection, inquiry or investigation. However, before seeking such assistance, the inspector must take prior approval of the Central Government.

12.4.2.8

Assistance from foreign governments

In view of the growing cross-border trade and investment, it is possible that assistance of other countries is sought for investigation. The Central Government can enter into an agreement with the government of a foreign state for reciprocal arrangements to assist in any inspection, inquiry or investigation under this Act or under the corresponding law in force in that state. In such an event, the Central Government can, by notification, apply the provisions of Chapter XIV to a foreign state with which reciprocal arrangements have been made with such modifications, exceptions, conditions and qualifications as may be deemed expedient for implementing the agreement with that state.

12.4.2.9

Assistance from foreign courts

Assistance from foreign courts may be sought for examination of any person who is supposed to be acquainted with the facts and circumstances of the case or for requiring any person to produce any document or thing pertaining to the case which may be in their possession. Similarly, Indian courts may also require to assist foreign governments, if so requested by the Central Government.

12.4.2.10 Investigation into the affairs of related entities The inspector can, with the prior approval of the Central Government, investigate into and report on the affairs of the following, in so far as they consider that the results of their investigation are relevant to the investigation of the affairs of the company for which they are appointed: (a) any other body corporate which is, or has been at any relevant time, the company’s subsidiary company or holding company, or a subsidiary company of its holding company;

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(b) any other body corporate which is, or has at any relevant time, managed by any person as managing director or as manager, who is, or was, at the relevant time, the managing director or the manager of the company; (c) any other body corporate whose Board of Directors comprises nominees of the company under investigation or is accustomed to act in accordance with the directions or instructions of the company or any of its directors; or (d) any person who is, or has been at any relevant time, the company’s managing director or a manager or an employee. The inspector however does not have right to investigate into entities like partnerships even if they are related to the company.

12.4.2.11 Seizure of documents by inspector (Section 220) The inspector has the power to seize documents if they have reasonable grounds to believe that the books and papers of, or relating to, any company or other body corporate or managing director or manager of such company are likely to be destroyed, mutilated, altered, falsified or secreted. However, this power of an inspector does not extend to unincorporated bodies such as partnerships. For the purpose of seizure, the inspector is permitted to enter the place where such documents are kept and to take them in their custody after allowing the concerned person to make a copy of those documents. These documents can be retained by the inspector till the conclusion of their investigation or can be returned to the concerned person at their discretion. While returning the documents, the inspector is empowered to place identification marks on them or any part thereof. The provisions of the Code of Criminal Procedure, 1973 relating to searches or seizures shall apply mutatis mutandis to every search or seizure made under this section.

12.4.3

Report by inspector (Section 223)

The report can be of three types: (a) interim report; (b) final report; (c) report under sec 212 by SFIO. An inspector generally makes a final report. However, if the Central Government so directs, they can make an interim report. Such report has to be prepared and sealed/certified in the manner provided in the Act. Section 223 is not applicable to SFIO. SFIO is not required to comply with the guidelines of preparing reports that are applicable to report prepared by other inspectors. Provisions of copies of report Position Prior to Companies Amendment Act, 2017: The Act did not place any restriction as regards who could apply for a copy of the inspector’s report. For getting a copy of the report, an application had to be made to 12.13

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the Central Government. Thus, we could safely say that any person who wanted a copy of the report could get it by making an application. Position After to Companies Amendment Act, 2017: By the amendment, the persons who are enttiled to apply for a inspector copy is specified namely members, creditors or any other person whose interest is likely to be affected.

12.4.4 Actions on the basis of report 12.4.4.1 Action by Central Government/Tribunal Under Chapter XIV, the Central Government or Tribunal can direct the conduct of an investigation. The inspector after conducting the investigation prepares a report. They can also prepare an interim report. This report can be the basis for initiating several actions. Section 224 provides for the actions that can be taken by the Central Government on the basis of the inspector’s report. The reference to report under sec 224 is only to the report prepared by an inspector other than the SFIO. The proceedings that can be taken on the basis of the inspector’s report prepared by the SFIO are covered under sec 212. The actions specified under sec 224 are only confined to the actions that can be taken by the inspector. NCLAT has held that not only actions under the Companies Act, 2013 can be initiated but also actions under IBC can be initiate under sections like sec 68,69,70,71,72,73 of the IBC Code.

12.4.4.2

Prosecution

It is possible that the inspector’s report reveals certain wrongdoings by any person in relation to the company or in relation to any other body corporate or other person whose affairs have been investigated under this Chapter and that such person is found guilty of any offence for which the person is criminally liable. In such instances, the Central Government can prosecute such persons for the offence and it shall be the duty of all officers and other employees of the company or body corporate to provide the Central Government with the necessary assistance in connection with the prosecution. The investigation may be of any type, whether it is initiated by the Central Government or initiated at the behest of the Tribunal.

12.4.4.3

Winding up

The Central Government can cause a winding-up petition to be filed, if it finds that there are circumstances giving rise to reasons to do so. The circumstances should be one of the three circumstances that are referred to in sec 213. This section provides three circumstances where an investigation can be initiated by the Tribunal. Such applications cannot be filed if a winding-up petition is already pending before the Tribunal. The Central Government can bring proceedings for winding-up against a company or any body corporate whose affairs have been investigated, where it finds that it is necessary to do so: (a) for the recovery of damages in respect of any fraud, misfeasance or other 12.14

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misconduct in connection with the promotion or formation, or the management of the affairs, of such company or body corporate; or (b) for the recovery of any property of such company or body corporate which has been misapplied or wrongfully retained. The charges for initiating such proceedings shall be recovered from the company or body corporate in relation to whom such winding-up proceedings have been initiated. Oppression and mismanagement For the same reasons as provided in sec 213, the Central Government can also initiate a petition for oppression and mismanagement. Further, it can initiate proceedings both for winding up and for oppression and mismanagement, if it deems fit.

12.4.4.4

Application for disgorgement

Disgorgement is the act of giving up something (such as profits illegally obtained) on demand or by legal compulsion. If the inspector’s report reveals that any fraud has taken place in a company and due to such fraud any director, key managerial personnel, other officer of the company or any other person or entity has taken undue advantage or benefit, whether in the form of any asset, property or cash or in any other manner, then the Central Government can file an application before the Tribunal for appropriate orders. The order can primarily include an order seeking disgorgement of such asset, property or cash, as the case may be. The order can also include an order to hold the director, key managerial personnel, officer or any other person personally liable without any limitation of liability.

12.4.4.5

Actions by the Tribunal

The Act does not list out the actions that can be taken by the Tribunal at one place. Certain actions can be taken by the Tribunal suo motu, while certain other actions can be taken by the Tribunal on the application of certain persons. For instance, if an application for investigation is made by a person, then on the basis of the inspector’s report, such person can initiate an action against the company. For instance, if the inspector’s report reveals mismanagement and siphoning of funds by the directors, then in that case a member may initiate a class action or a case for oppression and mismanagement (provided they have the requisite shareholding). If the inspector’s report reveals fraud in the formation of any company, then a proceeding for the deregistration of the company can be initiated. Inter alia, the Tribunal can take action through imposition of restriction on securities under sec 222 or for freezing of assets of the company under sec 221.

12.4.4.6

Actions by members

Inter alia the members may take the following actions if circumstances to that effect are revealed by the inspector’s report: (a) de-registration under sec 7(7); 12.15

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class action suit under sec 245; oppression and mismanagement suit under sec 241; winding-up petition; proceedings against the auditor; freezing of assets under sec 221; application for imposition of restrictions on securities.

12.4.4.7

Actions by others

In several chapters, the actions that can be taken by creditors and other persons are specified. If the inspector’s report reveals such wrongdoing, the creditors, depositors or lenders can take such recourse as are available under this Act or otherwise.

12.4.4.8

Prosecution for fraud

Section 213 provides that if after the investigation it is proved that— i.

the business of the company is being conducted with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose; or

ii. any person concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, then every officer of the company who is in default and the person or persons concerned in the formation of the company or the management of its affairs shall be punishable for fraud in the manner as provided in sec 447.

12.5

OTHER PROVISIONS

12.5.1

Protection to employees (Section 218)

Protection to the employee provided under sec 218 is available irrespective of anything contained in any other law. Some of the important points with respect to this provision are as follows.

12.5.1.1

To whom is it available?

This protection is available only to the employee of the company. It is not available to officers of the company (unless such officer is an employee) or agents of the company.

12.5.1.2

During what period?

This protection is available during the period of investigation. There are several types of investigations that are conducted under Chapter XIV and such protection is available when the investigation is ongoing under sec 210 (Investigation into the affairs of the company), sec 212 (Investigation into the affairs of the company by 12.16

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SFIO), sec 213 (Investigation into the affairs of company in other cases), sec 216 (Investigation into the ownership of a company) and sec 219 (Power of inspector to conduct investigation into the affairs of related companies). It is also available during any proceedings against a person in relation to conduct and management of the affairs of the company.

12.5.1.3

Against what?

The protection is available against the following things: (a) discharge or suspension; (b) actions to punish them, whether by dismissal, removal, reduction in rank or otherwise; (c) to change the terms of his employment to the disadvantage of the employee.

12.5.1.4

Under what circumstances can action be taken?

Such actions can be taken by the company, body corporate or person with the permission of the Tribunal. For this purpose they can approach the Tribunal. The Tribunal is provided a window of 30 days to decide on the matter. If the Tribunal does not take a decision, the company can go ahead with its decision. The Appellate mechanism provided under this section provides for only one step of appeal, ie appeal to the Appellate Tribunal within a period of 30 days. The decision of the Appellate Tribunal shall be final and binding. However, the Tribunal can take certain suo motu actions on the basis of the inspector’s report.

12.5.2

Protection for whistleblowers

Section 457 provides certain safeguards for whistleblowers. The registrar, any officer of the Government or any other person shall not be compelled to disclose to any court, Tribunal or other authority the source from where they got any information which— (a) has led the Central Government to order an investigation under sec 210; or (b) is or has been material relevant to such investigation. Thus, a person who has given information to the Central Government or to the inspector can be kept anonymous. Further, a shareholder who provides material which results in an investigation may also be able to get this benefit and will not be required to provide the name of the person or the source from where he has got material that is relevant to the investigation.

12.5.3

Investigation during the pendency of other proceedings (Section 226)

Investigation can be initiated or continued notwithstanding the initiation or pendency of the following proceedings: (a) proceedings for the prevention of oppression and mismanagement.; 12.17

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(b) proceedings for voluntary winding–up; (c) proceedings for involuntary winding-up by the Tribunal. The inspector is required to inform the court of pendency of the investigation proceedings, if in the case of involuntary winding-up proceedings, the Tribunal passes an order to wind up the company. Further, the pendency of winding-up proceedings does not absolve the director or other employees from their duties with respect to investigation proceedings, nor does it shield them from any prosecution that can be initiated as a result of the findings in investigation proceedings.

12.5.4

Investigation of foreign companies (Section 228)

The provision of inquiry, inspection and investigation in Chapter XIV applies mutatis mutandis to foreign companies.

12.5.5

Expenses for investigation (Section 225)

The expenses of, and incidental to, an investigation by an inspector appointed by the Central Government shall be defrayed in the first instance by the Central Government, but shall be reimbursed by the following persons to the extent mentioned below, namely— (a) any person who is convicted in a prosecution instituted, or who is ordered to pay damages or restore any property in proceedings brought, under sec 224, to the extent that they may in the same proceedings be ordered to pay the said expenses as may be specified by the court convicting such person, or ordering them to pay such damages or restore such property, as the case may be; (b) any company or body corporate in whose name proceedings are brought as aforesaid, to the extent of the amount or value of any sums or property recovered by it as a result of such proceedings; Any amount for which a company or body corporate is liable to pay shall be a first charge on the sums or property mentioned herein; (c) unless, as a result of the investigation, a prosecution is instituted under sec 224i.

any company, body corporate, managing director or manager dealt with by the report of the inspector; and

ii. the applicants for the investigation, where the inspector was appointed under sec 213, to such extent as the Central Government may direct. However, if a security is taken by the Central Government, the expenses for the investigation can be paid out of the said security.

12.6

SERIOUS FRAUD INVESTIGATION AUTHORITY

The office of SFIO was established in 2003, against the backdrop of the Ketan Parekh 12.18

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scam coupled with major failures of non-banking financial companies and the phenomenon of vanishing companies. The need was felt for a strong multidisciplinary enforcement mechanism. The Government set up an expert Committee under the Chairmanship of Shri Naresh Chandra on “Corporate Audit and Governance” to examine the entire gamut of Corporate Governance and to make suitable recommendations thereon. The Committee, inter alia, recommended the creation of a multidisciplinary organization for an investigation into serious financial frauds, on the lines of the Serious Fraud Office of the UK. Thus, in view of the recommendations, the office of SFIO was established under the Department of Company Affairs, Ministry of Finance, to professionally investigate white-collar crimes. 1 SFIO is based out of Delhi and has its regional office at Mumbai. SFIO has been involved in high-stake cases such as fraud by chit fund companies, the Shardha Group fraud and Reebok falsification of accounts. Section 211 of the Companies Act, 2013 gives statutory recognition to this office. It empowers the Central Government to establish a new office of SFIO and provides for the continuance of the old office of SFIO until the new office is notified. The old office of SFIO will have all the powers under the Companies Act, 2013 until the Central Government notifies the new office.

12.6.1

Organization structure

12.6.1.1

Director

SFIO shall be headed by a Director who shall be an officer not below the rank of a Joint Secretary to the Government of India, having knowledge and experience in dealing with matters relating to corporate affairs.

12.6.1.2

Experts

SFIO shall consist of experts from the following fields: i.

banking;

ii. corporate affairs; iii. taxation; iv. forensic audit; v. capital market; vi. information technology; vii. law. The Government is given the liberty to choose experts from any filed that it deems 1

Vide Resolution No. 45011/16/2003-Admn I dated 2 July 2003.

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fit. It is further given the liberty to determine the size of the said organization as it can appoint any number of experts as it deems fit. The only criterion is that people should be selected from amongst persons of ability, integrity and experience in the field given above or other fields that the Central Government has notified. The Central Government is empowered to appoint experts, officers and employees.

12.6.2

Exclusive jurisdiction to investigate

The Act has given SFIO an exclusive jurisdiction to investigate into the affairs of companies referred to it. This will enable it to function more effectively. Thus, if a matter is referred to SFIO, no other investigation authority, whether central or state, can investigate in such cases. All an ongoing investigation against the company will be stalled. All the documents and records collected in that regard must be handed over to SFIO.

12.6.3

What cases can be investigated by SFIO?

Only those cases which are assigned to it by the Central Government can be investigated by the SFIO. For the matter to be assigned, the Central Government has to form an opinion that it is necessary to investigate the affairs of the company by SFIO in any of the following situations.

12.6.3.1

Report

On receipt of the report of the registrar or inspector. In the report, the registrar and investigator are given the liberty to recommend whether further investigation is necessary. However, the decision of the Central Government to refer a matter to investigation by SFIO is not dependent on the recommendation in the report, but the recommendation can be considered by the Central Government while taking the decision.

12.6.3.2

Special resolution

A company can apply for investigation if a special resolution is passed by its shareholders that investigation is necessary.

12.6.3.3

Public interest

12.6.3.4

Request

Any department of the central or state Government can request for an investigation.

12.6.4

Can an investor complain to SFIO?

An individual can approach the police. However, an investor cannot approach SFIO. They can, at best, write to the Central Government about any fraud or wrongdoing. If the Central Government finds it valid, it can direct SFIO to investigate in public interest. 12.20

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12.6.5

Tribunal directed investigations

Can SFIO investigate only companies?

SFIO can investigate the company under investigation and also other body corporates who are associated with the said company in the manner set out in sec 219 of the Companies Act, 2013. It can also investigate affairs of the managing director, managers or employees. However, there is no express power to investigate other related parties who are not body corporates. It does not have a right even to interrogate them, unless it is able to prove that those related parties are officers, employees or agents of such company or body corporate.

12.6.6 12.6.6.1

Powers of SFIO Power of arrest

An officer not below the rank of Assistant Director of SFIO have the power to effect arrest of any person who is accused of offences mentioned under sec 212(6) of the Companies Act, 2013 (a list of these offences is given in the chapter dealing with corporate criminal liability).

12.6.6.2

Power to prosecute

SFIO does not have powers to take the decision of prosecuting. This power is vested with the Central Government. But once it gives approval, then SFIO can initiate prosecution.

12.6.6.3

Powers of investigator

The powers of SFIO as provided under sec 217 and sec 219 include the following: (a) directing any companies and other body corporates to furnish information, books and papers; (b) keeping books and papers in their custody for a period of 180 days; (c) inspecting books and papers; (d) examining certain people on oath; (e) discovery and production of books and papers; (f) summoning and enforcing the attendance of any person; (g) taking assistance of foreign authorities to collect evidence and examine witnesses; (h) investigating affairs of other body corporates or people who are associated with the company under investigation in the manner specified in sec 210.

12.6.7

Coordination

Authorities such as investigating agencies, state government, income tax department and police are entrusted with the duty of sharing information and documents with the 12.21

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SFIO and the SFIO is entrusted with similar duty to share relevant information with concerned authorities.

12.6.8

Police report

When the investigation is complete, the police officer is required to submit a report under sec 173 of the Code of Criminal Procedure (in short Cr PC) to the magistrate stating the name of the parties, the nature of information, etc. This report is known as the “charge sheet” or “challan” if a prima facie case is made out against the accused or “final report” if no such case is made out. A charge sheet forms the basis of the case in the Court. In cases which are under SFIO, the report of SFIO will be considered as a report under sec 173 of the Code of Criminal Procedure.

12.6.9

Obligation of company

Company and its officers and employees are responsible for assisting the investigating officer. Even former employees and officers are responsible for providing assistance.

12.6.10 Problem areas SFIO does not have functional and financial autonomy. With the Central Government playing a major role in the formation, constitution and operational affairs, in the case of certain frauds, it may not be very effective. It will face hurdles similar to those faced by CBI. Case digest on tribunal directed investigation Court/Month. Year Name of Case Particulars of Case/Relevant Provision; (date of the decision) Brief law point covered NCLAT/Feb20/ Sec Vijay Pal Garg & Facts: An application was filed by the 213/ 04.02.2020 Ors. (Appellants) v resolution professional under IBC for Pooja Bahry various frauds discovered by him. NCLT, (Liquidator in the observed that it held summary jurisdiction matter of Gee Ispat and it was not possible to peruse the Private Limited) voluminous documents submitted by (Respondent), parties. In those IBC proceedings, NCLT (Company Appeal suo motu invoked powers under Companies (AT) Insolvency Act and directed an investigation to be No. 949 of 2019) conduct by central government. Issue: Whether Adjudicating Authority had incorrectly invoked section 210(2) of the Companies Act, 2013 while exercising jurisdiction under the provisions of 'I&B' 12.22

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Tribunal directed investigations

Particulars

Code? Held: NCLAT dismissed the appeal with certain important observations: Adjudicating authority under IBC is in fact NCLT under section 408 with respect to corporate person. Tribunal is a judicial body but it does not have trapping of a court. Resolution professional can file an application by pointing out his hardships /obstacles to the adjudicating authority. Investigation is not order on mere assumptions, presumptions, conjectures or surmises. Tribunal before issuing an investigation must give an opportunity to heard to the person who will be affected by such order and follow the principles of natural justice. Section 210 deals with two situations where central government can initiation investigation. It can initiate it at its own discretion. Or it must investigation is order to do so by NCLT. Under section 213 the NCLT can direct the central government to investigation and in such situation the central government does not have any discretion to refuse such investigation. However, the decision whether to refer the matter to SFIO is with the central government. NCLT has concurrent jurisdiction under IBC and Companies Act, 2013 and is competent to order investigation. If an investigating authority after completion of investigation comes to a conclusion that any offence punishable in terms of Section 213 read with 447 of Companies Act or under Section 68,69,70,71,72,73 of the IBC Code is/are made out then, the Central Government,

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may refer the matter to the ‘Special Court’ itself or may even require the ‘Insolvency and Bankruptcy Board of India’ or to authorise any person as per sec 236(2) of the I&B Code to file a complaint. Order of NCLT was upheld with few variations. NCLAT/Dec19/ Sec Union of India. Facts: Two different applications were filed 213/ 02.12.2019 Through Serious by the ‘Resolution Professional’ in respect Fraud Investigation of investigation into the affairs of the Office (SFIO) v ‘Luxury Train Pvt. Ltd.’ and ‘Zynke Exports Maharashtra Pvt. Ltd. NCLT in an IBC proceeding, directed the SFIO to investigate into Tourism allegations of siphoning of funds in respect Development Corporation & of public money which was noticed by the Anr., Company Adjudicating Authority by its earlier orders. Appeal (AT) Appeals were preferred by ‘Union of (Insolvency) No. India(SFIO)’ against the orders dated 24th 964 of 2019 July, 2019 and 26th July, 2019 passed by the Adjudicating Authority, Principal Bench, New Delhi. Issue: Whether NCLT has jurisdiction to direct the SFIO directly to investigate about the fraud or siphoning of funds, if any, committed by the Company (Corporate Debtor)? Held: NCLT cannot directly direct SFIO to investigation into the affairs of the company. NCLT can direct central government to investigate. It is the prerogative of Central Government whether to assign the investigation to SFIO or other investigation officers appointed by it. The decision was based on Appellate Tribunal’s decision in ‘Mr. Lagadapati Ramesh vs. Mrs. Ramanathan Bhuvaneshwari’’. Based on this decision, the order of NCLT was modified and Central Government was directed to conduct investigation.

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NCLAT/July19/Sec M.Srinivas v Facts: In the ‘Corporate Insolvency 213/24.07.2019 Ramanathan Resolution Process’ against M/s. Bhuvana Bhuvaneshwari, Infra Projects’, the ‘Resolution Company Appeal Professional’ brought to the notice of the (AT) (Insolvency) Adjudicating Authority (NCLT), Bengaluru No. 498 of 2019 Bench that the promoters of the ‘Corporate Debtor’ and its company defrauded a on 24 July, 2019 number of creditors of more than crores of rupees. The Adjudicating Authority by impugned judgment dated 16th April, 2019 dispose of Interlocutory Application in exercising of power conferred u/s 213 of the Companies Act, 2013, with following directions: In the result by exercising powers conferred on this Adjudicating Authority, which being NCLT, U/s 213 of Companies Act, 2013, I.A. No. 446/2018 in C.P. (IB) No. 122/BB/2017 is disposed with the following directions: 1) Learned Resolution Professional is directed to forward all material documents, which is connected to the present case including the Forensic Audit Report dated 14.12.2018, the Central Government, within a period of three weeks from the receipt of the copy of the order. 2) Learned Resolution Professional is also directed to furnish all the documents forwarded to the Central Government, to all parties/other side duly following principles of natural justice. 3) The Central Government is directed to refer the matter to the SFIO for further investigation into the Affairs of the Corporate Debtor, Bank of Maharashtra and other related Companies including Director of Companies of Corporate Debtor & related Companies and officials of Bank of Maharashtra basing on the Report of Forensic Audit Report, as expeditiously as possible. 4) Bank of Maharashtra is also directed to extend full assistance to the SFIO to 12.25

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Particulars

complete the investigation as expeditiously as possible. 5) The parties are liberty to take appropriate legal course of action basing on the ultimate findings given by the SFIO in this case. 6) The prayer as sought for the application stand disposed of in the light of above directions. 7) No order as to costs.” The Appellant – ‘M. Srinivas’, majority shareholder of the ‘Corporate Debtor’ undergoing CIRP process, challenged the order dated 16th April, 2019 on the ground that the Adjudicating Authority has no jurisdiction to pass order u/s 213 of the Companies Act, 2013. Whether the ‘Adjudicating Issue: Authority’ which is ‘National Company Law Tribunal’ having dual jurisdiction under the ‘Companies Act, 2013’ and the’ Insolvency and Bankruptcy Code, 2016’ can direct the Central Government to refer the matter to the ‘Serious Fraud Investigation Office’ (SFIO) for further investigation into the affairs of the ‘Corporate Debtor’, Bank of Maharashtra and other group of companies including the Directors of the companies of Corporate Debtor and group companies and officials of Bank of Maharashtra basing it on the ‘Forensic Audit Report? Held: Appeal was dismissed. NCLAT held In the case of “Y. Shivram Prasad Vs. S. Dhanapal & Ors.” - Company Appeal (AT) (Insolvency) No. 224 of 2018 etc.” disposed of on 27th February, 2019 the Appellate Tribunal held that the Adjudicating Authority has dual role of ‘Adjudicating Authority’ and ‘National Company Law

12.26

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Tribunal directed investigations

Particulars

Tribunal’ for the purpose of ‘I&B Code’. From Clause (b) of Section 213 of the Companies Act, 2013, it is clear that on an application made to it ‘by any other person’ or ‘otherwise’, if Tribunal/Adjudicating Authority is satisfied that there are circumstances suggesting that the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in a manner oppressive to any of its members, or that the company was formed for any fraudulent or unlawful purpose. Apart from the power conferred by Section 213 of the Companies Act, 2013, the ‘National Company Law Tribunal’ has inherent powers under Rule 11 of National Company Law Tribunal Rules, 2016. Therefore, in public interest, it is always open to the ‘National Company Law Tribunal’ after giving a reasonable opportunity of being heard to the parties concerned refer the matter to the Central Government for investigation’ NCLAT/Sept Lagadapati In this case again the question of inter play 19/Sec213/20.09.20 Ramesh v Mrs. of IBC and Companies Act, 2013 were Ramanathan under consideration. 19 Bhuvaneshwari, NCLAT made following observations: ‘Company Appeal “27. The ‘offences and penalties’ as (AT) (Insolvency) prescribed and dealt with in Chapter VII of No. 574/2019 IBC and appropriate order of punishment 20th September, can be passed only by way of trial of 2019 offences by a Special Court in terms of Section 236 of the ‘I&B Code’. However, no such Court can take cognizance of any offence punishable under the Act, save on a complaint made by the ‘Insolvency and Bankruptcy Board of India’ (IBBI) or the Central Government or any person 12.27

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authorised by the Central Government in this behalf. …… 28. Normally, the ‘IBBI’ or the ‘Central Government’ are not party to a ‘Corporate Insolvency Resolution Process’. Even if the matter is referred to ‘IBBI’, it cannot file straightaway a compliant before the Special Court without any investigation and only if a prima facie case is made out. Therefore, the question arises as to how in such cases the matter can be referred to by the ‘Adjudicating Authority’ to the ‘IBBI’ or the ‘Central Government’ for trial of offences by Special Court under Section 236 of the ‘I&B Code’. 29. In terms of sub-section (1) of Section 60, the ‘National Company Law Tribunal’ is the ‘Adjudicating Authority’ for the purpose of ‘I&B Code’. It is having concurrent jurisdiction as the ‘National Company Law Tribunal’ under the Companies Act, as also as the Adjudicating Authority under the ‘I&B Code’. 30. Section 212 of the Companies Act, 2013 though relates to ‘investigation into the affairs of company by Serious Fraud Investigation Office’ and such investigation can be made only if the Central Government is of the opinion that it is necessary to investigate into the affairs of a company by the ‘Serious Fraud Investigation Office’, ….. 31. From bare perusal of Section 212 of the Companies Act, 2013, it will be evident that such investigation into affairs of company can be made only on receipt of a report of the Registrar or Inspector under Section 208 of the Companies Act, 2013 or on intimation of a special resolution passed by a company that its affairs are required to be

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Particulars

investigated; or in the public interest; or on request from any Department of the Central Government or a State Government. 32. Section 212 does not empower the National Company Law Tribunal or the Adjudicating Authority to refer the matter to the Central Government for investigation by the ‘Serious Fraud Investigation Office’ even if it notices the affairs of the Company of defrauding the creditors and others. 33. However, investigation into affairs of company at the instance of the Tribunal has been prescribed under Section 213 … 34. In terms of clause (b) of Section 213, on an application made to it by any other person (‘Resolution Professional’) or otherwise (suo motu), if the National Company Law Tribunal is satisfied that there are circumstances suggesting that (i) the business of the company is being conducted with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive to any of its members or that the company was formed for any fraudulent or unlawful purpose as alleged by the ‘Resolution Professional’ in the present case and or by; (ii) persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members etc., (which is also the allegation made by the ‘Resolution Professional’), in such case, the Tribunal after giving a “reasonable opportunity” of being heard to the parties concerned, that the affairs of the company ought to be investigated by an ‘Inspector’ or

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‘Inspectors’ appointed by the Central Government and where such an order is passed, in such case, the Central Government is bound to appoint one or more competent persons as Inspectors to investigate into the affairs of the company in respect of such matters and to report thereupon to it in such manner as the Central Government may direct. 35. If after investigation it is proved that (i) the business of the company is being conducted with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose, or that the company was formed for any fraudulent or unlawful purpose; or (ii) any person concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, then, every officer of the company who is in default and the person or persons concerned in the formation of the company or the management of its affairs shall be punishable for fraud in the manner as provided in section 447. 36. For punishment of fraud in a manner as prescribed in Section 447 of the Companies Act, 2013, the matter is required to be tried by a Special Court as established under Section 435 which requires speedy trial for offences under the Companies Act, 2013. The same Court i.e. Special Court established under Section 435 is the Court empowered under Section 236 of the ‘I&B Code’ for trial of such offence under the ‘I&B Code’ also. 37. In view of the aforesaid position of law, we hold that the Tribunal/ Adjudicating Authority, on receipt of application/complaint of alleged violation

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Particulars

of the aforesaid provisions and on such consideration and being satisfied that there are circumstances suggesting that defraud etc. has been committed, may refer the matter to the Central Government for investigation by an Inspector or Inspectors as may be appointed by the Central Government. On such investigation, if the investigating authority reports that a person has committed any offence punishable under Section 213 read with Section 447 of the Companies Act, 2013 or Sections 68, 69, 70, 71, 72 and 73 of the ‘I&B Code’, in such case, the Central Government is competent to refer the matter to the Special Court itself or may ask the Insolvency and Bankruptcy Board of India or may authorise any person in terms of sub-section (2) of Section 236 of the ‘I&B Code’ to file complaint. 38. The National Company Law Tribunal is the Adjudicating Authority under Part-II of the ‘I&B Code’ in terms of sub-section (1) of Section 60, which reads as follows: …. 39. The Civil Procedure Code is not applicable for any proceeding before the Tribunal and in terms of Section 424, the Tribunal is guided by principle of natural justice and subject to other provisions under the Companies Act, 2013 or the ‘I&B Code’ or any Rule made thereunder. The Tribunal and the Adjudicating Authority have also been empowered to regulate their own procedure. 40. In view of the aforesaid position of law also, the procedure laid down under Section 213 of the Companies Act, 2013 can be exercised by the Tribunal/ Adjudicating Authority, as held above. 41. Further, after the investigation by the Inspector, if case is made out and the

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Central Government feels that the matter also requires investigation by the ‘Serious Fraud Investigation Office’ under Section 212 of the Companies Act, 2013, it is open to the Central Government to decide whether in such case the matter may be referred to the ‘Serious Fraud Investigation Office’ or not. This will depend on the gravity of charges as may be found during the investigation by the Inspector. 42. In view of the aforesaid position of law, we are of the view that the Adjudicating Authority was not competent to straight away direct any investigation to be conducted by the ‘Serious Fraud Investigation Office’. However, the Adjudicating Authority (Tribunal) being competent to pass order under Section 213 of the Companies Act, 2013, it was always open to the Adjudicating Authority/Tribunal to give a notice with regard to the aforesaid charges to the Promoters and others, including the Appellants herein and after following the procedure as laid down in Section 213, if prima facie case was made out, it could refer the matter to the Central Government for investigation by the Inspector or Inspectors and on such investigation, if any, actionable material is made out and if the Central Government feels that the matter requires investigation through the ‘Serious Fraud Investigation’, it can proceed in accordance with the provisions as discussed above. Impugned order shows parties have been heard on the charges claimed by the ‘Resolution Professional’.”

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12.7

Tribunal directed investigations

PROCEDURE

The procedure has been provided in rule 81 of NCLT Rules. An application under sec 213 may be filed in Form NCLT 1 of NCLT Rules. The rules may be made with the leave of the Tribunal.

12.8

COMPARISON CHART INSPECTION, INQUIRY AND INVESTIGATION

12.8.1

Comparison of the Companies Act, 2013 (New Act) with the Companies Act, 1956 (Old Act)

Particulars New Act Old Act Remarks Power to call for 206(1) 234(1) • Perusalscrutiny. information, • Under the New Act, the scrutiny shall also inspect books and be of “any information received” by the conduct inquiries registrar. • Under the New Act, any further documents Notice to inspect relating to the company can also be asked by ROC to be produced by the registrar. • The term “Order” is replaced by the “written Notice” under the New Act. Duty to produce 206(2) 234(2) • The term “Order” is replaced by the information/expla and “written notice” under the New Act. nation 234(3) • Under the New Act, to produce the documents within the time specified or extended in the notice is also the duty of the company. • Under the New Act, a written notice can be served to the company as well as to the ex-officers which under the Old Act was required to be served only to the company. Additional 206(3) 234(3A), • “Another written order (AWO)” is information/expla 234(6) replaced by the “another written notice” nation under the New Act. • By such AWO, in addition to books and papers, Books of Accounts and explanations can also be called. • Under the New Act, another written order can be passed only on fulfilling the following conditions: o Information and Explanations (I&E) are not furnished within the time

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Inquiry by ROC 206(4)

234(7)

Inspection by the 206(5) Central Government Inspection by the 206(6) Central Government Penalty 206(7)

--

Remarks specified; o I&E furnished is inadequate; o The document does not disclose a full and fair statement of information and represents an unsatisfactory state of affairs in the company. But under the Old Act, AWO could be for the first two above-mentioned conditions. • By considering the above-mentioned third condition, the reporting to the Central Government by the registrar has been deleted under the New Act. • Under the New Act, before service of notice, the registrar shall record his reasons in writing. • Under the New Act, the representation can be made by “any person”, which under the Old Act was only by the “creditor, contributory or any other person interested”. • The scope of reasons for passing WO has been magnified under the New Act, ie noncompliance with the provisions of the Act, non-redressal of the grievances of the investors. • The registrar can also conduct enquiry. • The Central Government can also through the inspector and registrar conduct the enquiry. • Officers in default shall be liable for fraud under sec 447 where the business carried on for unlawful and fraudulent purposes. Newly inserted.

--

Newly inserted.

234(4)

This sub-section has been made as the general section describing penalty in the case of noncompliance with the provision of this section, which under the Old Act was specific.

Conduct of

209A(2) • “Person making the inspection” replaced

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207(1)

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Particulars inspection and inquiry

Tribunal directed investigations

New Act Old Act and 209A(3)

Call for books of accounts or other documents

•

• •

Making copies and placing identification marks on documents

207(2)

•

Powers of 207(3) ROC/inspectors during inspection Default

207(4)

Report on 208 inspection made

Search and seizure

• 209A(4) •

209(1)

• 209A(5) •

Remarks with “registrar or inspector, making an inspection”. Under the New Act, it is not required that the documents called for inspection should be in the custody or control of such directors or officers or employees. The Central Government now shall appoint inspectors instead of the officers. Also, the time limit, ie inspection during business hours, is no longer applicable under the New Act. Rest of the provisions are similar. “Person making the inspection” replaced with “registrar or inspector, making an inspection”. Now, along with the inspection, an inquiry can also be conducted. Rest of the provisions are similar. “Person making the inspection” replaced with “registrar or inspector, making an inspection”. Rest of the provisions are similar.

• 209A(8) • Under sec 207(4)(i) of the Companies and (9) Act, 2013, the word “every officer” is replaced by “any director or officer of the company”. Also, the limit of fine has been increased to a minimum of INR 25,000 and a maximum of INR 1 lakh, which earlier was INR 5,000 only. • Under sec 207(4)(ii) of the Companies Act, 2013, the limit of 5 years for disqualifying the director for holding an office in any company has been removed. 209A • Under the New Act, the “person making the inspection” has been replaced by “inspector or registrar”. • Also, such report can now include the recommendation for further investigation, if necessary. 234A(1) • Power of search and seizure has also been and (2) given to the inspector. • Any company (Old Act)  a company (New Act).

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NCLT and NCLAT Law Practice and Procedure, 7e

Particulars

New Act Old Act

209(2)

209(3) Investigation into 210(1) the affairs of the Company Circumstance where CG can order investigation CG to appoint inspector where 12.36

Chapter 12

210(2)

Remarks • Under the New Act, “Managing agent, secretaries and treasures and managing director, or manager of such company other body corporate or associate of such managing agent or secretaries and treasures” has been replaced by “KMP or any director or auditor or CS”. • First-class magistrate (Old Act) Special Court (New Act). • Additional power has been designated to the inspector and the registrar, allowing the company to take copies of, or extracts, at its cost. 234A(3) • Power of search and seizure has also been given to the inspector. • The time limit to return the books and papers of the company has been increased from 30 days to 180 days. Under the New Act, the Books and papers • shall be returned only to “the Company” and not to “other body corporate or managing agent, secretaries and treasurers and managing director, or manager of such company other body corporate or associate of such managing agent or secretaries and treasurers”. • The duty of the authority to inform the magistrate again has been removed under the New Act. • A new proviso empowering the authorities to call for such Books and papers by order for an additional 180 days. 234A(4) Similar. 235(1) • Drafting change. • Now, the Central Government can order investigation: o on intimation of a special resolution passed by the company; or o in public interest --

• (Newly inserted). • The Central Government has to order an

Chapter 12

Particulars any court/Tribunal orders investigation Power of CG to appoint an inspector for investigation Establishment of SFIO Investigation into affairs of Company by SFIO Investigation into the company’s affair in other cases

Tribunal directed investigations

New Act Old Act

Remarks investigation when the court or the Tribunal in any proceedings has ordered an investigation.

210(3)

235(1)

Similar.

211

--

Newly inserted.

212

--

Newly inserted.

213(a)

235(2), 236

• CLB (Old Act)Tribunal (New Act). • In the case of a company having a share capital, to apply before the Tribunal, the number of members has been decreased to 100 members from 200 members.

213(b)

-

Fraud proved in investigation

213 proviso

-

Security for payment of cost and expenses of investigation

214

236

Firm, body corporate or

215

238

• Newly inserted. • When an application is made to the Tribunal by any other person, the Tribunal can take cognizance. • Newly inserted. • The said proviso provides for severe penalties where the officers in default are found conducting business with a fraudulent intention. • The amount of security has been increased from INR 1,000 to INR 25,000. • Under the New Act, such security shall be refunded, where an investigation results in prosecution. Similar provisions.

Circumstances where the Tribunal can order an investigation -application by members Application by others

12.37

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Particulars New Act Old Act Remarks association not to be appointed as inspector Investigation of 216(1) 247(1) • Similar provision. ownership of • Under the New Act, the word “good company reason” has been replaced by the term “reason” only. However, the said provision is amendement by Companies Amendment Act, 2017. Tribunal’s 216(2) 247(1A) • Similar provision. direction for • Term Declares (Old Act) replaced by investigation in term Directs (New Act). ownership • CLB (Old Act)Tribunal (New Act). Scope in 216(3) 247(2) Similar provision. investigation initiated at instance of CG Scope of power 216(4) 247(3) Similar provision. of inspector Procedure, 217(1) 240(1) • Under the New Act, now the duty is also powers, etc., of of the former officers, employees and inspectors agents of the company. • Under the New Act, there is deletion of Duty of officer, “where the company is or was managed by employees and the managing agent or secretaries or agents treasurers, of all officers and other employees and agents of the managing agent or secretaries or treasurers”. No impact as those terms were redundant even under the Old Act. • Also, under the New Act, the scope of investigation under sec 219 has been widened, ie by replacing the affairs of the “managing agent, secretaries or treasures or their associate” by the affairs of the “persons. • Under the New Act, prior approval of the Central Government not required. • Rest are similar provisions. Duty of body 217(2) 240(1A) • Prior approval of the Central Government corporate in an not required in the New Act. investigation • Similar provisions.

12.38

Chapter 12

Tribunal directed investigations

Particulars New Act Old Act Remarks Custody of books 217(3) 240(1B) • Similar provisions. and papers • Under the New Act, custody for books and papers by the inspector can be for maximum 180 days which earlier was not there. Also, such books and papers can be called further for maximum of 180 days. Examination of 217(4) 240(2) • Under the New Act, the affairs of the oath “managing agent, secretaries or treasures or their associate” has been replaced by the affairs of the “persons”. Therefore, the scope under the New Act has been widened. • Also, when the investigation is conducted by SFIO, prior approval of the CG is sufficient. • Rest of the provisions are similar. Powers of Civil 217(5) • Newly inserted. Courts • Inspectors making an investigation shall have power of the civil court. Penalty 217(6) -• Newly inserted. • Non-compliance of the section of the Act by the directors or the officers of the company shall attract the penal provisions and also deemed vacation of office. Signing noted of 217(7) 240(5) Similar provisions. examination Failure of 217(8) 240(3) • Under the New Act, the penal fine has persons to fulfil been increased to INR 25,000 to INR 1 their duty under lakh from a maximum of INR 2,000 and this section. civil provisions have been enhanced to INR 2,000 per day from INR 200 per day. Assistance to 217(9) Newly inserted. Inspector by other authorities Reciprocal 217(10) Newly inserted. Agreement with other countries for investigation Reciprocal 217(11) Newly inserted. Agreement with other countries for investigation Reciprocal 217(12) Newly inserted. 12.39

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Chapter 12

Particulars New Act Old Act Remarks agreement with other countries for examination of person or production of documents Protection of 218(1) 635B(1) • Now, the company can propose to change employees during the terms of employment to his investigation disadvantage also the employee can be suspended also. • CLBTribunal. • Bodyother body corporate. • Also, now instead of sending the intimation to CLB, approval from the Tribunal is needed under the said section. 218(2) 635B(2) • CLBTribunal. • Notice of objectionapproval of Tribunal. • Instead of intimation, application shall be made to the tribunal. 218(3) 635B(2) • CLBTribunal. • CourtAppellate Tribunal. 218(4) 635B(2) • CLBTribunal. • CourtAppellate Tribunal. 218(5) 635B(2) Similar. Power of 219 239 • Under the New Act, the term “managing inspector to agent, secretaries and treasurers” is deleted conduct and associated provisions are amended. investigation into • Under sec (c), now the investigation of affairs of related affairs can only be on company and its companies, etc. directors and not on the employees and nominees of such company having directorship in any other company. Seizure of 220(1) 240A(1), • Investigation relating to the managing documents by (2) agent or secretaries or treasurers is deleted. inspector • Under the New Act, no prior application to Magistrate /Presidency Magistrate for obtaining order to seize documents. Power of searching the place has been • deleted under the New Act. • Company can take the extracts, copies before the seizure. Custody of books 220(2) 240A(3) • Managing agent, secretaries and treasurers 12.40

Chapter 12

Particulars

Tribunal directed investigations

New Act Old Act

Applicability of 220(3) Cr. PC for search and seizures Freezing of assets 221 of company on Inquiry and investigation Imposition of 222(1) restriction upon securities

Remarks or the associate of such persons replaced with the any other person. Intimating to the magistrate in the case of • returning of the seized documents has been removed under the New Act. • Inspector before returning can take the extracts or the copies bore returning. 240A(4) Similar provisions. -

Newly inserted.

250(1)

• • • •

CLBTribunal. SharesSecurities. Reference to CG deleted. 250(9), Drafting change. The section has been (10), made a general section. All the specific (11), (12) conditions relating to contravention and attraction of penal provision under the Old Act has been replaced with one general subsection of contravention. Also, the fine for company increased to between INR 1 lakh to INR 25 lakhs, 25 lakhs from max of INR 5,000. • And officers in default to INR 25,000 to INR 5 lakhs from a maximum of INR 5,000.

Penalty

222(2)

Inspector’s Report Interim and Final Report of Inspector Copy of report Manner of preparing the report

223(1) & 241(1) (2)

Similar. Sub-sections (3), (4) and (5) are newly inserted.

223(3) 246 223(4) & -(5)

Similar provisions. Newly inserted.

Actions to be taken in

224

242, 243, • Managing agent, secretaries and treasurers, 244 associate have been deleted under the New 12.41

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Chapter 12

Particulars New Act Old Act Remarks pursuance of the Act. inspector’s report • The said section applies to the whole – Prosecution by chapter. CG • Sub-section (5) has been newly inserted stating the actions to be taken when in case of fraud depicted in the inspector’s report. Expenses of 225 245(1) & • Drafting change. Investigation (2) • Managing agent, secretaries and treasurers, associate have been replaced by any person. Now, under the New Act, the direction of • the Central Government is needed to decide the extent of reimbursement. Voluntary 226 250A Similar, various addition of proviso to the winding up of subsisting sub-section. Company, etc. not to stop the investigation proceedings Legal advisers 227 251 • CLBTribunal. and bank not to • Managing agent, Secretaries, treasurers disclose the deleted under New Act. certain information Investigation, etc. 228 Newly inserted. of foreign companies Penalty for 229 Newly inserted. furnishing false statement, mutilation, destruction of documents.

12.8.2

Comparison of Old Act with New Act

Particulars Old Act New Act Remarks Inspection of 209A(1) Deleted. Books of 209A(2) 207(1) • “Person making the inspection” replaced Accounts, etc of with “registrar or inspector, making an companies inspection”. • Under the New Act, it is not required that 12.42

Chapter 12

Tribunal directed investigations

Particulars

Old Act New Act Remarks the documents called for inspection should be in the custody or control of such directors or officers or employees. • Central Government now shall appoint inspectors instead of the officers. • Also, the time limit for inspection during business hours is no longer under the New Act. • Rest similar. 209A(3) 207(1) Similar provision. 209A(4) 207(2) • “Person making the inspection” replaced with “registrar or inspector, making an inspection”. • Now, along with the inspection inquiry can also be conducted. 209A(5) 207(3) • “Person making the inspection” replaced with “registrar or inspector, making an inspection”. 209A(6) 208 • Under the New Act, the “person making the inspection” replaced by “inspector or registrar”. • Also, such report can now include the recommendation for the further investigation, if necessary. 209A(7) Deleted. 209A(8) 207(4)(i) Under sec 207(4)(i) of the Companies Act, 2013, the word “every officer” is replaced by “any director or officer of the company”. Also, the limit of fine has been increased to a minimum of INR 25,000 and maximum of INR 1 lakh which earlier was a maximum of INR 5,000 only. 209A(9) 207(4)(ii) Under sec 207(4)(ii) of the Companies Act, 2013 the limit of 5 years, disqualifying the director for holding office in any company has been removed. Power of register 234(1) 206(1) • Perusal Scrutiny. to call for • Under the New Act, the scrutiny shall also information or be of “any information received” by the explanation registrar. • Under the New Act, any further documents relating to the company can 12.43

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Particulars Old Act New Act ROC to call for providing information and explanation Duty of company 234(2) 206(2) and officer to provide information and explanation Duty of Past Officers Further Information

234(3)

Proviso 206(2) 234(3A) 206(3)

Penalty for Default

234(4)

206(7)

Attaching extract 234(5) of documents to report Unsatisfactory 234(6) Affairs

-

Fraud

206(4)

12.44

234(7)

206(3)

Chapter 12

Remarks also be asked to produce by the registrar. • "Order" is replaced by the "written Notice" under the New Act. • "Order" is replaced by the "written Notice" under the New Act. • Under the New Act to produce the documents within the time specified or extended time in the notice is also the duty of the company. Past Officer questioned only for past period • "Another written Order (AWO)" is replaced by the "another written Notice" under the New Act. Under the Old Act, another written order • can be passed only on fulfilling the following conditions: o I & E* not furnished within the time specified; o I & E furnished is inadequate; o Additional grounds for calling for information inserted in the New Act. • Non-compliance of furnishing details or defaulting officer and company leads to fine, increasing from INR 50 under the Old Act to INR 1 lakh under the New Act. Deleted. Under the New Act, another written order can be passed only on fulfilling the newly inserted condition that the document does not disclose full and fair statement of information and represents unsatisfactory state of affairs in the company. • Under the New Act, the representation can be made by "any person" which under the Old Act was only by the " creditor, contributory or any other person interested" • The scope of reasons for passing order has

Chapter 12

Particulars

Tribunal directed investigations

Old Act New Act Remarks been magnified under the New Act, ie non-compliance with the provisions of the act, not addressing the grievances of the investors. • The registrar can also conduct enquiry. • CG can also through Inspector and registrar can also conduct the enquiry. • Officers in default shall be liable for fraud under sec 447 where the business carried on for unlawful and fraudulent purpose. 234(8) Deleted. 234A 220 Section 220 has combined sec 234A and sec 240A dealing with search and seizure.

Liquidator Search and Seizure By registrar Inspection of the 235(1) affairs of the Company

236

210(1) & • Drafting change. (3) • Now, the CG can order investigation: o on intimation of a special resolution passed by the company o in public interest. 213(a) • CLB (Old Act)Tribunal (New Act). • In the case of a company having the share capital, to apply before tribunal, number of members has been decreased to 100 members from 200 members. 213(a) Same as above.

237

-

Deleted.

238

215

Similar.

239

219

• Under the New Act, the cases of where any other body corporate is or has any relevant time being managed by the managing agent, secretaries and treasurers is deleted

235(2)

Application by members to be supported by evidence and power to call for security Investigation of affairs in other cases Firm, Body corporate or association not to be appointed as the inspector Power of inspector to carry investigation into the related

12.45

NCLT and NCLAT Law Practice and Procedure, 7e

Particulars companies or of managing agent or associate, etc.

Chapter 12

Old Act New Act Remarks also under the subsequent sub-sections. • Under sec (c), now the investigation of affairs can only be on company and its directors and not on the employees and nominees of such company having directorship in any other company. Production of 240(1) 217(1) • Under the New Act the duty is also of the documents and former officers, employees and agents of evidence the company. Under the New Act, there is deletion of • “where the company is or was managed by the managing agent or secretaries or treasurers, of all officers and other employees and agents of the managing agent or secretaries or treasurers”. • Also, under the New Act, the scope of investigation under sec 219 has been widened, ie by replacing the affairs of the “managing agent, secretaries or treasures or their associate” by the affairs of the “persons”. • Under the New Act, prior approval of the Central Government not required. Body corporate to 240(1A) 217(2) Prior approval of central government not provide required. books/informatio n Custody of 240(1B) 217(3) Under the New Act, custody for books and Books papers by inspector can be of maximum 180 days which earlier was not there. Also, such books and papers can be called further for maximum of 180 days. 240(2) 217(4) • Under the New Act, the affairs of the “managing agent, secretaries or treasures or their associate” is replaced by the affairs of the “persons”. Therefore the scope under the act has been widened. • Also, when the investigation is conducted by SFIO, prior approval of CG is sufficient. Penalty 240(3) 217(8) Under the New Act the penal fines has been increased to INR 25,000 to INR 1 lakh from a maximum of INR 2,000 and civil provisions 12.46

Chapter 12

Particulars

Notes for Examination

Tribunal directed investigations

Old Act New Act Remarks have been enhanced to INR 2,000 per day from INR 200 per day. 240(5) 217(7) Similar provision.

Meaning of terms 240(6) Seizure of 240A(1),( 220(1) documents by 2) inspector

Custody of books 240A(3) 220(2)

Deleted. • Investigation relating to the managing agent or secretaries or treasurers is deleted. • Under the New Act, no prior application to Magistrate/Presidency Magistrate for obtaining order to seize documents. • Power of searching the place has been deleted under the New Act. Company can take the extracts, copies • before the seizure • Managing agent, secretaries and treasurers or the associate of such persons replaced with the any other person. • Intimating to the Magistrate in case of returning of the seized documents has been removed under the New Act. Inspector before returning can take the • extracts or the copies before returning. Similar provision.

Applicability of 240A(4) 220(3) CrPC Inspector’s report 241(1) 223(1) & Similar provision. (2) Whom to provide 241(2) Deleted. report -- in which circumstances Prosecution 242(1) 224(1) Managing agent, secretaries and treasurers, associate has been deleted under the New Act. 242(2) Deleted. Application for 243 224(2) Court Tribunal. winding up of company or an order under sections 397 or 398 Proceedings for 244 224(3) & Similar provision.

12.47

NCLT and NCLAT Law Practice and Procedure, 7e

Particulars recovery of damages or property Expenses of investigation

Old Act New Act Remarks (4) 245(1)& 225 (2)

245 (3) to (6) Inspectors’ report 246 223(4) to be evidence Investigation of 247(1) 216(1) ownership of company Investigation 247(1A) 216(2) under direction of Tribunal CG can defined 247(2) 216(3) scope of investigation Nature and 247(3) 216(4) Extent of Power of Inspector Applicability of 247(5) other section and circumstances in which copy of the inspector report will not be divulged Expenses of this 247(6) investigations Information 248 regarding persons having an interest in company or in

12.48

Chapter 12

• Drafting change. • Managing agent, secretaries and treasurers, associate has been replaced by any person. • Now, under the New Act, the direction of the central government is needed to decide the extent of reimbursement. Deleted. Similar provision. • Similar provision. • Under the New Act, the word “good reason” has been reduced to “reason” only. • Declares (Old Act)Directs (New Act). • CLB (Old Act)Tribunal (New Act). Similar provision. Similar provision.

-

Deleted.

-

Deleted.

-

Deleted.

Chapter 12

Tribunal directed investigations

Particulars body corporate or firm acting as managing agent thereof Imposition of restrictions upon shares and debentures and prohibition of transfer of shares or debentures in certain cases Nature of restrictions and Type of orders Penalty

Old Act New Act Remarks

Voluntary winding up of company , etc., not to stop investigation proceedings Saving for legal advisers and bankers

250A

226

251

227

250(1)

222(1)

250(2), (3), (4), (5) 250(9), 222(2) (10), (11), (12)

• CLBTribunal. • SharesSecurities; • Reference to CG deleted.

Deleted. • Drafting change. The section has been made the general section. All the specific conditions relating to contravention and attraction of penal provision under the Old Act have been replaced with one general sub-section of contravention. Also, the fine for company increased to INR 1 lakh to INR 25 lakhs from a maximum of INR 5,000. • The fine for officers in default increased to INR 25,000 to INR 5 lakhs from a maximum of INR 5,000. Similar, various addition of proviso to the subsisting sub section.

• CLBTribunal. • Managing agent, Secretaries, treasurers deleted under the New Act.

*I & E: Information and Explanation.

12.9

FURTHER READING

A Ramaiya, Guide to the Companies Act, Sixteenth Edition, 2010, Wadhwa & Company. 12.49

NCLT and NCLAT Law Practice and Procedure, 7e

12.50

Chapter 12

Chapter 13

Compromises and Arrangements 13.1

INTRODUCTION

Chapter XV of the Companies Act, 2013 deals with the law on compromises, arrangements and amalgamations. Section 230 [except sub-section (11) and (12)], and Sections 231 to 233 and Sections 235 to 240 of Chapter XV are notified w.e.f. 15th December 2016. The law on merger and amalgamation has substantially changed to provide a more effective framework for companies to enter into compromise and arrangement while safeguarding the interest of the stakeholders and that of public at large. This chapter goes into details of the new law. It is divided into four parts depending on the nature of approvals required. The overview of the chapter is provided after the overview of changes.

13.2

OVERVIEW OF CHANGES

13.2.1

Contractual mergers

Outside India, contractual mergers are recognised wherein parties can merge by entering into agreements. This was not recognised in India in the past. However, the new Act recognises contractual merger between certain classes of companies wherein sanction of Tribunal is not required.

13.2.2

Deemed approval

Companies Act, 2013 has forged a fine balance between public interest and the interest of company. Under Companies Act, 1956, the central government had a role to play in this process and it acted through an Official Liquidator (OL) or the Regional Director who submitted reports about different aspects of the company. This entire process had to be to the satisfaction of the court. This sometimes resulted in delays. The reporting requirements are removed in the Companies Act, 2013. Instead, the concept of “deemed approval” is inserted to ensure that merger goes through in a time bound manner. If the authorities fail to file their objections, it will be deemed that they have no objections.

13.2.3

Cross border mergers

The Act has given legal recognition for merger of an Indian company with a foreign company from such countries as may be notified by government.

13.1

NCLT and NCLAT Law Practice and Procedure, 7e

13.2.4

Chapter 13

Scope of powers

The existing law as per Companies Act, 1956, on compromise and arrangement is considered a separate code in itself and thus the court has wide powers to approve any matter for the purpose of implementing the compromise or arrangement. The only exception was if the scheme involved reduction of capital in which case procedure for reduction had to be complied with. While this is an essential facet of the court’s power to approve a scheme, this wide power was also a cause of concern. It was apprehended that companies could use this route to approve certain activities by side-lining established procedures for the same. To plug this loophole, the new law provides that buy-backs and takeovers have to follow prescribed procedures, despite these being a part of the scheme. However, if the scheme involves reduction of capital, then no separate procedures are required to be complied with.

13.2.5

Intimation to authorities

The law mandates that notice of the scheme be provided not only to the central government, but also to a range of other sectoral regulatory authorities. Unless they raise objections to the scheme within 30 days, their approval will be deemed to have been received.

13.2.6

Valuation of shares

Under the new Act, valuation has to be conducted by a registered valuer and the summary of his report should be made available to the stakeholders. The provisions with respect to register valuer were notified on 15th October 2017. Till the provisions were notified, the valuation was conducted by merchant banker or practising chartered accountant.

13.2.7

Squeeze out rights

The transferee company is entitled to buy out the dissenting shareholders in certain cases. In case of takeovers also, the acquirer can make an offer to the minority shareholders.

13.2.8

Merger of a listed company with an unlisted company

Certain provisions are introduced for protection of non-promoter shareholders to enable them to opt out of the company if a listed company merges into an unlisted one.

13.2.9

Disclosure requirements

Disclosure requirements have been enhanced. Inter alia, valuation report and interest of various officers and promoter(s) in the scheme must be compulsorily disclosed.

13.2

Chapter 13

Compromises and Arrangements

13.2.10 Dispensation of creditors meeting Restrictions are placed on dispensation of creditors meetings with a view to protect their interest. However, the right to object to the scheme is only with creditors to whom company owes more than 5% of the total debt. Similarly, only such shareholders who hold 10% or more in value are allowed to object.

13.2.11 Definition of “company” Under the old Act, “company”, for the purpose of compromise and arrangement included any company which is liable to be wound up under Companies Act, 1956. This definition is dropped in the new Act. Thus, under the new Act, the merger can take place only between companies. Earlier merger was possible even with partnership and other entities that were liable to be wound up under the old Act.

13.2.12 Scope of section 233 (contractual mergers) enlarged

Vide amendment dated 1st February 2021, the scope of Section 233 has been expanded. Now fast-track merger route can be opted by two or more start-up companies or by one or more start-up company with one or more small company. The threshold for being classified has also been raised.

13.2.13 Provision of takeover in merger and amalgamation

Vide notification dated 3rd February 2020, section 230(11) and (12) have been notified. This clause provides that any compromise or arrangement that includes takeover offer must be made in the prescribed manner. It also provides that even in a takeover which is a part of compromise or arrangement, listed companies must comply with the norms of takeover provided by SEBI.

13.2.14 Concessions for start ups

Start-ups have been defined as a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 127 (E), dated the 19th February, 2019 issued by the “Department for Promotion of Industry and Internal Trade.” Now, start-up can use the fast track merger route provided that condition set out therein are satisfied.

13.2.15 Companies (Amendment) Act, 2020 The Committee to Review Offences under Companies Act, 2013 in its report dated August 2018 recommended that the penalties and imprisonment provisions with respect to Section 232(8) be retained. However, the Company Law Committee in its report dated November 2019, recommended the imposition of civil penalties for noncompliance of section 232(8). Accordingly, the legislature in its endeavour to decriminalize Companies Act, 2013 has vide Companies (Amendment) Act, 2020 omitted section 232(8) which provided for penal consequences. By virtue of the 2020 Amendment, the defaults under section 232(8) are now brought under the in-house 13.3

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Chapter 13

adjudication mechanism under section 454 and there are civil consequences to the non-compliance of section 232(8).

13.3

OVERVIEW OF CHAPTER

Under the new Act, the kinds of compromise and arrangements can be divided into four parts depending on the nature of approvals that are required: ● Part I: Tribunal Approved Merger: These are the conventional nature of compromise and arrangement that take place between two companies after sanction of the Tribunal (earlier it was High Court). Under the new law this can take place only between two Indian companies. ● Part II: Contractual Mergers: These are compromise and arrangements that can take place without seeking sanction of the Tribunal, if the central government confirms the scheme of amalgamation. ● Part III: Cross border merger: This form of merger is between an Indian company with a foreign one. This is mostly a merger where RBI will be the key sanctioning authority as under the Act, RBI is given powers to frame rules and devise a structure for permitting such mergers. ●

Part IV: Government directed merger: This merger is ordered by the Government in public interest. Provision for such a merger existed even under the old Act.

Certain additional provisions are inserted for takeover of one company by another. This Chapter is accordingly divided into four parts covering the law on all these types of compromises and arrangements. It covers provisions for buy-out of minority shareholding and squeeze out clauses. The powers of the Tribunal in each instance is discussed in detail.

PART I: TRIBUNAL APPROVED MERGERS

Sections 230 to 232 covers the law on tribunal approved mergers. While it is similar to the old law in some respects, there are several changes made to these provisions for the overall protection of various stakeholders. For instance, interests of the general public is safeguarded by giving more number of authorities a say in the merger. Interests of the company is protected by disallowing minority shareholders and creditors from blocking the scheme. Interests of shareholders and creditors is protected by giving more disclosures to enable them to make an informed choice. Delays in the merger process are tried to be curtailed by giving a time limit for authorities to provide their inputs and raise their objections.

13.4

Chapter 13

13.4

Compromises and Arrangements

CHAPTER XV: A COMPLETE CODE

Under the new Act, we need to ask again the primary question that was well settled under the old Act namely:

13.4.1 13.4.1.1

Whether the chapter on compromise and arrangement provides a complete code? Law under Companies Act, 1956

Under the Companies Act, 1956, there were several judgments wherein it was categorically held that Chapter V of the 1956 Act dealing with compromise and arrangement provided a complete code1 and a single window clearance. Except, for reduction of capital, separate procedures were not required to be followed for various activities like name approval, alteration of memorandum of association.2 In 2015, a company incorporated under the Companies Act, 1956 and Ors, an objection was raised that name approval under sec 13 of the Companies Act, 2013 need to be separately taken for approval of a merger wherein there was a change of name. It was held that compliance with sec 13 of the Companies Act, 2013, as also sec 21 of the Companies Act, 1956 was not necessary for alteration of memorandum of association.

13.4.1.2

Analysis of the position in the Companies Act, 2013

In the Companies Act, 2013, Chapter XV which deals with Compromise and Arrangement again has granted wide powers to the Tribunal to permit different types of compromise and arrangement. However, it has placed certain restriction or additional compliances for certain types of compromise and arrangement. Certain provisions have been revised in the light of past judgments. For instance, in The Securities & Exchange Board of India (SEBI) v Sterlite Industries (India) Ltd, MANU/MH/0339/2002 : [2003]113CompCas273(Bom) : [2003]45SCL475(Bom),

1

Eye Foundation Ltd. v Lasik Centre (India) P. Ltd.[MANU/TN/2220/2012 : (2013) 176 Com. Cases 345 (Mad))]; PMP Auto Industries Limited, In Re:, MANU/MH/0112/1991 : [1994] 80 Comp. Cases 289; Mysore Cements Limited MANU/KA/0013/2009 : [2009] 150 Comp. Cases 623

2

Gujarat High Court reported in Mekaster Valves and Engineering Services Private Limited MANU/GJ/0354/2008 : [2009] Comp. Cases 593, wherein, reliance was placed on the judgment of the Bombay High Court in Vasant Investment Corporation Limited v Official Liquidator, Colaba Land and Mill Co. Ltd., MANU/MH/0074/1979 : (1981) 51 Comp. Case 20, which has dealt with the wide powers under s 391 of the Companies Act, 1956. The Courts have held that the Court is given wide powers under s 391 of the Companies Act, 1956, to frame a Scheme for the revival of a Company. Section 391 is a complete Code under which the Court can sanction a Scheme containing all the alterations required in the structure of the Company for the purpose of carrying out the Scheme, except reduction of share capital which requires a special procedure. In considering a Scheme under s 391, the Court must attach importance to the wishes of the members. In addition, it should be satisfied (1) that the statutory provisions are complied with, (ii) that the class affected by the Scheme has been properly represented, and (iii) that the arrangement is such that a man of business would reasonably approve.

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(along with Union of India (UOI) v Sterlite Industries (India) Ltd.) the SEBI and central government challenged a scheme wherein an arrangement in the nature of buy back was proposed by the Company. This was objected to by the central government and SEBI but the Court allowed the same. After this judgment, many companies followed suit and used this route. In light of this judgment certain restrictions are introduced on compromise and arrangement involving takeovers, buy backs and treasury stocks. Other than the restricted arrangement, the power of Tribunal as a “single window clearance” authority continues and it still has wide powers to allow any kind of compromise and arrangements. The Act has not limited the nature of compromise and arrangements that can be made under sections 230 to 232. The meaning of the terms compromise and arrangement is very broad and the broad meaning is retained even under Companies Act, 2013.

13.4.2

Scope of sections 230 and 232

Section 230 is a general provision applicable to all compromise and arrangements. It is analogous to sec 391 of the 1956 Act. Section 232 is a specific provision applicable to certain types of compromise and arrangements. This is analogous to sec 394 of the 1956 Act. Section 230 is thus applicable to all schemes of compromise and arrangement including the schemes falling under sec 232. Section 232 is applicable only to mergers and demergers. If sec 230 and 232 contain any contradictory clause, then the provision of sec 232 will prevail.3

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COMPROMISE AND ARRANGEMENT (SECTION 230)

As discussed above, the provisions of sec 230 are applicable for all compromise and arrangements that require sanction of Tribunal. Section 230 reads as under: “230: Power to compromise or make arrangements with creditors and members: (1) Where a compromise or arrangement is proposed— (a)

between a company and its creditors or any class of them; or

(b)

between a company and its members or any class of them, the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be,4, order a meeting of the creditors or class of

3

A contrary view in discussed under s 232.

4

This provision has been amended by Clause 6A of Eleventh Schedule of the Insolvency and Bankruptcy Code, 2016.

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creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs. Explanation—For the purposes of this sub-section, arrangement includes a reorganisation of the company’s share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods. (2) The company or any other person, by whom an application is made under subsection (1), shall disclose to the Tribunal by affidavit— (a) all material facts relating to the company, such as the latest financial position of the company, the latest auditor’s report on the accounts of the company and the pendency of any investigation or proceedings against the company; (b) reduction of share capital of the company, if any, included in the compromise or arrangement; (c) any scheme of corporate debt restructuring consented to by not less than seventy-five per cent. of the secured creditors in value, including— (i)

a creditor’s responsibility statement in the prescribed form;

(ii) safeguards for the protection of other secured and unsecured creditors; (iii) report by the auditor that the fund requirements of the company after the corporate debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the Board; (iv) where the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India, a statement to that effect; and (v) a valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company by a registered valuer. (3) Where a meeting is proposed to be called in pursuance of an order of the Tribunal under sub-section (1), a notice of such meeting shall be sent to all the creditors or class of creditors and to all the members or class of members and the debenture-holders of the company, individually at the address registered with the company which shall be accompanied by a statement disclosing the details of the compromise or arrangement, a copy of the valuation report, if any, and explaining their effect on creditors, key managerial personnel, promoters and non-promoter members, and the debenture-holders and the effect of the compromise or arrangement on 13.7

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any material interests of the directors of the company or the debenture trustees, and such other matters as may be prescribed: Provided that such notice and other documents shall also be placed on the website of the company, if any, and in case of a listed company, these documents shall be sent to the Securities and Exchange Board and stock exchange where the securities of the companies are listed, for placing on their website and shall also be published in newspapers in such manner as may be prescribed: Provided further that where the notice for the meeting is also issued by way of an advertisement, it shall indicate the time within which copies of the compromise or arrangement shall be made available to the concerned persons free of charge from the registered office of the company. (4) A notice under sub-section (3) shall provide that the persons to whom the notice is sent may vote in the meeting either themselves or through proxies or by postal ballot to the adoption of the compromise or arrangement within one month from the date of receipt of such notice: Provided that any objection to the compromise or arrangement shall be made only by persons holding not less than ten per cent. of the shareholding or having outstanding debt amounting to not less than five per cent of the total outstanding debt as per the latest audited financial statement. (5) A notice under sub-section (3) along with all the documents in such form as may be prescribed shall also be sent to the central government, the income-tax authorities, the Reserve Bank of India, the Securities and Exchange Board, the registrar, the respective stock exchanges, the Official Liquidator, the Competition Commission of India established under sub-section (1) of section 7 of the Competition Act, 2002, if necessary, and such other sectoral regulators or authorities which are likely to be affected by the compromise or arrangement and shall require that representations, if any, to be made by them shall be made within a period of thirty days from the date of receipt of such notice, failing which, it shall be presumed that they have no representations to make on the proposals. (6) Where, at a meeting held in pursuance of sub-section (1), majority of persons representing three-fourths in value of the creditors, or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator

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appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be5 and the contributories of the company. (7) An order made by the Tribunal under sub-section (6) shall provide for all or any of the following matters, namely:— (a) where the compromise or arrangement provides for conversion of preference shares into equity shares, such preference shareholders shall be given an option to either obtain arrears of dividend in cash or accept equity shares equal to the value of the dividend payable; (b) the protection of any class of creditors; (c) if the compromise or arrangement results in the variation of the shareholders’ rights, it shall be given effect to under the provisions of section 48; (d) if the compromise or arrangement is agreed to by the creditors under sub-section (6), any proceedings pending before the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 shall abate; (e) such other matters including exit offer to dissenting shareholders, if any, as are in the opinion of the Tribunal necessary to effectively implement the terms of the compromise or arrangement: Provided that no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company's auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133. (8) The order of the Tribunal shall be filed with the registrar by the company within a period of thirty days of the receipt of the order. (9) The Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least ninety per cent. value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement. (10) No compromise or arrangement in respect of any buy-back of securities under this section shall be sanctioned by the Tribunal unless such buy-back is in accordance with the provisions of section 68. (11) Any compromise or arrangement may include takeover offer made in such manner as may be prescribed:

5

Provision amended by Clause 6A of Eleventh Schedule of Insolvency and Bankruptcy Code

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Provided that in case of listed companies, takeover offer shall be as per the regulations framed by the Securities and Exchange Board. (12) An aggrieved party may make an application to the Tribunal in the event of any grievances with respect to the takeover offer of companies other than listed companies in such manner as may be prescribed and the Tribunal may, on application, pass such order as it may deem fit. Explanation.—For the removal of doubts, it is hereby declared that the provisions of section 66 shall not apply to the reduction of share capital effected in pursuance of the order of the Tribunal under this section.”

13.5.1.1

Meaning of “compromise”

Neither the 2013 Act nor the 1956 Act defined the term “compromise”. Hence, the generally recognized meaning of the term will prevail. Black's Law Dictionary defines compromise as follows: "an agreement between two or more persons to settle matters in dispute between them; an agreement for the settlement of a real or supposed claim in which each party surrenders something in concession to the other….. A debtor's partial payment coupled with the creditor's promise not to claim the rest of the amount due or claimed" The word is defined in Chambers 21st Century Dictionary as follows: “compromise (noun) a settlement of differences agreed upon after concessions have been made on each side. anything of an intermediate type which comes halfway between two opposing stages. (verb) (compromised, compromising) (intrans) a. to make concessions; b. to reach a compromise. to endanger or expose to scandal, by acting indiscreetly. a. to settle (a dispute) by making concessions; b to relax.” A reading of the meaning of Compromise suggests that it involves a process by which parties involved agree to give up of a part of its valuable right. Compromise can be between the creditors or class of creditors with the company; the shareholders or class of shareholders with the company; or a combination of the two.

13.5.1.2

Meaning of the term “arrangement”

Arrangement is defined under sec 230(1) of the Companies Act, 2013: “Explanation.—For the purposes of this sub-section, arrangement includes a reorganisation of the company’s share capital by the

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consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods.” Section 390 of the Companies Act, 1956 defined “arrangement” as follows: “390. Interpretation of Sections 391 and 393. In sections 391 and 393, (a) ……….; (b) the expression "arrangement" includes a re-organisation of the share capital of the company by the consolidation of shares of different classes, or by the division of shares into shares of different classes or, by both those methods; and………” While the term is defined in the same way, there is a fine distinction in the meaning of the term between Companies Act, 1956 and Companies Act, 2013. Under the 1956 Act, the definition of arrangement was applicable to sec 391 as well as sec 394. However, under the 2013 Act, the term arrangement is made applicable only to sec 230(1). As sec 230(1) deals with the applicability of sec 230, it is applicable to sec 230. This meaning is not applied to sec 232. However, the provisions of sec 230 are applicable to mergers and demergers and thus, the meaning of arrangement will apply to mergers and demergers. The meaning does not however apply to sec 233 as there is no reference to this section. It is necessary to study the impact of this omission. One obvious question will be – will it expand the scope of sec 233 that deals with contractual mergers? “Arrangement” is defined very broadly in sec 230. Thus, the scope of arrangement for the purpose of contractual mergers is likely to remain the same even for sec 233. The generally understood meaning of the said term will be considered for sec 233. As sec 230 provides an inclusive definition, one needs to look at the general meaning of the term arrangement to understand the nature and extent of the term. The term “arrangement”6 is defined in Chambers 21st Century Dictionary as follows: “arrangement noun 1 a plan or preparation for some future event. 2 the act of putting things into a proper order or pattern. 3 the order, pattern, etc which results from things being arranged. 4 an agreement. 5 a piece of music which has been made suitable for particular voices or instruments. 6 a play, novel, etc that has been specially adapted for broadcast on TV or radio.” “Arrangement” is not defined in the 9th Edition of Black’s Law Dictionary. But it defines the term arrangement with creditors which means “A debtor’s agreement with creditors for the settlement, satisfaction, or extension of time for payment of debts.” Thus, the term “arrangement” inter alia is defined as an agreement. Thus, it can include the entire gamut of agreement between the company with its shareholders or class of shareholders or between company and creditors or class of creditors. 6

Source: http://www.chambers.co.uk/search.php?query=arrangement+&title=21st

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Arrangement can be with respect to any rights, liabilities, privileges or obligations of the company, shareholders or creditors. Such rights, duties, obligation, liabilities can be altered, modified, increased, reduced, removed, or added. However, such changes should take place within the contours of the Companies Act and it should not be prohibited under the Companies Act or any other Act. The Act provides that the term “arrangement” also includes re-organisation of the share capital of the company by the consolidation of shares of different classes, or by the division of shares into shares of different classes or, by both those methods. Share capital of the company can be altered by way of an arrangement. All types of reorganization of capital, including the manner in which share capital can be reduced are included within the scope of arrangement. (Explanation to sec 230).

13.5.1.3

Meaning of the term “company”

Under the Companies Act, 1956, “company” for the purpose of compromise and arrangement included any company which is liable to be wound up under this Act. This definition is dropped in the Companies Act, 2013. Section 390 of the Companies Act, 1956 defined the term as follows: “(a) the expression "company" means any company liable to be wound up under this Act ;” Section 394(4)(b) of the Companies Act, 1956 also provided the following: “(b) "transferee-company" does not include any company other than a company within the meaning of this Act; but "transferor-company" includes any body corporate, whether a company within the meaning of this Act or not.”(this definition is dropped in the 2013 Act) Thus, under the new Act, the merger can take place only between companies incorporated under the Companies Act, 2013 or under the previous Companies Act, 1956. Earlier mergers were possible even with partnership and other entities that were liable to be wound up under the old Act. But this can no longer take place under the new Act.

13.5.1.4

Class of shareholders or creditors7

The term “class” is not defined even in the 2013 Act. As regards kinds of capital, there is no change in the kinds of share capital that can be issued in the new Act. Thus, most of the case laws under the old Act as regards what constitutes class can be used for purpose of determination of class under the new Act. A brief discussion on what constitutes class of shares and class rights is available in the chapter dealing with variation of shareholders rights.

7

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Bharat’s Corporate Restructuring: Law, Practice and Procedure, Dr. K. R. Chandratre, 2nd Edition, 2010

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If shares of the company are classified into different types, such as equity, preference, deferred promoter’s non-voting etc. they are said to be divided into different class. Classification of shares is based on the rights attached to the shares, to ascertain which, reference must be made to the articles of association of the company. “Class rights” means rights attached to class of shares. Likewise, if there are various classes of creditors such as secured creditors, debenture creditors, unsecured creditors, unsecured loan creditors etc. the scheme must be approved by special majority of each class of creditors at their separate meeting. The group styled as a class should ordinarily be homogeneous and must have commonality of interest and the compromise offered to them must be identical. In Sovereign Life Assurance Company v Dodd [(1892) 2 QB 573(CA)] the important test for determining the classes was discussed. It held that it is always a moot question about what constitutes a class. It is a formidable difficulty to say “class of creditors”. The creditors composing different classes must have different interests. When one finds a different state of fact existing among different creditors which may differently affect their minds and judgment, they must be divided into different classes.

13.5.1.5

Who can enter into a compromise or arrangement?

A compromise and arrangement can be entered into by and between: (a) A company or its creditors, or a class of them; or (b) A company and its members or any class of them.

13.5.1.6

Eligibility to apply

The application under sec 230(1) read with r 3(1) of the Companies (Compromise, Arrangement and Amalgamation) Rules, 2016 can be made by any of the following: (a) any company (b) any creditor of the company (c) any member of the company (d) if the company is being would up, then application can be made by the liquidator Where they is more than one company, joint application can be filed at the discretion of all such companies.

13.5.1.7

What are the disclosures in application?

The Companies Act, 2013 provides for enhanced disclosures to enable stakeholders to take informed decisions (sec 230(2)). The detailed list of disclosures to be made to shareholders, creditors and statutory authorities is set out in the Act. Only highlights of the disclosures and tricky interpretational aspects are considered in this chapter. Following are the details to be disclosed in case of an application for compromises and arrangements by way of an affidavit in Form no. NCLT 1: 13.13

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Financial details All material facts relating to the company, such as the latest financial position of the company, the latest auditor’s report on the accounts of the company and the pendency of any investigation or proceedings against the company. This is required to be disclosed even under the proceedings under the Sections 391 to 394 of the Companies Act, 1956; Reduction of capital If the scheme involves reduction of share capital, it shall be disclosed. This was required to be disclosed even under the 1956 Act. The difference is that only the details of reduction are required to be disclosed under Companies Act, 2013. The process of sec 66 is not required to be followed separately. Only details of the manner in which reduction will take place as a part of the scheme needs to be disclosed. Corporate debt restructuring The requirements set out in sec 230(2)(c) are newly inserted. It states that “(2) The company or any other person, by whom an application is made under subsection (1), shall disclose to the Tribunal by affidavit— (a) ….. (b) ….. (c) any scheme of corporate debt restructuring consented to by not less than seventy-five per cent. of the secured creditors in value, including— (i) a creditor’s responsibility statement in the prescribed form; (ii) safeguards for the protection of other secured and unsecured creditors; (iii) report by the auditor that the fund requirements of the company after the corporate debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the Board; (iv) where the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India, a statement to that effect; and (v) a valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company by a registered valuer.

13.5.1.8

Analysis of the extent of disclosures

The words used in sec 230(2) which are highlighted above create some difficulties in interpretation. A first reading of this Section gives an impression that an application

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for compromise or arrangement, the company must disclose any scheme of corporate debt restructuring which it has entered into wherein such the corporate debt restructuring is consented to by not less than seventy-five percent of the secured creditors in value. Rule 4 of M&A Rules provides that “For this purpose, it is clarified that a scheme of corporate debt restructuring (as referred to in sec 230(2)(c)) shall mean a scheme that restructures or varies the debt obligations of a company towards its creditors.” Few questions that may arise in this regards are as follows:

Decoding the law ● Does this scheme need to be disclosed if it is part of the proposed scheme of compromise or arrangement? ● Or is it required to be disclosed irrespective of whether it forms a part of the proposed scheme? Neither the section nor the M&A Rules provide any clarity. However, along with such scheme, several additional documents are required to be disclosed. So one may argue that such scheme is required to be disclosed only if it is a part of the proposed scheme as several other disclosures are required to be made along with it to enable the Tribunal take a decision. This is further corroborated by the form CAA 1of creditor’s responsibility statement that is provided in the M &A Rules. A reading of this clause suggests that it is not necessary that the proposed scheme before the Tribunal contains a scheme of corporate debt restructuring. There is a list of five additional disclosure items that is needed. It is necessary to understand in which situations those disclosures are necessary. The disclosures also require the valuation report to be disclosed. In which situation are those disclosures necessary? Are they necessary only with respect to the companies that have undergone corporate debt restructuring or it is required even in other circumstances where such information exists? The term used is “including”. It does not state that the disclosures are necessary only when there is a scheme of corporate debt restructuring. Thus, one interpretation is that the document/information may be disclosed in every instance where it exists.

13.5.1.9 Meeting of members and creditors Approval The scheme is deemed to be approved if it is approved by majority of persons representing three-fourths in value of the creditors, or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot. Three-fourths of what? The old Act required approval from three-fourths of the persons "present and voting". The new Act, however, provides for two modes of casting a vote viz in person (or

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through proxy) and postal ballot. Thus, three-fourths in value shall be reckoned with respect to value of shares of persons who have cast a vote in any manner.

Objections by stakeholders Who can object? (a) Shareholder: Any shareholder is entitled to object to the scheme only if he is holding not less than ten percent of shareholding in the company. However, NCLAT in a recent judgement allowed the appeal of an objector holding 0.00012% shareholding. The said judgement is discussed in the table dealing with recent judgements. (b) Creditor: A creditor is entitled to object only if not less than five percent of the total outstanding debt as per the latest audited financial statement is owed to him. Rule 9 of M&A Rules define shareholding and outstanding debts as follows: “(a) “shareholding” shall mean the shareholding of the members of the class who are entitled to vote on the proposal; and (b) “outstanding debt” shall mean all debt owed by the company to the respective class or classes of creditors that remains outstanding as per the latest audited financial statement, or if such statement is more than six months old as per provisional financial statement not preceding the date of application by more than six months.” No time limit is provided for shareholders and creditors to object to the scheme. The draft rule for Chapter XV issued earlier in 2013 contemplated a time period of 1 month from the date of receipt of the Notice. However, this clause was deleted in the draft rules for Chapter XV which were issued in January 2016 and also does not find place in the notified M&A Rules. Thus, it can be assumed that the legislator consciously deleted the clause. In the absence of specified time limit, the objection can be raised anytime during the pending of the proceedings before the Tribunal for sanctioning of the scheme. However, the shareholder/creditor should ideally disclose his objections to the scheme at the meeting of shareholders/creditor as this will show his bona fides to the Tribunal. Further, a person who has consented to the scheme at a meeting of shareholder/creditors will not thereafter be able to object to the scheme. Objections v dissent The said objections are different from dissents, as dissents constitute the voting upon matters to be transacted. Every shareholders/creditor has a right to vote in the manner he thinks fit and the Act does not prevent him from doing so, irrespective of the quantum of his shareholding. However, objections to the scheme can be raised by creditors or shareholders holding a specified quantum of shares. Shareholders and creditors who object to the scheme can come together to object to enable them to fulfil the minimum criteria provided in the Act. They can raise their objections even before the Tribunal and will get an opportunity of hearing at the time of hearing of the petition for sanctioning of the scheme. 13.16

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Power to dispense with meetings [Section 230(9)] Under the Companies Act, 1956, in case of compromises and arrangements, the High Court had wide powers. In exercise of those powers, High Court did permit dispensation of creditors’ and shareholders’ meeting. Creditors’ meetings, as a practice, were dispensed with, if the company gave an undertaking to serve individual notices to creditors. In case of financially sound companies, further relaxations were given. They were allowed to notify only major creditors ie creditors to whom the company owed beyond a particular amount. This amount was determined by the High Court after considering the size of the company. This power is curtailed under the Companies Act, 2013. The Tribunal can dispense the creditors’ meetings or meetings of any class of them, only if consent is accorded by the creditors holding not less that ninety per cent in value of the total debt. Section 230(9) also leads to some confusion regarding whether or not shareholders’ meeting can be dispensed as the Act is silent on this aspect. The Principal Bench of NCLT at Delhi has earlier held that shareholders meetings cannot be dispensed with in the absence of specific clause in the Act and rules to that effect8. However, the case is overruled by subsequent decisions. Now Principal Bench and other Benches of NCLT are allowing dispensation of meetings of shareholders where requisite consent of shareholders is taken. Further, NCLT, Mumbai have also taken a view that the mandatory requirement for calling a creditor’s meeting is not applicable where the arrangement does not involve any compromise or arrangement with the creditors and their interest is not affected. The mandatory creditor’s meeting is applicable only in case of compromise and arrangement with creditors and in cases where the arrangement affects the creditors for instance, where a financial sound company is proposed to be merged with a loss-making company which causes the post amalgamation net worth to be negative. However, different NCLT benches have taken different views about dispensation of creditor and shareholders’ meetings. Some of the recent judgements on this aspect are set out in the table of latest judgements. However, the practices of respective NCLT Benches should be considered while filing application seeking direction from Tribunal. Order of the tribunal (Section 230(1)) Unless the meetings have been dispensed with, the Tribunal shall direct calling of meetings of the creditors or class of creditors or of members or class of members and specify the manner of holding and conducting the meeting.

13.5.1.10 Notice to statutory authorities Companies Act, 2013 has laid great emphasis on protecting not only the interest of the shareholders but all stakeholders. In pursuance of this goal, they have tried to provide a framework where all the authorities who are associated with the company 8

JVA Trading Pvt. Limited and C&S Electric Ltd Company Application No.A.l/PB/2017order dated 13th January 2017 by Principle Bench of NCLT.

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have a say when the company is going through a compromise or arrangement. This is to protect the interest of the revenue and all in general public interest. Section 230(5) reads as under: “(5) A notice under sub-section (3) along with all the documents in such form as may be prescribed shall also be sent to the central government, the income-tax authorities, the Reserve Bank of India, the Securities and Exchange Board, the registrar, the respective stock exchanges, the Official Liquidator, the Competition Commission of India established under sub-section (1) of section 7 of the Competition Act, 2002, if necessary, and such other sectoral regulators or authorities which are likely to be affected by the compromise or arrangement and shall require that representations, if any, to be made by them shall be made within a period of thirty days from the date of receipt of such notice, failing which, it shall be presumed that they have no representations to make on the proposals.” (Emphasis supplied)

Authorities who should be sent notice of the compromise or arrangement Section 230(5) provides that a notice is to be provided to: (a) Central Government; (b) Income Tax Authorities; (c) Reserve Bank of India; (d) Securities and Exchange Board of India; (e) Registrar of Companies; (f) Stock Exchange where the securities of the company are listed; (g) Official Liquidator; (h) Competition Commission of India established under sub-section (1) of section 7 of the Competition Act, 2002; and (i) such other statutory regulators or authorities that are likely to be affected by the compromise and arrangement. Rule 8(1) of M&A Rules provides as follows: “…(4) For the purposes of sub-section (5) of section 230, the notice shall be in Form No. CAA 3 and shall be accompanies with, a copy of the scheme of compromise or arrangement, the explanatory statement and the disclosures mentioned under rule 6 and shall be sent to (i) the central government, the registrar of companies, Income-Tax Authorities in all cases, and (ii) the Reserve Bank of India, the Securities and Exchange Board of India, the Competition Commission of India, the stock

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exchanges, as may be required; other sectoral regulators or authorities as required by Tribunal” This new provision can raise several questions:

Decoding the law ● In which instances is it necessary to give notice to RBI? Is it necessary only when it is a sectoral regulator like for NBFC’s or is it necessary with respect to any company that has ever filed a form or taken an approval from RBI? ● Is it necessary to take approval of CCI, where the transaction is not covered in the threshold limits provided for merger under Competition Act? ● Is it necessary to give another notice under the 2013 Act to CCI or SEBI or Stock Exchange where there is already another set of guidelines prescribed by the respective authorities for notifying/seeking approval/seeking no objection for the merger? ● Who will determine the authorities that are likely to be affected by the compromise or arrangement? ● Who are sectoral authorities? ● Can Tribunal dispense with these requirements? Firstly, as regards the authorities that are specified in sec 230(5), the notice is required to be sent only if it is “necessary”. Thus, the questions that are set forth above may arise. Regarding the authorities that are specified, they are inserted with a view to ensure that the scheme is not passed without seeking their objections in cases where those authorities have a say. Thus, in a transaction involving a listed company, the stock exchange and SEBI will play a role. However, these authorities have already provided guidelines for merger and instances in which they must be approached and the information/disclosures that are required. Further, SEBI has also issued SEBI (Listing Obligation and Disclosure Requirements) Regulation, 2015 which must be complied with by listed company. A look at the M&A Rules, however, suggests that more information is required to be given to these authorities as the rules sets out in detail the disclosures to be made. Thus, one can argue that notice under the Companies Act, 2013 will be required to be given to the central government, SEBI and stock exchanges in view of the fact that the Act intends that they are given greater disclosures for taking a conscious decision regarding opposition to the scheme. However, r 8 allows the Tribunal discretion with respect to serving certain notices of certain authorities specified in r 8(1)(ii) and 8(1)(iii). The question about serving a notice to RBI is a little tricky. Many companies are some way or the other concerned with RBI. Either, they take approval from them, or are governed by the RBI, or they file forms and declaration to RBI. Thus, it is

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imperative to understand in which instances RBI approval is necessary. There is no clear answer provided in the Act or in the Rules. Discretion is given to the Tribunal by using the term “necessary”. This is further corroborated by the rules (r 8 of M&A Rules), that specify the authorities for which the Tribunal at its discretion can dispense with sending of notices. Thus, the Tribunal can devise tests regarding cases where notices are required. If the company filed forms with RBI for its foreign shareholders but has insignificant number of such shareholders, the company may pray to the Tribunal that such notice be dispensed with and the Tribunal may dispense with such notice in select cases. As regards other authorities who are affected, it is the Tribunal that will determine who the authorities are. The company may reveal the authorities to whom it reports or is concerned with and may show in the application whether they are affected or not. Based on the information, the Tribunal can take a decision whether it is necessary to serve the authorities. For instance, in certain cases, the Labour Commissioner is the authority. However, if the company shows that the merger does not result in change in service condition of any employee of the transferor company, the Tribunal may not direct sending notices to such authority, if the company satisfies the Tribunal. Over time, the Tribunal may devise tests for determining the authorities that need to be served. As per the latest decisions, Tribunal has directed notices to be sent to other statutory authorities only in cases where the authorities have been regulating the companies. For instance, notice to Ministry of Information and Broadcasting was directed by Tribunal where company is regulated by this authority. They have as yet expanded the number of authorities to whom notice need to be sent. But the disclosures to be sent to these authorities has significantly increased.

Deemed approval The central government and other authorities mentioned above, to whom notices have to be sent, may object to the scheme within a period of thirty days from date of receipt of such notice. If they fail to object, then it will be presumed that such governmental bodies have no representations to make. However, in practice, it is seen that the judiciary does pay heed to the representation of Government authorities even if they are received after the prescribed time limit, provided they are able to justify the reasons. Distinction between Companies Act, 1956 and Companies Act, 2013 There is wide distinction between these provisions under Companies Act, 1956 and Companies Act, 2013. The old Act provided for sending notices to central government is case of all compromise and arrangement. It further required two reports to be submitted in case of mergers and demergers viz (a) a report from ROC that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest and (b) a report from the Official Liquidator where the Official Liquidator, after scrutiny of the books and papers of 13.20

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the company observes that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest (not required if a company is getting dissolved). The 2013 Act has removed the concept of submitting reports. Now, only objections are sought from concerned authorities. Earlier, the reports were required only with respect to compromise and arrangement under sec 394 i.e. mergers and demergers. Now the requirement of sending notices to the all the statutory authorities discussed above is applicable to all types of compromise and arrangements.

13.5.1.11 Publication Various modes of publication are provided in the Act to make the scheme known to various stakeholders. Inter alia, following provisions are provided in sec 230(3) read along with rule 7 of the M&A Rules: (a) For private or unlisted company: The notice and other documents are to be placed on their website, if any in not less than 30 days before the date fixed for the meeting (Proviso to sec 230(3)). (b) For listed companies: Along with above point (a), Notice must be published on the website of SEBI and the stock exchange where the securities of the companies are listed. (c) Advertisement: The notice of the meeting under sec 230(3) shall be advertised in Form no. CAA 2 as well as the notice of hearing of the petition is required to be published in at least one English newspaper and in at least one vernacular newspaper having wide circulation in the state in which the registered office of the company is situated, or such newspapers as may be directed by the tribunal. Here the company needs to advertise the notice of meeting not less than 30 days before the date fixed for the meeting and notice of hearing of petition should be advertised not less than 10 days before the date fixed for the hearing. Rule 7 of M&A Rules provide that where separate meetings of classes of creditors or members are to be held, a joint advertisement for such meetings may be given. The details of publication are provided in the procedure.

13.5.1.12 Inspection and photocopying documents (2nd Proviso to sec 230) The copies of following documents shall be made available to the concerned persons free of charge from the registered office of the company. (a) Latest Audited financial statements of the company including consolidated financial statements of the company (b) Copy of the order of the Tribunal in pursuance of which the meeting is convened. (c) Copy of scheme of compromise and arrangement. 13.21

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(d) Contract or agreements material to the compromise or arrangement (e) Such other information/documents as the Board management believes necessary and relevant for making decision for/against the scheme.

13.5.1.13 Sanction of scheme Section 230(7) provides that after the scheme is duly approved, the Tribunal may, at its discretion, after considering objections raised against the scheme by any stakeholder, sanction the scheme.

Test for sanctioning the schemes9 Under the Companies Act, 1956, certain tests were set out through various case laws about the aspects to be considered while sanctioning the scheme. These tests will be useful and relevant even while schemes are sanctioned by the Tribunal It is settled law that before a court sanctions a scheme of amalgamation under sections 391 and 394 of the Act, it should be satisfied of the following matters; 1. The resolutions are passed by the statutory majority in value and in number in accordance with sec 391(2) at a meeting or meetings duly convened and held. This factor is jurisdictional in the matter of confirmation of the scheme. The court should not usurp the right of the members or creditors to decide whether they approve the scheme or not. Therefore, if a class whose interests are affected by a scheme does not assent to the scheme or approve it at a meeting convened in accordance with the provisions of sec 391, the court will have no jurisdiction to confirm the scheme, even if it considers that the class concerned is being fairly dealt with. 2. Those who took part in the meeting are fairly representative of the class. 3. The scheme, as a whole, having regard to its objects, background, etc., is a reasonable one. If the court finds it so, it is not for the court to interfere with the collective wisdom of the shareholders of the company. It will then be for the objector to convince the court that the scheme is unfair and that, therefore, it should exercise its discretion to reject the scheme, despite the favourable views of a very large majority of the shareholders. 4. The court will not launch an investigation into the commercial merits or demerits of the scheme, which is the function of those who are interested in the arrangement. 5. There should be no coercion of the minority at the statutory meeting. There should not also be any lack of good faith on the part of the majority. 9

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Dr. K. R Chandratre, Corporate Restructuring, Law, Practice & Procedures, 2nd Edition 2010, Bharat's; Dinesh Vrajlal Lakhani v Parke Davis (India) Ltd. (2003) 47 SCL 80 (Bom): (2005) 124 Comp Cas 728 (Bom); Hindustan Lever Employees’ Union v Hindustan Lever Ltd. (1994) 14 CLA 397 (Bom); Alabama New Orleans, Texas & Pacific Junction Railway In re: (1981) 1 Ch 213 at 238, 239 (CA).

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6. The position has been succinctly stated by Lindley L.J. thus; “…….. What the court has to do is to see, first of all, that the provisions of that statute have been complied with; and, secondly, that the majority has been overridden by a majority having interests of its own clashing with those of the minority whom they seek to coerce. Further than that, the court has to look at the scheme and see whether it is one as to which persons acting honestly, and viewing the scheme laid before them in the interests of those whom they represent, take a view which can be reasonably taken by businessmen:” 7. The court must not act as a rubber stamp to sanction a scheme approved by the majority. It has a duty to scrutinize, but the scrutiny is not with the eye of an expert or exactness of an accountant. Even if the scheme is open to some criticism that is not enough. Obvious unfairness of the scheme must be affirmatively shown. Indeed, it is settled law that the collective judgment of the vast majority of persons finally affected by the scheme has to be given the greatest possible value. 8. The court has to see to it that the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by sec 391(1)(a) have been held. 9. The scheme is backed by the requisite majority vote as requested by sec 391(2). 10. The concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. The decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class. 11. All necessary material indicated by sec 393(1)(a) is placed before the voters at the concerned meetings as contemplated by sec 391(1). 12. All requisite material contemplated by the proviso to sec 394(2) of the Act is placed before the court by the concerned applicant seeking sanction for such a scheme and the court gets satisfied about the same. 13. The proposed scheme is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. 14. The court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting in a bona fide manner and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent.

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15. The scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. 16. Once the above parameters are met, the court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme for the company and its members or creditors for whom the scheme is framed. The court cannot refuse to sanction such a scheme on the ground as it would otherwise amount to the court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction. 17. By and large, while considering as to whether necessary approval has to be given for holding of the meetings of the shareholders, creditors (secure or unsecured) or subsequently permission is to be granted for amalgamation of the company or scheme of arrangement, the jurisdiction of this court primarily is supervisory. The court is not a rubber stamp. Under the supervisory jurisdiction with a limited scope, the court can see the actual transfer proposed to be effected. The well-known doctrine of lifting of veil can be applied. The court can also see whether the scheme is fair and not set up with an object to defeat any provision of law. That being the position, one can revert back to the contents of the proposed scheme. 18. According to the ratio of Hindustan Lever Employees Union v Hindustan Lever Ltd., and Miheer H. Mafatlal Industries Ltd., it is clear that the court, while sanctioning a scheme has not to exercise jurisdiction of an appellate court. It has to exercise jurisdiction founded on fairness and it should not interfere with the wishes of the requisite number of shareholders only because the valuation figure arrived at by the valuer could have been different had some different method been used for the valuation. What is to be seen by the court is that the valuation was as per law or settled principles and was done by an independent body. The company court has not to minutely scrutinize the scheme like an appellate court for arriving at an independent conclusion. The court should interfere only if it finds that the scheme even if sanctioned by the majority, is unconscionable, unfair or illegal. The court should not sit in appeal over the decision of the shareholders or should not impose its wisdom on the shareholders in the matter of their discretion with regard to acceptance of the scheme of amalgamation or otherwise. The court never sits in appeal to decide whether the decision of a requisite majority was right or wrong. 19. Once scheme is held to be reasonable and proper, merely because there is one objector to approval of scheme, who is more than sole dissenter, court should not refuse to sanction scheme and what court could do in such circumstances is to give protection to dissenter, by amending scheme.

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Powers while sanctioning the scheme [Section 230(7)] An order made by the Tribunal sanctioning a compromise or arrangement may include the following order: (a) Where the scheme provides for conversion of preference shares into equity shares, such preference shareholders shall be given an option to either obtain arrears of dividend in cash or accept equity shares equal to the value of the dividend payable; (b) The protection of any class of creditors; (c) If the scheme results in the variation of the shareholder’s rights, it shall be given effect to under the provisions of sec 48; (d) If the scheme is agreed to by the creditors, then it may provide that proceedings pending before BIFR shall abate; (e) Exit offer to dissenting shareholders, if any; and (f) Such other matters as the Tribunal deems fit for effectively implementing the scheme. Restrictions on sanctions of certain schemes Under the Companies Act, 2013, additional guidelines have been specified for different type of schemes. The Companies Act, 2013 require greater compliance for certain types of schemes. Some of the norms provided in the Companies Act, 2013 are as follows: • Merger/Demerger: If the scheme involves merger, amalgamation, demerger or other types of arrangement that are covered under sec 232, then formalities under sec 230 so far as they are applicable are to be complied with along with the additional formalities and disclosures prescribed under sec 232. • Reduction (Explanation to Section 230): In case of arrangements involving reduction of capital, the provisions relating to reduction of share capital (as prescribed under sec 66) are not be applicable. This is significantly different from the Companies Act, 1956 where the rules required compliance with sections 100 to 104 of the Act for the purpose of schemes involving reduction of capital. However, necessary disclosures as regards the nature of reduction proposed in the scheme are required to be disclosed. The provisions provides as follows: “Explanation—For the removal of doubts, it is hereby declared that the provisions of section 66 shall not apply to the reduction of share capital effected in pursuance of the order of the Tribunal under this section.”

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The restriction under sec 66 will not apply to a reduction under compromise and arrangement. For instance, under sec 66 no such reduction shall be made if the company is in arrears in the repayment of any deposits accepted by it, either before or after the commencement of this Act, or the interest payable thereon. •

Buy Back [Section 230(10)]: If the scheme involves buy-back of securities, then the buy-back of securities shall be in accordance with the provisions of sec 68 (relating to buy back). Thus, the threshold limits for buy back and other restrictions are applicable.

Decoding the law ● What does the term "in accordance with" used under sec 230(10) mean? ● Does it refer to the limits, conditions, and prohibitions referred to for buy back? ● Or does it refer to the procedure contemplated for buyback? ● While buy back is prohibited, reduction of capital is permitted without following the procedure of reduction. What is the impact of this? Reduction of capital is a genus while buy back is a species of reduction (with lesser formalities). How do we reconcile the two clauses in sec 230? ● Can a buy back take place under a compromise if the company has made default in repayment of deposits or repayment of dividends etc.? Do these prohibition that are set out in sec 70 apply to buy backs through a compromise and arrangement? In the author’s opinion, the limits, conditions, and prohibitions set out in sec 68 will apply to buy back under a scheme. However, the prohibition set out in sec 70 will not apply. Thus, even if the company has default on repayments of deposits or term loan or has contravened the provision relating to filing annual returns etc. it is permitted to buy back provided it fulfils the provisions of sec 68. The permissibility of reduction of capital under the scheme will not be of any use. Reduction of capital is a general term whereas buy back is a special type of reduction and the restrictions will apply notwithstanding the fact that reduction is allowed under the scheme without any restrictions. •

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Takeover [Section 230(11)]: If the scheme involves takeover offers, it must follow the prescribed procedure. Listed companies must comply with the takeover regulations prescribed by SEBI. With respect to takeover offer in case of unlisted companies, the Companies Act, 2013 provides aggrieved parties an opportunity to approach the Tribunal with their grievances. However, this remedy is not extended to investors aggrieved by listed companies. Thus, a person who is aggrieved with a takeover offer by listed company can take recourse of the provisions of the takeover regulation of SEBI read with the SEBI Act. He cannot approach the Tribunal with his grievances. Sub section (11) and (12) of section 230 of Companies Act, 2013

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are notified only on 3rd February 2020. NCLT Rules, 2016 have been amended vide notification dated 3rd February 2020.

Certification by auditor [Proviso to Section 230(7)] The company must furnish an auditor’s certificate certifying that accounting treatment of the scheme is in conformity with the prescribed accounting standards. This certificate can be filed at the time of filing application or at any time thereafter before the scheme is sanctioned. Under the Companies Act, 2013, it is a pre-requisite for sanctioning any scheme. Effect of sanction [Section 230(6)] The order sanctioning the scheme, will be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator and the contributories of the company. Effective date of the scheme The Companies Act, 1956 provided that the order sanctioning the scheme shall not have any effect until a copy of the order is filled with ROC (sec 391(3)). This clause is omitted in the Companies Act, 2013. This may raise several questions: Decoding the law ● When will the scheme be effective? ● Will it be effective from the date the order is passed by the Tribunal? ● Or from the date provided in the scheme as being the effective date? ● Or will the Tribunal specify a date from which the scheme will be effective? The scheme under sec 230 will be effective from the date it is sanctioned by the Tribunal (Reading sec 230(6) with sec 230(8)). The omission of this provision in the Companies Act, 2013 will change the date from which the scheme will be effective. As sec 230(6) provides that the scheme will be binding on the date it is sanctioned by the Tribunal, the effective date will be the date of the sanction. The section does not provide the Tribunal any discretion to change the date when the scheme will be effective. However, the effective date for sec 230 will not apply to mergers and demergers under sec 232 as a separate provision exists for determining the effective date. This aspect is covered under discussion on sec 232.

Procedures post sanctioning of scheme Unlike the old Act, there is no provision for attaching scheme copy with every MOA that is issued. However, following formalities have to be complied with: Filing the order of Tribunal (Section 230(8)) 13.27

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The final order approving the scheme has to be filed with ROC within of thirty days from receipt of the order. No time limit was specified under sec 391 of the Companies Act, 1956 for filing the order (it was however provided in sec 394 of the old Act) Power of Tribunal to enforce the scheme (Section 231) The Tribunal has powers to implement the scheme. It has the power to: (a) Supervise the implementation of the scheme; (b) Give such directions at it considers fit; (c) Modify the scheme; (d) Winding up of the company, if the scheme cannot be implemented satisfactorily with or without modification, and the company is not able to pay its debts as per the scheme. Observation Under the Companies Act, 1956, Tribunal could order winding up if it reached a conclusion that the scheme was unworkable with or without modification. Under the Companies Act, 2013, Tribunal must additionally be satisfied that the company is not able to pay its debts. Thus, if the scheme is found to be unworkable but company is able to pay its debts as per the scheme, then the Tribunal cannot order for winding up.

13.6

SPECIAL PROVISIONS FOR MERGERS/DEMERGERS (SECTION 232)

Section 232 is applicable to certain special types of compromise and arrangements that are specified under sec 232. This section has additional requirements and disclosures for safeguarding the interest of shareholders. It further has enabling provisions that empower Tribunal to pass a variety of directions for effectively dealing with these special types of arrangements. “232. (1) Where an application is made to the Tribunal under section 230 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Tribunal— (a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of the company or companies involving merger or the amalgamation of any two or more companies; and (b) that under the scheme, the whole or any part of the undertaking, property or liabilities of any company (hereinafter referred to as the transferor company) is required to be transferred to another company (hereinafter referred to as the transferee company), or

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is proposed to be divided among and transferred to two or more companies, The Tribunal may on such application, order a meeting of the creditors or class of creditors or the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal may direct and the provisions of sub-sections (3) to (6) of section 230 shall apply mutatis mutandis. (2) Where an order has been made by the Tribunal under sub-section (1), merging companies or the companies in respect of which a division is proposed, shall also be required to circulate the following for the meeting so ordered by the Tribunal, namely:— (a) the draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company; (b) confirmation that a copy of the draft scheme has been filed with the registrar; (c) a report adopted by the directors of the merging companies explaining effect of compromise on each class of shareholders, key managerial personnel, promoters and non-promoter shareholders laying out in particular the share exchange ratio, specifying any special valuation difficulties; (d) the report of the expert with regard to valuation, if any; (e) a supplementary accounting statement if the last annual accounts of any of the merging company relate to a financial year ending more than six months before the first meeting of the company summoned for the purposes of approving the scheme. (3) The Tribunal, after satisfying itself that the procedure specified in subsections (1) and (2) has been complied with, may, by order, sanction the compromise or arrangement or by a subsequent order, make provision for the following matters, namely:— (a) the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of the transferor company from a date to be determined by the parties unless the Tribunal, for reasons to be recorded by it in writing, decides otherwise; (b) the allotment or appropriation by the transferee company of any shares, debentures, policies or other like instruments in the company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person: Provided that a transferee company shall not, as a result of the compromise or arrangement, hold any shares in its own name or in the name of any trust whether on its behalf or on behalf of any

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(c) (d) (e) (f)

(g) (h)

(i)

(j)

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of its subsidiary or associate companies and any such shares shall be cancelled or extinguished; the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company on the date of transfer; dissolution, without winding-up, of any transferor company; the provision to be made for any persons who, within such time and in such manner as the Tribunal directs, dissent from the compromise or arrangement; where share capital is held by any non-resident shareholder under the foreign direct investment norms or guidelines specified by the central government or in accordance with any law for the time being in force, the allotment of shares of the transferee company to such shareholder shall be in the manner specified in the order; the transfer of the employees of the transferor company to the transferee company; where the transferor company is a listed company and the transferee company is an unlisted company,— (A) the transferee company shall remain an unlisted company until it becomes a listed company; (B) if shareholders of the transferor company decide to opt out of the transferee company, provision shall be made for payment of the value of shares held by them and other benefits in accordance with a pre-determined price formula or after a valuation is made, and the arrangements under this provision may be made by the Tribunal: Provided that the amount of payment or valuation under this clause for any share shall not be less than what has been specified by the Securities and Exchange Board under any regulations framed by it; where the transferor company is dissolved, the fee, if any, paid by the transferor company on its authorised capital shall be set-off against any fees payable by the transferee company on its authorised capital subsequent to the amalgamation; And such incidental, consequential and supplemental matters as are deemed necessary to secure that the merger or amalgamation is fully and effectively carried out: Provided that no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company’s auditor has been filed with the Tribunal to the effect that the accounting

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treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133. (4) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to the transferee company and the liabilities shall be transferred to and become the liabilities of the transferee company and any property may, if the order so directs, be freed from any charge which shall by virtue of the compromise or arrangement, cease to have effect. (5) Every company in relation to which the order is made shall cause a certified copy of the order to be filed with the registrar for registration within thirty days of the receipt of certified copy of the order. (6) The scheme under this section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date. (7) Every company in relation to which the order is made shall, until the completion of the scheme, file a statement in such form and within such time as may be prescribed with the registrar every year duly certified by a chartered accountant or a cost accountant or a company secretary in practice indicating whether the scheme is being complied with in accordance with the orders of the Tribunal or not. (8) If a transferor company or a transferee company contravenes the provisions of this section, the transferor company or the transferee company, as the case may be, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of such transferor or transferee company who is in default, shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both.(8) If a company fails to comply with subsection 5, the company and every officer of the company who is in default shall be liable to a penalty of twenty thousand rupees, and where the failure is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to a maximum of three lakh rupees.10 Explanation—For the purposes of this section,— (i) in a scheme involving a merger, where under the scheme the undertaking, property and liabilities of one or more companies, including the company in respect of which the compromise or

10

Substituted by Companies (Amendment) Act, 2020

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arrangement is proposed, are to be transferred to another existing company, it is a merger by absorption, or where the undertaking, property and liabilities of two or more companies, including the company in respect of which the compromise or arrangement is proposed, are to be transferred to a new company, whether or not a public company, it is a merger by formation of a new company; (ii) references to merging companies are in relation to a merger by absorption, to the transferor and transferee companies, and, in relation to a merger by formation of a new company, to the transferor companies; (iii) a scheme involves a division, where under the scheme the undertaking, property and liabilities of the company in respect of which the compromise or arrangement is proposed are to be divided among and transferred to two or more companies each of which is either an existing company or a new company; and (iv) property includes assets, rights and interests of every description and liabilities include debts and obligations of every description.”

13.6.1

Which arrangements are included under section 232?

Section 232 is applicable to following types of compromises and arrangement:

13.6.1.1

Mergers and amalgamations

It applies to a scheme made for the purpose of, or in connection with the scheme of reconstruction of a company or companies involving mergers and amalgamations of any two or more companies. The Act has provided following types of scheme that shall be considered as schemes involving merger.

Merger by absorption When a scheme involves a merger transferring the undertaking, property and liabilities of one or more companies including the company in respect of which the compromise or arrangement is proposed to another existing company, the same can be made to be a merger by absorption, and; Merger by formation of a new company When the undertaking, property and liabilities of two or more companies, including the company in respect of which the compromise or arrangement is proposed, are to be transferred to a new company, the same can be said to be merger by formation of a new company.

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13.6.1.2

Compromises and Arrangements

Demergers (Section 232 read with Explanation)

Section 232 of the new Act is applicable to a scheme that provides that the whole or any part of the undertaking, property or liabilities of any company (hereinafter referred to as the transferor company) are to be transferred to another company (hereinafter referred to as the transferee company), or are to be divided among and transferred to two or more companies.

13.6.2

Distinction between section 232 of the Companies Act, 2013 and section 394 of the Companies Act, 1956

Following are the differences between sec 232 of the Companies Act, 2013 and sec 394 of the Companies Act, 1956. (a) Under the new Act, only reconstructions involving mergers and amalgamation are included whereas under the old Act, any kind of reconstruction of company(ies) was included. (b) Under the old Act, the procedure under sec 394 was applicable to demerger of company or companies. However, under the new Act, it is applicable to demergers provided they fall in the categories specified in it.

13.6.3

Applicability of section 230 to schemes under mergers and demergers under section 232

Section 232 begins with the term “(1) Where an application is made to the Tribunal under section 230 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Tribunal—…” Thus, by reference it means that no separate application is contemplated under sec 232. An application under sec 230 must comply with sec 232 if the scheme as filed is a scheme under of the nature provided in sec 232(1) read with explanation to sec 232 ie a scheme of merger or demerger.

13.6.4 13.6.4.1

The scheme of mergers or demergers Appointed date in scheme [Section 232(6) with Section 232(5)]

The Companies Act, 2013 provides that the scheme should indicate an appointed date from which it shall be effective. It further provides that the scheme shall not be effective from a date subsequent to the appointed date.

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Observation Section 232(5) provides a date when the scheme of merger or demerger will be effective. This date is distinct from the date when a regular scheme of compromise and arrangement under sec 230 will be effective (Section 230(6) read with sec 230(8) is analysed under sec 230, “effective date of the scheme” in “13.4.13, Sanction of scheme” in earlier pages). Under the Companies Act, 1956, the scheme generally provided two dates, viz "appointed date" and "effective date". The scheme would be effective from the "appointed date" and operative from the "effective date". The new law prohibits having two effective dates. However, there is no bar on having an operative date. Thus, we can safely say that companies can still have an "effective date". Under the Companies Act, 1956, the scheme was effective from the date of filing with the ROC. This clause is not removed. Thus, under the Companies Act, 2013, the scheme will provide an appointed date. Once the scheme is sanctioned, the scheme will be operative and will become effective from the date that is set out in the scheme. It will become binding on the members, creditors and companies only when the order is sanctioned by the Tribunal.

13.6.4.2

Filing draft scheme [Section 232(2)(b)]

Draft scheme must be filed with ROC under the Companies Act, 2013. It should be filed after it is approved by the Board of the respective companies involved in the merger. This is a new requirement under the law. However, it is in line with the other changes made in the law. Under the Companies Act, 2013, the registrar is not required to provide a report on the merger. He can only provide his observations or objections to the scheme if he has any. This has to be done within 30 days from the receipt of notice sent to him under sec 390. Thus, filing a draft scheme in advance will enable the ROC to get sufficient time to study the scheme.

13.6.4.3

Sanction of the scheme

The Tribunal may, at its discretion after hearing all the objections from stakeholders, sanction the scheme.

13.6.4.4

Powers of Tribunal while sanctioning the scheme

The Tribunal can provide for the following while sanctioning the scheme: (a) Transfer of properties and liabilities: Transfer of the whole or any part of the undertaking, property or liabilities of the transferor company (ies) to the transferee company from a date as mutually decided by the parties. However, Tribunal may provide for a different date for such transfer.

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(b) Allotment of securities: It can provide for allotment or appropriation of any shares and other instruments by transferee company (ies) in accordance with the scheme. However, treasury stocks cannot be created.; (c) Legal proceedings: Pending legal proceedings against transferor company shall be continued against the transferee company (ies); (d) Dissolution: Dissolution, without winding-up, of any transferor company (ies); (e) Dissenting persons: It can make provision for any persons dissenting from the scheme within such time and in such manner as the Tribunal directs; (f) Foreign investors: It can make special provision for allotment of shares to foreign shareholders. (g) Employees: The transfer of the employees of the transferor company to the transferee company; (h) Listed companies: If a listed company is getting merged into an unlisted company, it can provide that the unlisted company will continue to remain unlisted. In such a case dissenting shareholders are entitled to opt out. Tribunal may direct transferee company to make provision for paying off dissenting shareholders. They shall be paid in accordance with a predetermined price formula or in accordance with the valuation arrived at. In any case such price shall not be less than the price that can be arrived at under any regulation of SEBI. (i) Authorised capital: Where the transferor company is dissolved, the fee, if any, paid by the transferor company on its authorised capital shall be set-off against any fees payable by the transferee company on its authorised capital subsequent to the amalgamation; and (j) Such incidental, consequential and supplemental matters as are deemed necessary to secure that the merger or amalgamation is fully and effectively carried out. Observations Powers of Tribunal Additional powers are specified in the Companies Act, 2013. However, even under the Companies Act, 1956, the High Court did have powers to order transfer of employees, setting off of fees in case of increase in authorised capital and so on. However, under the Companies Act, 2013, Tribunal is required to safeguard interest of shareholders of listed companies and cannot permit creation of treasury shares.

13.6.4.5

Restrictions on scheme: treasury stocks

Treasury stock is stock repurchased by the issuer and intended for retirement or resale to the public. It represents the difference between the number of shares issued and 13.35

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the number of shares outstanding.11 Under the Companies Act, 1956, there was no restrictions on holding treasury stocks. Thus, companies used to hold treasury stocks in trust of the company which they could later dispose-off in the market. There was a possibility that such stocks could be misused to create disruptions in market price of listed shares. Thus, under the Companies Act, 2013, the transferee company is not allowed to hold any shares in its own name or in the name of any trust whether on its behalf or on behalf of any of its subsidiary or associate companies. This prohibition was not previously provided in case of mergers and amalgamation and it was used by companies to hold shares in trust for their shareholders.

13.6.4.6

Effect of sanctioning of the scheme

On sanctioning the scheme, the properties and liabilities of the transferor company shall vest in the transferee company.

13.6.5

Approvals

The approvals required from the shareholders and creditors are identical to approvals required under sec 230. However, the extent of disclosures is higher in case of schemes under sec 232. They are set out in detail in the procedure laid out under sec 232 read with procedure under sec 230.

13.6.5.1

Notices calling meeting (Section 232(2))

In addition to the disclosures that are required to be made in the notice calling for meeting under sec 230(2) & 230(3) read with rules 6 of M&A Rules, following additional details are to be provided: (a) Copy of the proposed scheme; (b) Confirmation that a copy of the draft scheme has been filed with ROC; (c) A report by the directors of merging companies explaining effect of compromise on each class of shareholders, key managerial personnel, promoters and non-promoter shareholders. The report shall set out the share exchange ratio and specify any special valuation difficulties; (d) The report of the expert with regard to valuation, if any; (e) Unaudited Provisional Balance Sheet which is not older than six months reckoned from the date of the first meeting of the company summoned for the purposes of approving the scheme.

11

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Observation Unless otherwise provided in rules or direction of Tribunal, these details were not required under the Companies Act, 1956. However, these disclosures and formalities are introduced to enable shareholders and other stakeholders to correctly assess the pros and cons of the scheme.

Sanction from statutory authorities The notices to the statutory authorities sent under sec 230 will contain several additional disclosures in case of mergers and demergers. These details are set out in the procedures of sec 232.

13.6.5.2 Post sanction compliances Filing [Section 232(5)] A certified copy of order must be filed with Roc within thirty days of the receipt of certified copy.

Periodic statement [Section 230(7)] The company must annually file a statement with the ROC. It should be duly certified by a PCA, PCS or PCWA indicating whether or not the provisions of the scheme are being complied with. These documents must be filed until the scheme is completed. Decoding the law ● What constitutes completion of the scheme? ● What will be the completion date if scheme casts a continuing obligation on any party? The Companies Act, 2013 does not define the term of the scheme. The scheme generally provides for many things. A plain vanilla scheme inter alia may provide for (a) transfer of assets and liabilities; (b) transfer of employees and their PF (provident funds) and other funds; (c) provision for making necessary accounting treatment in the books of the companies; (d) obtaining post sanction approvals (e) Change of name and address to be notified (f) payment of stamp duty (g) Substituting the name of the transferee company in exiting legal proceedings and so on so forth. After all these formalities are completed, we can say that scheme is completed. However, the scheme may contain certain provisions that provide a continuing obligations on any party. Clarification is necessary from MCA as to what constitutes 13.37

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completion of the scheme. Or else, the Tribunal can specify what should be considered as completion of the scheme.

13.6.5.3

Mergers and compromise and arrangement

One Person Company and merger There is no restriction on a one person company going into a merger, amalgamation, demerger or any other types of compromise or arrangement. It is permitted to do so. However, if as a result of such transaction, such company ceases to fulfil the conditions of a one person company, then it will lose the status and benefits of One Person Company. Can sick companies use this route? Under the Companies Act, 2013 and Insolvency Code, it is not mandatory to refer a company to Tribunal if the company is rendered sick (net worth has eroded). It is the choice of the corporate debtor or the creditors. Further, there is no direct bar on initiating a compromise or arrangement under Chapter XV even if the company has entered into a process of insolvency resolution. However, the feasibility of such transactions is questionable. Observation If the process of insolvency resolution for determining measures to revive the company are under way, can the corporate debtor (whose insolvency is being resolved) go for compromise and arrangement under sections 230 and 232? There is no direct bar on a sick company entering into a compromise or arrangement under Chapter XV. But Section 14 of the Insolvency and Bankruptcy Code restricts its ability to enter into compromise and arrangement. It provides that on the insolvency commencement date, the Tribunal shall by order “declare moratorium for prohibiting all of the following, namely:— ….(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;”. This provision places restriction of entering into several compromise and arrangements especially a merger and demerger. In such transactions, there are obligations incurred with respect to property. For instance, in merger, the transferor company enters into a scheme where there is an obligation on the transferor company with respect to its assets, namely that on the date the scheme is sanctioned the assets will belong to the transferee company. Thus, such permissibility of schemes involving insolvent companies under Chapter XV is a tricky aspect that will need to be carefully dealt with.

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13.6.5.4

Compromises and Arrangements

Penalty [Section 232(8)]

Before the Companies Amendment Act, 2020, if a transferor company or a transferee company contravened the provisions of section 230, then the transferor company or the transferee company, as the case may be, were punishable with fine which would not be less than one lakh rupees but could extend to twenty-five lakh rupees and every officer of such transferor or transferee company who is in default, shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both. As a part of decriminalisation of Companies Act, several provisions for imprisonment were removed. This was one such provision. Now any contravention of Section 230 will be liable to civil consequences which will be adjudicated by officer designated by Central Government.

13.7

BUYING MINORITY SHAREHOLDING HOLDING

Sections 235 and 236 deals with minority shareholding. Section 235 gives a right to the transferee company to acquire shares of the minority and the minority is obliged to sell the shares to the transferee company. In sec 235, the minority does not have a choice. If they do not desire to sell their shares, then they have an option to apply to Tribunal and seek appropriate reliefs. Section 236 obliges an acquirer and a person acting in concert with the acquirer to acquire the shareholding of the minority in certain circumstances. This is an obligation on the acquirer and the minority is free to decide whether it desires to sell its shareholding.

13.7.1

Purchase of minority interest

“23512. Power to acquire shares of shareholders dissenting from scheme or contract approved by majority. (1) Where a scheme or contract involving the transfer of shares or any class of shares in a company (the transferor company) to another company (the transferee company) has, within four months after making of an offer in that behalf by the transferee company, been approved by the holders of not less than nine-tenths in value of the shares whose transfer is involved, other than shares already held at the date of the offer by, or by a nominee of the transferee company or its subsidiary companies, the transferee company may, at any time within two months after the expiry of the said four months, give notice in the prescribed manner to any dissenting shareholder that it desires to acquire his shares. (2) Where a notice under sub-section (1) is given, the transferee company shall, unless on an application made by the dissenting shareholder to the Tribunal, within one month from the date on which the notice was given 12

Enforced with effect from 15th December 2016.

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and the Tribunal thinks fit to order otherwise, be entitled to and bound to acquire those shares on the terms on which, under the scheme or contract, the shares of the approving shareholders are to be transferred to the transferee company. (3) Where a notice has been given by the transferee company under subsection (1) and the Tribunal has not, on an application made by the dissenting shareholder, made an order to the contrary, the transferee company shall, on the expiry of one month from the date on which the notice has been given, or, if an application to the Tribunal by the dissenting shareholder is then pending, after that application has been disposed of, send a copy of the notice to the transferor company together with an instrument of transfer, to be executed on behalf of the shareholder by any person appointed by the transferor company and on its own behalf by the transferee company, and pay or transfer to the transferor company the amount or other consideration representing the price payable by the transferee company for the shares which, by virtue of this section, that company is entitled to acquire, and the transferor company shall— (a) thereupon register the transferee company as the holder of those shares; and (b) within one month of the date of such registration, inform the dissenting shareholders of the fact of such registration and of the receipt of the amount or other consideration representing the price payable to them by the transferee company. (4) Any sum received by the transferor company under this section shall be paid into a separate bank account, and any such sum and any other consideration so received shall be held by that company in trust for the several persons entitled to the shares in respect of which the said sum or other consideration were respectively received and shall be disbursed to the entitled shareholders within sixty days. (5) In relation to an offer made by a transferee company to shareholders of a transferor company before the commencement of this Act, this section shall have effect with the following modifications, namely:— (a) in sub-section (1), for the words “the shares whose transfer is involved other than shares already held at the date of the offer by, or by a nominee of, the transferee company or its subsidiaries,”, the words “the shares affected” shall be substituted; and (b) in sub-section (3), the words “together with an instrument of transfer, to be executed on behalf of the shareholder by any person appointed by the transferee company and on its own behalf by the transferor company” shall be omitted. 13.40

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Explanation—For the purposes of this section, “dissenting shareholder” includes a shareholder who has not assented to the scheme or contract and any shareholder who has failed or refused to transfer his shares to the transferee company in accordance with the scheme or contract.”

13.7.2

Power to acquire shares of dissenting shareholders [Section 235]

In a scheme/contract [that involves the transfer of shares or any class of shares in a company (transferor company) to another company (transferee company)] that has been approved by the holders of not less than 9/10 in value of the shares whose transfer is involved, transferee gets rights to acquire minority holding. However, this right is available only if the scheme/contract is approved within a period of four months of the offer having been made by the transferee company. The transferee company may, at its discretion, notify the dissenting shareholders its desire to acquire their shares. This may be done at any time within two months from the expiry of the aforesaid four months period mentioned above. However, dissenting shareholders who do not want to give up their shares, can approach the Tribunal. They can apply within one month of receiving the offer from the transferee company. The Tribunal may at its discretion, prohibit such acquisition or dismiss the application. The transferee company shall have a right to acquire the shares of such dissenting shareholder(s) unless the Tribunal has prohibited the acquisition.

13.7.3

Mandatory purchase of minority shareholding [Section 236]

“236. Purchase of minority shareholding (1) In the event of an acquirer, or a person acting in concert with such acquirer, becoming registered holder of ninety per cent or more of the issued equity share capital of a company, or in the event of any person or group of persons becoming ninety per cent majority or holding ninety per cent. of the issued equity share capital of a company, by virtue of an amalgamation, share exchange, conversion of securities or for any other reason, such acquirer, person or group of persons, as the case may be, shall notify the company of their intention to buy the remaining equity shares. (2) The acquirer, person or group of persons under sub-section (1) shall offer to the minority shareholders of the company for buying the equity shares held by such shareholders at a price determined on the basis of valuation by a registered valuer in accordance with such rules as may be prescribed.

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(3) Without prejudice to the provisions of sub-sections (1) and (2), the minority shareholders of the company may offer to the majority shareholders to purchase the minority equity shareholding of the company at the price determined in accordance with such rules as may be prescribed under sub-section (2). (4) The majority shareholders shall deposit an amount equal to the value of shares to be acquired by them under sub-section (2) or sub-section (3), as the case may be, in a separate bank account to be operated by the [company whose shares are being transferred]13 for at least one year for payment to the minority shareholders and such amount shall be disbursed to the entitled shareholders within sixty days: Provided that such disbursement shall continue to be made to the entitled shareholders for a period of one year, who for any reason had not been made disbursement within the said period of sixty days or if the disbursement have been made within the aforesaid period of sixty days, fail to receive or claim payment arising out of such disbursement. (5) In the event of a purchase under this section, the company whose shares are being transferred14 shall act as a transfer agent for receiving and paying the price to the minority shareholders and for taking delivery of the shares and delivering such shares to the majority, as the case may be. (6) In the absence of a physical delivery of shares by the shareholders within the time specified by the company, the share certificates shall be deemed to be cancelled, and the company whose shares are being transferred15 shall be authorised to issue shares in lieu of the cancelled shares and complete the transfer in accordance with law and make payment of the price out of deposit made under sub-section (4) by the majority in advance to the minority by dispatch of such payment. (7) In the event of a majority shareholder or shareholders requiring a full purchase and making payment of price by deposit with the company for any shareholder or shareholders who have died or ceased to exist, or whose heirs, successors, administrators or assignees have not been brought on record by transmission, the right of such shareholders to make an offer for sale of minority equity shareholding shall continue and be available for a period of three years from the date of majority acquisition or majority shareholding.

13

Inserted by the Companies Amendment Act, 2017.

14

Inserted by the Companies Amendment Act, 2017.

15

Inserted by the Companies Amendment Act, 2017.

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(8) Where the shares of minority shareholders have been acquired in pursuance of this section and as on or prior to the date of transfer following such acquisition, the shareholders holding seventy-five per cent. or more minority equity shareholding negotiate or reach an understanding on a higher price for any transfer, proposed or agreed upon, of the shares held by them without disclosing the fact or likelihood of transfer taking place on the basis of such negotiation, understanding or agreement, the majority shareholders shall share the additional compensation so received by them with such minority shareholders on a pro rata basis. Explanation.—For the purposes of this section, the expressions “acquirer” and “person acting in concert” shall have the meanings respectively assigned to them in clause (b) and clause (e) of subregulation (1) of regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. (9) When a shareholder or the majority equity shareholder fails to acquire full purchase of the shares of the minority equity shareholders, then, the provisions of this section shall continue to apply to the residual minority equity shareholders, even though,— (a) the shares of the company of the residual minority equity shareholder had been delisted; and (b) the period of one year or the period specified in the regulations made by the Securities and Exchange Board under the Securities and Exchange Board of India Act, 1992, had elapsed.” The Act provides that in the event an acquirer (or persons acting in concert with such acquirer) acquires 90% or more of the issued equity share capital of a company whether by virtue of an amalgamation, share exchange, conversion of securities or for any other reason, then, the acquirer may notify the company of its intention to buy the remaining equity shares. The offer shall be given to the minority shareholders at a price determined on the basis of valuation by a registered valuer in accordance with prescribed rules.

13.7.4

Applicability

Section 236, at a first glance, is applicable to every type of company whether listed or unlisted as sec 236 begins with the words: “(1) In the event of an acquirer, or a person acting in concert with such acquirer, becoming registered holder of ninety per cent or more of the issued equity share capital of a company, or in the event of any person or group of persons becoming ninety per cent majority or holding ninety.” Meaning of “acquirer” 13.43

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The terms used in sec 236 are “acquirer” and “person acting in concert”. The Act requires that the meaning of these terms should be taken from SEBI Regulations in the explanation to sec 236(8) which reads as under: “Explanation.—For the purposes of this section, the expressions “acquirer” and “person acting in concert” shall have the meanings respectively assigned to them in clause (b) and clause (e) of subregulation (1) of regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.” The term acquirer is defined as follows in the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 as follows: “(b) ―acquirer means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in the target company, or acquires or agrees to acquire control over the target company, either by himself or with any person acting in concert with the acquirer;” Similarly the term person acting in concert is also defined as follows: “(e) ―person acting in concert‖ comprises— (1) persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal), directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company. (2) Without prejudice to the generality of this definition, the following persons will be deemed to be persons acting in concert with other persons in the same category, unless the contrary is established: (i) a company, its holding company, or subsidiary or such company or company under the same management either individually or together with each other; (ii) a company with any of its directors, or any person entrusted with the management of the funds of the company; (iii) directors of companies referred to in sub-clause (i) of clause (2) and their associates; (iv) mutual fund with sponsor or trustee or asset management company; (v) foreign institutional investors with sub-account(s); (vi) merchant bankers with their client(s) as acquirer; (vii) portfolio managers with their client(s) as acquirer; (viii) venture capital funds with sponsors;

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(ix) banks with financial advisers, stock brokers of the acquirer, or any company which is a holding company, subsidiary or relative of the acquirer : (x)

Provided that sub-clause (ix) shall not apply to a bank whose sole relationship with the acquirer or with any company, which is a holding company or a subsidiary of the acquirer or with a relative of the acquirer, is by way of providing normal commercial banking services or such activities in connection with the offer such as confirming availability of funds, handling acceptances and other registration work;

(xi) any investment company with any person who has an interest as director, fund manager, trustee, or as a shareholder having not less than 2 per cent of the paid-up capital of that company or with any other investment company in which such person or his associate holds not less than 2 per cent of the paid-up capital of the latter company. Note : For the purposes of this clause ―associate means,— (a) any relative of that person within the meaning of section 6 of the Companies Act, 1956 (1 of 1956); and (b) family trusts and Hindu undivided families; The term target company that is used in the definition of terms “acquirer” and “person acting in concert” is defined in reg 2(o) of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 as follows “target company means a listed company whose shares or voting rights or control is directly or indirectly acquired or is being acquired.” Both the definitions are in relation to “target company” which is defined as a listed company. There is no alternate meaning given in sec 236. Thus, these two terms essentially refer to listed companies. Observation Section 236 refers to old Takeover Regulations of 1997 and not the new Takeover Regulations of 2011. Section 236, continues with the words “in the event of any person or group of persons”. In the absence of specific definition of the said terms, the same will be with respect to any type of company. Thus, Section 236 will apply to any type of company. Who is given the rights under section 236? It is a minority shareholders who have a right but not an obligation to sell under sec 236. Section 236 uses the term “may” in sub section (3). Who is under an obligation?

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The acquirer or person acting in concert (PAC) or person or persons who fulfil the criteria specified in section 236(1) is obliged to purchase the shares of the minority if they exercise their option to sell the shares. Under what circumstances? Section 236(1) has set out the circumstances when the obligation to purchase arises. It arises when the acquirer or PAC become registered holders of 90% or more of the issued share capital. It also arises when a person or group of persons hold 90% or more of the issued share capital. This acquisition may be due to any reason. This section is not restricted to acquisition as a result of merger but includes a wide variety of situations like share exchange, conversion of securities or for any other reason. . Till when does this right continue? Sub sections (4), (7) and (9) of sec 236 provide the answer. What price shall be paid? The valuation of shares shall be determined by the registered valuer. Section 236(2) provides that such valuation shall be in accordance with the rules that are prescribed. If a set of minority shareholders negotiate a higher price for their shares, they have to share it with the other minority shareholders in the circumstances provided under sec 236(8).

PART II: CONTRACTUAL MERGERS/FAST TRACK MERGERS (SECTION 233)

As can be seen from the discussion, the merger approved by the Tribunal under the 2013 Act provides for more elaborate procedure and involves more approvals and disclosures than those required under the 1956 Act. Section 233 read with rule 25 of M&A Rules deal with fast track mergers. This is a new route contemplated by the 2013 Act to provide a route for completing the merger without following the procedures contemplated under 230 to 232. This route is available only for certain companies in certain situations. “233. Merger or amalgamation of certain companies. (1) Notwithstanding the provisions of section 230 and section 232, a scheme of merger or amalgamation may be entered into between two or more small companies or between a holding company and its whollyowned subsidiary company or such other class or classes of companies as may be prescribed, subject to the following, namely:— (a) a notice of the proposed scheme inviting objections or suggestions, if any, from the registrar and Official Liquidators where registered office of the respective companies are situated or persons affected by the scheme within thirty days is issued by

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the transferor company or companies and the transferee company; (b) the objections and suggestions received are considered by the companies in their respective general meetings and the scheme is approved by the respective members or class of members at a general meeting holding at least ninety per cent. of the total number of shares; (c) each of the companies involved in the merger files a declaration of solvency, in the prescribed form, with the registrar of the place where the registered office of the company is situated; and (d) the scheme is approved by majority representing nine-tenths in value of the creditors or class of creditors of respective companies indicated in a meeting convened by the company by giving a notice of twenty-one days along with the scheme to its creditors for the purpose or otherwise approved in writing. (2) The transferee company shall file a copy of the scheme so approved in the manner as may be prescribed, with the central government, registrar and the Official Liquidator where the registered office of the company is situated. (3) On the receipt of the scheme, if the registrar or the Official Liquidator has no objections or suggestions to the scheme, the central government shall register the same and issue a confirmation thereof to the companies. (4) If the registrar or Official Liquidator has any objections or suggestions, he may communicate the same in writing to the central government within a period of thirty days: Provided that if no such communication is made, it shall be presumed that he has no objection to the scheme. (5) If the central government after receiving the objections or suggestions or for any reason is of the opinion that such a scheme is not in public interest or in the interest of the creditors, it may file an application before the Tribunal within a period of sixty days of the receipt of the scheme under sub-section (2) stating its objections and requesting that the Tribunal may consider the scheme under section 232. (6) On receipt of an application from the central government or from any person, if the Tribunal, for reasons to be recorded in writing, is of the opinion that the scheme should be considered as per the procedure laid down in section 232, the Tribunal may direct accordingly or it may confirm the scheme by passing such order as it deems fit: Provided that if the central government does not have any objection to the scheme or it does not file any application under this section before the Tribunal, it shall be deemed that it has no objection to the scheme. 13.47

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(7) A copy of the order under sub-section (6) confirming the scheme shall be communicated to the registrar having jurisdiction over the transferee company and the persons concerned and the registrar shall register the scheme and issue a confirmation thereof to the companies and such confirmation shall be communicated to the registrars where transferor company or companies were situated. (8) The registration of the scheme under sub-section (3) or sub-section (7) shall be deemed to have the effect of dissolution of the transferor company without process of winding-up. (9) The registration of the scheme shall have the following effects, namely: (a) transfer of property or liabilities of the transferor company to the transferee company so that the property becomes the property of the transferee company and the liabilities become the liabilities of the transferee company; (b) the charges, if any, on the property of the transferor company shall be applicable and enforceable as if the charges were on the property of the transferee company; (c) legal proceedings by or against the transferor company pending before any court of law shall be continued by or against the transferee company; and (d) where the scheme provides for purchase of shares held by the dissenting shareholders or settlement of debt due to dissenting creditors, such amount, to the extent it is unpaid, shall become the liability of the transferee company. (10) A transferee company shall not on merger or amalgamation, hold any shares in its own name or in the name of any trust either on its behalf or on behalf of any of its subsidiary or associate company and all such shares shall be cancelled or extinguished on the merger or amalgamation. (11) The transferee company shall file an application with the registrar along with the scheme registered, indicating the revised authorised capital and pay the prescribed fees due on revised capital: Provided that the fee, if any, paid by the transferor company on its authorised capital prior to its merger or amalgamation with the transferee company shall be set-off against the fees payable by the transferee company on its authorised capital enhanced by the merger or amalgamation. (12) The provisions of this section shall mutatis mutandis apply to a company or companies specified in sub-section (1) in respect of a scheme of compromise or arrangement referred to in section 230 or division or transfer of a company referred to clause (b) of subsection (1) of section 232. (13) The central government may provide for the merger or amalgamation of companies in such manner as may be prescribed. 13.48

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(14) A company covered under this section may use the provisions of section 232 for the approval of any scheme for merger or amalgamation.” This is a newly inserted section and many questions may arise from a reading of this section:

Decoding the law ● When can sec 233 (also referred to as “Fast track route” or “FT Route”) be used? ● Can listed companies use FT route for their WOS16? ● What types of schemes can be sanctioned under FT route? ● Whether the restrictions on holding treasury stocks are applicable even for mergers under FT route? ● Whether the restrictions on schemes involving buy back and takeovers are applicable even to mergers under FT Route? ● What is the status of schemes involving reduction of capital? ● Can sick companies use this route? ● Can loss making companies use FT route? ● Can companies opt out of this route and go for merger under sections 230 to 232? ● What are the nature and extent of approval necessary for FT route? ● Who will determine the class? ● Are stamp duty exemption available for this kind of mergers?

13.8

UNDER WHAT CIRCUMSTANCES CAN THE SECTION 33 ROUTE BE USED?

The FT route is applicable only with respect to the companies and in the situations that are set out below:

13.8.1

Nature of companies

The fast track route can be used for compromise or arrangement between following types of companies: • Two or more small companies • Holding company and its wholly-owned subsidiary company • Other class or classes of companies as may be prescribed. By changing the definition of small companies and by extending the benefits of fast track merger to start-up companies, the scope of Section 233 has been expanded. The changes in the provisions are summarised below:

16

Wholly owned subsidiaries.

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Change in Definition of Small Companies Small companies is defined in the 2013 Act as follows defines the small company as, Old Definition Prior To Companies (Amendment) Act, 2017: “Small Company17 means a company, other than a public company,— (i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; and (ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees: Provided that nothing in this clause shall apply to— (A) a holding company or a subsidiary company; (B) a company registered under section 8; or (C) a company or body corporate governed by any special Act;” New Definition After Companies (Amendment) Act, 2017: “Small Company18 means a company, other than a public company,— (i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and (ii) turnover of which as per profit and loss account for the immediately preceding financial year as per its profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than hundred crore rupees: Provided that nothing in this clause shall apply to— (A) a holding company or a subsidiary company; (B) a company registered under section 8; or (C) a company or body corporate governed by any special Act;” (emphasis supplied) Notification of threshold limit in accordance with definition: By Companies (Specification of Definitions Details) Amendment Rules, 2021 which came into force on the 1st day of April, 2021 threshold limit for small companies were notified as follows: “i. paid up capital shall not exceed rupees two crores and ii. turnover shall not exceed rupees twenty crores respectively.”.

17

2013 Act read with Companies (Removal of Difficulties) Order, 2015 dated 13 February 2015.

18

2013 Act read with Companies (Removal of Difficulties) Order, 2015 dated 13 February 2015.

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Notification of class of companies eligible to apply under section 233: On 1st February 2021, Central Government notified the following class of companies that were eligible to use the fast track merger route. [by introducing Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2021] “(i)

two or more start-up companies; or

(ii) one or more start-up company with one or more small company. Explanation.- For the purposes of this sub-rule, “start-up company” means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 127 (E), dated the 19th February, 2019 issued by the Department for Promotion of Industry and Internal Trade.”

13.8.2

Applicability to listed companies

Even listed companies can use this route provided they fulfil the criteria specified herein for merging its wholly owned subsidiaries provided it is able to meet the criteria set out in sec 233. However, for listed companies the criteria of approval of 90% in value of members and creditors may be difficult and they are in all likelihood likely to opt for the regular procedure for merger under sections 230 to 232.

13.8.3

Types of schemes

Section 233 provides some indication about the type of scheme that may be permitted: “(1) Notwithstanding the provisions of section 230 and section 232, a scheme of merger or amalgamation may be entered into between two or more small companies or between a holding company ….. (12) The provisions of this section shall mutatis mutandis apply to a company or companies specified in sub-section (1) in respect of a scheme of compromise or arrangement referred to in section 230 or division or transfer of a company referred to clause (b) of subsection (1) of section 232.” The term used in sec 233 means “Scheme of merger or amalgamation”. However, sec 233(12) also permits other types of schemes to use this route. Thus, any type of compromise or arrangement, merger or amalgamation, demerger can take place through this route. Further, this section begins with the words “Notwithstanding the provisions of sec 230 and sec 232”. Thus, the restrictions on scheme provided on type of mergers in sections 230 and 232 are not applicable to mergers under sec 233. For instance, the restriction or provisions for takeover being a part of the scheme (sec 230(11)); buyback as a part of the scheme are not applicable (sec 230(10)). 13.51

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Observation The concessions (procedural or otherwise) under sections 230 to 232 are not available to mergers under sec 233. For instance, sec 230 allows companies to include reduction of capital as a part of the scheme without complying with the provisions of sec 66 dealing with reduction of capital (Explanation to sec 230). This concession is not extended to a merger under a scheme of sec 233.

13.8.4

Registered office

Companies having registered office at any place can get merged with any company having a registered office at any place. It does not matter even if the companies have registered offices in different states. The companies can still get merged or amalgamated under sec 233.

13.8.5

Financial position

Section 233 route is available only for financially sound companies. Under sec 233, a declaration of solvency has to be provided by directors. This cannot be provided by companies that are financially weak and where there is a possibility that they may become insolvent. Thus, companies should have a robust balance sheet such that it is in a position to repay its liabilities that arise for a period of one year from the date of making the declaration. Insolvent companies can’t amalgamate through the fast track merger route. They can use the Tribunal approval route under sections 230 to 232 for the purpose of mergers.

13.8.6

Returns

The declaration of solvency (Form no. CAA 10 read with r 25(2) of M&A Rules read with sec 233(1)(c)) inter alia requires a declaration that the companies involved in a merger or amalgamation under sec 233 are regular in filing their annual audited accounts.

13.9

CAN COMPANIES OPT OUT OF SECTION 233?

Yes, sec 233 is a choice given to companies. Section 233(1) reads as follows: “233(1) Notwithstanding the provisions of section 230 and section 232, a scheme of merger or amalgamation may be entered into between two or more small companies or between a holding company and its whollyowned subsidiary company or such other or such other class or classes of companies as may be prescribed, subject to the following, namely: ………….. 13.52

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(14) A company covered under this section may use the provisions of section 232 for the approval of any scheme for merger or amalgamation.” Thus, sec 233 is only an option given to the companies. If the companies are able to satisfy the criteria provided under sec 233, they have a choice. They can go for contractual merger route given under sec 233 or they can go for a regular merger route provided under sections 230 to 232. Thus, if the holding company finds it cumbersome to merger its wholly owned subsidiary in the manner provided under sec 233 in view of the higher threshold of consents/approvals required from members and creditors, it can opt for a regular merger route available under sections 230 to 232. This aspect is further clarified by r 25(8) which provides as under: “25 ..(8)…It is clarified that with respect to schemes of arrangement or compromise falling within the purview of section 233, the concerned companies may, at their discretion, opt to undertake such schemes under sections 230 to 232, including where the condition prescribed in section 233 (1) (d) has not been met.”

13.10

WHAT ARE THE CONDITIONS TO BE FULFILLED FOR USING SECTION 233 ROUTE?

Section 233(1) provides four major conditions to be complied with for taking the sec 233 route. (a) a notice of the proposed scheme inviting objections or suggestions, if any, from the registrar and official liquidators where registered office of the respective companies are situated or persons affected by the scheme within thirty days is issued by the transferor company or companies and the transferee company; (b) the objections and suggestions received are considered by the companies in their respective general meetings and the scheme is approved by the respective members or class of members at a general meeting holding at least ninety per cent of the total number of shares; (c) each of the companies involved in the merger files a declaration of solvency, in the prescribed form, with the registrar of the place where the registered office of the company is situated; and (d) the scheme is approved by majority representing nine-tenths in value of the creditors or class of creditors of respective companies indicated in a meeting convened by the company by giving a notice of twentyone days along with the scheme to its creditors for the purpose or otherwise approved in writing.

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13.10.1 Notice to ROC/OL Merging companies (i.e. transferor company and transferee company) shall serve a notice to their respective ROC and Official Liquidator (that has jurisdiction over the respective companies i.e. at the place where the registered office of the companies are situated) within thirty days. It is unclear from which date the time limit of thirty days begins. It may be considered from the date the scheme is proposed by the Board of Directors. The said notice shall be in Form no. CAA 9.

13.10.2 Person affected The notice of the scheme must be sent to every person who will be affected by that scheme. However, the Companies Act, 2013 does not provide who should be considered as person affected. This a call that has to be taken by the company. It will depend even on the type of the company and nature of scheme.

13.10.3 Consideration of objections The objections and suggestions received by their (the respective companies) ROC and Official Liquidator and other affected persons shall be considered at the general meetings of merging companies. The general meetings must be held in accordance with the provision of the Act as no separate process is contemplated under sec 233(1).

13.10.4 Approval The scheme should be approved by the members or class of members of merging companies at a general meeting. It should be approved by at least ninety per cent of the total number of shares. It is not very clear whether "90% of the total number of shares" refer to the total shares in the company (or of that class) or total shares of the person who were "present and voting" at the meetings.

Decoding the law ● In what manner and how much approval is necessary? ● Who determines the class? ● Is it necessary to have 90% approval of each class? Section 233(1)(b) of the 2013 Act uses the following words: “b) … the scheme is approved by the respective members or class of members at a general meeting holding at least ninety per cent of the total number of shares” Shareholder’s approval is necessary of the transferee company as well as that of the transferor company. The Act requires the approval of each class of members. Thus, from every class, the requirement of the Act requires approval. There is no authority to determine the class and the Board of Directors will determine the class. The case law on what constitutes 13.54

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class may be a good guide for the Board to determine the classes whose approval is required. 90% approval is required. Now, certain question arise out of the percentage of approval required

Decoding the law ● Is it 90% of the total number of shares of members who have attended the meeting or 90% of the total number of shares of the company? ● Is approval required from members holding 90% of total number of shares in the company? ● Or is approval required from 90% of the total number of shares of each class? The Companies Act, 2013 states “90% of the total number of shares”. Thus, the percentage is with respect to the total number of shares that exist in the company. As regards the other two questions, the answer is not very clear. One possible interpretation can be that it should be approved by general majority at each general meeting and the members who approve the scheme must hold at least 90% of the total number of shares in the company. Another possible interpretation can be that members holding 90% of total number of each class of shares must consent to the scheme. The rules do not presently provide any clarity on this aspect

13.10.5 Declaration of solvency Each company involved in the merger must file a declaration of solvency, in the Form no. CAA 10 with its ROC before convening of the meeting of members and creditors for approval of the scheme. The declaration of solvency is made by the directors stating thereunder that they have made full enquiries into the affairs of the company and have formed the opinion that the company is capable of meeting its liabilities as and when they fall due and that the company will not be rendered insolvent within the period of one year from the date of making the declaration. This declaration shall be in Form no. CAA 10 and shall be filed by each of the companies involved in the scheme of Compromise and Arrangement involving merger. [Rule 25(2) of M&A Rules]

13.10.6 Creditors’ approval The scheme must be approved by a majority representing nine-tenths in value of the creditors or class of creditors of respective companies. A 21-day notice has to be given for convening the meeting and it should be accompanied with the scheme. Section 233(1)(d) of the 2013 Act uses the following words: “(d) the scheme is approved by majority representing nine-tenths in value of the creditors or class of creditors of respective companies indicated in a meeting convened by the company by giving a notice of twenty-one days

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along with the scheme to its creditors for the purpose or otherwise approved in writing.” Creditors approval is needed for the approving the scheme. The objections and suggestions received from ROC and OL do not need to be tabled at the meeting of the creditors. There is no specific format of the manner of calling the meeting which is specified. The only formalities are those specified in sec 233 read with r 25 which inter alia includes a 21-days’ notice to be given to creditors. Another formality is disclosures that are necessary to be given which is dealt with in detail elsewhere. Creditors meeting is necessary for every class of creditors. It is the company that will determine the class. It would be desirable to use the criteria for determining class that is used by the Courts/Tribunal while approving mergers. The consent of 90% of total value of the creditors or class of creditors of each company is required. Such approval must be sought from creditors of the transferor and transferee company.

13.10.7 Approvals and sanctions In a scheme under sec 233, basically three authorities are involved, namely the registrar, the Official Liquidator and the central government. Only if there are objections, then the Tribunal is involved. The ROC and OL is involved at two stages. Section 233 contemplated giving them a notice of the scheme before the scheme is sent for approval of members. The second stage is where, after approval of members and creditors, the finalised scheme is sent for final vetting. They can give their objections or suggestions at any stage. Following are the steps contemplated: (a) Filing The scheme duly approved by the transferor as well as the transferee company is to be filed with the central government and respective registrar and the Official Liquidator. (b) ROC and OL ROC and Official Liquidator may or may not have any objections or suggestions to the scheme. It they do, then they may convey their objections and/or suggestions to the central government within 30 days. If they fail to do so within 30 days, then it will be deemed that they have no objections. (c) Central Government Central Government is empowered to confirm the scheme. It may consider objections and suggestions received by it. If it finds that the scheme is fair and proper, it will register the scheme and issue a confirmation. However, if the central government, for any reason, is not convinced with the scheme or if it has any objection to the scheme, then it can object to the scheme within 60 days of the receipt of the scheme by filing an application with the

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Tribunal. If it does not object to the scheme in 60 days, it will be deemed that they have no objection.

13.11

APPLICATION TO TRIBUNAL

If the central government files an application to the scheme, the Tribunal is empowered to hear objection to the scheme.

13.11.1 Who can apply? The central government or any other person can apply. The ambit of persons who can object is kept very wide. Thus, creditors, shareholders, other stakeholders can apply to the Tribunal. However, it is unclear at what stage such “other person” can apply. We can say that no such period is specified for any person to approach the Tribunal, thus they may apply at any time. Further, sec 233 does not specify what will happen to the proceedings before the central government when such application is filed with the Tribunal It seems reasonable that the proceedings can be stayed by the Tribunal. However, many cases in the past have narrowed the scope of cases where interim order can be passed.19

13.11.2 Discretion of Tribunal On such application the Tribunal can pass any of the following order •

It can confirm the scheme

•

It can require the companies to follow the procedure laid down under section 230 or sec 232 (whichever is applicable). In such a case, the scheme shall proceed in accordance with those sections.

13.11.3 Order to be registered If the Tribunal confirm the scheme, ROC shall register the scheme and issue confirmation of such registration.

19

Shaw Wallace and Co. Ltd. v Union of India (UOI) [MANU/WB/0376/1998, 2CWN11, (1999)ILR 2Cal429] held that even if, CLB has inherent powers under reg 44 of Company Law Board Regulations, 991, such power cannot be exercised in excess of the powers flowing from the statute itself. Such power has to be exercised by the Board in aid of and not de hors the provisions of the Statute and, in any event, such exercise of power conferred by reg 44 cannot override the provisions of the Statute and held that interim orders could be made unless provide for in the statute.

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Case Digest for Compromise and Arrangement Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered (2018) 210 Com R. Systems Cas 341 (NCLAT) International Limited, (2018) 210 16.7.2018 Com Cas 341 Company Appeal (NCLAT) No. 416 of 2017 Section 230 and 232

(2017) 203 Com Cas 330 (Delhi HC) 15.3.2017 Company Appl NO. 115 of 2016 & 2615 of 2016 Section 391 read with Section 446

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Facts: A company application was filed for seeking direction of the court for a scheme which contemplated reduction of share capital. The said scheme was rejected by the NCLT on the ground that there is a separate section that is provided in the Companies Act which contemplated reduction of capital. The said order was under appeal. Held: The NCLAT allowed the appeal. It held that Tribunal ought to have considered the explanation to Section 230 which provides that provisions of Section 66 does not apply. The NCLAT also observed the judgement under section 391 of Companies Act, 1956 viz. Investment Corporation of India Limited (1987) 61 Com Cas 92(Bom); Gujarat Ambuja Exports Limited, In re (2004) 118 Com Cas 265 (Guj); Panasonic Appliances India Co. Limited (CP 331/2013- Madras High Court); Jyoti Inraventures Limited (Company Petition 263 of 2013- Andhra Pradesh High Court). It held that in light of the insertion of explanation it is not necessary to consider the judgement. Order of Tribunal was set aside and case was remitted to Tribunal. Sunil Gandhi v A N. Facts: The company was in winding up and Buildwell P Limited, a scheme of compromise was pending. The (2017) 203 Com question should the compromise and Cas 330 (Delhi HC) arrangement be transferred to NCLT in view of the new rules of transfer, Or will it continue to be dealt with by High Court as this company was in liquidation. Held: DHC held that the matter will not be transferred and will be dealt with by High Court. The following is the ratio of the case: “27. On a conspectus of the above

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decisions, the following legal position emerges: (i) That the expression 'proceedings relating to winding up' is of the widest amplitude and content. (ii) The expression 'relating to' which is used synonymously with the expression 'pertaining to' is an expression of expansion and not of contraction. (iii) The expression 'relating to the winding up' is much wider and much more expansive than the expression 'arising out of'. (iv) That the argument, that subsequent to the subject notification coming into force on 15.12.2016, an application under section 391 of the Companies Act, 1956, would stand transferred to the NCLT automatically, even in the circumstance that a winding up petition against the same company has been admitted by the company court, is fallacious, and nothing stands in the way of the Company Court from exercising jurisdiction and considering, a revival scheme proposed in relation to a company ordered to be wound up. The Company Court has powers vested in it under the Companies Act, 1956 to accept a scheme for revival of a company including a company that is being wound up until the ultimate step is taken or before the assets are disposed of, pursuant to liquidation. (v) Section 446 of the Companies Act, 1956 is wide in its scope and under the provisions of section 446(2), the Company Court, by virtue of a non obstante clause has the jurisdiction to

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entertain and dispose of an application under section 391 proposing a scheme in respect of the company, whether such application has been filed before or after the order of winding up has been made. (vi) 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. This manifestly indicates that in case of a company which has been ordered to be wound up by the Company Court, a scheme proposed for its revival, would be exclusively dealt with by the Company Court itself. (vii) All pending proceedings in relation to the revival of a Company in provisional liquidation, as in the present case, will continue to be dealt with by the Company Court under the applicable provisions of the Companies Act, 1956 including Section 446 of the Companies Act, 1956. (viii) The expression employed in clause 3 of the subject notification, 'other than proceedings relating to winding up' would operate as an exception to the subject notification. The rules of interpretation qua an exception require a strict construction in terms of the legislative intention. However, once the ambiguity or doubt about the applicability has been lifted,

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then the exception has to be given a wide and liberal construction. 28. Coming to the solitary submission made on behalf of the petitioners, in relation to the legislative intent qua the proceedings relating to revival of the Respondent Company, it would be pertinent to observe as follows: i. The winding up petition has been admitted and Provisional Liquidator has been appointed in terms of the order of this Court dated 08.03.2016. ii. Pursuant to the order dated 08.03.2016, the Official Liquidator has complied with the directions contained in the said order and taken over the possession of the assets, books, records etc., of the Respondent Company in provisional liquidation. iii. Applications being Company Application No. 2615 of 2016 and Company Application (Main) 115 of 2016, for revival of the Respondent Company have been pending adjudication before this Court, prior to coming into effect of the subject notification. iv. A bare reading of the subject notification itself and in particular Clause 5 thereof, shows that where the respondent has been served, the proceedings shall be retained by the Company Court and would not be transferred to the National Company Law Tribunal. v. Most significantly, the proceedings that are subject to transfer, within the meaning of the subject notification, would be independent proceedings relating to arbitration, compromise,

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arrangement and reconstruction, other than proceedings relating to winding up under the Companies Act, 1956. vi. In the proceedings relating to winding up, as in the present case, applications under the provisions of section 391 of the Companies Act, 1956, for the revival of the company in provisional liquidation, would constitute an exception, and would a fortiori fall outside the purview of independent proceedings which ought to be transferred to the National Company Law Tribunal, under clause 3 of the subject notification. 29. It would also be pertinent to observe that even otherwise, nothing that has been brought to the notice of this Court that requires proceedings in relation to a company that has been admitted to be wound up, and revival applications in relation thereto, to be transferred to the National Company Law Tribunal. In my view, it could not have been the intention of the Legislature in its infinite wisdom, to create a situation where, the scheme relating to the revival of company in provisional liquidation, pending consideration before the Company Court would be required to be transferred to and dealt with by the National Company Law Tribunal; leading to multiplicity of proceedings with the real possibility of conflicting decisions on the dissolution/winding up and/or revival of the respondent company. 30. In view of the foregoing, the issue that arose for consideration before this Court, is answered in the affirmative. The Company Court would exercise exclusive

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jurisdiction for adjudicating applications, in relation to the revival of the Company in provisional liquidation.” (2017) 203 Com Royalsoft Services Facts: A company petition for sanction of Cas 430 (NCLT) Limited, In re , scheme was filed. The RD has raised Chennai (2017) 203 Com several observation. One of the important Cas 430 (NCLT) observation was that to convert the 7.6.2017 Chennai company from public into private the TCP/30/CAA/2017 procedure as required under 2013 Act Section 391 read should be followed. Second, submission was that the scheme contemplated selective with Section 100 to reduction. The shareholder is given a right 104 to choose whether he wants to remain in the company. If the person does not choose, then he will be deemed to have accepted to opt out of the company. In this case, 90% consent of creditors was on record. Held: The scheme was sanctioned. The company gave a undertaking to comply with companies act to convert public company into private. Further, undertaking was given as regards unclaimed amounts going to IEPF. (2017) 203 Com Zydus Healthcare The company proposed a scheme of Cas 153 (NCLT) Limited, (2017) 203 arrangement between Zydus Healthcare Ahmedabad Com Cas 153 Limited (ZHL) and Cadila Healthcare (NCLT) Limited (CHL). Under this scheme, it was 15.2.2017 Ahmedabad proposed to transfer the India Human Formulations Undertaking of CHL to ZHL. CAA/6/2017 CHL was listed and ZHL was unlisted. Section 391 read ZHL was a subsidiary of CHL with Section 100 to 104 Issue: Whether Section 233 is applicable? Whether shareholders meeting can be dispensed with? Whether creditors meeting can be dispensed with? Held: a. Section 233(14) gives an option to the company to use Section 232 Thus, 13.63

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Tribunal is empowered to exercise jurisdiction under section 232. b. As regards dispensation of shareholders meeting, the Tribunal did not go into the permissibility of dispensation. It held that there is another scheme and the present scheme is going to take effect only after sanctioning the scheme of a company namely BPIL with transferee company. In the consent letter shown of shareholders there is no reference that they are aware of these other scheme. Thus, the consent letter were not relied upon and Company was directed to hold shareholder’s meeting. c. It further held that as this scheme is based on sanctioning of other scheme with BPIL, it is not desirable to dispense with meetings of creditors. (2017) 205 Com China Development A composite scheme of arrangement was Cas 525 (NCLT) Bank Corporation v proposed between RCL, RTIL, Aircel Mumbai Reliance Limited, DWL, DDNL and SACPL. Communication, Initially, as the stage of company scheme 14.8.2017 (2017) 205 Com application, the company sought directions CSA/264/2017 & Cas 525 (NCLT) for holding only shareholders meeting. CSP/376A, 377, Mumbai Thus, at the first stage of application for 378, 379, 380 and directions, directions were given by the 381 of 2017 Tribunal to give notice to the creditors and Section 230 to 232 to hold shareholders meeting. After the compliance with the first stage, a company scheme petition came to filed and the same came up for hearing for admission. At the stage of admission, some of the creditors which were less than 5% in value of the total outstanding debt in aggregate and separately objected to the scheme. Held: a. Whether objections can be raised at the stage of admission of the petition? 13.64

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b.

c.

d.

Objections can be raised by creditors at the stage of admission. There is no bar in the law. Whether it is imperative to hold shareholders meeting and creditors meeting without an application for holding shareholders as well as creditors meeting? Section 230(1) gives discretion to the Tribunal to decide kind of meetings are to be held and also gives it discretion to decide how the meeting are to held. While section 230(1) without any threshold limit allows a creditors also to file an application. This clause however cannot be construed to allow creditors to file objections without any threshold limit in view of Section 230(4). Is the company under an obligation to hold a creditors’ meeting as well or not? Whether objections can be raised without a threshold limited as provided in proviso to Section 230(4)? As regards the decision about which meetings to hold, The Tribunal will go by the application filed unless it finds any shortfall in procedure or any fraudulent element. Section 230(4) provides that a person who has received notice can vote at the meeting. This clause has to be read with Section 230(1) and only the category whose meeting is called can vote at that meeting. Whether the Tribunal has discretion to direct the company to hold members/creditors meetings other than the meeting as sought in the application filed by any of the

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categories mentioned in Section 230(1) or the 2013Act? Tribunal held “we do not say that Tribunal has no discretion to order creditors meeting as well” but in this case there the facts do not warrant calling of such meeting. The bench further held that as the objectors were less than 5%, the creditor-objectors have no locus. (2018) 208 Com Ritemed Pharma Facts: The Scheme of amalgamation was Cas 321 (NCLAT) Retail P Limited v rejected by NCLT on the ground that Official Liquidator Scheme of appellant (which is private 3.5.2018 and Anr., (2018) limited company) provides for allotment of Company Appeal 208 Com Cas 321 shares at a premium which is not No. 60/2018 (NCLAT) contemplated in Section 230 to 232.The company had argued that it is a prerogative Section 232 of the company to issue shares at a premium. Various judgement were cited. NCLT rejected the judgements by distinguishing them as they were all related to listed company. Held: The court relied on Miheer H Mafatlal v Mafatlal Industries Limited (1996) 87 Com Cas 792(SC) and allowed the appeal. The NCLAT observed that Section 232(3)(j) which is a section giving power to the Tribunal to decide ancillary, incidental and supplementary matters in relation to merger and amalgamations. There is no bar to issue shares at a premium and Section 52 contemplates it. It is further held to be a prerogative of the company. (2018) 208 Com Associated A scheme was sanction in 2013 investment Cas 331 (Bom) Aluminium business and windmill business for Industries P Limited transferred from one company to another. v Registrar of 26.2.2018 The company after few years realised that Com App/580 and Companies, (2018) it was not entitled to the tax benefits for the 581/2016 in CP 292 208 Com Cas 331 windmill business due to the demerger of and 293 of 2013 (Bom) the winding mill business and sought to 13.66

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modify the scheme so that windmill business would be retained by the transferor and remaining undertakings would be transferred to continue as per the scheme. Section 232 gives empowers the court to supervise the carrying out of compromise and arrangement and to make modifications for proper working Held: A order sanctioning a scheme is an order in rem. The said order sanctioning a scheme affects rights of several persons includes creditors, investors etc. and also creates liabilities in favour od person like income tax department. The transferee company has started earning revenue from the windmill business and it is more than 3 years since the scheme was allowed and the company has filed IT returns and thus created rights and liabilities towards income tax authorities. The permission to modify the scheme is not a mere technically change but goes to the essence of the scheme. It would amount to recall of the scheme. Just because tax benefits cannot be taken does not mean that scheme is unworkable, On this ground the application for modification of scheme was rejected. (2018) 206 Com Wiki Kids Limited Facts: The scheme of amalgamation was Cas 147 (NCLAT) and Anr. v Regional rejected by the Tribunal. The scheme was Director, South East not objected by the authorities or by the region and Ors., 21.12.2017 shareholders or creditors. However, NCLT Com Appeal 285 of (2018) 206 Com observed that the scheme was for merger of Cas 147 (NCLAT) a company held by promoter of Avantel 2017 6/2017 Limited (Wiki Kids Ltd -WKL) with Avantel Limited a listed company. The value of WKL was only 22 lakh and as per the share exchange ratio, the value of the shares offered to shareholders of transferor company worked out to Rs. 5.05 crore. 13.67

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

(2018) 206 Com Cas 501 (NCLT) Ahmedabad 31.1.2018 CAA 97/2017

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National Multi Commodity Exchange of India Limited, In Re, (2018) 206 Com Cas 501 (NCLT) Ahmedabad

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Thus, the Tribunal held that this scheme would only benefit the promoters of Avantel and was prejudicial to the public interest. The Tribunal further observed that material details like common directors, list of shareholders were not disclosed in the scheme. The Appellant counsel in appeal showed that the decision to merger was not opposed by any party or authority. Thus, the principle in Miheer Mafatlal vs. Mafatlal Industries Limited should be considered and Tribunal ought not to sit in appeal over the commercial wisdom of the shareholders and creditors. Held: The Tribunal has been constituted of judicial and technical members. The Tribunal has enough expertise to look into the scheme of amalgamation and can also see whether it is not just and fair to all shareholders. It has duty to act in public interest and needs to consider the overall interest of the shareholders. It is not desirable to look into mathematical details but take a broad look at the scheme. Tribunal has the expertise to look so that unfair advantage does not flow does not flow to a group of shareholders. On the facts shown above, the NCLAT held that Tribunal was justified in rejecting the scheme. Facts: A merger was proposed between National Multi-Commodity Exchange of India Limited (NMCE) with Indian Commodity Exchange Limited. An application was filed for seeking directions from court for holding/dispensing with meetings of shareholders/creditors. At that stage, Neptune Overseas Limited (NOL) objected to the scheme. NOL, the objector contended that it held 30.18% shares.

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Compromises and Arrangements

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

(2017) 201 Com Cas 613 (Bom) 22.3.2017 CA 85/2014 in CP 76/1991 Section 392

Particulars

There were several disputed pending pertaining to these shares and there were criminal and civil court’s orders pertaining to the said shares. There was also an order of confiscation of these shares. NOL however showed that the merger was not beneficial as inter alia the scheme entailed merger a merger of a asset rich, financially sound company NMCE with a company ICEX which was finically weak with excessive case outflows. Held: Tribunal relied on the judgement of Rainbow Denim Limited v Rama Petrochemical Limited (2002) 10 SCC 498. It allowed the companies to go ahead with the meetings of shareholders and creditors. NOL was given liberty to object at the stage of filing the petition before the scheme was approved. It further relied on Section 230(4) which has a proviso which does not allow any shareholders below 10% of the total shareholding to object to the scheme and held that Section 230(4) is applicable even to merger and amalgamation under section 232 by virtue of Section 232(1) Section 232(1) provides that Section 230(3) to (6) shall also apply mutatis mutandis. It held that though the shareholding is in dispute, the Apex Court where the dispute as regards shares in pending had given MOL liberty to raise its objections and thus, they can raise the objections at the appropriate stage. Kashinath R. Facts: A scheme came to be filed in Jhunjhunwala and Bombay HC for sanction of a scheme of Ors. v Laxmichand compromise and arrangement between Bhagaji Limited and Respondent NO. 2 and its depositors. HC Ors., (2017) 201 approved the scheme as per the scheme Com Cas 613 appointed a R1 to sell the property and (Bom) implement the scheme. R3 has successfully 13.69

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

(2017) 201 Com Cas 360 (T&AP)

13.70

Asmitha Microfin Limited v Share Microfin Limited,

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bid and acquired one of the properties of R2 company. Appellant had made a rival claim of ownership with respect to the property sold to R3 and filed an application under section 392 of Companies Act, 1956 (This section allows companies to approach the court after the compromise or arrangement is allowed for seeking directions for effective working of the approved scheme). Applicants inter alia prayed for injunction on the property in dispute. Held: The HC dismissed the company application under section 392. It relied on the judgement of R. R. Rajendra Menon v Cochin Stock Exchange Limited where it was held that only such matters as are specified in the Companies Act, 1956 and its rules can be dealt with by the Company court. Only to that extent is the jurisdiction of company court barred. The HC held that the application could not be considered for the following reasons a. reliefs do not relate to the scheme sanction by the court but seeks declaration of civil rights as regards title of the property. b. reliefs relate to property purchased by an action purchaser and does not relate to a company incorporated under Companies Act, 1956 c. the applicants are not interested in the affairs of the respondent No. 2 company or in the scheme of the company. d. the application is not made for the purpose of carrying out the scheme. Facts: There was a scheme of arrangement the company SHARE and Asmitha. The scheme involved demerger of certain

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered 3.2.2017 (2017) 201 Com CP 200 & 201 of Cas 360 (T&AP) 2016

Compromises and Arrangements

Particulars

business from each company into the other company. As a part of the scheme Optionally Convertible Cumulative redeemable preference shares held by bankers were to be converted into ordinary shares and further provided for reduction in number of equity shares. In the company application direction were given to hold shareholders and creditors meeting. The creditors meeting were duly held. HDFC bank which was a objector to the scheme has received the notice of the meeting but inadvertently did not attend it. It filed a company application subsequently challenging the scheme. Held: The Tribunal has raised an issue whether a creditors who did not participate in the creditors meeting can later object to the scheme. The Tribunal however, allowed the bank to object considering the nature and extent of interest of the bank. NCLT observed that the company had achieved the technical compliance of getting requisite majority from creditors. However, it held that Tribunal cannot go merely by technicalities but it has to cautiously examine the tenability of the objections especially when creditors are bankers who are entrusted with public money. The Tribunal held that the court has no expertise to evaluate risk of the scheme. The company was under the CDR mechanism and has entered into requisite agreements with bankers under the CDR scheme. The Tribunal held that the scheme of arrangement was allowed subject to the approval of the scheme by CDREG as it felt that the bankers would be in a better position to evaluate the risk of the scheme.

13.71

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year of Case/Relevant Provision (date of the decision) Brief law point covered NCLT, New Delhi/Oct 2019/ Sec 230 to 232 of Companies Act,2013

Name of case

Particulars

M.J. Casting and Others, [2019] 217 Comp Cas 598 (NCLT) C.A. (CAA) 133/(ND)/2019 connected with CA No. 1906 (PB) of 2019

Facts: In the Application (first stage) inter alia directions were sought by Applicant Companies for the purpose of obtaining direction to dispense with conducting of meetings of secured and unsecured creditors. All the Transferor Companies and Transferee Company have made their submissions and documents were duly filed. Issue: Can a meeting of creditors be dispensed with if consent-affidavits are not obtained? Held: It was held by the NCLT that the convening and holding of meetings of shareholders and creditors were dispensed with whose consent-affidavits were placed on record and in the absence of consents obtained from certain class of creditors, the meeting had to be convened. A meeting of creditors cannot be dispensed with if consent-affidavits are not obtained from them. Various directions are proposed and compliance of the same was made strict. The Application stands allowed as per the mentioned terms and disposed of accordingly. Facts: The scheme of amalgamation between two stock exchanges. During the pendency of first motion for seeking directions, the appellant has raised his objections. The appellant is the largest shareholder of one of the stock exchange. Its objections inter alia were that merger would pre-emptively foreclose its legitimate claims against lost opportunity to dilute its stake at a proper offer and that the scheme was not in the interest of the shareholders. However, the shares of appellant were subjected to certain restrictions by FMC.

NCLAT, New Delhi Neptune Overseas (July 1, 2019) Ltd. v National Multi Commodity Exchange of India Ltd. And Anr. [2019] 216 Comp Cas 481 (NCLAT) Company Appeal (AT) Nos. 90,91 and 324 of 2018

13.72

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Compromises and Arrangements

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

NCLT, Mumbai (August 30, 2018)

Particulars

Held:. The NCLAT held that the objector did not have any voting rights in respect of the shares held by it. Hence there was no reason to interfere with the order of the NCLT and order of the NCLT was affirmed. The regulator FMC in its order has inter alia had barred Appellant from exercising any voting rights. Thus, NCLAT held “The shares held by the Appellant in Respondent No.1 Company have been under eclipse since the Order passed by FMC on 23.07.2011 and the same were under eclipse when the shareholders meeting took place and the Impugned Orders were passed and the position remained the same when final hearing of this Company Appeals (AT) Nos.90-91 of 2018 and 324 of 2018 Appeal took place. In the period after we reserved this matter for Judgement, the parties have not moved us to say that any Orders in favour of the Appellant have been passed in the litigations pending. The Third Impugned Order dated 27.08.2018 shows that when in NCLT, Judgement was reserved by Order dated 02.07.2018 (see para - 32) and some Order came to be passed by the Appellate Tribunal - PMLA, the Appellant had moved NCLT and sought and received rehearing. No such Motion has been brought before us and as such, we presume that the position regarding eclipse to the rights of Appellant and Kailash Gupta is still there.” GABS Investments Facts: Transferor company was a group P. Ltd. v Ajanta holding company of several companies Pharma Ltd, [2019] which included transferee company. A 215 Comp Cas 293 merger was proposed which would result in (NCLT) promoter group directly holding shares in 13.73

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

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transferee company (rather than through group holding company). The transferor company would be merged in transferee company where the net effect would be that after the merger the promoter would directly holding shares in transferee company. In this scheme, income tax raised their objections. Held: NCLT held that the proposed scheme was only devised to benefit the four shareholders of GABS who are also the promoters of transferor and transferee company. The scheme was a façade to avoid huge tax liability and was not in compliance with the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. A private company is a separate legal entity and its assets can only be transferred and distributed by paying DDT at the applicable rate. The scheme did not propose any benefit to the thousands of shareholders of Ajanta Pharma Ltd. The scheme being unfair, unreasonable and against the public interest, the scheme was not sanctioned by the Bench. NCLT, Allahabad Kumar Ispat P. Ltd. Facts: This is the first stage application for (January 28, 2019) and Ors, In re, seeking directions with respect to ten [2019] 215 Comp transferor companies and 1 transferee Cas 409 (NCLT) company. The Applicant companies were seeking Company directions to convene separate meetings of Application No. shareholders and certain class of creditors C.A. (CAA) No. and dispensing with the requirement of 392/ALD/2018 convening meetings of certain class of shareholders and creditors. Issue: Can meeting of certain classes of creditors be dispensed with? Held: In cases where shareholders has given consents, the requirement of holdings shareholders meetings were dispensed C.S.P. Nos. 995 and 996 of 2017 in C. S. A. Nos. 791and 792 of 2017

13.74

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Compromises and Arrangements

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

Delhi High Court (March 20, 2019)

Particulars

with. In cases where companies were able to procure consents from more than more than 90% in value from creditors of a class, the meetings for that class were dispensed with. Mascot Engineering Facts: An application is filed praying to Co. Ltd. v Eastern recall the winding up order and to approve Medikit Ltd., [2019] revival of the company M/s. Eastern 216 Comp Cas 227 Medikit Limited (EML) under the revival (Delhi) scheme. This application was filed by Company Petition Eastern Medikit Ltd. Employees Welfare Munch (Regd.) and was supported by EML No. 516 of 2012. Workers Trade Union (Registered).The scheme broadly provided that workers will takeover the company and the shares of promoter and run the company. The application was made under section 391 of Companies Act, 1956 before high court. Held: The application seeking revival of company was dismissed. The HC made following observations: - the background of the entity filing application was not known. - Full disclosures as regards to the financial statements and other relevant information were not made which is a mandatory requirement for filing a scheme. - The scheme sought to replace present management by reducing their share capital and allotting shares to workers and creditors. - HC noticed that the applicants essentially sought to take over the assets and management of the respondent Company. - HC observed that it is empowered to pierce the veil of apparent purpose underlying the scheme and can judiciously X-ray the same, to 13.75

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

NCLAT, Delhi (December 20, 2019)

13.76

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ascertain the real purpose underlying the scheme with a view to be satisfied as regards the fairness of the scheme. - Company Court must to satisfy itself that the Members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith. - In the facts of this case, HC held that there was nothing to show that the applicant represents the majority of the Ex. workers of the respondent company. HC thus rejected the scheme as it found the scheme to be unjust, unfair, unreasonable and lacking in bona fide. Joint Commissioner Facts: A joint petition was filed for of Income Tax v seeking sanction of the composite scheme Reliance Jio of arrangement amongst the companies. It Infocomm Ltd. and was approved by the NCLT. An appeal was filed against the NCLT’s order by the IT Ors., [2020] 218 Department contending that the scheme Comp Cas 486 would result in reduction of tax liability. (NCLAT) “The main thrust of the argument was that by scheme of arrangement, the transferor Company Appeal (AT) Nos. 113 and company has sought to convert the redeemable preference shares into loans 114 of 2019. i.e. conversion of equity into debt which is not only contrary to the well settled principles of company law as well as Section 55 of the Companies Act, 2013 but also would reduce the profitability or the net total income of the transferor company causing a huge loss of revenue to the Income Tax Department.” Issue: Can a scheme be sanctioned if it results in reduction of tax liability? Held: NCLAT dismissed the appeal. It relied on the judgement of decision of the Apex Court in “Department of Income Tax

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Compromises and Arrangements

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

Delhi High Court (March 20, 2019)

Iyogi Technical Services P. Ltd., In re., [2020] 218 Comp Cas 176 (Delhi) CA (M) No. 135 of 2016.

NCLAT, New Delhi Regional Director, Southern Region, MCA and Anr v Real Image LLP and Anr., [2020] 218 Comp Cas 521 (NCLAT) Company Appeal (AT) No. 352 of 2018.

Particulars

v. Vodafone Essar Gujarat Limited and Another”. It held that if it was found that the scheme resulted in tax avoidance or was not in accordance with the demerger provisions of the IT At, the IT department will be at liberty to initiate appropriate course of action as per law. The NCLT’s order of approval of scheme was upheld by the NCLAT. A scheme proposed by the company received approval only from 70 percent of the value of unsecured creditors and hence did not meet the threshold of approval i.e.“ three fourths of the value of creditors”. Hence, a modified scheme was proposed and thus a fresh meeting was ordered to be called of secured and unsecured creditors to vote afresh on the modified scheme. Facts: The scheme of amalgamation provided for merger of LLP with company. Transferor company was an LLP that sought approval to a scheme of amalgamation for merger with a transferee company which was a private company. Initially, the petition filed fo amalgamation of LLP and Pvt Ltd Company was allowed by the NCLT by applying the principle of Casus Omissus Issue: Can principle of Casus Omissus be invoked when different statutes are governing Companies and LLPs exists? Held: Appeal against this order was filed by the RD and ROC in NCLAT and it was held, that these corporate bodies are governed by their own respective acts and not Companies Act, 1956. Thus, there was no occasion to apply the principle of Casus Omissus as provisions for conversion of LLP into a company and vice versa was already provided by the Companies Act, 13.77

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

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2013 and LLP Act, 2008 respectively. The order of NCLT was set aside. NCLAT, New Delhi AD2PRO Global Facts: The scheme of arrangement was (September 25, Creative Solutions sanctioned by the NCLT subject to a pre2019) P. Ltd v Regional condition of transferor company paying the entire tax liability outstanding to the IT Director, (SER), department and Service Tax authorities. Ministry of Corporate Affairs However, the amount of liability was challenged and under dispute by the and Ors., [2019] 217 Comp Cas 443 company before the concerned authorities and the final amount was yet to be (NCLAT) determined. The NCLT order was challenged on this limited aspect. Company Appeal (AT) No. 98 and 99 Issue: Whether the Tribunal could impose a precondition to make payment of alleged of 2019 tax liabilities when the same is under dispute between transferor company and the concerned authorities for sanctioning of scheme of amalgamation? Held: On appeal to the NCLAT it was held, that the scheme had been approved and the rights of tax authorities had been lawfully protected as the appellants had undertaken to satisfy the tax liabilities by the transferee company as determined by the competent forum. The condition imposed could not be sustained and the order of NCLT stands modified. NCLT, Mumbai Sajjan India Ltd. Facts: The sanction was sought for a scheme (June 12, 2018) And Ors, In re, providing for merger by absorption of three [2018] 211 Comp wholly owned subsidiaries transferor Cas 102 (NCLT) companies with the transferee company. C.S.P. No. During the hearing, the NCLT observed that 1099/230all the transferor companies had either 232/NCLT/MB/MA returned their lease hold to their lessor or has transferred their rights over their lands to the H/2017 third parties. For the transfer of rights, the transferor companies have received certain amounts as consideration after the proposed appointed date. 13.78

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

Compromises and Arrangements

Particulars

Issue: What are the tax implication of consideration (for transfer of rights over lease hold property) that is received by transferor companies after the proposed appointed date? Held: The scheme of amalgamation was sanctioned by the NCLT. However, the scheme under consideration had proposed April 1, 2017 as appointed date of the scheme but NCLT observed that the transfer of rights over lease hold lands were executed after April 1, 2017. Since the consideration was received by the transferor companies after the appointed date, NCLT modified the appointed date by one year from 1 April 2017 to 1st April 2018 in order not to dilute the rights of the income tax authorities in calculating tax liabilities. The rest of the scheme was not altered. Following were the reasons assigned by for altering the appointed date: “Further, it is also noticed that, the scheme under consideration has proposed April 1, 2017 as appointed date of the scheme. That means after the appointed date of the scheme by this Bench the transferor companies will be dissolved with effect from April 1, 2017. But interestingly, it has come to knowledge that the said transfer of the rights over lease hold lands are executed after the appointed date of the scheme, i.e., April 1, 2017. Since, the transferor companies have received the said consideration after the proposed appointed date from the transaction; it may be out of the purview of the income-tax authorities. As the appointed date which is proposed is April 1, 2017 and transactions have occurred after this date, hence, in my

13.79

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

NCLAT, New Delhi Sajjan India Ltd. (August 20, 2018) and Ors, In re, [2018] 211 Comp Cas 111 (NCLAT) Company Appeal (AT) No. 244 of 2018

NCLAT, New Delhi Statesman Ltd. v (August 8, 2018) Emaar MGF Land 13.80

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humble opinion, sanctioning of this scheme with the same appointed date, will deter the income-tax authorities to scrutinize the tax liabilities of the transferor companies.” P.S: The order of NCLT was modified and the said decision of changing the appointed date was set aside by NCLAT. Facts: In the order approving the scheme of merger by absorption of three wholly owned subsidiaries transferor companies with the transferee company, the appointed date was changed. NCLT ordered change in appointed date of the proposed scheme from April 1, 2017 to April 1, 2018 in order not to dilute the rights of the IT authorities in calculating tax liabilities. This modification was challenged in NCLAT under an appeal Issue: Can the appointed date be modified unilaterally? What is the status of consideration for transfer of rights over lease hold property that is received after proposed appointed date by transferor company? Held: It was held, that the transferee company had undertaken to satisfy whatever were the liabilities of transferor companies, including tax liabilities arising out of the transfer of lease hold rights. The contention was accepted by the NCLAT and appointed date of scheme was allowed to remain April 1, 2017 as proposed by the appellants in the scheme. NCLAT clarified that income tax authorities would be at liberty to proceed against the transferee company for the income tax liabilities, irrespective of the appointed date of the scheme. Order of the NCLT was modified. Facts: The Appellant challenged the demerger. Firstly, it claimed that no notice

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Compromises and Arrangements

Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered Ltd and Anr., [2018] of the First Motion or the Second Motion 211 Comp Cas 155 was issued to the Appellant. It is stated that Appellant was Judgement Creditor and (NCLAT) entitle to Notice. The Appellant became Company Appeal Judgement Creditor on 12.05.2016. (AT) No. 63 of Secondly, it claimed that neither of the two 2018 resulting companies had undertaken to take over such liabilities, and that the dues couldn’t be recovered. Held: The appeal was dismissed with costs. NCLAT held that appellant had failed to raise any objections in response to public notice and hence cannot be heard in proceedings for sanction of scheme. It was also held, that there was no substance in objector’s contention that there would be no entity left to recover its dues as both demerged and resultant companies would be in existence. NCLAT, New Delhi K. J. Suwresh and Facts: The scheme of amalgamation was (October 24, 2018) Anr v Teamlease sanctioned by the NCLT, Mumbai and Staffing Services P. Chennai on applications made by the Ltd and Anr., [2018] transferor and transferee companies. The 211 Comp Cas 331 appellants claimed that they were directors (NCLAT) and shareholders holding 100% equity Company Appeal shareholders in one of the transferor (AT) Nos. 30 and company. They sought to challenge the 167 of 2018 amalgamation on the ground that no notice of amalgamation was ever served on them. Issue: Can a scheme of amalgamation be sanctioned without serving the notice to the shareholder? Is it enough to show that the appellants were privy to the amalgamation? Held: The appeal was dismissed by the NCLAT. Appellants had executed consent affidavits in their capacity as creditor of the companies which was placed on record proving that they had knowledge regarding the scheme of amalgamation and had also given their no objections in the capacity of 13.81

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

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a director of the creditor companies. The appellants handed over their shares and resigned as directors after signing share purchase agreement. Later, the same agreement was under dispute before arbitration. The objection raised by the appellants had no merit and the order of NCLT was upheld. NCLAT observed as follows: “What appears after going through such documents is that the Appellants were clearly aware of the proceedings relating to the scheme of amalgamation and had no difficulties initially but it appears that, as their transaction based on SPA landed in difficulties and so, now they want to raise grievances to the scheme of amalgamation on the plea that Notice to them also was necessary. Going through the material on record, we do not find that there is any substance in the grievance raised by the Appellants. Dispute relating to SPA is before Arbitration and Transferee Company is facing it. If Appellants had difficulty, they never went before NCLT to raise Objections although they knew about the amalgamation process going on. This being so, we are proceeding to reject both the Appeals.” NCLT, Ahmedabad Seal For Life India Facts: Application inter alia requested for (July 1, 2020) Pvt Ltd., In re., dispensation with the requirement of [2020] 222 Comp convening of meeting of class of creditors. Cas 75 (NCLT) Consent letters were obtained from such C.A. (CAA) No. class of creditors. 41/230Issue: Can the requirement of convening a 232/NCLT/AHM/2 meeting of creditors and shareholders be 020 dispensed with when consent letters are obtained? Held: NCLT held that meetings of equity shareholders of transferor and transferee 13.82

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

Compromises and Arrangements

Particulars

company were to be dispensed with based on the consent affidavits placed on record and that the meeting of unsecured creditors of the transferor company was to be convened as no consent affidavits were placed on record. NCLT, Bengaluru HCL Eagle Ltd and The scheme of amalgamation provided for (June 24, 2020) Others., In re, merger of 4 transferor companies (which [2020] 222 Comp were wholly owned subsidiaries of Cas 187 (NCLT) Transferee companies) with transferee C.P. (CAA) No. company. Out of these five companies, 2 01/BB/2020 were based out of Bengaluru and rest three were in the jurisdiction of NCLT, Delhi. The approval for the scheme of amalgamation was given by NCLT, Bengalore with respect to the companies situated within its jurisdiction. While permitting the scheme, they considered the observations made by RD as inter alia provided as follows: - Liabilities arising out of non compliances section 135 shall be transferred to transferee company - FEA/RBI guidelines are to be complied - Tax liabilities and dues are liable to be paid by transferee company Transferor companies will hand over records of the company to transferee company for the purpose of section 239. High Court, Delhi Sunil Gandhi and A scheme was proposed for revival of a (February 17, 2020) Anr v A. N. company that was ordered to be would up Buildwell Pvt Ltd., by high court. This petition was filed under [2020] 219 Comp sections 391, 392 and 393 of the Companies Act, 1956. HC allowed the Cas 411 (NCLT) Company Petition scheme for revival of the company. It held that when a company is ordered to be No. 6 of 2019 wound up, the assets of it are put in possession of the Official Liquidator. The assets become custodia legis. The follow13.83

NCLT and NCLAT Law Practice and Procedure, 7e

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

High Court, Delhi (January7, 2020)

13.84

Col. P.K. Uberoi (Retd.) and Another v Vigneshwara Developwell P. Ltd. and Others, [2020] 220 Comp Cas 262 (Delhi) C.A. No. 509 of 2018 in C.P. No. 885 of 2015

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up, in the absence of a revival of the company, is the realisation of the assets of the company by the Official Liquidator and distribution of the proceeds to the creditors, workers and contributories of the company ultimately resulting in the death of the company by an order under section 481 of the Act, being passed. But, nothing stands in the way of the Company Court, before the ultimate step is taken or before the assets are disposed of, to accept a scheme or proposal for revival of the Company. In that context, the court has necessarily to see whether the scheme contemplates revival of the business of the company, makes provisions for paying off creditors or for satisfying their claims as agreed to by them and for meeting the liability of the workers in terms of Section 529 and Section 529-A of the Act. In this case as scheme was approved by above 75 per cent majority of creditors and hence, scheme was sanctioned. A commissioner was appointed to supervise the implementation of the scheme. Facts: In 2016, winding up petitions were admitted by High Court against two companies Vigneshwara Developers Private Limited and Vigneshwara Developwell Private Limited and provisional liquidator was appointed. The ex management engaged in mediation with several creditors and entered into settlement with more than 80% of the creditors. The ex-management of the company in this backdrop filed an application under sections 391, 392 and 393 of the Companies Act, 1956(as compromise was proposed in a winding up petition in High Court). Many objections

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Compromises and Arrangements

Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

NCLT, Hyderabad (June 30, 2020)

KArix Mobile P. Ltd and Others, In re., [2020] 223 Comp Cas 277 (NCLT) C. P. (CAA) No. 157/230/HBD/2020 connected with C.A. (CAA) No. 237/230/HDB/2019

NCLT, Mumbai

Kumaka Industries Ltd, In re., (2020)

Particulars

were raised as regards the financial capacity of the promoter to mobilise funds for the proposed project. Questions were raised about legality of the scheme. Held: HC held that scheme has approval of requisite number of creditor and in that event the HC will not interfere with the commercial wisdom of the creditors. It further held that even though the promoters had less funds than what was claimed by them, they were able to show unsold inventory of assets and may be in a position to mobilise resources based on unsold inventory and to generate funds once the scheme was approved by the court. The court also concluded that the scheme received approval of three fourth value of creditors which is the requisite majority and hence, scheme is approved. This is a joint application filed by the transferor companies and transferee company. The RD filed detailed observations. RD inter alia sought change in the appointed date. It observed that the transferee company was not a holding company of transferor company as on appointed date. It became a holding company only subsequently. The scheme provided that as the transferee company is a holding company no shares will be issued to it. Thus, based on this submission it suggested change in the appointed date. NCLT allowed the scheme without modifying the appointed date. It held that scheme was in compliance with the statutory provisions and it would be effective from the appointed date as contemplated in the scheme. Facts: The company was a listed company. Certain conversion of partly paid shares 13.85

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Court/Month. Year Name of case Particulars of Case/Relevant Provision (date of the decision) Brief law point covered 221 Comp Cas 448 into fully paid shares were objected by (NCLT) BSE and hence a scheme was proposed for ratification of changes in the shares that has taken place. The Scheme broadly provided as follows: (a) Ratification of reduction of 18,09,750 shares by conversion of 24,13,000 partly paid up shares to 6,03,250 fully paid up shares. (b) Reduction of share capital by cancellation and extinguishment of 10375 fully paid up shares allotted to 406 shareholders and transfer of fully paid up 10375 by the promoters at the rate of 0.005 paise per share to restore the rights of the said 406 shareholders. (c) Rearranging and numbering the distinctive numbers of shares to reconcile the same with the paidup share capital. (d) Issue and allotment of 21,04,865 fully paid up shares as bonus shares to the public shareholders of the company other than promoters. This scheme was objected to by the RD and one sold shareholders holding 0.00012% of paid up capital. Issue: Two questions arose viz. does this scheme constitute a scheme of arrangement as contemplated by Section 230-232 and whether a shareholders holding less than 10% of the share capital can object to the scheme in light of Section 230(4) of Companies Act, 2013. Held: The NCLT allowed the application and held that said scheme was an arrangement. It observed that “That the term ‘arrangement’ envisaged by sections 391-394 of the Companies Act, 1956 as also sections 230-232 of the Companies Act, 2013, is a term capable of the widest import, is not res integra. The legislature, in its infinite wisdom,

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deliberately did not get down to the task of marking delimiters to the term ‘arrangement,’ aware as it was that arrangements can take on multiple hues and a bewildering assortment of forms. It is limited only by human ingenuity in finding solutions to corporate problems. Therefore, to make it conform to set parameters would be to do injustice to the statutory provisions, and this is certainly not what the lawmakers intended.” The objections of objectors was rejected on grounds that it was below the threshold limits and also due to lack of merits. P.S: This order was set aside by NCLT on 20th October 2020. NCLAT, Delhi Ashish O. Lalpuria Facts: The order discussed above is (October 20, 2020) v Kumaka challenged in NCLAT by the single Industries Ltd and shareholder who objected to the scheme in Others, [2020] 223 NCLT. Comp Cas 334 Held: NCLAT allowed the appeal of the (NCLAT) objector though he held 0.00012%. It set Company appeal aside the order of NCLT where it has (AT) No. 136 of allowed the scheme of amalgamation. It 2020 observed as follows: “27. …The proposed scheme of compromise and arrangement should not be violative of any provisions of law and is not contrary to public policy. It is apparent from the records that there were irregularities and non-compliances from a very long time due to which Stock Exchange took action against the Respondent No. 1 Company and suspended the trading of its securities in the year 2002. Nothing has been brought on record that the Respondent No. 1 Company have taken any serious actions to make the requisite compliances so that trading of the shares of the company can be resumed. 13.87

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Non action of the Respondent No. 1 Company have serious impact on the investors who have invested their hard money in the company. These noncompliances and irregularities or any illegal act already committed cannot be ratified under the umbrella of “scheme” as envisaged under section 230-232 of Companies Act, 2013…. 30. …It is pertinent to note under section 230 (5) provides that a notice have to be given to authorities… The basic intent behind this provisions of law is that these authorities plays a vital role in the overall legal structure and should work harmoniously with the Tribunal in order to ensure that the proposed scheme is not violative of any provision of law and is also not against the public policy.’ 31. NCLT has overruled the objections raised by the Regional Director on the ground that the objections are mere on the procedural aspects and do not raise any illegality in the scheme or that it is against public policy. Even if the objections are procedural but it is the jurisdiction of the Tribunal that such procedural aspects need to be duly complied with before sanctioning of the scheme, as it would lay down a wrong precedent which would allow companies to do whatever acts without the compliances and confirmation of the Court and other sectoral and regulatory authorities and thereafter get it ratified by the Court under the Umbrella of “scheme”. It should have been contemplated that compliance of law in itself is a part of public policy. It is the duty of the Tribunal or any court that their Orders should encourage compliances and

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered

NCLT (August 11,2017)

Avenir Finvest and Leasing P. Ltd. and Ors In re., [2019] 213 Comp Cas 174 (NCLT) C. P. No. 1152 of 2016

NCLAT (November Avenir Finvest and 8, 2017) Leasing P. Ltd. and Ors v Regional

Particulars

not defaults. 32. The Scheme under section 230 of Companies Act, 2013 cannot be used as a method of rectification of the actions already taken. Before the scheme gets approved, the company must be in compliance with all the public authorities and should come out clean. There must be no actions pending against the company by the public authorities before sanctioning of a scheme under section 230 of the Companies Act, 2013.” Facts: The petition was filed for merger of 3 companies into one transferee company. RD inter alia raised an objection that transferee company was an NBFC and permission of RBI was required for approval of any scheme of acquisition or transfer of control. The company claimed that it is not a NBFC and did not require registration as NBFC. RD has sent a letter to RBI and its response was placed before the NCLT. RBI claimed that the transferee company was illegally carrying on NBFC activities without the permission of RBI. Issue: Can a scheme of amalgamation be sanctioned if approval from statutory authorities is not obtained for conducting of business prior to amalgamation? Held: NCLT dismissed the petition in light of the response from RBI. It observed that the Tribunal cannot be an accomplice to illegality. It observed that approval of RBI is a must before proceeding further with the consideration of the scheme. P.S.: This order was appeal against by the companies. The appeal was dismissed. Facts: The scheme was disallowed by NCLT as objections was taken by RD and ROC to the scheme inter alia observing 13.89

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Court/Month. Year Name of case of Case/Relevant Provision (date of the decision) Brief law point covered Dirctor and Anr., [2019] 213 Comp Cas 180 (NCLAT) Company Appeal (AT) No. 323 of 2017

NCLT Mumbai

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that approval of RBI was required as transferee company was an NBFC. The transferee company disputed the fact that it was an NBFC. Held: On an appeal, NCLAT held that it was clear from letter of RBI that the transferee company was carrying on activities of NBFC illegally as no permission of RBI had been taken. This was brought before the NCLT by both the ROC and the RD. In view of the specific plea taken by RBI, the appeal was dismissed by NCLAT and the order of NCLT was affirmed. RHI India Private NCLT rejected the scheme on following Limited and Ors., ground: Company Scheme “Considering the above factual details, the Petition No. 2199 of profit earning capacity and other 2019 financials of the Transferor-I and Transferor-II Companies, the share exchange ratio as per the valuation given by the Auditor and the Fairness Opinion given by the Merchant Banker appears to be too high which results in undue advantage/ enrichment to the shareholders of both the Transferor Companies and to the shareholders of the ultimate holding Company RHI Magnesita. Therefore, we are of the considered view that the Scheme is devised/ designed majorly to benefit the Two shareholders of Transferor CompanyI and few shareholders of Transferor Company-II which in turn the undue advantage ultimately flows to the shareholders/ holding Company, i.e. RHI Magnesita. In view of the above analysis, we are of the considered view that the Scheme appears to benefit only a few shareholders of Transferor Company to be unfair and unreasonable and contrary to

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the public policy, public shareholders of the listed Company therefore, we deem it fit not to sanction/ approve the proposed Scheme of Amalgamation..” NCLT, Jaipur (June Aloevera Tradelink Facts: An application was filed by 10 7, 2019) P. Ltd. and Ors, In transferor companies. Inter alia the re., [2019] 216 application sought dispensation from Comp Cas 208 convening and conducting of the meetings (NCLT) of shareholders and secured and unsecured C.A. No. 1/230-232/ creditors of the applicant companies. JPR/2019. Held: NCLT held that the applicant companies had failed to file individual consent affidavits of all the equity shareholders and hence applicant companies were required to hold a meeting of the equity shareholders. The meetings of the secured and unsecured creditors were dispensed with in case of companies where consent affidavit of more than 90% in value of the creditors were provided. The application was allowed on the aforesaid terms. NCLAT, New Delhi Aloevera Tradelink Facts: NCLT, Jaipur did not dispense with (August 6, 2019) P. Ltd. and Ors v meeting of shareholders. The application Ostwal Physchem, was first filed in NCLT and it directed the [2019] 216 Comp companies to convene the meetings of Cas 217 (NCLAT) equity shareholders on their failure to file Company Appeal consent affidavits. (AT) No. 178 of Held: On appeal, NCLAT held, that the 2019. companies were able to show that it had filed consent affidavits of more than 90 percent of the shareholders expressing their “no objection” for amalgamation of the companies and had complied with the requirements to consider and approve the amalgamation scheme and hence convening of shareholders’ meetings was to be dispensed with. The meetings of creditors was already dispensed with by the NCLT. The order of NCLT was modified by NCLAT in appeal. 13.91

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SCHEME UNDER SECTION 233

13.12.1 Nature and scope of schemes A scheme under sec 233 should be devised after analysing the provisions carefully: 1. It should only be for a compromise or arrangement 2. It may include provision for takeover or buy back. Restrictions under sec 230 are not applicable to a scheme under sec 233. 3. It cannot include reduction of capital. If it includes reduction, then the procedure applicable for reduction of capital has to be separately complied with. 4. The transferee company will be allowed to set off fees already paid by Transferor Company, if the arrangement results in increase in authorised capital. 5. Company cannot hold treasury stock as a result of the merger. Thus, there cannot be a provision for holding treasury stocks.

13.12.2 Effect of registration of scheme The registration of the scheme either by the central government or by the ROC (where order is passed by Tribunal) has the following effects: (a) The transferor company/(ies) shall be deemed to be dissolved. (b) The assets and liabilities of transferor company/(ies) shall become asset and liabilities of transferee company. (c) Charges, if any, on the property of the transferor company shall be applicable and enforceable as if the charges were on the property of the transferee company. (d) legal proceedings of transferor company shall be continued against transferee company (e) Any existing obligation to purchase shares of dissenting shareholders or settlement of debt due to dissenting creditors agreed at the time of scheme, such amount, to the extent it is unpaid, shall become the liability of the transferee company.

13.13

DISTINCTION BETWEEN SECTIONS 230 TO 232 WITH SECTION 233

13.13.1 Sanction Under sections 230 to 232, the approval of Tribunal is essential for approval of compromise or approval. However, under sec 233, the matter goes to Tribunal only in limited instances, where the central government does not provide its sanction. 13.92

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13.13.2 Approvals The threshold of approvals of shareholders and members in much lesser in Tribunal approved mergers (sections 230 to 232) than in contractual mergers. Only a majority representing 3/4th in value of members or class of members and creditors or class of creditors voting in person or by proxy or by postal ballot is necessary. Under sec 233, the threshold of approval is 90% in value of the total number of shares/creditors.

13.13.3 Type of schemes Sections 230 to 232 provide certain facilitation and restrictions on different types of schemes. The said restrictions are not applicable to schemes under sec 233. For instances, reduction without complying with the provisions of sec 66 is possible for a scheme under sections 230 to 232 but not under sec 233.

13.13.4 Authorities In a scheme under sections 230 to 232, approval of the scheme is required from a range of authorities. However, under sec 233, only a no objection of ROC and OL is required.

13.13.5 Time limit The procedure contemplated under sections 230 to 232 is a lengthy procedure which may require several months. A scheme under sec 233 may take place in around 6 months.

13.13.6 Disclosures The extent of disclosures are less in sec 233. The disclosures that are required under sec 230(2) are not required to be disclosed under sec 233. As regards disclosures under sec 230(3), sec 233 only requires that statement as required under sec 230(3) needs to be provided along with the scheme under sec 233.

13.13.7 Procedures While threshold of approval of members and creditors is very high, the procedure for approval of scheme under sec 233 is much easier. Many of the formalities that are required under sections 230 to 232 like notice to various authorities, additional listed company compliance, placing notice on website are not applicable.

PART III: CROSS BORDER MERGERS (SECTION 234)

Section 234 was notified on 13th April 2017. Provisions of the Companies Act, 1956 provided merger of partnership or a foreign company (which was liable to be wound up under Companies Act. 1956) with a company, due to the expanded meaning of 13.93

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“Transferor Company”, under sec 394(4), but vice versa was not possible. However, it is now possible under sec 234 of the Companies Act, 2013. Section 234 permits cross border mergers or amalgamations between Indian companies and companies incorporated in the jurisdictions of countries notified by the central government. The said merger with the foreign company is permitted irrespective of whether it has an established place of business in India. “234. (1) The provisions of this Chapter unless otherwise provided under any other law for the time being in force, shall apply mutatis mutandis to schemes of mergers and amalgamations between companies registered under this Act and companies incorporated in the jurisdictions of such countries as may be notified from time to time by the central government: Provided that the central government may make rules, in consultation with the Reserve Bank of India, in connection with mergers and amalgamations provided under this section. (2) Subject to the provisions of any other law for the time being in force, a foreign company, may with the prior approval of the Reserve Bank of India, merge into a company registered under this Act or vice versa and the terms and conditions of the scheme of merger may provide, among other things, for the payment of consideration to the shareholders of the merging company in cash, or in Depository Receipts, or partly in cash and partly in Depository Receipts, as the case may be, as per the scheme to be drawn up for the purpose. Explanation.—For the purposes of sub-section (2), the expression “foreign company” means any company or body corporate incorporated outside India whether having a place of business in India or not.”

13.14

MEANING OF COMPANY IN SECTION 234

Section 234 contemplated a few different kinds of scenarios Section 234(1) is applicable where one company is registered under this Act with companies incorporated in the jurisdiction of other notified countries. The term used by sec 234 is “companies registered under this Act” and not “company incorporated under this Act”. Under the Companies Act not only companies incorporated in India are registered but also foreign companies. Chapter XXI deals with other companies that can be registered under this Act. Under Chapter XXI, sec 366 deals with companies capable of being registered in India. The term “company” for the purpose of Chapter XXI is defined as follows: “(1) For the purposes of this Part, the word “company” includes any partnership firm, limited liability partnership, cooperative society, society or any other business entity formed under any other law for the time being in force which applies for registration under this Part.” 13.94

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Section 2 of the Companies Act, 2013 defines “company” in a narrower sense to include only “a company incorporated in India under this Act or under any previous company law”. However, sec 2 begins with the proviso which states that the said definition is applicable unless the context otherwise provides. Section 234 provides a different context to the word and thus it is necessary to take a broader view of the term company to include any entity that is registered under the Companies Act. However, r 25A of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 as amended on 13th April 2017 provides a contrary view. It states that “25A. Merger or amalgamation of a foreign company with a company and vice versa …Explanation 1 For the purposes of this rule, a “company” means a company as defined under section 2(20) of the Act ….” In the opinion of the Author, the view taken on the meaning of company is a narrow view and ought to be relooked. This is not in consonance of the Act that specify that any company registered under the Act can be merged under this Chapter.

13.15

MEANING OF FOREIGN COMPANY

Foreign company is defined separately for the purpose of sec 234. The definition provide by the explanation to sec 234(2) is as follows: “foreign company means any company or body corporate incorporated outside India whether having a place of business in India or not.” The term foreign company begins with the term “means” and thus the definition has to be read restrictively. It includes a company that is incorporated outside India or a body corporate that is incorporated outside India. Thus, only incorporated entities can be merged. Other types of unincorporated entities like partnerships cannot be merged. Body corporate is defined in the sec 2(11) as follows: ““body corporate” or “corporation” includes a company incorporated outside India, but does not include— (i) a co-operative society registered under any law relating to co-operative societies; and (ii) any other body corporate (not being a company as defined in this Act), which the central government may, by notification, specify in this behalf;” Further, such company or body corporate which qualifies as a foreign company need not have any presence in India as it is not essential for such entity to have a place of business in India. The Explanation 1 of Rule 25A reiterate the meaning of foreign company that is set out in the Act. The draft rules [Rule 26 of draft rules (Companies (Compromises, Arrangements and Amalgamations) Rules, 2016] that were issued in January 2016

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provided a narrower definition of foreign company but it is now rectified in the final rules. . It states that “(Draft rules)26. Merger or amalgamation of a company with a foreign company …(3) …. a “foreign company” means a company or a body corporate as defined under section 2(42) of the Act, incorporated outside India in jurisdictions as may be notified by the central government from time to time for the purpose of section 234” Meaning of “companies incorporated in the jurisdictions of such countries as may be notified” Sections 234(1) and 234(2) deal with different kinds of companies. Section 234(1) specifies “companies incorporated in the jurisdictions of such countries as may be notified” and sec 234(2) deals with foreign company. The term foreign company is broader than the term “companies incorporated in the jurisdictions of such countries as may be notified” as the later does not include all types of bodies corporate. By the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2017, Rule 25A(2) the Central Government has notified following jurisdictions: “Annexure B Jurisdictions referred to in clause (a) of sub-rule (2) of rule 25A Jurisdictions (i) whose securities market regulator is a signatory to International Organization of Securities Commission’s Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with SEBI, or (ii) whose central bank is a member of Bank for International Settlements (BIS), and (iii) a jurisdiction, which is not identified in the public statement of Financial Action Task Force (FATF) as: (a) a jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or (b) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.”. At present, there are about 114 signatories to the Securities Commission’s Multilateral Memorandum of Understanding (Appendix A Signatories). The list is available at “https://www.iosco.org/about/?subSection=mmou&subSection1=signat ories”

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IOSCO MMoU: Appendix A (current signatories) - 114 Member Agency Financial Services Regulatory Authority (FSRA) Albanian Financial Supervisory Authority (AFSA) Alberta Securities Commission (ASC) Institut Nacional Andorra de Finances (INAF) Comisión Nacional de Valores (CNV) Australian Securities and Investments Commission (ASIC) Financial Market Authority (FMA) Securities Commission of The Bahamas (SCB) Central Bank of Bahrain (CBB) Bangladesh Securities and Exchange Commission (BSEC) Financial Services and Markets Authority (FSMA) Formerly: Banking, Finance and Insurance Commission (BFIC) Bermuda Monetary Authority (BMA) Securities Commission of the Federation of Bosnia and Herzegovina (SCFBH) Comissão de Valores Mobiliários (CVM)

Jurisdiction Abu Dhabi Albania Alberta Andorra, Principality of Argentina Australia

British Columbia Securities Commission (BCSC) British Virgin Islands Financial Services Commission (FSC) Autoriti Monetari Brunei Darussalam (AMBD) Financial Supervision Commission (FSC) Cayman Islands Monetary Authority (CIMA) Commission de Surveillance du Marché Financier de l'Afrique Centrale (Securities and Exchange Commission of Central Africa) (COSUMAF) China Securities Regulatory Commission (CSRC) Superintendencia Financiera de Colombia (SFC) Croatian Financial Services Supervisory Agency (HANFA) Cyprus Securities and Exchange Commission (CYSEC)

British Columbia British Virgin Islands

Austria Bahamas, The Bahrain, Kingdom of Bangladesh Belgium

Bermuda Bosnia and Herzegovina, Federation of Brazil

Brunei Bulgaria Cayman Islands Central Africa China, People's Republic of Colombia Croatia, Republic of Cyprus, Republic of

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Member Agency Czech National Bank (CNB) Formerly: Czech Securities Commission Danish Financial Supervisory Authority (FSA) Dubai Financial Services Authority (DFSA) Superintendencia de Compañías, Valores y Seguros (SCVS) Egyptian Financial Supervisory Authority (EFSA) Formerly: Capital Market Authority Superintendencia del Sistema Financiero (SSF) Finantsinspektsioon (FI) Financial Supervision Authority (FSA) Autorité des marchés financiers (AMF) Formerly: Commission des Opérations de Bourse (COB) Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) Gibraltar Financial Services Commission (GFSC) Hellenic Capital Market Commission (CMC) Guernsey Financial Services Commission (GFSC) Securities and Futures Commission (SFC) Magyar Nemzeti Bank (The Central Bank of Hungary) (MNB) Fjármálaeftirlitið - Financial Supervisory Authority (FME) Securities and Exchange Board of India (SEBI) Indonesia Financial Services Authority (OJK) Central Bank of Ireland (CBI) Formerly: Central Bank and Financial Services Authority of Ireland (CBFSAI) Isle of Man Financial Services Authority (IOMFSA) Israel Securities Authority (ISA) Commissione Nazionale per le Società e la Borsa (CONSOB) Financial Services Commission (JFSC) Financial Services Agency (FSA)

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Jurisdiction Czech Republic Denmark DIFC, Dubai Ecuador Egypt El Salvador Estonia Finland France Germany Gibraltar Greece Guernsey Hong Kong Hungary Iceland India Indonesia Ireland Isle of Man Israel Italy Jamaica Japan

Chapter 13

Member Agency Ministry of Agriculture, Forestry and Fisheries (MAFF) Ministry of Economy, Trade and Industry (METI) Jersey Financial Services Commission (FSC) Jordan Securities Commission (JSC) Capital Markets Authority (CMA) Financial Services Commission/Financial Supervisory Service (FSC/FSS) Capital Markets Authority (CMA) Labuan Financial Services Authority (FSA) Financial and Capital Market Commission (FCMC) Financial Market Authority (FMA) Central Bank of the Republic of Lithuania (CBRL) Formerly: Lithuanian Securities Commission Commission de Surveillance du Secteur Financier (CSSF) Securities and Exchange Commission of the Republic of Macedonia (SEC) Reserve Bank of Malawi (RBM) Securities Commission (SC) Capital Market Development Authority (CMDA) Malta Financial Services Authority (MFSA) Financial Services Commission (FSC) Comisión Nacional Bancaria y de Valores (CNBV) Financial Regulatory Commission (FRC) Securities and Exchange Commission of Montenegro (SCMN) Autorité Marocaine du Marché des Capitaux (AMMC) The Netherlands Authority for the Financial Markets (AFM) Formerly: Stichting Toezicht Effectenverkeer Financial Markets Authority (FMA) Formerly: Securities Commission (SC)

Compromises and Arrangements

Jurisdiction Japan Japan Jersey Jordan Kenya Korea, Republic of Kuwait Labuan Latvia, Republic of Liechtenstein, Principality of Lithuania Luxembourg, Grand Duchy of Macedonia, Former Yugoslav Republic of Malawi Malaysia Maldives, Republic of Malta Mauritius, Republic of Mexico Mongolia Montenegro Morocco Netherlands, The New Zealand

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Member Agency Securities and Exchange Commission (SEC) Finanstilsynet (The Financial Supervisory Authority of Norway) (FSA) Capital Market Authority (CMA) Ontario Securities Commission (OSC) Securities and Exchange Commission (SECP) Palestine Capital Market Authority (PCMA) Superintendencia del Mercado de Valores (SMV) Superintendencia del Mercado de Valores (SMV) Formerly: Comisión Nacional Supervisora de Empresas y Valores (CONASEV) Polish Financial Supervision Authority (KNF) Formerly: Polish Securities and Exchange Commission Comissão do Mercado de Valores Mobiliários (CMVM) Qatar Financial Centre Regulatory Authority (QFCRA) Qatar Financial Markets Authority (QFMA) Autorité des marchés financiers (AMF) Financial Supervisory Authority (ASF) (CNVM) The Bank of Russia (CBR) Capital Market Authority (CMA) Securities Commission (SC) Monetary Authority of Singapore (MAS) The National Bank of Slovakia (NBS) Formerly: Financial Market Authority Securities Market Agency/Agencija Za Trg Vrednostnih Papirjev (SMA) Financial Services Board (FSB) Comisión Nacional del Mercado de Valores (CNMV) Securities and Exchange Commission of Sri Lanka (SEC) Securities Commission of the Republic Srpska (SECRS) Finansinspektionen (FI)

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Jurisdiction Nigeria Norway Oman, Sultanate of Ontario Pakistan Palestine Panama, Republic of Peru Poland Portugal Qatar Qatar Quebec Romania Russia Saudi Arabia, Kingdom of Serbia, Republic of Singapore Slovak Republic Slovenia South Africa Spain Sri Lanka Republic Srpska, Bosnia and Herzegovina Sweden

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Member Agency Swiss Financial Market Supervisory Authority (FINMA) Formerly: Swiss Federal Banking Commission (Commission fédérale des banques) Syrian Commission on Financial Markets and Securities (SCFMS) Financial Supervisory Commission (FSC) Capital Markets and Securities Authority (CMSA) Securities and Exchange Commission (SEC) Trinidad and Tobago Securities and Exchange Commission (TTSEC) Conseil du marché financier (CMF) Capital Markets Board (CMB) Turks & Caicos Islands Financial Services Commission (TCIFSC) Capital Markets Authority (CMA) Securities and Commodities Authority (SCA) Financial Conduct Authority (FCA) Formerly: Financial Services Authority Commodity Futures Trading Commission (CFTC) Securities and Exchange Commission (SEC) Banco Central del Uruguay (BCU) State Securities Commission (SSC) Conseil régional de l'épargne publique et des marchés financiers (CREPMF)

Compromises and Arrangements

Jurisdiction Switzerland

Syria Chinese Taipei Tanzania Thailand Trinidad and Tobago Tunisia Turkey Turks & Caicos Islands Uganda United Arab Emirates United Kingdom United States of America United States of America Uruguay Vietnam West African Monetary Union

13.15.1 Which type of scheme? Section 234 permits only mergers and amalgamations. It does not permit other types of compromises and arrangements. The draft rules (i.e. Rule 26(1) of the Draft Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 [that were issued in January 2016] provided that the scheme will be effective upon(a) Sanction of the scheme by the Tribunal in India in accordance with the Act and these Rules; and (b) Sanction of the scheme by the relevant adjudicating and regulatory authorities of the notified countries having jurisdiction over the other companies who are party to such scheme, in accordance with the law applicable to sanction of such schemes in those countries, if applicable. However, this rule has not found place in the new rules notified for sec 234. 13.101

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13.15.2 Applicability of Chapter XV Section 234 reads as: “234. (1) The provisions of this Chapter unless otherwise provided under any other law for the time being in force, shall apply mutatis mutandis to schemes of mergers and amalgamations between….” Thus, the provisions of Chapter XV that are applicable for mergers and amalgamations are applicable to the mergers and amalgamation under sec 234. Further, additional rules notified by central government in consultation with RBI will be applicable. Thus, unless the sections or their applicability is restricted, ● Central government can sanction mergers between an Indian company and a foreign company. ●

Fast Track Mergers may be allowed between an Indian company and a company incorporated outside India

●

Tribunal have same powers under sec 232 for sanctioning a merger.

●

Tribunal is empowered to supervise the implementation of the scheme

●

Prohibition on treasury stocks is applicable even to cross border mergers.

Approval of RBI Section 234(2) provides that a merger between a foreign company and Indian company will need sanction of Reserve Bank of India. Even the rule provides the merger and amalgamation scheme will require prior approval of both the Tribunal as well as the RBI. Rule 25A Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 as amended in Aril 2017 provided as follows: “ 25A. Merger or amalgamation of a foreign company with a Company and vice versa.—(1) A foreign company incorporated outside India may merge with an Indian company after obtaining prior approval of Reserve Bank of India and after complying with the provisions of sections 230 to 232 of the Act and these rules. (2) (a) A company may merge with a foreign company incorporated in any of the jurisdictions specified in Annexure B after obtaining prior approval of the Reserve Bank of India and after complying with provisions of sections 230 to 232 of the Act and these rules. (b) The transferee company shall ensure that valuation is conducted by valuers who are members of a recognised professional body in the jurisdiction of the transferee company and further that such valuation is in accordance with internationally accepted principles on accounting and valuation. A declaration to this effect shall be attached with the application made to Reserve Bank of India for obtaining its approval under clause (a) of this sub-rule. 13.102

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(3) The concerned company shall file an application before the Tribunal as per provisions of section 230 to section 232 of the Act and these rules after obtaining approvals specified in sub-rule (1) and sub-rule (2), as the case may be. Explanation 1.—For the purposes of this rule the term “company” means a company as defined in clause (20) of section 2 of the Act and the term “foreign company” means a company or body corporate incorporated outside India whether having a place of business in India or not: Explanation 2.— For the purposes of this rule, it is clarified that no amendment shall be made in this rule without consultation of the Reserve Bank of India” The RBI issued draft guidelines around April 2017 for approving inbound and outbound mergers and amalgamation. However, the guidelines have not yet been approved. The Draft guidelines are annexed at the end of this Chapter as Annexure A.

PART IV: CENTRAL GOVERNMENT APPROVED MERGER

“237. (1) Where the central government is satisfied that it is essential in the public interest that two or more companies should amalgamate, the central government may, by order notified in the Official Gazette, provide for the amalgamation of those companies into a single company with such constitution, with such property, powers, rights, interests, authorities and privileges, and with such liabilities, duties and obligations, as may be specified in the order. (2) The order under sub-section (1) may also provide for the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company and such consequential, incidental and supplemental provisions as may, in the opinion of the central government, be necessary to give effect to the amalgamation. (3) Every member or creditor, including a debenture holder, of each of the transferor companies before the amalgamation shall have, as nearly as may be, the same interest in or rights against the transferee company as he had in the company of which he was originally a member or creditor, and in case the interest or rights of such member or creditor in or against the transferee company are less than his interest in or rights against the original company, he shall be entitled to compensation to that extent, which shall be assessed by such authority as may be prescribed and every such assessment shall be published in the Official Gazette, and the compensation so assessed shall be paid to the member or creditor concerned by the transferee company. 13.103

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(4) Any person aggrieved by any assessment of compensation made by the prescribed authority under sub-section (3) may, within a period of thirty days from the date of publication of such assessment in the Official Gazette, prefer an appeal to the Tribunal and thereupon the assessment of the compensation shall be made by the Tribunal. (5) No order shall be made under this section unless— a. a copy of the proposed order has been sent in draft to each of the companies concerned; b. the time for preferring an appeal under sub-section (4) has expired, or where any such appeal has been preferred, the appeal has been finally disposed off; and c. the central government has considered, and made such modifications, if any, in the draft order as it may deem fit in the light of suggestions and objections which may be received by it from any such company within such period as the central government may fix in that behalf, not being less than two months from the date on which the copy aforesaid is received by that company, or from any class of shareholders therein, or from any creditors or any class of creditors thereof. (6) The copies of every order made under this section shall, as soon as may be after it has been made, be laid before each House of Parliament.”

13.16

SCOPE OF SECTION 237

Section 237 provides for compulsory merger, if the central government decides to merge two or more companies in public interest. The term Public Interest is a very wide term. It is used in numerous legislations in different contexts20. The 9th Edition of Black’s Law Dictionary defined public interest as: “1. The general welfare of public that warrants recognition and protection 2. Something in which the public as a whole has a stake esp. an interest that justifies government regulation” Ramanatha Aiyer in his “Law Lexicon” has defined the term as follows: “Public Interest means those interest which concern the public at large. Matter of public interest "does not mean that which is interesting as gratifying curiosity or love of information or amusement; but that in which a class of the community have a pecuniary interest, or some interest by

20

In Ajit Singh v Union of India (Civil Writ 710-D of 1966) it was held that the meaning of the words "public interest" would differ in different statutes according to the context in which these words are used.

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which their legal rights or liabilities are affected" (per CAMPBELL, C.J., R v Bedfordshire, 4 E and B. 541, 542) Public Interest. The expression "public interest" is not capable of precise definition and has not a rigid meaning and is elastic and takes its colours from the statute in which it occurs, the concept varying with the time and state for society and its needs. Thus what is “Public interest” today may not be so considered a decade later. State of Bihar V. Kameshwar Singh, AIR 1952 SC 252. {Companies Act (1 of 1956), Sec. 397} That which concerns welfare and rights of the public which uses the stage carriage and not the public in general. Mohammad Raihan V. State of Uttar Pradesh, AIR 1956 All 594, 595. [Motor Vehicles Act, 1939, S. 47] A subject, in which the public or a section of the public is interested, becomes one of public interest. Kuttisankaran Nair V. Kumaran Nair, AIR 1965 Ker 161, 165. [Penal Code (1860), S. 499. Exception]” Section 237 is an independent provision, where the merger can take place without sanction of the Tribunal. It is the central government that is empowered to decide whether to merge or not. This section is very similar to sec 396 of the 1956 Act. Under this section stakeholders namely the shareholders, creditors or debenture holders can oppose the compensation that is granted but they cannot oppose the merger. Section 237 can be used for any type of company whether it is a government company or non-government company; a private or a public company; a listed company or unlisted company; service company or manufacturing company. The Government has the power to determine any two companies. Both the companies have to accept the merger and cannot question the same. The term “company” must be read as per the definition provided in sec 2 to include only companies that are incorporated under the 2013 Act or under any previous company law. Section 237 is similar to the provision of sec 396 of the 1956 Act. Section 396 of the 1956 Act was not used very often. In the last three decades, it was used only in four instances namely Hatti Gold Mines, Chitradurga Copper with Karnataka Copper Consortium Ltd (in 1985); Chandpur Sugar Company with UP State Sugar Corporation Ltd (July 1989); Internal Aluminium Products with National Aluminium Company (2000); and Air India-Indian Airlines merger (2007). It is proposed to be used for NSEL –FTIL merger but the proposed scheme of merger is under challenge.

13.17

CHALLENGES TO CONSTITUTIONALITY OF SECTION 396 OF 1956 ACT

In 2014, the Government of India proposed to merge National Spot Exchange of India limited with Financial Technologies (India) Ltd. FTIL under sec 396 of the 1956 Act

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which is similar to this Section. FTIL filed a Writ Petition challenging the constitutional validity of sec 396 in 2014 (WP 2743 of 2014)21. The decision in this case will affect the interpretation and constitutionality of sec 237 in future.

13.18

SCHEME UNDER SECTION 237

13.18.1 Impact on property and liabilities The central government has the right to determine details of the scheme under which the amalgamation should take place. The Government can decide the constitution of the company. It can also determine how to deal with the property, powers, rights, interests, authorities and privileges, and with liabilities, duties and obligations and may provide the details of the scheme in the order. Thus, the central government has a right to provide for the merger by limiting certain rights and liabilities if it thinks it fit, which is not possible in amalgamation under sec 232.

13.18.2 Legal proceedings In the order passed by the central government for merging two or more companies, the central government may provide for continuation by or against the transferee company any legal proceedings pending by or against any transferor company. It may further provide for such consequential, incidental and supplemental provisions as may, in the opinion of the central government, be necessary to give effect to the amalgamation. Under a sec 232 scheme, all the legal proceedings go on against the transferee company. But in case of a sec 237 merger, the central government can decide whether or not legal proceedings can continue. They even have a choice to decide which proceedings shall continue against the transferee company.

13.18.3 Compensation Every member or creditor, including a debenture holder, of each of the transferor companies before the amalgamation must have the same interest in or rights against the transferee company as he had in the transferor company. If such interest or rights in or against the transferee company are less than his interest in or rights against the original transferor company, then such member or creditors have right to compensation. He will be entitled to compensation to the extent that the central government determines. Such determination of compensation will be published in the Official Gazette.

21

At the time of writing this book, the said matter is pending. During the pendency of the writ, the Government passed orders for amalgamation under sec 396. In light of this, on 16 February 2016, the Hon’ble Bombay High Court granted time to the Petitioners to decide whether to amend the writ petition or file a new one.

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13.18.3.1 Challenge in Tribunal Any person, if aggrieved by any assessment of compensation, can challenge the same before the period of thirty days from the date of publication of such assessment in the Official Gazette. This is done by way of an appeal to the Tribunal. The Tribunal is empowered to assess the compensation that shall be payable.

13.18.4 Consideration before finalization of order The order passed by the Government shall be made only after the following is completed: ● ●

●

13.19

A copy of the proposed order is sent in draft to each of the companies that are involved in the scheme of merger proposed by the central government. The time for preferring an appeal under sub-sec (4) has expired, or where any such appeal has been preferred, the appeal has been finally disposed off. This was one of the problems in the NSEL –FTIL merger where the central government received 45,000 representation.22 The Government alleged that this was done by FTIL with a view to delay the merger process. The central government has to consider, and may make such modifications, if any, in the draft order as it may think fit based on the suggestions and objections received from any such company within such period as the central government may fix in that behalf, not being less than two months from the date on which the copy aforesaid is received by that company, or from any class of shareholders therein, or from any creditors or any class of creditors thereof.

PROCEDURES UNDER CHAPTER XV

The reference to rules, forms and appendices are those from: Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 released on 14th December 2016 and effective on 15th December 2016 (referred to as M&A Rules) unless provided otherwise by specific reference or by necessary implication.

13.20

PROCEDURE FOR COMPROMISE AND ARRANGEMENT (SECTION 230)

The following is the procedure for Compromise & Arrangement, when initiated by the company. The same procedure shall apply mutatis mutandis to merger/demerger in the case where it is initiated by the member(s) or creditor(s) or liquidator in the

22

Source: http://www.business-standard.com/article/markets/a-mysterious-email-id-and-thousandsof-responses-on-nsel-ftil-merger-115073100603_1.html.

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case of the company being wound up. The procedure under sec 232 is separately provided. 1. Power to compromise or arrangement or merge under sections 230 to 232 may be mentioned in the Memorandum of Association. Even if the same is not mentioned, it does not restrict the right of the company to amalgamate. In EITA India Ltd. AIR 1997 Cal 208 and United Bank of India v United India Credit & Development Co. Ltd. 47 CC 689 it was held that to amalgamate a company is the power of the company that is derived under sec 394(of 1956 Act). It is not necessary to have a provision in MOA. 2. The special resolution passed for change of object clause shall be passed only through postal ballot for all the companies except the one person company and other companies having upto 200 members. [Section 110(1)(a) read with r 22(16) of Company Management and Administration Rules, 2014]. 3. Send notices to directors to hold Board Meeting as per sec 173(3). Every officer of the company who is duty bound to give notice and who fails to do so, shall be liable to a penalty of INR 25,000/- under sec 173(4) 4. Convene Board Meeting, inter alia the following points to be considered: • Consider and approve the scheme of compromise or arrangement. • Authorize any person to do all acts, deeds, matters, and things that may be necessary to carry out the proposed compromise and arrangement. • Determine the formalities for taking getting valuation done from registered valuer(provision 247 notified). As a provisional measure, earlier when Section 247 was not notified, independent merchant banker registered with SEBI or independent practicing chartered accountant with requisite experience as set out therein were allowed to conduct valuation. • Arrange for obtaining certificate from auditor about accounting treatment proposed for compromise and arrangement to be in accordance with sec 133. 5. File Form no. MGT 14 in respect of the resolution passed at the meeting within 30 days of passing or making thereof with the registrar of companies after the payment of requisite fees. [Sections 117(1) & 117(3) read with sec 179(3)] 6. If default is made in complying with aforesaid requirement of filing before the expiry of the period specified under sec 403 with additional fees, company shall be punishable with fine which shall be not less than INR 5,00,000/- but which may extend to INR 25,00,000/- and every officer of the company who is in default, including the liquidator of the company, if any, shall be punishable with fine which shall not be less than INR 1,00,000/- but which may extend to INR 5,00,000/-. [Section 117(2)] 13.108

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7. The Authorised Person shall file an application in E-Form no. NCLT 1 of NCLT Rules before the Tribunal along with the Notice of Admission (Form no. NCLT 2 of NCLT Rules) supported by an affidavit in Form no. NCLT 6 of M&A Rules. (Section 230(1) read with r 3 of M&A Rules). The applicant under sec 230(1) shall disclose to the Tribunal by way of an affidavit the following things (Section 230(2)): •

All material facts relating to the company: (a) Latest financial position of the company (b) Latest auditor’s report (c) The pendency of any investigation proceedings against the company

•

Reduction of share capital of the Company if any, included in the compromise or arrangement

•

Any scheme of Corporate Debt Restructuring (consented to by not less than seventy-five per cent. of the secured creditors in value) including: (a) Creditor’s Responsibility Statement in Form no. CAA 1. (b) Report by the auditor that the fund requirements of the company after the corporate debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the board. (c) Statement relating to proposal by company to adopt corporate debt restructuring guidelines specified by RBI. (d) Valuation Report – shares, property, all assets (Tangible/ intangible/movable/immovable) (e) Safeguards for protection of other secured and unsecured creditors.

•

Basis on which each class of members or creditors has been identified for the purpose of approval of the scheme (sec 230 read with Rule 3(4) of M&A Rules).

8. Where the company is not the applicant, a copy of the Notice of Admission and of the affidavit shall be served on the company, or, where the company is being wound up, on its liquidator, not less than 14 days before the date fixed for the hearing of the notice of admission. (Rule 3(3) of M&A Rules) 9. Upon hearing the application under sub-section (1) of section 230 of the Act, the Tribunal shall, unless it thinks fit for any reason to dismiss the application, give such directions as it may think necessary in respect of the following matters:(a) determining the class or classes of creditors or of members whose meeting or meetings have to be held for considering the proposed compromise or arrangement; or dispensing with the meeting or meetings for any class or classes of creditors in terms of sub-section (9) of section 230;

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(b) fixing the time and place of the meeting or meetings; (c) appointing a Chairperson and scrutinizer for the meeting or meetings to be held, as the case may be and fixing the terms of his appointment including remuneration; (d) fixing the quorum and the procedure to be followed at the meeting or meetings, including voting in person or by proxy or by postal ballot or by voting through electronic means. Explanation.— For the purposes of these rules, “voting through electronic means” shall take place, mutatis mutandis, in accordance with the procedure as specified in rule 20 of Companies (Management and Administration) Rules, 2014. (e) determining the values of the creditors or the members, or the creditors or members of any class, as the case may be, whose meetings have to be held; (f) notice to be given of the meeting or meetings and the advertisement of such notice; (g) notice to be given to sectoral regulators or authorities as required under sub-section (5) of section 230 (h) the time within which the chairperson of the meeting is required to report the result of the meeting to the Tribunal; and (i) such other matters as the Tribunal may deem necessary (r 5 of the M&A Rules) 10. The Tribunal has the power to dispense with the meeting of creditors or class of creditors where such creditors or class of creditors having at least 90%, by way of affidavit, agree and confirm to the scheme of compromise or arrangement. The meeting shall be called, held and conducted in such manner as it directs and also give such directions in respect of the matters specified in r 5 of the M&A Rules. Rule 5(a) of M&A Rules empower tribunal to issue directions for dispensing with the meeting or meetings for any class or classes of creditors (but does not specify anything about dispensing with meetings of members). Dispensing with meetings of creditors will be subject to sec 230(9) of the Companies Act, 2013. 11. Notice under sec 230(3): Issuance of notice Issue notice of the meeting in Form no. CAA 2. Contents/specifications under Form no. CAA 2 is mentioned under r 6 of M&A Rules. Contents of the Notice The notice of the meeting to the creditors and members shall be accompanied by a copy of the scheme of compromise or arrangement and a statement

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disclosing the following details of the compromise or arrangement, if such details are not already included in the said scheme:(i)

details of the order of the Tribunal directing the calling, convening and conducting of the meeting:(a) date of the Order; (b) date, time and venue of the meeting.

(ii)

details of the company including: (a) Corporate Identification Number (CIN) or Global Location Number (GLN) of the company; (b) Permanent Account Number (PAN); (c) name of the company; (d) date of incorporation; (e) type of the company (whether public or private or one-person company); (f) registered office address and e-mail address; (g) summary of main object as per the memorandum of association; and main business carried on by the company; (h) details of change of name, registered office and objects of the company during the last five years; (i) name of the stock exchange (s) where securities of the company are listed, if applicable; (j) details of the capital structure of the company including authorised, issued, subscribed and paid up share capital; and (k) names of the promoters and directors along with their addresses.

(iii)

(iv)

(v)

if the scheme of compromise or arrangement relates to more than one company, the fact and details of any relationship subsisting between such companies who are parties to such scheme of compromise or arrangement, including holding, subsidiary or of associate companies; the date of the board meeting at which the scheme was approved by the board of directors including the name of the directors who voted in favour of the resolution, who voted against the resolution and who did not vote or participate on such resolution; explanatory statement disclosing details of the scheme of compromise or arrangement including:(a) parties involved in such compromise or arrangement; (b) in case of amalgamation or merger, appointed date, effective date, share exchange ratio (if applicable) and other considerations, if any;

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(c) summary of valuation report (if applicable) including basis of valuation and fairness opinion of the registered valuer, if any, and the declaration that the valuation report is available for inspection at the registered office of the company; (d) details of capital or debt restructuring, if any; (e) rationale for the compromise or arrangement; (f) benefits of the compromise or arrangement as perceived by the Board of directors to the company, members, creditors and others (as applicable); (g) amount due to unsecured creditors. (vi)

disclosure about the effect of the compromise or arrangement on: (a) key managerial personnel; (b) directors; (c) promoters; (d) non-promoter members; (e) depositors; (f) creditors; (g) debenture holders; (h) deposit trustee and debenture trustee; (i) employees of the company:

(vii)

Disclosure about effect of compromise or arrangement on material interests of directors, Key Managerial Personnel (KMP) and debenture trustee. Explanation – For the purposes of these rules it is clarified that-

(viii)

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(a) the term ‘interest’ extends beyond an interest in the shares of the company, and is with reference to the proposed scheme of compromise or arrangement. (b) the valuation report shall be made by a registered valuer. The provisions of registered valuers are now notified. Before the said provisions were notified, a interim provision was made the valuation report could be made by an independent merchant banker who was registered with the Securities and Exchange Board or an independent chartered accountant in practice having a minimum experience of ten years. investigation or proceedings, if any, pending against the company under the Act.

Chapter 13

(ix)

Compromises and Arrangements

details of the availability of the following documents for obtaining extract from or for making or obtaining copies of or for inspection by the members and creditors, namely: (a) latest audited financial statements of the company including consolidated financial statements; (b) copy of the order of Tribunal in pursuance of which the meeting is to be convened or has been dispensed with; (c) copy of scheme of compromise or arrangement; (d) contracts or agreements material to the compromise or arrangement; (e) the certificate issued by Auditor of the company to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the Accounting Standards prescribed under section 133 of the Companies Act, 2013; and (f) such other information or documents as the Board or Management believes necessary and relevant for making decision for or against the scheme;

(x)

details of approvals, sanctions or no-objection(s), if any, from regulatory or any other governmental authorities required, received or pending for the proposed scheme of compromise or arrangement. (xi) a statement to the effect that the persons to whom the notice is sent may vote in the meeting either in person or by proxies, or where applicable, by voting through electronic means. Explanation- For the purposes of this rule, disclosure required to be made by a company shall be made in respect of all the companies, which are part of the compromise or arrangement. Who shall send the Notice? Under r 6(2) of M&A Rules notice shall either be sent by the • Chairman appointed for the meeting or • As Tribunal directs: – By company/liquidator or – Any other person Within what time is the notice sent? As per r 6(2) of M&A Rules, notice should be sent at least one month before the date fixed for meeting. How shall the notice be served/mode of dispatch of notice? Notices shall be dispatched as directed by the Tribunal i.e. by registered post or speed post or by courier or by e-mail or by hand delivery or any other mode as directed by the Tribunal at their last known address. In case of delivery by post, the delivery shall be deemed to be effective at the expiration

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of 48 hours after the letter containing the same is posted. [Section 230(3) read with r 6(2) of M&A Rules] To whom? As per sec 230(3), to: • All the creditors or class of creditors. • All the members or class of members. • All the debenture holders. Other Compliance with regard to notice • Notice along with other documents accompanying it under sec 230(3) should also be placed on the company’s website, if any, not less than 30 days before the date fixed for the meeting. [Rule 7 of M&A Rules]. • Notice shall be advertised in Form no. CAA 2 in at least one leading English Newspaper and in at least one vernacular newspaper having wide circulation in the state in which the registered office of the company is situated or such newspapers as may be directed by the tribunal not less than 30 days before the date fixed for the meeting. [Rule 7 of M&A Rules] • Where the notice is issued by way of an advertisements, the said advertisement shall also indicate the time within which such copy of proposed compromise and arrangement along with the copy of the statement required to be furnished under section 230 shall be made available to concerned persons free of charge from the registered office of the company. [Section 230(3) read with Form NO. CAA 2 of M&A Rules]. Every creditor or member entitled to attend the meeting shall be furnished a copy of the scheme together with the copy of the statement under section 230, by the company, free of charge, with one day of the requisition being made.[r 11 of M&A Rules] • In case of listed companies these documents shall be sent to Securities Exchange Board of India and stock exchange where the security of the company is listed and shall also be published in newspapers as prescribed. [Section 230(3)] Affidavit of service The chairperson of the meeting or the other person directed to issue the advertisement and the notices of the company shall file an affidavit to the tribunal at least seven days before the date fixed for the meeting or the date of the first meetings, as the case may be, showing that the directions issued regarding the issue of notices and advertisements have been complied with. [Rule 12 of M&A Rules] Objections with regard to the compromise and arrangement Any objection to the compromise & arrangement shall be made within a period of one month from the date of receipt of notice, only by the: 13.114

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Person holding not less than 10% shareholding or; Person holding not less than 5% total outstanding debt as per the latest audited financial statement [Section 230(4)] 12. Notice under sec 230(5) shall be sent after the notice under sec 230(3). 13. Notice to Authorities under sec 230(5): Authorities to whom notice is to be served By reading sec 230(5) along with r 8 and Form CAA 3, it appears that the service of notice under sec 230(3) along with documents under sec 230(2) along with a copy of the scheme of the compromise and arrangement, the explanatory statement and the disclosures mentioned under r 6 of M&A Rules shall be sent to: (i) the central government, the registrar of companies, income-tax authorities in all cases, and (ii) the RBI, SEBI, the Competition Commission of India, the stock exchanges, as may be applicable (iii) Other sectoral regulators or authorities, as may be required by Tribunal What all documents shall be served with Notice to Authorities under sec 230(5)? The following documents shall be served along-with the notice under sec 230(5): • Notice of Meeting under sec 230(3) along with all the documents as mentioned above. • Copy of scheme and arrangement • The statement of disclosures mentioned under r 6 of M&A Rules. • •

Who shall serve the notice? It is not specifically mentioned under this section. But it is presumed that the notice under this section shall be served by the same authorised signatory as was for serving the notice under sec 230(3). Within what time shall the notice be served? As per r 8(2) of M&A Rules, the notice shall be served forthwith after serving of notice of the meeting under sec 230(3) to members and creditors; and as per sec 230(5), the representation, if any, can be made by authorities upto 30 days from the date of receipt of the notice and representation. Mode of dispatch of notice The notice under sec 230(5) to various authorities shall be dispatched by registered post or by speed post or by courier or by hand delivery at the office of the authority [Rule 8(2) of M&A Rules]

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Objections with regard to the compromise and arrangement Representations can be made by the said authorities within a period of 30 days from the receipt of such notice. If within such time no representation is made, then it shall be presumed that they have no representations to make. [Section 230(5) read with r 8(3) of M&A Rules] 14. Procedure to be adhered at the General Meeting: Voting at the meeting The person who receives the notice may within one month from the date of receipt of the notice vote in the meeting either in person or through proxy or through postal ballot or through electronic means to the adoption of the scheme of compromise and arrangement. [Section 230(4) read with r 9 of M&A Rules]. Passing of the resolution Hold general meeting. The resolution at the meeting shall be considered to be passed if it is approved by majority of person representing 3/4th in value of Creditors/members. [Section 230(6)] Result of the meeting The voting at the meeting or meetings held in pursuance of the directions of the Tribunal under Rule 5 on all resolutions shall take place by poll or by voting through electronic means. The report of the result of the meeting under sub - rule (1) of rule 13 shall be in Form No. CAA. 4 and shall state accurately the number of creditors or class of creditors or the number of members or class of members, as the case may be, who were present and who voted at the meeting either in person or by proxy, and where applicable, who voted through electronic means, their individual values and the way they voted. 15. The company shall file Form no. MGT 1423 in respect of the resolution passed at the meeting within 30 days of passing or making thereof with the registrar [Sections 117(1) and 117(3)] 16. If default is made in complying with aforesaid requirement of filing before the expiry of the period specified under sec 403 with additional fees company shall be punishable with fine which shall be not less than INR 5,00,000/- but which may extend to INR 25,00,000/- and every officer of the company who is in default, including liquidator of the company, if any, shall be punishable with fine which shall not be less than INR 1,00,000/- but which may extend to INR 5,00,000/-.[ Section 117(2)]

23

Companies (Management & Administration) Rules, 2014.

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17. The chairman of the meeting shall report to the tribunal in Form no. CAA 4. [Rule 14 of M&A Rules]: •

Time: as fixed by the Tribunal or where no such time is fixed, within 3 days after the conclusion of the meeting.

The report shall state accurately the number of creditors or class of creditors or the number of members or class of members. As the case may be, who were present and who voted at the meeting either in person or by proxy, and where applicable, who voted through electronic means their individual values and the way they voted[rule 13 of M&A Rules]. 18. The company shall file petition in Form no. CAA 5 within 7 days of filing of the report by the chairperson or any other person as authorised by the Tribunal for confirmation of the compromise and arrangement. [Rule 15 of M&A Rules] •

If the compromise or arrangement is proposed for the reconstruction of any company or companies or for the amalgamation of two or more companies, the petition shall pray for appropriate orders and direction under sec 230 read with sec 232 of the Companies Act, 2013. [Rule 15(2) of M&A Rules] 19. Thereafter, r 16 of M&A Rules provides that: •

Tribunal shall fix a date of hearing and;

•

Notice of the hearing shall be advertised in the same newspapers/such other newspapers as the Tribunal may direct not less than 10 days before the date fixed for hearing.

The notice of the hearing of the petition shall also be served by the Tribunal to the objectors or to their representatives under sub-section (4) of section 230 of the Act and to the Central Government and other authorities who have made representation under rule 8 and have desired to be heard in their representation. 20. Also the auditor’s certificate by the company’s auditor shall also be required to be filed demonstrating that the accounting treatment if any proposed in the scheme of compromise or arrangement is in accordance with the accounting standard 133. [Section 230(7)]. •

21. The Tribunal after that sanctions the compromise or arrangement. 22. The order shall include such direction in regard to any matter as under sec 230(7) and such modifications to make proper working of the arrangement. The order shall also direct the certified copy of the same (sanctioned copy of compromise or arrangement with such direction and modification) shall be filed with the registrar of companies within 30 days from the date of order or such other time as may be fixed by the Tribunal. The order shall be in Form CAA 6 with such variations as may be necessary. [Rule 17 of M&A Rules]. 13.117

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23. As per sec 230(6) after the scheme being sanctioned it shall be binding upon the company, creditors, members, liquidator and contributories. 24. The order of the tribunal shall be filed by the company with the registrar of companies within 30 days of receipt of the order. 25. Further orders, regarding the submission of report on the working of said compromise or arrangement within such time as the Tribunal shall directs, can be made : ● Suo motu or; ●

On the application of any person interested.

Other important provisions: (a) Other Formalities to be completed by listed company in terms of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. (b) Guidelines of SEBI will need to be separately complied with, for taking its no objection. (c) The regulation of and agreements with stock exchange will need to be complied with. (d) Though notice is required to be given to CCI, the procedure for taking approval from the Competition Commission as per the Competition Act, 2002 has to be complied with. (e) Other formalities under Income Tax law and other applicable provisions to be complied with. (f) Post-merger compliance have to be made. (g) Stamp duty has to be paid in accordance with the State Law on the order of compromise and arrangement, if any stamp duty is attracted.

13.21

PROCEDURE UNDER MERGER AND DEMERGER (SECTION 232)

Every merger/demerger is included within the scope of compromise and arrangement but every compromise and arrangement is not a merger. Thus, for every merger/demerger the procedure of sec 230 have to be complied with. In addition, the provisions of sec 232 are also to be complied with. The following is the procedure for merger/demerger, when initiated by the company. For holding meetings and for giving notices the procedure discussed above will apply mutatis mutandis. The application for merger/demerger can also be initiated by the member(s) or creditor(s) or liquidator in the case of the company being wound up. However, there are some additional formalities that will be necessary to be complied.

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1. Power to compromise or arrangement or merge under sections 230 to 232 should be mentioned in the Memorandum of Association, if not, the object clause has to be altered. The points mentioned in sec 230 to be complied in this regard. 2. Send notices to directors to hold Board Meeting and convene a Board Meeting. File Form no. MGT 14 in respect of the resolution passed at the meeting within 30 days of passing or making thereof with the registrar of companies. 3. The Authorised Person shall file an application in e-Form no. NCLT 1 of NCLT Rules before the Tribunal along with the Notice of Admission (Form no. NCLT 2 of NCLT Rules) supported by an affidavit in Form no. NCLT 6 of M&A Rules. (Sec 230(1)). The Applicant under sec 230(1) shall disclose to the Tribunal by way of affidavit the following things(sec 230(2)) along with such fees as provided in the schedule of the fees: •

All material facts relating to the company: (a) Latest financial position of the company (b) Latest Auditor’s Report (c) The pendency of any investigation proceedings against the Company (d) Reduction of share capital of the company if any, included in the compromise or arrangement (e) Basis on which each class of members or creditors has been identified for the purpose of approval of the scheme.

(f) Any scheme of Corporate Debt Restructuring(consented to by not less than seventy-five per cent. of the secured creditors in value) including: ● Creditor’s Responsibility Statement in Form no. CAA 1. ● Report by the auditor that the fund requirements of the company after the corporate debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the Board. ● Statement relating to proposal by company to adopt corporate debt restructuring guidelines specified by RBI. ● Valuation Report – shares, property, all assets (Tangible/ intangible/movable/immovable) ● Safeguards for protection of other secured and unsecured creditors. 4. A member of the company shall make an application for arrangement, for the purpose of takeover offer in terms of sub-section (11) of section 230,

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when such member along with any other member holds not less than threefourths of the shares in the company, and such application has been filed for acquiring any part of the remaining shares of the company. 5. If the application contains an arrangement for takeover offer it shall mandatorily contain following information:(a) the report of a registered valuer disclosing the details of the valuation of the shares proposed to be acquired by the member after taking into account the following factors:— (i) the highest price paid by any person or group of persons for acquisition of shares during last twelve months; (ii) the fair price of shares of the company to be determined by the registered valuer after taking into account valuation parameters including return on net worth, book value of shares, earning per share, price earning multiple vis-à-vis the industry average, and such other parameters as are customary for valuation of shares of such companies. (b) details of a bank account, to be opened separately, by the member wherein a sum of amount not less than one-half of total consideration of the takeover offer is deposited.”. 6. Tribunal may by order [sec 232(1) read with r 5 of M&A Rules] a.

determining the class or classes of creditors or of members whose meeting or meetings have to be held for considering the proposed compromise or arrangement; or dispensing with the meeting or meetings for any class or classes of creditors in terms of sub-sec (9) of sec 230; b. fixing the time and place of the meeting or meetings;

c.

appointing a Chairperson and scrutinizer for the meeting or meetings to be held, as the case may be and fixing the terms of his appointment including remuneration;

d. fixing the quorum and the procedure to be followed at the meeting or meetings, including voting in person or by proxy or by postal ballot or by voting through electronic means; Explanation.— For the purposes of these rules, “voting through electronic means” shall take place, mutatis mutandis, in accordance with the procedure as specified in rule 20 of Companies (Management and Administration) Rules, 2014. e.

13.120

determining the values of the creditors or the members, or the creditors or members of any class, as the case may be, whose meetings have to be held;

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f.

notice to be given of the meeting or meetings and the advertisement of such notice;

g. notice to be given to sectoral regulators or authorities as required under sub-section (5) of section 230; h. the time within which the chairperson of the meeting is required to report the result of the meeting to the Tribunal; and i. such other matters as the Tribunal may deem necessary Subsequent to the direction passed by the Tribunal for holding meeting, several steps need to be taken which are set out below for convening of the meeting. 7. Notice under sec 230(3) Issuance of Notice Issue Notice of the meeting in Form no. CAA 2. Contents/specifications under Form no. CAA 2 is mentioned under r 6 of M&A Rules. The said notice shall be accompanied by the following documents: (a) the explanatory statement disclosing the following: ●

Details of compromise/arrangement;

●

A copy of the valuation report, if any and

●

Explanation with regard to the effect of compromise/arrangement on creditors, KMP, promoters and non-promoter members, and the debenture-holders and the effect of the compromise or arrangement on any material interests of the directors/debenture trustees.

(b) Additional disclosures as per sec 232(2) if so ordered by the Tribunal. The following documents shall also be circulated with the notice: ● The draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company. ● Confirmation that a copy of the draft scheme has been filed with the registrar. ● A report adopted by the directors of the merging companies explaining effect of compromise on each class of shareholders, key managerial personnel, promoters and non-promoter shareholders laying out in particular the share exchange ratio, specifying any special valuation difficulties. ● The report of the expert with regard to valuation, if any. ● A supplementary accounting statement if the last annual accounts of any of the merging companies relate to a financial year ending more than six months before the first meeting of the company summoned for the purposes of approving the scheme. ● Other facts/statements set out in Rule 6 of M&A Rules

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Who shall send the Notice? Notice shall either be sent by the (Rule 6(2) of M&A Rules): ● Chairman appointed for the meeting or ● As Tribunal directs: By company/liquidator or Any other person Within what time the Notice is sent? As per r 6(2) of M&A Rules, notice should be sent one month before the date fixed for meeting. How the notice shall be served/Mode of dispatch of notice? Notices shall be dispatched as directed by the Tribunal ie by registered post or speed post or by courier or by e-mail or by hand delivery at the most recent office address or any other mode as directed by the Tribunal and shall be served individually, at the address registered with the company [sec 230(3) read with r 6 (2) of M&A Rules] To whom should the notice be served? As per sec 230(3), notice shall be served to: ● All creditors or class of creditors. ● All members or class of members. ● All debenture holders. Other compliance with regard to notice ● Notice along with other documents accompanying notice under sec 230(3) should also be placed on the M&A Rules.] ●

●

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Notice shall be advertised in Form no. CAA 2 in at least one leading English Newspaper and in at least one vernacular newspaper having wide circulation in the state in which the registered office of the company is situated or such newspapers as may be directed by the tribunal in not less than 30 days before the date fixed for the meeting. [Rule 7 of M&A Rules] Where the notice is issued by way of an advertisements, the said advertisement shall also indicate the time with in which such copy of proposed compromise and arrangement along with the copy of the statement required to be furnished under sec 230 shall be made available to concerned persons free of charge from the registered office of the company. The copy requested shall be furnished to the said concerned persons within one day of the requisition being made. [Section 230(3) read with r 11 of M& A Rules.] In case of listed companies these documents shall be sent to Securities Exchange Board and stock exchange where the security of the company

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is listed and shall also be published in newspapers as prescribed. [Section 230(3)] Affidavit of Service Affidavit of service to be filed by the chairperson of the meeting or the other person directed to issue the advertisement and the notices of the company shall file an affidavit to the tribunal at least seven days before the date fixed for the meeting or the date of the first meeting, as the case may be, showing that the directions issued regarding the issue of notices and advertisements have been complied with. [Rule 12 of M&A Rules] Objections with regard to the compromise and arrangement Any objection to the compromise and arrangement shall be made within the period of one month from the date of receipt of notice to the adoption of compromise and arrangement, only by: ●

Person holding not less than10% shareholding or;

●

Person holding not less than 5% total outstanding debt as per the latest audited financial statement

[Section 230(4)] 6. Notice under sec 230(5) shall be sent after the notice under sec 230(3). 7. Notice to Authorities under sec 230(5): Authorities to whom notice is to be served By reading sec 230(5) along with r 6 of M&A Rules and Form CAA 2, it appears that the service of notice under sec 230(3), a copy of the scheme of the compromise and arrangement, the explanatory statement and the disclosures mentioned under r 6 of M&A Rules shall be sent to: (i)

the central government, the registrar of companies, Income-Tax Authorities, in all cases, and

(ii)

the Reserve Bank of India, the Securities and Exchange Board of India, the Competition Commission of India, the stock exchanges, as may be applicable and other sectoral regulators or authorities as may be required by Tribunal

What documents shall be served with notice to authorities under sec 230(5)? The following documents shall be served along with the notice under sec 230(5): ● Notice of meeting under sec 230(3) along with all the documents as mentioned above. As discussed above, the disclosures are higher in sec 232 and hence more number of documents will need to be provided. 13.123

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● ●

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Copy of scheme and arrangement. The disclosures mentioned under r 6 of M&A Rules.

The following will be as per the process provided in sec 230 ● Persons who are authorised to service of notice. ● Person who will determine the time within which the notice shall be served. ● Manner in which the notice is dispatched. ● Manner in which objections can be raised by persons for compromise and arrangements. 8. Procedure to be adhered at the General Meeting: It will be the same as discussed in procedure of sec 230. 9. File Form no. MGT 14 in respect of the resolution passed at the meeting within 30 days of passing or making thereof with the registrar. [Sections 117(1) and 117 (3)] 10. The chairman of the meeting shall report to the Tribunal in Form CAA 4. [Rule 14 of M&A Rules]: ● Time: as fixed by the Tribunal or where no such time is fixed, within 3 days after the conclusion of the meeting. ● The report shall state accurately the no. of creditors or class of creditors or the number of members or class of members. 11. The company shall file petition in Form no. CAA 5 within 7 days of filing of the report by the chairperson or any other person as authorised by the Tribunal for confirmation of the compromise and arrangement. [Rule 15 of M&A Rules] If the compromise or arrangement is proposed for the reconstruction of any company or companies or for the amalgamation of two or more companies, the petition shall pray for appropriate orders and direction under sec 230 read with sec 232 of the Act. [Rule 15 of M&A Rules] 12. Thereafter, under r 16 of M&A Rules, ●

Tribunal shall fix a date of hearing and;

●

Notice of the hearing shall be advertised in the same newspapers/such other newspapers as the Tribunal may direct not less than 10 days before the date fixed for hearing; The notice of the hearing of the petition shall also be served by the Tribunal to the objectors or to their representatives under sub-section (4) of section 230 of the Act and to the Central Government and other authorities who have made representation under rule 8 and have desired to be heard in their representation

13. Also, the auditor’s certificate by the company’s auditor shall also be required to be filed demonstrating that the accounting treatment if any proposed in

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the scheme of compromise or arrangement is in accordance with the accounting standard prescribed under sec133. [Section 232(3)]. 14. Application for directions under sec 232 of the Act: Where the compromise or arrangement has been proposed for the purposes of or in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies, and the matters involved cannot be dealt with or dealt with adequately on the petition for sanction of the compromise or arrangement, an application shall be made to the Tribunal under sec 232 of the Act, by a notice of admission supported by an affidavit for directions of the Tribunal as to the proceedings to be taken. Notice of admission in such cases shall be given in such manner and to such persons as the Tribunal may direct [r 18 of M&A Rules]. 15. Directions at hearing of application.— Upon the hearing of the notice of admission given under rule 18 or upon any adjourned hearing thereof, the Tribunal may make such order or give such directions as it may think fit, as to the proceedings to be taken for the purpose of reconstruction or amalgamation, as the case may be, including, where necessary, an inquiry as to the creditors of the transferor company and the securing of the debts and claims of any of the dissenting creditors in such manner as the Tribunal may think just and appropriate [r of 19 M&A Rules]. 16. The Tribunal after satisfying that all the above procedures are complied with thereafter by order in Form no. CAA 7 with such variations as the circumstances may be, sanction the compromise or arrangement or by subsequent order make provision for the following matter as specified in sec 232(3) [r 20 of M&A Rules]. 17. As per sec 230(6) after the scheme being sanctioned it shall be binding upon the company, creditors, members, liquidator and contributories. 18. The order of the Tribunal shall be filed by the company with the registrar of companies within 30 days of the receipt of the order. [Section 232(5)] 19. Effect of the Order [Section 232(4)]: ●

The property shall be transferred to the transferee company and also the liabilities of the transferor company shall be transferred to and become the liabilities of the transferee company.

●

Any property shall be freed from charge if the Tribunal so directs by virtue of compromise or arrangement. 20. Scheme shall be effective from the appointed date as indicated in the scheme and not a date subsequent to that. [Section 232(6)] 21. Statement of compliance in mergers and amalgamations.— Every company in relation to the order need to file every year a statement duly certified by the chartered accountant or the cost accountant or company secretary in 13.125

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practice, with the registrar of companies within 30 days from the end of each year indicating whether the scheme is being complied with in accordance with the orders of the Tribunal or not. [Section 232(7)]. For the purpose of sec 232(7) of the Act, every company in relation to which an order is made under sec 232(3) of the Act shall until the scheme is fully implemented, file with the Registrar of Companies, the statement in Form No. CAA.8 along with such fee as specified in the Companies (Registration Offices and Fees) Rules, 2014 within two hundred and ten days from the end of each financial year. 22. Report on working of compromise or arrangement: At any time after issuing an order sanctioning the compromise or arrangement, the Tribunal may, either on its own motion or on the application of any interested person, make an order directing the company or where the company is being wound-up, its liquidator, to submit to the Tribunal within such time as the Tribunal may fix, a report on the working of the said compromise or arrangement and on consideration of the report, the Tribunal may pass such orders or give such directions as it may think fit [r 22 of M&A Rules]. 23. Liberty to apply: The company, or any creditor or member thereof, or in case of a company which is being wound-up, its liquidator, may, at any time after the passing of the order sanctioning the compromise or arrangement, apply to the Tribunal for the determination of any question relating to the working of the compromise or arrangement. The application shall in the first instance be posted before the Tribunal for directions as to the notices and the advertisement, if any, to be issued, as the Tribunal may direct. The Tribunal may, on such application, pass such orders and give such directions as it may think fit in regard to the matter, and may make such modifications in the compromise or arrangement as it may consider necessary for the proper working thereof, or pass such orders as it may think fit in the circumstances of the case. 24. Powers of Tribunal to call for information: At any time during the proceedings, if the Tribunal hearing a petition or application under these Rules is of the opinion that the petition or application or evidence or information or statement is required to be filed in the form of affidavit, the same may be ordered by the Tribunal in the manner as the Tribunal may think fit. The Tribunal may pass any direction(s) or order or dispense with any procedure prescribed by these rules in pursuance of the object of the provisions for implementation of the scheme of arrangement or compromise or restructuring or otherwise practicable except on those matters specifically provided in the Act [r 24 of M&A Rules]. 25. If a transferor company or a transferee company contravenes the provisions of sec 232, the transferor company or the transferee company, as the case may be, shall be punishable with fine which shall not be less than one lakh 13.126

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rupees but which may extend to INR 25 lakhs and every officer of such transferor or transferee company who is in default, shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both. 26. The other provisions like SEBI listing regulations, stamp duty provisions, compliances of CCI, stock exchanges, income tax as specified under procedure under sec 230 have to be complied if they are applicable.

13.22

PROCEDURE FOR FAST TRACK MERGERS UNDER SECTION 233

The procedures provided herein are to be complied with by both the transferor as well as transferee company. The important provisions to be considered are sec 233 read with r 25 of M&A Rules. Unless specified otherwise, reference to rules is to M&A Rules. 1. Where a scheme of merger or amalgamation may be entered into between ● two or more small companies or ● a holding company and its wholly-owned subsidiary company or ● such other class or class of companies; sec 233 shall come into effect. 2. Send notices to directors to hold board meeting in accordance with sec 173(3). Every officer of the company whose duty it is to give notice, if he fails to do so, is liable to a penalty amounting to INR 25,000/- under sec 173(4). 3. Convene board meeting, to consider and pass the following resolutions: ●

To propose the scheme of merger and amalgamation and to take it on record and approve the same.

●

Consider the notice and agenda of the general meeting and creditor’s meeting and fix the date, time and venue of such meetings. To consider the declaration of solvency.

● ●

To authorise any person to give effect to the resolution passed with respect to the scheme of merger and amalgamation. 4. File Form no. MGT 14 in respect of the resolution passed at the meeting within 30 days of passing or making thereof to the registrar along with the payment of requisite fees. [Section 117(1) and 117(3) read with sec 179(3)] 5. If default is made in complying with aforesaid requirement of filing before the expiry of the period specified under sec 403, with additional fees, the company shall be punishable with fine which shall be not less than INR 5,00,000/- but which may extend to INR 25,00,000/- and every officer 13.127

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of the company who is in default, including liquidator of the company, if any, shall be punishable with fine which shall not be less than INR 1,00,000/but which may extend to INR 5,00,000/-. [Section 117(2)] 6. Notice of the proposed scheme is issued by the transferor company or companies and transferee company to the registrar or Official Liquidators where registered office of the respective companies are situated or persons affected by the scheme. The said notice is issued for inviting objections and suggestions for the same within 30 days. The Act does not provide from which date the 30 days period commences, so it can be assumed that it is from the date of the board meeting where the scheme is proposed. This notice should be sent before the date when the meeting of the shareholders is called, as the Act contemplates that objections and suggestions of these authorities are to be placed in the meeting of shareholders. The said objections or suggestions received here shall be considered by the companies in their respective general meetings. The said notice shall be in Form no. CAA9 [Section 233(1)(a)]. 7. Declaration of solvency in form No. CAA 10 shall be filed by each of the companies involved in the scheme of compromise or arrangement involving merger, along with such fees as provided in schedule of the fees before convening the meeting of members and creditors for approval of the scheme, with the registrar of the place where the registered office of the company is situated. [Rule 25(2) of M&A Rules read with sec 233(1)(c)] 8. Send notices of the general meeting under sec 101 accompanied by the explanatory statement if any, authorised by its articles, at least 21 clear days before the date fixed for the meeting and of the creditors meeting giving notice of 21 days. [Sections 233(1)(b) and 233(1)(d)]. Also, as per rule 25(3), the said notices shall be accompanied by the following documents: ● A statement as far as applicable under sec 230(3) read with r 6(3) of M&A Rules; ●

Declaration of solvency made in pursuance of sec 233(1)(c);

●

A copy of the scheme.

9. Hold general meeting and pass the resolution for approval of the scheme at the meeting by the respective members or class of members holding at least 90% of the total number of shares. [Section 233(1)(b)] 10. Hold creditors meeting and pass the resolution for approval of the scheme by a majority representing 9/10th in value of the creditors or class of creditors of the respective companies. 11. Here the order of the meetings can be changed ie the company has the discretion, as nothing is specifically mentioned under the Act or the rules 13.128

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regarding whether the shareholders meeting or creditors meeting should be conducted earlier. 12. Therefore, within 7 days after the conclusion of meeting of members or class of members or the meeting of the creditors and the class of creditors (here we have to construe the meeting whichever is later) the transferee company shall file the copy of the scheme so approved by the members and creditors, with the report of the result of each of the meetings in Form no. CAA 11 with the: ●

Central government

●

Official liquidator

●

Registrar of companies

of the place where the registered office of the company is situated. [Rule 25(4) of M&A Rules read with sec 233(2)]. 13. As per rule, the copy of the scheme shall be filed with the registrar of companies, along with the fee as provided in Annexure “B”, through the MCA e-filing system (which is only by filing Form no. MGT 14, in respect of the resolution passed at the meeting, within 30 days of passing or making thereof. [Sections 117(1) and 117(3)] 14. If default is made in complying with aforesaid requirement of filing before the expiry of the period specified under sec 403 with additional fees, the company shall be punishable with fine which shall be not less than INR 5,00,000/- but which may extend to INR 25,00,000/- and every officer of the company who is in default, including liquidator of the company, if any, shall be punishable with fine which shall not be less than INR 1,00,000/- but which may extend to INR 5,00,000/-. [Section 117(2)]) 15. Copy of the scheme shall be filed with the central government and Official Liquidator, by sending them through hand delivery/registered post/speed post. 16. Now, on receipt of the notice the registrar and the Official Liquidator, if having any objections or suggestions to be made, may communicate the same in writing to the central government within a period of 30 days, if no such communication is made, it is presumed that there is no objection to the scheme. [Section 233 (4)] 17. If the registrar and the Official Liquidator do not have any objections/suggestions upon the receipt of the scheme, then the central government shall register the same and issue confirmation thereof to the companies. [Section 233(3)] 18. Now the central government shall decide whether the scheme proposed is in public interest or not:

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●

●

●

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When the central government is of the opinion that the scheme is in public interest or in the interest of the creditors, irrespective of the objections or comments received or not pursuant to the scheme, the central government shall issue the confirmation order of such compromise or arrangement in Form no. CAA 12. [Rule 25 (5) of M&A Rules] If the central government after receiving the objections or suggestions or for any reason is of the opinion that such a scheme is not in public interest or in the interest of the creditors, it may file an application in form No. CAA 13 before the Tribunal within a period of 60 days of the receipt of the scheme under sub-sec (2) of sec 233 stating its objections and requesting that the Tribunal may consider the scheme under sec 232. [Rule 25(6) read with sec 233(5)] Therefore, if the central government does not have objections or does not file the application under sec 233, it shall be presumed that it has no objection to the scheme. [Section 233(6)]

19. On receipt of application made by central government or from any person, the Tribunal’s direction shall be made accordingly on the opinion framed by it in respect of whether the scheme should be considered as per the procedure under Sec 232 or also it may pass such orders confirming the scheme. [Section 233(6)] 20. The confirmation order of the scheme issued by the Central Government or Tribunal under sec 233(7) of the Act, shall be filed, within thirty days of the receipt of the order of confirmation, in Form INC-28 along with the fees as provided under Companies (Registration Offices and Fees) Rules, 2014 with the Registrar of Companies having jurisdiction over the transferee and transferor companies respectively. 21. The transferee company shall file an application with the registrar along with the scheme registered, indicating the revised authorised capital and pay the prescribed fees due on revised capital. The fee, if any, paid by the transferor company on its authorised capital prior to its merger or amalgamation with the transferee company shall be set-off against the fees payable by the transferee company on its authorised capital enhanced by the merger or amalgamation. 22. The provisions of this section shall mutatis mutandis apply to a company or companies specified in sec 233(1) in respect of a scheme of compromise or arrangement referred to in sec 230 or division or transfer of a company referred to sec 232(1)(b). The true nature and scope of this section is yet to be interpreted. A clarification may be required from MCA.

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13.23

Compromises and Arrangements

PROCEDURE UNDER SECTION 237 OF AMALGAMATION OF COMPANIES BY CENTRAL GOVERNMENT IN PUBLIC INTEREST UNDER SECTION 237

Procedure under sec 237 of amalgamation of companies by central government: 1. The central government may, by order notified in the official gazette, if satisfied that it is essential in the public interest to do so, do the following [Sections 237(1) and 237(2)] ● Provide for amalgamation of two or more companies into a single company with such constitution, property, powers, rights, interest, authorities and privileges, and with such liabilities, duties and obligation, as may be specified in the order. ● Also provide for the continuation by or against the transferee company of any legal proceeding pending by or against the transferor company and such other provision as may in the opinion of the central government be necessary to give effect to the resolution 2. Here the central government shall draft the proposed order amalgamating the two or more companies into a single company. [Section 237(1)] 3. The central government shall send the copy of the proposed order in draft to each of the companies concerned ie the transferor and transferee companies. It shall provide such time as it deems fit, not being less than 2 months from the receipt of the aforesaid order by the companies, or from any class of shareholders or from any creditors or class of creditors therein to enable them to state their objections and suggestions. [Section 237(5)] 4. Since as per sec 237(3), every member or creditor or debenture holder shall have same interest or rights against the transferee company as he had in original company and where the interest or right in the transferee company is less than the interest or right in the transferor company then said person shall be entitled to compensation by the transferee company. 5. The said compensation shall be by such authority as may be prescribed and every such assessment shall be published in the Official Gazette, and the compensation so assessed shall be paid to the member or creditor concerned by the transferee company. [Section 237(3) ] 6. Any person aggrieved by the assessment may, within a period of 30 days from the date of publication of such assessment in the official gazette, prefer an appeal to the Tribunal and thereupon the assessment of compensation shall be made by the Tribunal. [Section 237(4)] 7. If the time available to prefer an appeal collapses as no appeal was made with regard to assessment of compensation in the above clause or when the appeal that has been preferred is finally disposed off and also after 13.131

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considering and making modifications in the said draft order in the light of suggestions or objections received by it and also upon satisfaction that it is essential in the public interest, the central government shall pass an order under sec 237(5). [Section 237(5)] 8. Thereafter, copies of every order made shall as soon as it has been made, be laid before each House of Parliament. [Section 237(6)]

13.24

COMPARISON CHART COMPROMISE, ARRANGEMENT AND AMALGAMATION

Here, the power of High Court has been replaced with the Tribunal.

13.24.1 Comparison of New Act with Old Act Particulars

New Old Act Act Power to compromise or 230(1) 390(b) & make arrangements with 391(1) creditors and members Nature and extent of 230(2) Proviso to disclosures 391(2) Notice 230(3) 393(1)(a),

Remarks High Court Tribunal • • • •

•

13.132

Section enlarged High Court Tribunal High Court Tribunal Section is enlarged. Under new act, the notice of meeting shall be sent to all the creditors and members of the company. Instead of explaining the material interest of directors, managing directors, secretaries and treasurers or manager of the company w.r.t the said compromise or arrangement effect of material interest shall be explained in respect of directors and debenture trustees. Also, the statement explaining the effect of C&A on promoter, KMP, promoter, non-promoter, debenture holder.

Chapter 13

Particulars Voting and people who are entitled to object Notice to various authorities

Compromises and Arrangements

New Act 230(4)

Old Act Remarks -

230(5)

394A

Threshold of majority required

230(6)

391(2)

Nature of order passed by the Tribunal

230(7)

-

ROC filing

230(8)

391(3)

Restriction on dispensation of creditor’s meeting Restriction on scheme involving buy back Restriction on Schemes involving takeover Grievances of party w.r.t Takeover Reduction

230(9)

-

Power of Tribunal to enforce compromise or arrangement

Newly inserted. Number of statutory authorities to whom the notice is served is increased. • High Court Tribunal • Member need not be present and voting now and voting can also be effected by postal ballot. Newly inserted. High Court Tribunal Time limit 30 days inserted and no mention of effective date of order passed Newly inserted. • •

230(10)

Newly inserted.

230(11)

Newly inserted but not yet notified Newly inserted but not yet notified Newly inserted

230(12) Explana tion to 230 231

392

• •

•

High Court Tribunal Under new Act, the tribunal should also be satisfied that the company is unable to pay its debt. Deletion under new act, of the provision that specifies who may move application, namely tribunal on its own motion or on application of another person

13.133

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Particulars Merger and Amalgamation of companies

New Act 232(1)

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Old Act Remarks 394(1)

High Court Tribunal Includes demerger also and application of sub-sec (3) to (6) of sec 230 and not entire sec 230 Newly inserted • High Court Tribunal • Enlarged the provisions Similar • •

Meetings Disclosures 232(2) Consideration while 232(3) 394(1) passing order Transfer of property and 232(4) 394(2) liabilities ROC filing 232(5) 394(3) Similar Appointed date and 232(6) Newly inserted effective date of scheme Periodic filing of 232(7) Newly inserted progress in implementation of scheme Penalty 232(8) Newly inserted Meaning of terms Explana 394(4)(a) Changed and also newly inserted tion Merger or 233 Newly inserted amalgamation of certain companies Merger or 234 Newly inserted amalgamation of companies with foreign company Power to acquire shares 235(1)& 395(1) • High Court Tribunal of shareholders (2) • Last para of sec 395 deleted dissenting from scheme or contract approved by majority Notice by Dissent shareholders Entitlement of company 235(3) 395(3) • High Court Tribunal to shares Separate bank account 235(4) 395(4) • High Court Tribunal Offer by transferee 235(5) 395(6) • Sub sec (b) & (d) of 1956 company to Act deleted and (a) & (c) of

13.134

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Particulars

Compromises and Arrangements

New Act

Old Act Remarks

shareholders of 1956 Act subject to change transferor company under new Act Meaning of dissenting Explana 395(5)(a) Similar shareholders tion Purchase of minority 236 Newly inserted shareholding Power of Central Govt. 237 396 Similar but deletion of non to provide for obstante clause amalgamation of companies in public interest Registration of offer of 238 Newly inserted schemes involving transfer of shares Preservation of books 239 396A Similar and papers of amalgamated companies Liability of officers in 240 Newly inserted respect of offences committed prior to merger, amalgamation etc.

13.24.2 Comparison of Old Act with New Act Particulars Old Act New Act Remarks Interpretation of section 390(a) Deleted 391 and 393 Meaning of company Meaning of 390(b) 230(1)[Ex High Court Tribunal arrangement planation] Meaning of unsecured 390(c) Deleted creditors Power to compromise or 391(1) 230(1) High Court Tribunal make arrangements with creditors and members Majority 391(2) 230(6) & • High Court Tribunal 230(2)(a) 13.135

NCLT and NCLAT Law Practice and Procedure, 7e

Particulars

ROC filing

Order copy attached to MOA Default in Attaching order copy to MOA Application for stay on commencement of suits Power of High Court to enforce compromise and arrangements

Chapter 13

Old Act New Act Remarks • Proviso to 391(2) under new act is 230(2)(a). Members need not be present and voting. Now voting can also be effected by postal ballot. 391(3) 230(8) • High Court Tribunal • Under old act order shall be effective from registration but no such prescription under new act. Therefore from when the order shall be effective is the question 391(4) Deleted 391(5)

-

Deleted

391(6)

-

Deleted

392

231

• •

•

Information as to compromises or arrangements with creditors and members Meetings

13.136

393(1), (2)

230(3)

• •

High Court Tribunal Under new act, the tribunal should also be satisfied that the company is unable to pay its debt. Deleted under new Act, re: who may move application ie tribunal on its own motion or on application of another person High Court Tribunal Modified under new act disclosures have increased; ie of valuation report or explaining effect on creditors, KMP, promoters & non-promoter members and debenture holders and also material interest of directors, debenture trustees etc. 393(1)(b) is in rules

Chapter 13

Particulars Advertisement

Default & notice by directors

Compromises and Arrangements

Old Act New Act Remarks 393(3) 230(3) Under new act the advertisement should indicate the time within which the copies shall be made available to the concerned persons 393(4), Deleted (5)

Provisions for facilitating reconstruction and amalgamation of companies

394(1)

232(1)& • (3) •

Transfer of properties and liabilities ROC filing

394(2)

232(4)

394(3)

232(5)

Meaning of Property

394(4)

Notice to be given to Central Govt. for applications under sec 391 or sec 394

394A

Power and duty to acquire shares of shareholders dissenting from scheme or contract approved by majority

395(1)

High Court Tribunal Under new act includes all kinds of demerger as defined • Applicability of sections 230(3) to 230(6) of 2013 Act is specified • The matters on which the tribunal can make the orders is also increased under new act. • Also the report from registrar and OL is deleted under new Act Similar

Penalty for the said sub section is deleted under old act and the penalty for non-compliance of the section is inserted. Explanati Definition of property modified on (iv) under new act and transferee def. deleted 230(5) Under previous act notice was only to central government but under new Act authorities are increased to whom notice is to be served 235(1) & • High Court Tribunal (2) • Deletion of proviso of 395(1) under new Act

13.137

NCLT and NCLAT Law Practice and Procedure, 7e

Particulars Notice by dissenting Shareholders Acquisition of 90% of shareholding Entitlement of company to shares of dissenting minority Separate Bank account

Contents of offer Meaning of terms Transitional provision Power of central government to provide for amalgamation of companies in national interest Preservation of books and papers of amalgamated company

13.138

Chapter 13

Old Act New Act Remarks

395(2)

Deleted

395(3)

235(3)

High Court Tribunal

395(4)

235(4)

• •

396A

239

High Court Tribunal Insertion of time limit under new Act with regard to the disbursement of money to entitled shareholders within 60 days 395(4A) Deleted 395(5) Explanati Deletion of definition of on to the transferee in old Act section 395(6) 235(5) sub-clauses(b),(d) of old Act is deleted, clauses (a), (c) of this clause are changed 396 237 Similar but deletion of the non obstante clause in Section 396(1).

Similar

Chapter 13

Compromises and Arrangements

13.24.3 Comparison of New Rules with Old Rules Particulars Application for order of a meeting

Disclosures in application made to the Tribunal for compromise or arrangement – Creditors Responsibility Statement Directions at the hearing of the application Notice of meeting

New Rules 3(1)

3(2) 3(3) 3(4) 4

Old Remarks Rules 67 & 68 ● Under new Act, application along with notice of admission supported by an affidavit shall be moved. In the previous rules it was the judge’s summons supported by an affidavit. Under new rules, there is no provision to send scheme along with the application. ● Joint applications is statutorily recognised under new rules. ● The new rules provide for service of notice of admission and of the affidavit when the company is not the applicant Newly inserted 68 Newly inserted Newly inserted

5

69

6 6(2)

73 73

No format of order giving directions provided in new rules Enlarged rule under new Act ● Under new rules mode of sending the notice can be by registered post or speed post or by courier or by email or by hand delivery or by any other mode as tribunal directs. Under old rules, the 13.139

NCLT and NCLAT Law Practice and Procedure, 7e

Particulars

Advertisement of notice of meeting Notice to statutory authorities Voting & Shareholding and outstanding debt as under sec 230(4) Proxies Copy of compromise or arrangement to be furnished by the company

Affidavit of service Result of the meeting to be decided by voting

13.140

Chapter 13

New Rules

Old Rules

Remarks

6(3) 7

74

8

-

service was contemplated only by post. ● Under New rules notice should be sent at least 30 days before the date fixed for meeting. The period was 21 clear days under the old rules Newly Inserted The number of formalities have increased. Newly inserted

9

-

Newly inserted

10 11

70 75

12 13

76 77

Rules is enlarged. ● Copy of compromise or arrangement is to be furnished under new and old rules. Under New Rules it should be furnished in one day whereas in old rules it was to be provided in 24 hours. ● Otherwise the rules are similar ● Under old rules the copy of scheme of compromise or arrangement need not been furnished to such member or creditor to whom a copy is already provided. Under new rules, even if a copy is already provided, even then such members and creditors can again ask for a copy. Similar The decision of the meeting is ascertained by voting that has taken place by poll or by voting

Chapter 13

Particulars

Compromises and Arrangements

New Rules

Old Rules

Report of the result of the meeting

13(2) & 14

78

Petition for confirming compromise or arrangement

15

79

Date and notice of hearing

16

80

Order on petition

17

81

Application for directions under sec 232 Direction at hearing of application Order under sec 232 Statement of compliance in merger or amalgamation Report on working of compromise or arrangement Liberty to apply Liberty of the Tribunal Compromise or arrangement including merger of certain companies

18

82

through electronic means. This section is enlarged Judge and court is replaced by tribunal under new rules otherwise same. Default time for submitting the report is reduced to 3 days from 7 days. The last para of r 79 has been deleted i.e. “Where no petition for confirmation of …. as may be necessary” Additional requirements of serving notices to authorities and objectors. The time limit for filing of the order passed by the tribunal shall be filed by the tribunal within 30 days instead of 14 days from the date of order. Similar

19

83

Similar

20 21

84 -

Similar Newly inserted

22

86

23 24 25

87

Under new rules direction can be given even to the company liquidator Same Newly inserted Newly inserted

-

Remarks

13.141

NCLT and NCLAT Law Practice and Procedure, 7e

Particulars Cross-border mergers and amalgamations Notice to dissenting shareholders for acquiring the shares Determination of price for purchasing minority shareholding Circular containing scheme of amalgamation or merger Appeal under sec 238(1)

Chapter 13

New Rules 25A

Old Rules

Remarks

26

-

Newly inserted

27

-

Newly inserted

28

-

Newly inserted

29

-

Newly inserted

Newly Inserted

13.24.4 Comparison of Old Rules with New Rules Particulars

Old Rules New Remarks (Company Rules Court (M&A Rules) Rules) Summons for directions 67 3 ● Under the new Act, to convene a meeting application along with notice of admission supported by an affidavit shall be moved. In the previous rules it was the judge’s summons supported by an affidavit. ● Joint applications is recognised under new rules. Service on company 68 3(3) ● Service of notice of admission changed inter alia requiring service on company if it is not the petitioner required under the new rules Directions at hearing of 69 5 Previously it was Judge who summons shall issue directions, now it Tribunal

13.142

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Compromises and Arrangements

Particulars

Old Rules New Remarks (Company Rules Court (M&A Rules) Rules) Proxies 70 10 ● Additional provisions inserted Application for stay 71 Deleted Application to vacate or 72 Deleted in Rules vary order of stay Notice of meeting 73 6 ● Enlarged rule under new Act ● Under new rules mode of sending the notice can be by post, email or any other mode as tribunal directs which is by post only under old rules. Also the notice should be sent at least 30 days before the date fixed for meeting which was at least 21 clear days under the old rules ● Disclosures have increased significantly Advertisement of the 74 7 ● Advt. of notice under new notice of meeting rules should be made not less than 30 days which was at least 21 clear days under the old rules. ● Also new rules also require publication by other means like placing on website. Copy of compromise or 75 11 ● Copy of compromise or arrangement to be arrangement to be furnished: furnished by the New rules one day & old company rules 24 hours, otherwise similar ● Also now deletion of the requirement that it should be furnished only when such copy of compromise or arrangement has not been furnished to such member or creditor. Under new rules

13.143

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Chapter 13

Particulars

Old Rules New Remarks (Company Rules Court (M&A Rules) Rules) such members and creditors to whom it has already been furnished can also make requisition. Affidavit of service 76 12 Similar Result of the meeting to 77 13 Section is enlarged be decided by poll Report of the result of 78 14 Judge and court is replaced by the meeting tribunal under new rules otherwise same when read with r 13(2). Petition for confirming 79 15 Rule 79 last para has been compromise or deleted i.e. arrangement “Where no petition for confirmation of the compromise or arrangement is presented…. orders as may be necessary” Date and notice of 80 16 ● Additional requirements of hearing serving notices to authorities and objectors. Order on petition 81 17 The time limit for filing of the order passed by the tribunal shall be filed by the tribunal within 30 days instead of 14 days from the date of order. Application for 82 18 Similar directions under sec 394 Directions at hearing of application Order under sec 394 Compromise or arrangement involving reduction of capital Report on working of compromise or arrangement Liberty to apply 13.144

83

19

Similar

84 85

20 -

Similar Deleted

86

22

87

23

Under new rules direction can be given even to company liquidator. Similar

Chapter 13

13.25

Compromises and Arrangements

FURTHER READING

(a) A Ramaiya, Guide to the Companies Act, Sixteenth Edition, 2010, Wadhwa & Company (b) Dr. K. R Chandratre, Corporate Restructuring, Law, Practice & Procedures, 2nd Edition 2010, Bharat’s; (c) K. R. Sampath, Law And Procedure For Mergers, Amalgamations, Takeovers & Corporate Restructure, Snow White.

Annexure – Foreign Exchange Management (Cross Border Merger) Regulations, 2018 Reserve Bank of India Foreign Exchange Department Central Office Mumbai - 400 001

Notification No. FEMA.389/2018-RB

Dated: March 20, 2018

Foreign Exchange Management (Cross Border Merger) Regulations, 2018 In exercise of the powers conferred by sub-section (3) of section (6) read with section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank makes the following regulations relating to merger, amalgamation and arrangement between Indian companies and foreign companies, namely: 1.

Short title and commencement (i) These Regulations may be called the Foreign Exchange Management (Cross Border Merger) Regulations, 2018. (ii)

They shall come into force from the date of their publication in the Official Gazette.

2. Definitions In these Regulations unless the context requires otherwise, (i)

‘Act’ means the Foreign Exchange Management Act, 1999 (42 of 1999);

(ii)

‘Companies Act’ means The Companies Act, 2013;

(iii)

‘Cross border merger’ means any merger, amalgamation or arrangement between an Indian company and foreign company in accordance with Companies (Compromises, Arrangements and Amalgamation) Rules, 2016 notified under the Companies Act, 2013; ‘Foreign company’ means any company or body corporate incorporated outside India whether having a place of business in India or not;

(iv)

Explanation: for the purpose of outbound mergers, the foreign company should be incorporated in a jurisdiction specified in Annexure B to 13.145

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Companies (Compromises, Arrangements and Amalgamation) Rules, 2016; (v)

‘Inbound merger’ means a cross border merger where the resultant company is an Indian company;

(vi)

‘Indian company’ means a company incorporated under the Companies Act, 2013 or under any previous company law;

(vii) ‘NCLT’ means National Company Law Tribunal as defined under the Companies Act, 2013 or rules framed thereunder; (viii) ‘Outbound merger’ means a cross border merger where the resultant company is a foreign company; (ix) (x) 3.

‘Resultant company’ means an Indian company or a foreign company which takes over the assets and liabilities of the companies involved in the cross border merger; The words and expressions used but not defined in these Regulations shall have the same meanings respectively assigned to them in the Act.

Save as otherwise provided in the Act or rules or regulations framed thereunder or with the general or special permission of Reserve Bank, no person resident in India shall acquire or transfer any security or debt or asset outside India and no person resident outside India shall acquire or transfer any security or debt or asset in India on account of cross border mergers. Explanation: Cross Border Mergers pending before the competent authority as on date of commencement of these regulations shall be governed by these Regulations.

4. Inbound merger In an inbound merger, (1)

the resultant company may issue or transfer any security and/or a foreign security, as the case may be, to a person resident outside India in accordance with the pricing guidelines, entry routes, sectoral caps, attendant conditions and reporting requirements for foreign investment as laid down in Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017. Provided that

13.146

(i)

where the foreign company is a joint venture (JV)/ wholly owned subsidiary (WOS) of the Indian company, it shall comply with the conditions prescribed for transfer of shares of such JV/ WOS by the Indian party as laid down in Foreign Exchange Management (Transfer or issue of any foreign security) Regulations, 2004;

(ii)

where the inbound merger of the JV/WOS results into acquisition of the Step down subsidiary of JV/ WOS of the Indian party by the resultant company, then such acquisition should be in compliance with

Chapter 13

(2)

(3)

(4)

(5)

(6)

Compromises and Arrangements

Regulation 6 and 7 of Foreign Exchange Management (Transfer or issue of any foreign security) Regulations, 2004. An office outside India of the foreign company, pursuant to the sanction of the Scheme of cross border merger shall be deemed to be the branch/office outside India of the resultant company in accordance with the Foreign Exchange Management (Foreign Currency Account by a person resident in India) Regulations, 2015. Accordingly, the resultant company may undertake any transaction as permitted to a branch/office under the aforesaid Regulations. The guarantees or outstanding borrowings of the foreign company from overseas sources which become the borrowing of the resultant company or any borrowing from overseas sources entering into the books of resultant company shall conform, within a period of two years, to the External Commercial Borrowing norms or Trade Credit norms or other foreign borrowing norms, as laid down under Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 or Foreign Exchange Management (Borrowing or Lending in Rupees) Regulations, 2000 or Foreign Exchange Management (Guarantee) Regulations, 2000, as applicable. Provided that no remittance for repayment of such liability is made from India within such period of two years; Provided further that the conditions with respect to end use shall not apply. The resultant company may acquire and hold any asset outside India which an Indian company is permitted to acquire under the provisions of the Act, rules or regulations framed thereunder. Such assets can be transferred in any manner for undertaking a transaction permissible under the Act or rules or regulations framed thereunder. Where the asset or security outside India is not permitted to be acquired or held by the resultant company under the Act, rules or regulations, the resultant company shall sell such asset or security within a period of two years from the date of sanction of the Scheme by NCLT and the sale proceeds shall be repatriated to India immediately through banking channels. Where any liability outside India is not permitted to be held by the resultant company, the same may be extinguished from the sale proceeds of such overseas assets within the period of two years. The resultant company may open a bank account in foreign currency in the overseas jurisdiction for the purpose of putting through transactions incidental to the cross border merger for a maximum period of two years from the date of sanction of the Scheme by NCLT.

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5. Outbound merger In an outbound merger, (1)

a person resident in India may acquire or hold securities of the resultant company in accordance with the Foreign Exchange Management (Transfer or issue of any Foreign Security) Regulations, 2004.

(2)

a resident individual may acquire securities outside India provided that the fair market value of such securities is within the limits prescribed under the Liberalized Remittance Scheme laid down in the Act or rules or regulations framed thereunder.

(3)

An office in India of the Indian company, pursuant to sanction of the Scheme of cross border merger, may be deemed to be a branch office in India of the resultant company in accordance with the Foreign Exchange Management (Establishment in India of a branch office or a liaison office or a project office or any other place of business) Regulations, 2016. Accordingly, the resultant company may undertake any transaction as permitted to a branch office under the aforesaid Regulations.

(4)

The guarantees or outstanding borrowings of the Indian company which become the liabilities of the resultant company shall be repaid as per the Scheme sanctioned by the NCLT in terms of the Companies (Compromises, Arrangement or Amalgamation) Rules, 2016. Provided that the resultant company shall not acquire any liability payable towards a lender in India in Rupees which is not in conformity with the Act or rules or regulations framed thereunder.

(5)

(6)

(7)

13.148

Provided further that a no-objection certificate to this effect should be obtained from the lenders in India of the Indian company. The resultant company may acquire and hold any asset in India which a foreign company is permitted to acquire under the provisions of the Act, rules or regulations framed thereunder. Such assets can be transferred in any manner for undertaking a transaction permissible under the Act or rules or regulations framed thereunder. Where the asset or security in India cannot be acquired or held by the resultant company under the Act, rules or regulations, the resultant company shall sell such asset or security within a period of two years from the date of sanction of the Scheme by NCLT and the sale proceeds shall be repatriated outside India immediately through banking channels. Repayment of Indian liabilities from sale proceeds of such assets or securities within the period of two years shall be permissible. The resultant company may open a Special Non-Resident Rupee Account (SNRR Account) in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016 for the purpose of putting through transactions

Chapter 13

Compromises and Arrangements

under these Regulations. The account shall run for a maximum period of two years from the date of sanction of the Scheme by NCLT. 6. (1)

Valuation The valuation of the Indian company and the foreign company shall be done in accordance with Rule 25A of the Companies (Compromises, Arrangement or Amalgamation) Rules, 2016.

7.

Miscellaneous

(1)

Compensation by the resultant company, to a holder of a security of the Indian company or the foreign company, as the case may be, may be paid, in accordance with the Scheme sanctioned by the NCLT.

(2)

The companies involved in the cross border merger shall ensure that regulatory actions, if any, prior to merger, with respect to non-compliance, contravention, violation, as the case may be, of the Act or the Rules or the Regulations framed thereunder shall be completed.

8. (1)

Reporting The resultant company and/or the companies involved in the cross border merger shall be required to furnish reports as may be prescribed by the Reserve Bank, in consultation with the Government of India, from time to time.

9. (1)

Deemed approval Any transaction on account of a cross border merger undertaken in accordance with these Regulations shall be deemed to have prior approval of the Reserve Bank as required under Rule 25A of the Companies (Compromises, Arrangement and Amalgamations) Rules, 2016. A certificate from the Managing Director/Whole Time Director and Company Secretary, if available, of the company(ies) concerned ensuring compliance to these Regulations shall be furnished along with the application made to the NCLT under the Companies (Compromises, Arrangement or Amalgamation) Rules, 2016.

(2)

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13.150

Chapter 13

Chapter 14

Oppression and Mismanagement 14.1

INTRODUCTION

The management of companies is based on the principle of majority rule which was elaborated in Foss v Harbottle (1843) 67 ER 189 : (1843) 2 Hare 461. The decision of the majority is the rule for the minority. This sound principle has occasionally been abused and the whip of the majority has often produced sullen results, prejudicial to the best interests of the shareholders. Until the commencement of the Companies Act, 1956, the only remedy available under the Companies Act, 1913 was to file a petition for winding up of the company on “just and equitable” grounds. However, such remedy was not always advantageous to the petitioning shareholder.1 It was felt that minority shareholders should be protected from abusive actions by, or in the interest of, controlling shareholders acting either directly or indirectly, and should have effective means of redressal. Thus, from these difficulties emerged the remedy of oppression and mismanagement. The Companies Act, 2013 has retained this remedy and inserted new additional powers and remedies to protect stakeholder interests. This Chapter analyses the remedy of oppression and mismanagement and the changes made to it. This remedy is seen in light of the changes made to the Companies Act, 2013. The chapter also deals with the limitation of this relief and identifies the need for class action.

14.2

OVERVIEW OF CHANGES

14.2.1

Reducing the bar set for oppression

The Companies Act, 2013 has reset the bar for oppression to a lower level to include even those oppressive acts that may be prejudicial to members. It also seeks to include not only continuing oppressive actions but also those actions that have continued till recent times.

1

http://www.icaiknowledgegateway.org/littledms/folder1/chapter-7-prevention-of-oppressionand-mismanagement.pdf

14.1

NCLT and NCLAT Law Practice and Procedure, 7e

14.2.2

Chapter 14

Increasing the bar for mismanagement

Now the test “winding up on just and equitable grounds” is made applicable even for mismanagement. Thus, to establish a case for mismanagement, the petition will have to show that the mismanagement is of such nature that it is just and equitable to winding up the company but winding up will unfairly prejudice the petitioner. This test was earlier not applicable to mismanagement matters. Mismanagement resulting in prejudice to public interest is removed as a ground for mismanagement but material change resulting in prejudice to members or class of members is included as a ground for initiating mismanagement.

14.2.3

Composite petition

The Act does not bar seeking multiple reliefs by way of one application. Thus, reliefs like reopening etc. can be filed simultaneously with oppression and mismanagement to get a holistic relief.

14.2.4

Dilution of eligibility criteria

Earlier, if a member did not meet the eligibility criteria, he had to apply to the central government to seek permission to file a case for oppression and mismanagement. Now, the Tribunal is empowered to decide whether a member below the eligibility criteria can apply.

14.3

THE REMEDY UNDER SECTION 241 “241. (1) Any member of a company who complains that— (a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or (b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company’s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members, may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter.

14.2

Chapter 14

Oppression and mismanagement

(2) The central government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter. [Provided that the applications under this sub-section, in respect of such company or class of companies, as may be prescribed, shall be made before the Principal Bench of the Tribunal which shall be dealt with by such Bench. (3) Where in the opinion of the Central Government there exist circumstances suggesting that–– (a) any person concerned in the conduct and management of the affairs of a company is or has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law or of breach of trust; (b) the business of a company is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices; (c)

a company is or has been conducted and managed by such person in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such company pertains; or (d) the business of a company is or has been conducted and managed by such person with intent to defraud its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to public interest, the Central Government may initiate a case against such person and refer the same to the Tribunal with a request that the Tribunal may inquire into the case and record a decision as to whether or not such person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company. (4) The person against whom a case is referred to the Tribunal under subsection (3), shall be joined as a respondent to the application. (5) Every application under sub-section (3)–– (a) shall contain a concise statement of such circumstances and materials as the Central Government may consider necessary for the purposes of the inquiry; and (b) shall be signed and verified in the manner laid down in the Code of Civil Procedure, 1908, for the signature and verification of a plaint in a suit by the Central Government.”]2

2

Insert by Companies (Amendment) Act, 2019.

14.3

NCLT and NCLAT Law Practice and Procedure, 7e

Chapter 14

The new Act has retained the remedy of oppression and mismanagement. Sections 397, 398 and 401 of the Companies Act, 1956 are merged. This remedy had been very useful under the Companies Act, 1956 and had been brought into the Companies Act, 2013 with few changes to make it more effective. In 2019, significant changes were made to Section 241 to enable the Central Government to effectively use this remedy against companies that were committing fraud. Under the Companies Act, 1956, the remedy of section 397 was resorted to by the Central Government against Satyam. Under the Companies Act, 2013, Central Government used the remedy under section 241 and filed actions against the companies owned by Nirav Modi Group companies (Gitanjali Gems Limited and Ors) in 2018 when government discovered that large scale fraud was committed by these companies against nationalised banks. Again the remedy under section 241 was exercised against more than 300 IL&FS group companies. Once again the remedy was invoked in case of D.S. Kulkarni Developers Limited. This remedy was used by Central Government very rarely in Companies Act, 1956 but after 2013, the frequency of case filed by Central Government has increased comparatively. Thus, section 241-243 were amended in 2019 to include certain additional enabling provisions. As regards the remedy when exercised by shareholders, the remedy is quite similar to section 397/398 of the old Act. The basis for analysis of this remedy will depend heavily on the analysis of the old law and the differences that are brought about in this law. We can take up the analysis in the following manner: The analysis of this section should essentially answer the following questions

Decoding the Law  What is the meaning of oppression under sec 397 of the Companies Act, 1956?  Has the meaning of oppression changed?  What was the scope of the remedy of oppression under Companies Act, 1956?  Has it changed?  How do the significant changes in other provisions of the Companies Act, 2013 affect the scope of oppression?  What is the meaning of mismanagement? Has its meaning changed?  What was the scope of remedy for mismanagement under the Companies Act, 1956? Has it changed?  How do the significant changes in other provisions of the Companies Act, 2013 affect the scope of mismanagement?  Impact of insertion of other remedies like class action, reopening of books of accounts etc. on this remedy  Impact of changes in powers of Tribunal on its ability to decided cases of oppression and the remedies that can be given.

14.4

Chapter 14

Oppression and mismanagement

14.4

OPPRESSION

14.4.1

Meaning of oppression and scope of the remedy

14.4.1.1 Dictionary meaning The term oppression has been defined in the 9th edition of Black Law Dictionary as follows: Oppression: 1. The act or an instance of unjustly exercising authority or power. 2. An offence consisting in the abuse of discretionary authority by a public officer who has an improper motive, as a result of which person is injured. This offence does not include extortion, which is typically a more serious crime. 3. Contracts. Coercion to enter into an illegal contract. Oppression is the ground for the recovery of money paid or property transferred under an illegal contract. 4. Corporations. Unfair treatment of minority shareholders (esp. in close corporation) by the directors or those in the control of the corporation. In Law Lexicon by Ramanatha Aiyer, the term has been defined as follows: Oppression: •

An act of cruelty, severity, unlawful exaction, domination or excessive use of authority.

•

The word “oppression” has not acquired a strictly technical meaning and may be taken in its ordinary sense, which is an act of cruelty, or severity. When a revenue officer, under color of law, wilfully and unlawfully takes the property of another, subject him to greater hardships than are necessary for the proper enforcement of the law, he is guilty of oppression. It is not essential that an unlawful act should be serious injury to a person to make it oppressive. The exercise of unlawful power, other means, in depriving an individual of his liberty or property against his will, is generally an act of oppression.

•

The word oppression was defined by Viscount Simonde in Scottish CoOperative Wholesale Society Limited v Meyer [1959] AC 324 where he accepted the dictionary meaning ‘burdensome , harsh , wrongful” , that is to say, what the ordinary man would understand is the meaning of the word; and the said definition of the word, as found in the English sec 210 and Indian sec 397 and by the courts in India

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An act or omission may also amount to oppressive conduct if it is designed to achieve an unfair advantage. 14.5

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The person complaining oppression must show that he was constrained to submit the conduct which is unfair to him and which causes prejudice to him. In the exercise of his legal propriety rights as shareholder.

•

Oppression means burdensome, harsh and wrongful

According to English Oxford Dictionary: Oppression means exercise of authority or power in a burdensome, harsh, or wrongful manner; unjust or cruel treatment of subjects, inferiors etc, the imposition of unreasonable or unjust burdens.

14.4.1.2 Meaning as analysed by case laws In many cases the courts have tried to analyse this term. Two case laws which summarize, this understanding are as follows: Shri V.S. Krishnan and Ors. v Westfort Hi-tech Hospital Ltd. and Ors. [MANU/SC/7193/2008 : 2 (2008) CLT 823 : [2008] 142 CompCas 235 (SC) : (2008) 2 Comp LJ1 (SC) : ILR 2008 (2) Kerala 253 : 2008-4-LW356 : (2008) 2 MLJ 1192 (SC) : 2008 (3) SCALE 184 : (2008) 3 SCC 363 : [2008] 83 SCL 44 (SC) “10. In a number of judgments, this Court considered in extenso the scope of Sections 397 and398. The following judgments could be usefully referred to: (a) Needle Industries (India) Ltd. and Ors. v. MANU/SC/0050/1981 : Needle Industries Newey (India) Holding Ltd. and Ors.[1981]3SCR698 . (b) M.S. Madhusoodhanan and Anr. v. MANU/SC/0553/2003 : Kerala Kaumudi (P) Ltd. and Ors. (2004)9SCC204 . (c) Dale and Carrington Investment (P) Ltd. and Anr. v.MANU/SC/0748/2004 : P.K. Prathapan and Ors. (2005)1SCC212 . (d) Sangramsinh P. Gaekwad and Ors. v. MANU/SC/0052/2005 : Shantadevi P. Gaekwad (Dead) Through L.Rs. and Ors.AIR2005SC809 (e)

Kamal Kumar Dutta and Anr. v. MANU/SC/8408/2006 : Ruby General Hospital Ltd. and Ors. 2006(7)SCALE668 .

From the above decisions, it is clear that oppression would be made out: (a) Where the conduct is harsh, burdensome and wrong. (b) Where the conduct is mala fide and is for a collateral purpose where although the ultimate objective may be in the interest of the company, the immediate purpose would result in an advantage for some shareholders vis-a-vis the others. (c) The action is against probity and good conduct.

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(d) The oppressive act complained of may be fully permissible under law but may yet be oppressive and, therefore, the test as to whether an action is oppressive or not is not based on whether it is legally permissible or not since even if legally permissible, if the action is otherwise against probity, good conduct or is burdensome, harsh or wrong or is mala fide or for a collateral purpose, it would amount to oppression under Sections 397 and 398. (e)

Once conduct is found to be oppressive under Sections 397 and 398, the discretionary power given to the Company Law Board under Section402 to set right, remedy or put an end to such oppression is very wide.

(f)

As to what are facts which would give rise to or constitute oppression is basically a question of fact and, therefore, whether an act is oppressive or not is fundamentally/basically a question of fact.” In Sangramsinh P. Gaekwad and Ors. v Shantadevi P. Gaekwad (Dead) thr. Lrs. and Ors. [MANU/SC/0052/2005 : AIR 2005 SC 809 : [2005] 123 CompCas 566 (SC) : (2005) 3 CompLJ 385 (SC) : JT 2005 (1) SC 581 : 2005 (2) SCALE 46 : (2005) 11 SCC 314 : [2005] 57 SCL 476 (SC) : [2005] 2 SCR 624 : 2005 (1) UJ 284] the Apex Court observed as follows: “182. Section 402 of the Companies Act provides for the reliefs which may be granted without prejudice to the generality of the powers of the court under the aforementioned provisions 183. The expression 'oppressive', it is now well-settled, would mean burdensome, harsh and wrongful. 184. 'Oppression' complained of, thus, must relate to the manner in which the affairs of the company are being conducted and the conduct complained of must be such as to oppress the minority members. By reason of such acts of oppression, it must be shown that the majority members obtained a predominant voting power in the conduct of the company's affairs. 185. The jurisdiction of the Court to grant appropriate relief under Section 397 of the Companies Act indisputably is of wide amplitude. It is also beyond any controversy that the court while exercising its discretion is not bound by the terms contained in Section 402 of the Companies Act if in a particular fact situation a further relief or reliefs, as the court may seem fit and proper, is warranted. (See Bennet Coleman & Co. v. Union of India and Ors. MANU/MH/0054/1977 and Syed Mahomed Ali v. R. Sundaramurthy and Ors., MANU/TN/0089/1958 : (1958)2MLJ259. 186. But the same would not mean that Section 397 provides for a remedy for every act of omission or commission on the part of the Board of Directors. Reliefs must be granted having regard to the exigencies of the 14.7

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situation and the court must arrive at a conclusion upon analyzing the materials brought on records that the affairs of the company were such that it would be just and equitable to order winding up thereof and that the majority acting through the Board of Directors by reason of abusing their dominant position had oppressed the minority shareholders. The conduct, thus, complained of must be such so as to oppress a minority of the members including the petitioners vis-à-vis the shareholders which a fortiori must be an act of the majority. Furthermore, the fact situation obtaining in the case must enable the court to invoke just and equitable rules even if a case has been made out for winding up for passing an order of winding of the company but such winding up order would be unfair to the minority members. 187. The interest of the company vis-à-vis the shareholders must be uppermost in the mind of the court while granting a relief under the aforementioned provisions of the Companies Act, 1956. 188. Mala fide, improper motive and similar other allegations, it is trite, must be pleaded and proved as envisaged in the Code of Civil Procedure. Acts of mala fide are required to be pleaded with full particulars so as to obtain an appropriate relief. 189. The remedy under Section 397 of the Companies Act is not an ordinary one. The acts of oppression must be harsh and wrongful. An isolated incident may not be enough for grant of relief and continuous course of oppressive conduct on the part of the majority shareholders is, thus, necessary to be proved. The acts complained of may either be designed to secure pecuniary advantage to the detriment of the oppressors or wrongful usurpation of authority. 190. In Halsbury's Laws of England, 4th Edition, Volume 7, para 1011, it is stated: "1011. Conduct amounting to oppression. In this context, "oppressive" means burdensome, harsh and wrongful. It does not include conduct which is merely inefficient or careless. Nor does it include an isolated incident: there must be a continuing course of oppressive conduct, which must be continuing at the date of the hearing of the petition. Further, the conduct must be such as to be oppressive to the petitioner in his capacity as a member: whatever remedies he may have in respect of exclusion from the company's business by being dismissed as an employee or a director, he will have none under the provisions relating to oppression. On the other hand, these provisions are not confined merely to conduct designed to secure pecuniary advantage to the oppressors; they cover the case of wrongful usurpation of authority, even though the affairs of the company prosper in consequence."

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191. It has to be borne in mind that when a complaint is made as regard violation of statutory or contractual right, the shareholder may initiate a proceeding in a civil court but a proceeding under Section 397 of the Act would be maintainable only when an extraordinary situation is brought to the notice of the court keeping in view of the wide and far-reaching power of the court in relation to the affairs of the company. In this situation, it is necessary that the alleged illegality in the conduct of the majority shareholders is pleaded and proved with sufficient clarity and precision. If the pleadings and/ or the evidence adduced in the proceedings remains unsatisfactory to arrive at a definite conclusion of oppression or mismanagement, the petition must be rejected. 192. It may be true that the parties had agreed before the High Court that pleadings in all connected cases be treated as part of the records of the High Court but by reason thereof it cannot be inferred that although the High Court had no jurisdiction to adjudicate upon the company petition filed by the Respondent No. 12 herein filed before the Company Law Board, Delhi and the Company Petition filed by the Respondent No. 1 before the Company Law Board, Bombay, they would be the basis for grant of relief particularly in view of the fact that the reliefs claimed therein are different. After the amendment in the Companies Act, the Company Law Board alone had the jurisdiction to entertain an application under Sections 397 and 398 of the Companies Act, as the jurisdiction of the High Court was ousted thereby and, thus, the allegations made in the Company Petition filed by the Respondent No. 12 being company petition No. 7 of 1992 could not have been the subject matter of adjudication by the High Court. It is trite that what cannot be done directly cannot be done indirectly. The conduct and the status of the parties vis-à-vis the company also assume significance. Whereas the Respondent No. 1 herein claimed relief inter alia as a sole class 1 heir of the FRG, the Respondent No. 12 claimed her relief on the basis of being a person involved in protecting the affairs of the Gaekwad family as also in her own right as a shareholder. It is significant, however, that in Suit No. 675 of 1990 pending in the court of Baroda, Gujarat in her written statement the Respondent No. 12 claimed that if her mother had been issued the 8000 shares, her holding together with that of her mother's would exceed 60%. 193. The Respondent Nos. 1 and 12 had initiated different proceedings in different forums to suit their own purposes. From the materials brought on records, it can safely be inferred that proceeding before the Company Law Board, Delhi was initiated by the Respondent Nos. 12 herein when it was discovered that the Respondent No. 1 may not obtain any relief in the Company Petition filed by her before the Gujarat High Court.

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194. The Respondent No. 1 in her application did not disclose the grounds for challenging the issue of 6475 shares to the Appellants. In that view of the matter the relief granted by the High Court to the effect that issue of all shares beyond 425 shares is bad in law cannot be sustained having regard to the fact that a bald prayer was made in the petition without laying any foundation therefore in the company petition. Such reliefs evidently had been granted keeping in view the allegations made by the Respondent No. 12 in her company petition filed before the Company Law Board, Delhi which is impermissible in law. 195. We may at this juncture have a look to the case laws operating in the field with a view to find out as to what relief, if at all, could be granted to the Respondent No. 1 by the Gujarat High Court in the facts and circumstances of the present case. 196. In Shanti Prasad Jain v. Kalinga Tubes Ltd. etc. MANU/SC/0368/1965 : [1965]2SCR720 , this Court quoted with the approval the following passage from the decision in Elder's Case, AIR 1952 SC 49, as summarized at page 394 in Meyer's case, AIR 1965 SC 381: "(4) Although the word 'oppressive is not defined, it is possible, by way of illustration, to figure a situation in which majority shareholders, by an abuse of their predominant voting power, are' treating the company and its affairs as if they were their own property' to the prejudice of the minority share-holders-and in which just and equitable grounds would exist for the making of a winding- up order....... but in which the 'alternative remedy' provided by Section 210 by way of an appropriate order might well be open to the minority shareholders with a view to bringing to an end the oppressive conduct of the majority." 197. In Shanti Prasad Jain (supra) referring to Elder Case, it was categorically held that the conduct complained of must relate to the manner of management of the affairs of the company and must be such so as to oppress a minority of the members including the petitioners qua shareholders. The court, however, pointed out that that law, however, has not defined what oppression is for the purpose of the said Section and it is left to court to decide on the facts of each case whether there is such oppression. 198. In Scottish Cooperative Wholesale Society Ltd. v. Meyer and Anr., (1958) 3 WLR 404 it was categorically held that the conditions precedents contained in Section 210 of the Act of 1948 must be satisfied before any relief can be granted. 199. Yet again in H.R. Harmer Ltd., In re (1958) 3 All ER 689 (CA), the Court of Appeal held that 'the section does not purport to apply to every case in which the facts would justify the making of a winding up order 14.10

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under the 'just and equitable' rule, but only to those cases of that character which have in them the requisite element of oppression'. 200. It was observed: "..... It is not lack of confidence between share- holders per se that brings S. 210 into play, but lack of confidence springing from oppression of a minority by a majority in the management of the company's affairs, and oppression involved at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder." 201. In Needle Industries (supra), this Court observed: "44. Coming to the law as to the concept of 'oppression', Section 397 of our Companies Act follows closely the language of Section 210 of the English Companies Act of 1948. Since the decisions on Section 210 have been followed by our Court, the English decisions may be considered first. The leading case on 'oppression' under Section 210 is the decision of the House of Lords in Scottish Co-op. Wholesale Society Ltd. v. Meyer,. Taking the dictionary meaning of the word 'oppression', Viscount Simonds said at page 342 that the appellant-society could justly be described as having behaved towards the minority shareholders in an 'oppressive' manner, that is to say, in a manner "burdensome, harsh and wrongful". The learned Law Lord adopted, as difficult of being bettered, the words of Lord President Cooper at the first hearing of the case to the effect that Section 210"warrants the court in looking at the business realities of the situation and does not confine them to a narrow legalistic view". Dealing with the true character of the company, Lord Keith said at page 361 that the company was in substance, though not in law, a partnership, consisting of the society, Dr. Meyer and Mr. Lucas and whatever may be the other different legal consequences following on one or other of these forms of combination, one result followed from the method adopted, "which is common to partnership, that there should be the utmost good faith between the constituent members". Finally, it was held that the court ought not to allow technical pleas to defeat the beneficent provisions of Section 210 (page 344, per Lord Keith; pages 368-69, per Lord Denning). 202. In Re Five Minute Car Wash Service Ltd. [1966] 1 All ER 242, the Court upon considering the nature of relief which can be granted under Section 210 of the Companies Act, 1948 observed that in a case falling under Section 210 of the Companies Act, 1948, relief will be granted if the petitioner establishes that at the time when the petition was presented the affairs of the company were being conducted in a manner oppressive of himself and if he fails to allege facts capable of establishing that the company's affairs are being conducted in such a manner the petition will disclose no ground for granting any relief and must be dismissed in limine.

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It was observed: "Those who are alleged to have acted oppressively must be shown to have acted at least unfairly towards those who claim to have been oppressed. In Scottish Co-operative Wholesale Society, Ltd. v. Meyer (a case under s. 210) Viscount Simonds adopted a dictionary definition of the meaning of "oppressive" by, it is said, "burdensome, harsh and wrongful". In Elder v. Elder & Watson, Ltd., also a case under s. 210, the Lord President (Lord Cooper) said: "....the essence of the matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely." Lord Keith said: ".....oppression involves, I think, at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder." 203. The Court in an application under Sections 397 and 398 may also look to the conduct of the parties. While enunciating the doctrine of prejudice and unfairness borne in Section 459 of the English Companies Act, the Court stressed the existence of prejudice to the minority which is unfair and not just prejudice per se. 204. The Court may also refuse to grant relief where the petitioner does not come to court with clean hands which may lead to a conclusion that the harm inflicted upon him was not unfair and that the relief granted should be restricted. (See Re London School of Electronics, [1986] Ch. 211 205. Furthermore, when the petitioners have consented to and even benefited from the company being run in a way which would normally be regarded as unfairly prejudicial to their interests or they might have shown no interest in pursuing their legitimate interest in being involved in the company. (See Re RA Noble & Sons (Clothing) Ltd., [1983] BCLC 273. 206. In a given case the Court despite holding that no case of oppression has been made out may grant such relief so as to do substantial justice between the parties. 207. It is now well-settled that a case for grant of relief under Sections 397 and 398 of the Company Act must be made out in the petition itself and the defects contained therein cannot be cured nor the lacuna filled up by other evidence oral or documentary. (See In re Bengal Luxmi Cotton Mills Ltd. MANU/WB/0110/1964 : 69CWN137 ). 208. In Shanti Prasad Jain Vs. Union of India [75 Bom. LR 778] it was held that the power of the company court is very wide and not restricted by any limitation contained in Section 402 thereof or otherwise 14.12

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209. In Shoe Specialities Ltd. v. Standard Distilleries and Breweries (P) and Ors., MANU/TN/0114/1996 , it is stated : "While exercising the powers under sections 397 and 402 of the Companies Act, the Court is considering not only the relief that is sought for but also considers as to what is the nature of the complaint and how the same has to be rectified. It is the interest of the company that is being considered and not the individual dispute between the petitioner and the respondent. If that be so, the interest of the company requires that the majority shareholders must have their say in the management " 210. In Jesner v. Jarrad Properties, (1993) BCLC 1032, a question arose as to whether the conduct and the background of the two companies (their informed way of doing business disregarding the Companies Act, etc.) could be taken into account to decide whether there had been unfair prejudice to one party in an application under Section 459 of the English Companies Act was answered in the affirmative. 211. When a decision is taken on a business consideration, it is trite, the court should not ordinarily interfere. [See Maharashtra Power Development Corporation Ltd. v. Dabhol Power Co. and Ors. MANU/MH/0125/2004 : 2004(3)BomCR317 212. The burden to prove oppression or mismanagement is upon the petitioner. The Court, however, will have to consider the entire materials on records and may not insist upon the petitioner to prove the acts of oppression. An action in contravention of law may not per se be oppressive. Bhagwati, J. (as His Lordship then was) in Mohanlal Ganpatram and Anr.v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. and Ors., MANU/GJ/0003/1964 : (1964)0GLR804 at 103 stated the law, thus: "....It may be that a resolution may be passed by the Directors which is perfectly legal in the sense that it does not contravene any provision of law, and yet it may be oppressive to the minority shareholders or prejudicial to the interests of the Company. Such a resolution can certainly be struck down by the Court under Section 397 or 398. Equally a converse case can happen. A resolution may be passed by the Board of Directors which may in the passing contravene a provision of law, but it may be very much in the interests of the Company and of the shareholders..." 213. The said decision has been referred to with approval in Needle Industries (supra). (Para 49). The conduct which is technically legal and correct, thus, may justify grant of relief on the application of the just and equitable jurisdiction and conversely that conduct involving illegality and contravention of the Act may not suffice to warrant grant of any remedy. Isolated act of oppression may not be sufficient to grant any relief but there should be a continued oppression therefore. The test of lack of bonafide should be applied in both for the winding up petition while determining an 14.13

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application under Section 397 of the Companies Act. [See Re Guidezone Ltd., (2000) 2 BCLC 321] We may at this juncture notice that the Respondent No. 1 in her application under Section 397 of the Companies Act did not complain of any act of mis-management. Complaints of mismanagement were made by the Respondent No. 12 only. 214. For the purpose of grant of relief, the High Court could only consider the pleadings filed in Company Petition No. 51 of 1991. If no relief could be granted having regard to the pleadings contained therein, it is inconceivable in law that such relief would be granted on the basis of the pleadings made in other proceedings and totally ignoring the admissions made by the Respondent No. 1 herein in the proceedings initiated by her.”

14.4.2

Is there any change in the meaning and scope of oppression?

The term oppression is not defined. Thus, the definition cannot change. The concept remains the same. However, the perspective to look at oppression may change as the language of sec 241(1)(a) is different from that of sec 397 of the Companies Act, 1956. Section 241(1)(a) reads as under: (a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company;” (emphasis supplied) In this sub clause of sec 241, two words namely “have been” and “prejudicial” are inserted (which are marked in bold above).

14.4.2.1 Past and concluded acts The Companies Act, 2013 has inserted the term “have been”. Thus, it includes affairs that “have been conducted” which is likely to change the scope of this remedy for oppression. This change gives rise to several questions:

Decoding the Law  What is the significance of using the term “have been” as opposed to “had”?  Does this change mean that past and concluded act will be included in oppressive acts and can be challenged? It is important to understand the choice of language. The term “have been” and not “had” has been included. A brief look at the important principles of grammar 3 is necessary to appreciate the distinct and thus understand the impact of the change: 3

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Intermediate English Grammar by Raymond Murphy, 2nd Edition, Cambridge University Press 1994, reprint 2014.

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“Have been” is present perfect tense whereas “had” is past simple tense.

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Present perfect is used for a period of time that ‘continues from past until now’ whereas past simple tense refers to a ‘finished time’

•

Present perfect is used when something “has a connection with the present”

•

Present prefect tells us something about now whereas past simple tell us about the past.

Understanding the distinction is very useful to understand the change and to provide answer to the second question. Under the Companies Act, 1956, there were instances, where the case of oppression of members did not succeed as the matter complained referred to a wrongdoing in the past. The Courts/Boards insisted that the matter complained should be an existing wrongdoing. If the act or omission was in the past, then the application would be entertained only if such act or omission has continuing repercussions. However, the entire case law on this aspect will have to be re-examined in light of this change. The Companies Act, 2013 does not refer to past acts but to acts, that have been continuing until now. There is a wide range of case law on what constitutes oppression and what does not constitute oppression. The case law on what does not constitute oppression will change in light of this change.

14.4.2.2 Prejudicial to members The Companies Act, 1956 includes the act that were: (a) Prejudicial to public interest; (b) Prejudicial to the interest of company. The Companies Act, 2013 includes another ground namely ‘prejudicial to member(s)’ for filing an application for oppression. The term prejudicial to interest of company was already included in sec 398. The true construction of sec 397 by several judgment reveals that an unwise, inefficient or careless conduct of a director in the performance of his duties cannot give rise to a claim for relief under that section. The person complaining of oppression must show that he has been constrained to submit to conduct which lacks in probity, is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder. It may be mentioned that the Jenkins Committee on Company Law Reform has suggested the substitution of the word 'oppression' in sec 210 of the English Act by the words 'unfairly prejudice' in order to make it clear that it is not necessary to show that the act complained of is illegal or that it constitutes an invasion of legal rights (see Gower's Company Law, 4th edition, page 668). But that recommendation was not accepted and the English law remained the same as in George Meyer's case for quite some time. However, this change was brought about in the UK Companies Act, 2006. We had also not adopted that modification in India until now, when the Companies Act, 2013 was enacted. 14.15

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14.4.2.3 Old case laws analysed in new light Case 1 Shanti Prasad Jain v Kalinga Tubes Ltd. [MANU/SC/0368/1965 : AIR1965SC1535 : [1965]35 CompCas351(SC) : (1965)1CompLJ193(SC) : [1965]2SCR720] “20. These observations from the four cases referred to above apply to Section 397 also which is almost in the same words as Section 210 of the English Act, and the question in each case is whether the conduct of the affairs of a company by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case. As has already been indicated, it is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of Section 397, It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. It is in the light of these principles that we have to consider the facts in this case with reference to Section 397.” Applicability in light of the current changeThis is a landmark judgment under the Companies Act, 1956. The applicability is thus tested under the Companies Act, 2013. As can be seen it states that “continuous acts on the part of the majority shareholders, continuing up to the date of petition,” will be the ground for oppression. These words were used because the Companies Act, 1956 used only the term “are being conducted”4. With the insertion of the term “have been conducted” in the new Act, the acts/omissions which have just taken place now but which not necessarily continuing ie they have taken place but in the present, can also be a ground for filing a petition for oppression.

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Case 2 Chander Krishan Gupta v Pannalal Girdharilal P. Ltd. [MANU/DE/0242/1981; 1982(3)DRJ295] and also Palghat Exports Pvt. Ltd. v T.V. Chandran [MANU/KE/0078/1993] are to the same effect, namely, that isolated illegal past acts do not amount to oppression. Applicability in light of the current changeThe Companies Act, 2013 also does not consider past isolated acts as amounting to oppression. It only seeks to include recent acts, though not continuing, that have a current impact on the affairs of the company. Case 3 In Shanti Prasad Jain v Kalinga Tubes Ltd. [MANU/SC/0368/1965 : [1965]2SCR720], Apex Court quoted with the approval the following passage from the decision in Elder's Case, AIR 1952 SC 49, as summarized at page 394 in Meyer's case, AIR 1965 SC 381: "(4) Although the word 'oppressive is not defined, it is possible, by way of illustration, to figure a situation in which majority shareholders, by an abuse of their predominant voting power, are' treating the company and its affairs as if they were their own property' to the prejudice of the minority share-holders-and in which just and equitable grounds would exist for the making of a winding- up order....... but in which the 'alternative remedy' provided by Section 210 by way of an appropriate order might well be open to the minority shareholders with a view to bringing to an end the oppressive conduct of the majority." Applicability in light of the current changeThought the term prejudice to minority was not included, prejudice to minority or prejudice to members was considered as a good ground even under the Companies Act, 1956 in certain cases. Case 4 Shri V.S. Krishnan and Ors. v Respondent: Westfort Hi-tech Hospital Ltd. and Ors. [2(2008)CLT823 : [2008]142CompCas235(SC) : (2008)2CompLJ1(SC) : ILR2008(2)Kerala253 : 2008-4-LW356, (2008)2MLJ1192(SC) : 2008(3)SCALE184 : (2008)3SCC363 : [2008]83SCL44(SC)] “23. As rightly pointed out that CLB missed a most basic principle of Section 397, namely, that mere unfairness does not constitute oppression.” Applicability in light of the current changeThe position taken in this case will be re-examined in light of the changes in Companies Act, 2013, as not unfair prejudice to member is inserted by specific reference.

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14.4.2.4 Applicability of case laws under the Companies Act, 1956 The scope of applying for oppression has been expanded under this section. Thus, the case laws where certain acts or omission has been held to be oppressive can be applied under the Companies Act, 2013. The only care to be taken is, whether the said case laws continues to be relevant in view of the changes to the other provisions of company law. The law on oppression and mismanagement has not changed significantly but the other substantive law on corporate governance and other provisions have changed drastically.5 As regards case laws, where it is held that a particular act or omission does not constitute oppression, then the applicability of the said case laws must be reconsidered. One must examine whether the act or omission fall under the new categories that are included in the Companies Act, 2013, namely, whether it is a past oppressive act or whether such act is prejudicial to the member or members.

14.5

MISMANAGEMENT

Section 214(1)(b) reads as under: “(b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company’s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members”

14.5.1

Meaning and scope of mismanagement under the Companies Act, 1956

Under the Companies Act, 1956, the term mismanagement was not defined. There were numerous case laws, which interpreted the situation in which the remedy of mismanagement could and could not be granted.

14.5.1.1 Dictionary meaning Chamber’s 21st Century Dictionary defines the term ‘mismanage’ to mean ‘to manage or handle something or someone badly or carelessly.’ However, the mismanagement is not used in sec 241(1)(b) but the circumstances and effect are specified which can give rise to a case for mismanagement.

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14.5.1.2 Meaning as analysed by case laws Section 398 of the Companies Act, 1956 was analysed in several cases and difference between sec 397 and sec 398 was analysed in Bagree Cereals (P.) Ltd. and Ors. v Hanuman Prasad Bagri and Ors. [MANU/WB/0256/2000 : [2001]105CompCas465(Cal) : (2001)2CompLJ397(Cal) : 105CWN729], where the Court observed: “54. It is important to note that although the company petitions under Sections 397 and 398 usually join those two sections and that although these two sections are often mentioned in the same breath in dealing with company matters, these are widely different sections. Section 397seeks to prevent oppression and Section 398 seeks to prevent mismanagement. Let us illustrate how this distinction might become material. 55. Let us take the point of shifting of registered office from Posta to Chatterjee Polk and back to Posta. There is nothing in this complaint, and we make that clear in the very beginning, so as to remove any possible confusion arising out of the next discussion. The company petition mentioned that access to the registered office was blocked to H. P. But there is absolutely nothing to substantiate this allegation. There were never any "gun-das", there was never any assault, there was never any manhandling of the person of H. P., nothing at all. We mention this because these things are not unknown in the minority actions. 56. Be that as it may, the shift of registered office itself might be, where there are materials, a complaint primarily under Section 397 or a complaint primarily under Section 398. If the company suffered not much loss because of the shifting and the shifting back, but it was undertaken to put oppressive pressure and pain upon the petitioner, the complaint would sound in a Section 397 grievance. If on the other hand the shifting and the shifting back were acts of bad company management, causing perhaps loss to the company by way of wasted expenditure and loss of business, then and in that event the complaint would sound more in the nature of a Section 398 grievance. We make it clear that in company matters it is not always easy to maintain a strict distinction and categorise complaints either under Section 397 or under Section 398; very often the same complaint has both the aspects. But the essential difference between the two sections must be borne in mind. 57. The difference between the two sections does not stop there. It has further legal and historical differences. 58. The primary legal distinction between Section 397 and Section 398 in founding the jurisdiction of the company court is this, that before granting relief for complaints which sound in oppression, the court must form an opinion of the appropriateness of a just and equitable winding up.

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59. Not so with Section 398. 60. It is not an easy matter to prove circumstances requiring a just and equitable winding up of the company. That Section 398 does not contain this stringent requirement as a jurisdictional condition, must be borne in mind if the company court is to apply the correct law to the facts and circumstances of a particular case.” Chander Krishan Gupta v Pannalal Girdhari Lal Pvt. Ltd. and Ors. [MANU/DE/ 0242/1981 : [1984]55CompCas702(Delhi) : 1982(3)DRJ295] “(10) Section 398 has two facts. The first is that positive acts are done by the management which results in prejudice being caused to the company. Secondly section 398 may be attracted even where no action at all is taken by the management and such non action results in prejudice being caused to the company”

14.5.2

Change in nature and scope of mismanagement

To understand the change it is necessary to compare sec 241 read with sections 242 to 398 of the Companies Act, 1956. Section 398 of the Companies Act, 1956 Act reads as under: “(1) Any members of a company who complain – (a) that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company ; or (b) that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its Board of directors or manager or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; may apply to the Company Law Board for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the Company Law Board is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Company Law Board may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.” (emphasis supplied) 14.20

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Section 241(1)(b) and sec 242 of the Companies Act, 2013 reads as under: “(b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company’s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class of members. …. 242. (1) If, on any application made under section 241, the Tribunal is of the opinion— (a) that the company’s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.” (emphasis supplied)

14.5.2.1 Analysis of changes The comparison reveals the following changes: Section 398 of the 1956 Act is divided into two parts. The first part deals with different types of material change. If the petition under sec 398, complains that as a result of a material change “affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company;” Section 241 under the Companies Act, 2013 can be invoked, if the material change may cause the affairs of the company to “be conducted in a manner prejudicial to its interests or its members or any class of members.” Further, the ground for mismanagement, under sec 398(1) of Companies Act, 1956, “that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company;” is is merged with the oppression provision sec 241(1)(a) of Companies Act, 2013. Thus, this ground is inserted in the remedy of oppression. Further, under the Companies Act, 1956, for a remedy of mismanagement, it was not necessary to pass the test of “winding up on just and equitable ground”. This test was

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applicable only to instances of oppression. However, under the new Act, even to succeed in establishing ground for mismanagement, this test will have to be complied with.

14.6

IMPACT OF changes in other provisions

Members are the most important stakeholders in a corporate setup. The Companies Act, 1956 witnessed several instances where the member’s interest were sidelined by the majority or by the company management. The Companies Act, 2013, thus made several changes to the corporate framework to fortify the investor protection regime. The Companies Act, 2013 is enacted with several provisions, which safeguard the investors and strengthen corporate democracy. The tools, used in the Act are of two types, namely, preventive and curative (remedial) tools.

14.6.1

Overview of changes

An overview of the changes is given below. It is important to understand this change, as it will affect the manner in which the remedy of oppression and mismanagement is used:

14.6.1.1 Additional powers Powers enjoyed by the central government earlier Under the new Act, many powers which were previously enjoyed by the central government have been given to the shareholders. For instance, shareholders have

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more decision-making powers with regard to a number of matters like related party transactions, managerial remuneration, office of profit and so on.

Powers enjoyed by the board earlier Based on past experience, it was felt that shareholders should have more rights and powers in certain aspects of the company administration. There are certain restrictions placed on the powers of the board and the shareholders have been vested with more powers. For instance, now the members have a say in acceptance of deposits from members, in variation of material contract that are specified in prospectus.

14.6.1.2 Disclosures The number and extent of disclosures have been enhanced under the new Act. Under the new Act:  Detailed KMP & independent directors are required to be disclosed  Details of contract with independent directors and managing directors are available for inspection  Many disclosures must be posted on the company’s website  Financials of associated and joint venture companies also need to be disclosed in consolidated financial statement. Separate audited accounts of each subsidiary will be available on the company’s website.  Several additional disclosures are required in board report & financial statement

14.6.1.3 Effective participation In the past, the concept of shareholder democracy remained only on paper, as most shareholders were not able to spare time and money to attend the general meetings. The concept of postal ballot was introduced in the old Act, to enable greater participation of shareholders in the decision making process of the company. This has been further extended by the new Act, inter alia, through:  E-voting and E-governance  Increasing quorum for general meetings.  Keeping scope for extending the requirement of postal ballot for more number of decisions and more number of companies.

14.6.1.4 Additional rights In certain instances, there are additional decisions that can be taken by the shareholders. For instance, the shareholder can now agree on application of auditor partner rotation. Earlier, only ordinary resolution was required for sale of undertaking and for certain other corporate actions. Now, a special resolution is required for the

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same. Shareholders can now apply for restitution of assets of the company from directors and such other persons.

14.6.1.5 Additional remedies The new Act provides additional remedies to the members for the wrongs done by the company. The Act provides for class action suits not only against the company and its KMP but also against all advisors and consultants. The remedy for oppression and mismanagement has been retained. The investor can approach the Tribunal for several other purposes like for removal of auditor. The Act protects investors from misuse of their funds. It seeks to provide a reasonable exit opportunity to the investor. The Act does not provide the mechanism for arriving at the exit price. However, this will be determined by the rules. Following are the instances where investors get a right to exit the company:  Alteration in object clause in MOA before utilization of amount raised by the public offer.  Variation in contracts given in prospectus and object of the public issue specified in the prospectus.  In compromise and arrangement, if the Tribunal so directs. These provisions safeguard the interest of investors, especially small and retail investors. The details of these remedies are discussed later in this chapter.

14.6.1.6 Strong corporate governance framework The new Act intends to safeguard the interest of not only listed companies but also unlisted companies. Thus, many provisions for corporate governance, which are a part of Equity Listing Agreement, are now incorporated in the Companies Act, 2013. Some of these norms like those regarding independent directors and disclosures are now sought to be extended even to unlisted companies and other companies. Additional liabilities are cast upon the company management and auditors to ensure that companies function smoothly. Many provisions, which proved effective in the Sarbanes - Oxley Act of the US are borrowed into the new Act. The regulatory authorities are strengthened.

14.6.1.7 Additional norms Under the new Act, the central government is empowered to prescribe additional directives and conditions for various corporate actions. For instance, the central government may specify additional disclosures to be made in the board report, additional decisions that can be taken compulsorily by postal ballot, etc. It is empowered to take certain steps for the benefit of the company and its shareholders. For instance, to initiate actions for reopening of accounts, removal of auditor, etc.

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14.6.2

Oppression and mismanagement

Exploring plural remedies

(a) Additional rights can give rise to additional instances where remedies can be sought. For instance, sec 166 provides duties of directors. Further, Sch IV has inserted a code for independent director. If the directors do not comply with these norms, it will be easier to show that unfair prejudice is caused in cases to the shareholders. (b) Remedies can be sought against additional number of persons. The Companies Act, 2013 has cast duties not only on director but also CEOs and CFOs who are now recognized as Key Management Personnel. Thus, there are more number of person who are accountable to the shareholder. In the event of oppression or unfair prejudice caused to shareholders, they can seek remedies against additional number of persons. (c) Along with oppression and mismanagement remedy, other remedies can also be utilised by the shareholders to remedy the wrongdoing. For instance, if the shareholder notices fraud in formation and management, then he can approach the Tribunal even for deregistration of company, if the condition set out therein are fulfilled. (d) Mismanagement case may create a ground for initiating more actions against the companies. For instance, it may reveal wrongdoing, which may trigger criminal proceedings under the Companies Act, 2013. It may trigger class action by other members. Thus, the implication of the adverse decisions may be far more severe than the implication under the Companies Act, 1956.

14.6.3

Impact and interplay of other remedies

The Act has inserted various remedies that are available to the member which can be: • Deregistration (section 7(7)) • Class Action (section 145) • Investigation (sections 210 & 213) • Reopening of books of accounts (section 130) • Seeking compensation from auditors (section 147(3)) • Directions in case of refusal to Transfer and Transmit securities • Right to take exit route in select cases, where Act provides for the same • Some of these remedies can be used along-with the remedy for oppression and mismanagement and some cannot.

14.6.3.1 De-registration and oppression and mismanagement(O&M) If a person is seeking de-registration, i.e. removing the name of company from the register of companies, then an O&M remedy along with this remedy may not be compatible. As in one place, one is stating that there are good grounds for closing the company and in oppression and mismanagement, the essential rule is that winding up will unfairly prejudice the members. 14.25

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14.6.3.2 Class action and O&M The remedy of class action essentially provides that such remedy can be availed where “the cause of action is one which the member or depositor could pursue in his own right rather than through an order under this section;”

14.6.3.3 Investigation and O&M There have been instances, in the past where composite petition has been filed seeking remedies for O&M alongwith investigation into the affairs of the company. It is possible to take recourse to both these remedies.

14.6.3.4 Reopening and oppression and mismanagement Any person can seek reopening of account, if certain circumstances are shown. In the past, in several cases, the CLB has permitted filing composite cases. A remedy for reopening can be an integral part of the remedy for oppression and mismanagement especially if the wrong complained of, is mismanagement.

14.6.3.5 Compensation from auditor and O&M In many instances, where shareholder claim that accounts are misstated, they implead the auditor. Now, along with impleading, they can also seek compensation from auditor, if they can show that they suffered losses on account of incorrect audit report.

14.6.3.6 Refusal to transfer and transmit and O&M These two remedies can be pursued simultaneously and composite petition can be filed.

14.6.3.7 Exit route and O&M Taking an exit route essentially means that a shareholder chooses to opt out of the company. Thus, remedy of exit route and the remedy of O&M are essentially distinct. In case, if the member intends to use one of the exit route available in the Companies Act, 2013, then an O&M case will not be possible for him as O&M is available to a person who is a shareholder and no one else can file it after one ceases to be a member. However, O&M is used as a route where minority intends to exit the company and in that event, such remedy can be used.

14.7

ELIGIBILITY TO APPLY FOR PREVENTION OF OPPRESSION AND MISMANAGEMENT

The members and the central government are entitled to approach the Tribunal for prevention of oppression and mismanagement.

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14.7.1

Oppression and mismanagement

Eligibility of members to apply

“244. Right to apply under section 241: 1) The following members of a company shall have the right to apply under section 241, namely:— (a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares; (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members: Provided that the Tribunal may, on an application made to it in this behalf, waive all or any of the requirements specified in clause (a) or clause (b) so as to enable the members to apply under section 241. Explanation—For the purposes of this sub-section, where any share or shares are held by two or more persons jointly, they shall be counted only as one member. (2) Where any members of a company are entitled to make an application under subsection (1), any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them.”

14.7.1.1 Who can apply? •

Member;

•

Government (Section 241(2)).

14.7.1.2 What is the eligibility criteria? Company having share capital •

100 members or 1/10th of the total number of its members, whichever is less, or

•

Any member or members holding not less than 1/10th of the issued share capital of the company.

The calculation should include all members, irrespective of the type of share (whether equity or preference) held by them. While calculating the percentage, the total share capital of the company should be considered. Issue capital is the amount of capital that is issued by the company (out of subscribed capital) to the subscribers of shares, who are now shareholders by virtue of the said holding. 14.27

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Company not having share capital •

1/5th of the total number of its members:

A representative suit can also be filed by a member or members with the written consent from other members. For the purpose of calculation, where any share or shares are held by two or more persons jointly, they shall be counted only as one member.

14.7.1.3 Can the Tribunal waive the conditions? Under the old Act, the CLB was not authorised to waive the eligibility criteria. This power was vested in the central government under this section. However, under the new Act, if the Tribunal considers a case to be deserving, it can waive or relax the eligibility criteria for the benefits of the members.

14.7.1.4 Comparison with section 399 of 1956 Act The eligibility criteria are similar to sec 399. However, the proviso and explanatory statement is newly inserted under sec 241.

14.7.1.5 Analysis of important case laws under section 399 and their applicability to section 244 Case 1 If consenting members withdraw their consent subsequent to the presentation of the petition, if would affect the right of the applicant to proceed with the petition. Thus, the validity of the petition must be judged on the facts as they were at the time of presentation of petition. Rajmundhry Electricity Corporation v Nageshwar Rao [AIR (1956) SC 213] Applicability- As the provision for seeking consent is provided under the sec 244, several case laws as regards what constitute consent in writing and the impact of such consent and also the provision with respect to consent given by a power of attorney holder will be applicable. Case 2 If the shareholding is reduced to less than the percentage provided in eligibility criteria on account of additional issue of shares by the company, which is being challenged in the petition, then the holding before such disputed issue shall be considered to determine the eligibility to file the petition. Amrit Lal Seth v Seth Hotels Private Limited (2009) 148 Com Cases 651. Applicability- This case will also be applicable as no additional terms are included in sec 244 to determine eligibility. Case 3 In case of transmission of shares, even if the name of the person does not exist on the register of members, a person who claims to be a successor is entitled to file a composite petition under sec 111/111A and sections 397 and 398. World Wide Agencies Private 14.28

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Limited v Margarat T. Desor & ors [(1990) 1 SCC 536] [Shobha Kirloskar & ors v M/s Ghatge Patil Industries Ltd, CP 106/2014 : CLB(MUM), order dated 25 November 2014]. Persons who are entitled to shares (either by transfer or transmission) and where formalities by such person are completed for the transfer but the formalities by the company are pending, then in such cases, the person can make an application and will be eligible to file such petition for oppression and mismanagement. [Serum Institute of India v Inderjit Properties Private Limited (2006) 129 CompCas 757 CLB, 2005 64 SCL 33 CLB ] Applicability- The Companies Act, 2013 does not debar filing composite petition under refusal to transfer/transmit share along with an application for oppression and mismanagement. Thus, these case laws, where even a transferee or legal heir is permitted to file petition, though his name is not inserted in the register of member, will be applicable. Case 4 (i) M/s. World Wide Agencies Pvt. Ltd. & Anr. v Mrs. Margarat T. Desor & Ors. MANU/SC/0137/1990 : 1990 1 SCC 536, (ii) Serum Institute of India v Inderjit Properties Pvt. Ltd. MANU/CL/0105/2004 : 2006 129 Comp Cas 757 CLB, (iii) Rajesh Patil v Moonshine Films Pvt. Ltd. (2008) 141 CompCas 482 CLB : (2006) 6 CompLJ 161 CLB (iv) Gulabrai Kalidas Naik And Ors. v Laxmidas Lailubhai Patel MANU/GJ/0001/1978 : 1978 48 Comp Cas 438 Guj. Held: In these cases, it is held that a legal heir of a deceased member of a company is to be treated as a 'member' for the purposes of sec 399 of the Companies Act, 1956. Applicability- Principle applicable.

14.7.2

Power of central government to apply

The Companies Act, 1956 as well as the Companies Act, 2013 empowers the central government to apply for prevention of oppression and mismanagement, where there is oppression and mismanagement. It can apply in instances where the affairs of the company are being conducted in a manner prejudicial to the public interest. The central government’s intervention in the affairs of Satyam Computer is a classic case, where the central government intervened When the Satyam fraud was unveiled, the central government approached the Company Law Board claiming relief in the case of oppression and mismanagement. They sought several reliefs, many of which were granted by the CLB. However, at that time, questions were raised about powers of the CLB and some people challenged the power of CLB to grant such reliefs. The examples of such reliefs granted in that case are as follows: • Suspension of the entire board of the Satyam and removal of the auditor. • Empowering the CG to nominate a new Board. • Conferring immunity of the nominees of the Board.

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Restraining the judicial forums from taking any action against the government nominees for wrongs committed by them. • Introduction of a strategic partner by making a preferential allotment without the consent of the shareholders of Satyam. However, such actions were permitted and sec 402 of Companies Act, 1956 is very wide. The Tribunal is also given wide powers to pass orders to prevent frauds and irregularities. •

14.8

NATURE AND SCOPE OF POWERS OF TRIBUNAL

Section 242 provides the power of Tribunal. “242. (1) If, on any application made under section 241, the Tribunal is of the opinion— (a) that the company’s affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. (2) Without prejudice to the generality of the powers under sub-section (1), an order under that sub-section may provide for— (a) the regulation of conduct of affairs of the company in future; (b) the purchase of shares or interests of any members of the company by other members thereof or by the company; (c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital; (d) restrictions on the transfer or allotment of the shares of the company; (e) the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case; (f) the termination, setting aside or modification of any agreement between the company and any person other than those referred to in clause (e):

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Provided that no such agreement shall be terminated, set aside or modified except after due notice and after obtaining the consent of the party concerned; (g) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under this section, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; (h) removal of the managing director, manager or any of the directors of the company; (i) recovery of undue gains made by any managing director, manager or director during the period of his appointment as such and the manner of utilisation of the recovery including transfer to Investor Education and Protection Fund or repayment to identifiable victims; (j) the manner in which the managing director or manager of the company may be appointed subsequent to an order removing the existing managing director or manager of the company made under clause (h); (k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct; (l) imposition of costs as may be deemed fit by the Tribunal; (m) any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made. (3) A certified copy of the order of the Tribunal under sub-section (1) shall be filed by the company with the Registrar within thirty days of the order of the Tribunal. (4) The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company’s affairs upon such terms and conditions as appear to it to be just and equitable. [(4A) At the conclusion of the hearing of the case in respect of sub-section (3) of section 241, the Tribunal shall record its decision stating therein specifically as to whether or not the respondent is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.]6 (5) Where an order of the Tribunal under sub-section (1) makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of this Act, the company shall not

6

Insert by Companies (Amendment) Act, 2019.

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have power, except to the extent, if any, permitted in the order, to make, without the leave of the Tribunal, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles. (6) Subject to the provisions of sub-section (1), the alterations made by the order in the memorandum or articles of a company shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act and the said provisions shall apply accordingly to the memorandum or articles so altered. (7) A certified copy of every order altering, or giving leave to alter, a company’s memorandum or articles, shall within thirty days after the making thereof, be filed by the company with the Registrar who shall register the same. [(8) If a company contravenes the provisions of sub-section (5), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable [Omitted] with fine which shall not be less than twenty-five thousand rupees but which may extend to [one lakh rupees]”]7 Section 243 provides for the consequence of termination or modification of certain agreements as follows: “243. (1) Where an order made under section 242 terminates, sets aside or modifies an agreement such as is referred to in sub-section (2) of that section— (a) such order shall not give rise to any claims whatever against the company by any person for damages or for compensation for loss of office or in any other respect either in pursuance of the agreement or otherwise; (b) no managing director or other director or manager whose agreement is so terminated or set aside shall, for a period of five years from the date of the order terminating or setting aside the agreement, without the leave of the Tribunal, be appointed, or act, as the managing director or other director or manager of the company: Provided that the Tribunal shall not grant leave under this clause unless notice of the intention to apply for leave has been served on the central government and that Government has been given a reasonable opportunity of being heard in the matter.” 8 [(1A) The person who is not a fit and proper person pursuant to subsection (4A) of section 242 shall not hold the office of a director or 7

Sub-section amended by Companies (Amendment) Act, 2019.

8

Inserted by Companies (Amendment) Act, 2019

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any other office connected with the conduct and management of the affairs of any company for a period of five years from the date of the said decision: Provided that the Central Government may, with the leave of the Tribunal, permit such person to hold any such office before the expiry of the said period of five years. (1B) Notwithstanding anything contained in any other provision of this Act, or any other law for the time being in force, or any contract, memorandum or articles, on the removal of a person from the office of a director or any other office connected with the conduct and management of the affairs of the company, that person shall not be entitled to, or be paid, any compensation for the loss or termination of office. [(2) Any person who knowingly acts as a managing director or other director or manager of a company in contravention of clause (b) of subsection (1) [or sub-section (1A)], and every other director of the company who is knowingly a party to such contravention, shall be punishable [Omitted] with fine which may extend to [five lakh rupees].]9

14.8.1

Wide power to make order

The Tribunal is given complete freedom to bring an end to the oppression and mismanagement. Section 242, like the powers conferred under sec 397 and sec 398 of the Companies Act, 1956 provides “the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.” Section 242(2) also begins with the words “Without prejudice to the generality of the powers under sub-section (1), an order under that sub-section may provide for— ….”.Thus, the wide powers of the Tribunal is not curtailed by sec 242(2) and the Tribunal can exercise the wide powers. The nature and extent of powers of CLB was discussed in many cases. Thus, through sec 242(2), the powers have been elaborated. However, though the power is not specified in sec 242(2) it can be exercised, if the same is necessary in the view of Tribunal, to end the matters complained against. The nature and extent of the powers of the Tribunal is as wide as the powers of the CLB. The powers of the CLB were discussed in many judgments. Important judgments are considered below, where the CLB has wide powers to do substantial justice and pass such order as it deems fit to correct the instances of oppression and mismanagement complained of: (a) the Hon'ble Apex Court in the cases of: i. Needle Industries (India) Ltd. v Needle Industries Newey (India) holdings Limited MANU/SC/0050/1981 : AIR 1981 SC 1298 (paras 171 and 172);

9

Amended by Companies (Amendment) Act, 2020

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ii. M.S.D.C. Radharamanan v M.S.D. Chandrashekhar MANU/SC/1342/2008 : 2008 (143) Comp.Cases 97 (SC) : 2008 (1) UJ SC 0583 (paras 15 and 17); and iii. Shanti Prasad Jain v Kalings Tubes Limited MANU/SC/0368/1965 : AIR 1965 SC 1535, (b) the Maharashtra High Court in the case of Bennet Coleman & Co. v Union of India 1997 (MANU/MH/0054/1977 : 47 Comp.Cases 92 Paras 116 onwards); and (c) the Andhra Pradesh High Court in the case of Sri Ramdas Motor Transport Ltd. v Karedla Suryanarayana and others MANU/AP/0922/2001 : (2002) 110 Comp.Cases 193 (Paragraph 116 onwards) (d) Union of India v Company Law Board, Mumbai Bench and Others [MANU/MH/2163/2013, 2014(7)BomCR630 : [2013]181CompCas290 (Bom), [2014]123SCL199 (Bom)] In Bennet Coleman and Co. v Union of India and Ors.[ MANU/MH/0054/1977, [1977]47CompCas92(Bom)], the nature scope and extent of this powers was analysed in great detail. The extract of the case is annexed as Appendix A.

14.8.2

Tests for granting reliefs

In Girdharlal Nathubhai Dalal v K.C. Agro Pvt. Ltd. and Ors. [MANU/CL/0038/2015] the tests that the CLB will consider before granting any relief were succinctly described. “63. It is a well established law that to maintain a petition under Section 397/398 (of 1956 Act) of the Act, it must be established that the oppression complained of affected a person in his capacity or character as a member of the company as harsh and unfair treatment in any other capacity, such as a director or a creditor, is outside the purview of the said section; (b) there must be continuous acts constituting oppression up to the date of the petition; (c) the events have to be considered not in isolation, but as part of a continuous story; (d) it must be shown as a preliminary to the application of Section 397(of 1956 Act) that there are just and equitable grounds for winding up the company; (e) the conduct complained of can be said to be oppression only if it can be said that it is burdensome, harsh and wrongful and the oppression involves at least elements of lack of probity and fair dealing to a member in matters of proprietary right as a shareholder. 64. A careful analysis of Section 397 (of 1956 Act) would show that the winding up on just and equitable grounds would be automatic and this Board has to only form an opinion that such winding up would not be in the interests of the Company/shareholders and, accordingly, to mould relief with a view to put an end to the matters complained of. 65. It is further a settled proposition of law that where any shareholder is denied his most valuable rights in utter disregard of the statutory provisions, the making of a winding up order, on the ground that it is just and equitable would be justified. Therefore, having regard to the facts of the case in hand, the necessary ingredients of the provision contained in Section 397 which 14.34

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provides that: "to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up; also stands proved.” Applicability- These tests are useful but will be modified in light of the change in nature and scope of oppression and mismanagement as discussed above. Further, now the test of winding up is applicable to mismanagement.

14.8.3

Principles laid down under the Companies Act, 1956

There are a plethora of judgments under sections 397 and 398 of the Companies Act, 1956, where a wide number of principles, tests and law points are laid down, to deal with different kind of situations. The law on oppression and mismanagement has not changed significantly and these principles can be used. In every case, one must check whether the changes as discussed above will change the applicability of these principles. Section 465(2)(c) further provides: “(c) any principle or rule of law, or established jurisdiction, form or course of pleading, practice or procedure or existing usage, custom, privilege, restriction or exemption shall not be affected, notwithstanding that the same respectively may have been in any manner affirmed or recognised or derived by, in, or from, the repealed enactments;”

14.8.3.1 Examples: two examples are given here to elucidate this aspect Family companies/quasi partnerships The decision for intervention in family companies and quasi partnership concern (namely a closely held company) is different from the tests used for other companies. A brief discussion on the factors considered by the Tribunal is provided in Girdharlal Nathubhai Dalal v K. C. Agro Pvt. Ltd. and Ors. [MANU/CL/0038/2015] “57. In the present case, admittedly the company is a family company and the Petitioner and Respondent No. 2 are real uncle and nephew. In the case of Date Carrington Invt. P. Ltd. & Anr. v P.K. Parthapan & Ors. (ZOOS) 1 SCC 212 and Dinesh Sharma v. Vardaan Agrotech Pvt. Ltd., MANU/CL/0042/2006 : [2007] 135 Comp Cas 133, it has been held that Private limited companies, in which the shares are held within the members of a family, the principles of partnership apply.” Applicability- There is no change in the law that has any impact on the power of Tribunal to grant relief to family concerns and closely held companies. The principles for dealing with such quasi partnership entities are intact. Arbitration There are numerous cases where the parties have raised the defence of existence of arbitration award. Further, there is also a debate, whether an order under sec 8 can be appealed in the forum provided under the Companies Act, 2013. The Act has not provided 14.35

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any clarity nor has it disturbed the law on arbitration. Thus, the old case laws can be considered for cases under this Act.

14.8.4

Power specified under section 242(2)

Certain powers that can be exercised are enumerated below. They are categorised as "existing powers" which were specified in the old Act and "new powers" which are inserted in this Act. The powers specified as “new powers” are not new but are merely intended to clarify the existing position of law. The Company Law Board under the old Act exercised these powers by using the wide amplitude of powers that are conferred on it under sections 397 and 398. Certain restrictions are placed on the exercise of some of these powers by the Tribunal. These restrictions are inserted by way of proviso to sec 242(2).

14.8.4.1 Existing powers

(a) The regulation of conduct of affairs of the company in future. (b) The purchase of shares or interests of any members of the company by other members thereof or by the company and reduction of capital if the shares are acquired by the company. (c) The termination, setting aside or modification, of any agreement, between the company and its MD/director/manager. (d) The setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under this section, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference.

14.8.4.2 New/modified powers (a) The termination, setting aside or modification of any agreement between the company and any person other than MD/director/manager. This can be done after obtaining the consent of the party concerned. Earlier for termination, the consent of the other party was not required. (b) Restrictions on the transfer or allotment of the shares of the company. (c) Removal of the MD/manager/ director of the company. (d) Recovery of undue gains made by any MD/manager/director during the period of his appointment. Determine the manner in which the amount said so recovered shall be utilised. It can be transferred to IEPF or may be repaid to identifiable victims. (e) The manner in which the MD/manager of the company may be appointed subsequent to an order of removing the existing managing director or manager. (f) Appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters, as the Tribunal may direct. 14.36

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(g) Imposition of costs, as may be deemed fit by the Tribunal. (h) Any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made.

14.8.5

Power to grant stay/injunction [section 242(4)]

The Tribunal also has powers to grant interim orders. This power is similar to the power conferred under sec 403 of the Companies Act, 1956 to the Company Law Board. As regards the power to grant interim relief, certain decisions under the Companies Act, 1956 will be useful. In PPN Power Generating Company Limited v PPN (Mauritius) Company A Corporation and Ors. MANU/TN/1125/2004 : 2005(3)ARBLR354(Madras) : [2006]129CompCas849(Mad) : 2004(5)CTC1 : 2005-2-LW389 : (2004)4MLJ434, the court discussed the power of CLB to grant interim injunction: “32. The learned Senior Counsel appearing for the appellant relied on the decision of the Calcutta High Court (Division Bench) in Debi Jhora Tea Co. v. Barendra Krishna Bhowmick, 1980 (50) Comp.Cases 771, in support of his submission that there can be no limitation on the court's power while acting under Sections 397, 398 and 402 of the Companies Act, 1956, with respect to the power of the CLB to grant injunction. Even in the said decision, it is only held that the intention of the legislature is to confer wide and ample powers upon courts for the regulation of the conduct of the Company's affairs and to provide for any other matter which the court thinks just and equitable to provide for, in the interests of the corporate body and general public. 33. Even in the decision in Grindlays Bank Ltd., v. Industrial Tribunal,1980 (Supp) SCC 420, regarding the availability of the power of the Tribunal in the absence of any express provision, it is held as follows:"6. We are of the opinion that the Tribunal had the power to pass the impugned order if it thought fit in the interest of justice. It is true that there is no express provision in the Act or the rules framed thereunder giving the Tribunal jurisdiction to do so. But it is a well known rule of statutory construction that a Tribunal or body should be considered to be endowed with such ancillary or incidental powers as are necessary to discharge its functions effectively for the purpose of doing justice between the parties. In a case of this nature, we are of the view that the Tribunal should be considered as invested with such incidental or ancillary powers unless there is any indication in the statute to the contrary. We do not find any such statutory prohibition. On the other hand, there are indications to the contrary." 34. Similar view has been taken by the Apex Court in the decision in Union of India v. Paras Laminates (P) Ltd., MANU/SC/0173/1991MANU/ SC/0173/1991 : [1990]186ITR722(SC) , holding as follows:-

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"8. There is no doubt that the Tribunal functions as a court within the limits of its jurisdiction. It has all the powers conferred expressly by the statute. Furthermore, being a judicial body, it has all those incidental and ancillary powers which are necessary to make fully effective the express grant of statutory powers. Certain powers are recognised as incidental and ancillary, not because they are inherent in the Tribunal, nor because its jurisdiction is plenary, but because it is the legislative intent that the power which is expressly granted in the assigned field of jurisdiction is efficaciously and meaningfully exercised. The powers of the Tribunal are no doubt limited. Its area of jurisdiction is clearly defined, but within the bounds of its jurisdiction, it has all the powers expressly and impliedly granted. The implied grant is, of course, limited by the express grant and, therefore, it can only be such powers as are truly incidental and ancillary for doing all such acts or employing all such means as are reasonably necessary to make the grant effective. As stated in Maxwell on Interpretation of Statutes (11th Edn.) "where an Act confers a jurisdiction, it impliedly also grants the power of doing all such acts, or employing such means, as are essentially necessary to its execution." 35. In the decision of the Apex Court in J.K. Synthetics Ltd. v. C.C.E., MANU/SC/0972/1996MANU/SC/0972/1996 : 1996(86)ELT472(SC) also, similar view is taken, which is extracted hereunder:"3. Our attention was invited to the judgment of this Court in ITO v. M.K.Mohammed Kunhi, MANU/SC/0087/1968MANU/SC/0087/1968 : (1969) 71 ITR 815 : AIR 1969 SC 430, when the question related to the powers of the Income Tax appellate Tribunal under Section 254 of the Income Tax Act, 1961. Reliance was placed upon Sutherland's Statutory Construction, Third Edn., Domats Civil Law, Vol.I,and Maxwell on Interpretation of Statutes, 11th Edn., to hold that it was a firmly established rule that an express grant of statutory power carried with it, by necessary implication, the authority to use all reasonable means to make such grant effective. The powers which had been conferred upon the Tax Appellate Tribunal were of the widest possible amplitude and carried with them, by necessary implication all powers and duties incidental and necessary to make, the exercise of those powers fully effective. Having regard to its powers under Section 254, it was held that the Tax Appellate Tribunal had impliedly been granted the power of doing all such acts and employing such means as were essential and necessary to its ends. The statutory power carried with it the duty in proper cases to make such order for staying proceedings as would prevent the appeal, if successful, from being rendered nugatory." From the above said decisions, though it is held that even in the absence of any specific provision, the Courts are having inherent power to grant injunction and such inherent power has been conferred upon the court by virtue of its duty to do justice. We need not go into the said aspect in this case, 14.38

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as Regulation No. 44 and Section 402 of the Companies Act contemplate such power on the CLB. So there cannot be any difficulty in accepting the proposition that the CLB is having such inherent power to grant injunction in a given case if it has jurisdiction to deal with the same.”

14.9

APPLICATION OF CERTAIN PROVISIONS TO PROCEEDINGS UNDER SECTION 241

“246. The provisions of sections 337 to 341 (both inclusive) shall apply mutatis mutandis, in relation to an application made to the Tribunal under section 241 or section 245.” Sections 337 to 341 are provisions relating to certain fraudulent/improper/illegal transactions/acts that can be challenged and for which prosecution can be initiated. These were earlier contained in Schedule XI of the Companies Act, 1956.

14.10

REMOVAL OF CERTAIN PROVISIONS

There is no section in Companies Act, 2013 that corresponds to sec 408 of the Companies Act, 1956. It is removed from the new Act. This provision in the old Act empowered the Company Law Board to direct the central government to appoint directors in companies for effectively safeguarding the interests of the company, or its shareholders or the public at large. Again, sec 409 empowered the managing director or any other director or the manager, of a company to file a complaint, when it felt that as a result of a change which has taken place or is likely to take place in the ownership of any shares held in the company, a change in the ownership of the company or the board of directors, which will prejudicially affect the company. This right given to management has also been withdrawn.

14.11

LIMITATION OF THIS REMEDY - A CASE FOR CLASS ACTION10

The need for class action has to certain extent emerged from the limitations of relief of 'oppression and mismanagement'. In these cases, the complainant has to make out a case that the wrongdoing is of such magnitude that it otherwise justifies winding up of the company on just and equitable grounds (hereinafter referred to as "winding up test". Thus, in the past there were many instances, where there was an illegal activity but the person was unable to get relief as it did not pass the "winding up" test. A few such instances where the CLB (or concerned authority) failed to grant relief though the action was unjustifiable are given below: 10

Company Law and Practice, A.K.Majumdar & Dr. G.K. Kapoor, Taxmann, 2003

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(a) Non-holding of the meeting of the director (Chander Krishan Gupta v Pannalal Girdhari lal (P.) Ltd. [1984] 55 Comp. Cas. 702 (Delhi)) (b) Denial of inspection of books to a shareholder (Maharani Lalita Rajya Lakshmi v Indian Motor Company (Hazaribagh) ltd. AIR 1962 Cal 127 : 1962 32 CompCas 207 Cal : 66 CWN 63 ) (c) Lack of details in notice of a meeting. (d) Non-maintenance of records in accordance with the provisions of the law (Chander Krishan Gupta v Pannalal Girdhari lal (P.) ltd. 1984 55 CompCas 702 Delhi : 1982 (3) DRJ 295 ) In this case, the court observed that “The non-maintenance of records cannot amount to acts of oppression being committed on the minority shareholders. If proper records of the company are not maintained, it may mean that the management is not working properly. The wrongful act, if committed, of not maintaining the statutory records at the registered office may attract evil consequences to the directors of the company and may also, in certain circumstances, amount to an act of mismanagement but under no circumstances can it be regarded as an act of oppression.” Manipulation in the filing of balance sheet with the ‘Registrar without the signatures of the auditors by itself does not amount to an act of oppression on the minority of shareholders. (e) Drawing of remuneration by a director to which he is not legally entitled. (f) Negligence and inefficiency in managing the affairs of a company. (g) Increasing the voting rights of the shares held by the management. (h) The majority group sold its shares. As a result of such sale, such majority group called an EGM, wherein it authorised the Board of directors to appoint nominees of the proposed acquirer in the Board. In this case, it was held that as on the date of the petition, no such appointment was made and accordingly allegations were premature. (i) In the context of allegations of transfer of shares to an outsider to alter the hitherto composition of shareholding and inducting the outsider as a director in violation of articles of association and in not sending the notice of EOGM to the petitioner, the CLB found that while the allegation of violating the provisions of the articles could not be substantiated, the irregularity in holding the EOGM was there. This in itself cannot be taken as oppression as in the EOGM majority of shareholders took the decision on transfer as oppression, in the best interest of the company. However, having regard to prejudice caused to the interest of the Petitioner as shareholder, the respondent was directed to buy out the shares of the Petitioner (Cine & Supply Corpn. (P.) Ltd., In re [2002] 35 SCL 683) (j) In a case where allegation of minority oppressing majority was brought before it, the CLB ruled that mere expression of desire to gain control over the 14.40

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company by the minority is not an act of oppression (Ultrafilter (India) Pvt. Ltd. v Ultrafilter GmbH [2002] 38 SCL 573.) The need for class action has partly emerged out of the shortcoming of the provisions to prevent oppression and mismanagement. The magnitude and nature of wrongdoing have grown and it was felt that a more deterrent remedy should be brought in place.

14.12

PROCEDURE FOR SEEKING RELIEF AGAINST OPPRESSION AND MISMANAGEMENT

The procedure for seeking relief against oppression and mismanagement is provided in the NCLT Rules. In January 2016, when draft rules were published it was contemplated that a separate set of rules would be notified for Oppression and Mismanagement. However, the final notified NCLT Rules have incorporated many provision of the Draft Oppression and Mismanagement Rules and separate rules for Chapter XVI have not been notified. The general procedure for dealing with matters under oppression and mismanagement is provided hereunder. 1. Any one or more members who are eligible to file can file the application under sec 241 of the Companies Act, 2013 in Form NCLT-1 of NCLT Rules and shall be accompanied with such documents as are mentioned in Annexure B [Rule 81 of NCLT Rules]. 2. The necessary consent letter of consenting shareholders may be attached to the application. The application shall set out the facts making out a case of the nature provided in sec 241. 3. Where an application is presented under sec 241 on behalf of any members of a company entitled to apply under sec 244(1), by any one or more of them, the letter of consent signed by the rest of the members so entitled authorising the applicant or the applicants to present the petition on their behalf, shall be annexed to the Application, and the names and addresses of all the members on whose behalf the Application is presented shall be set out in a schedule to the Application, and where the company has a share capital, the Application shall state whether the applicants have paid all calls and other sums due on their respective shares(Rule 81(2) of NCLT rules). 4. Where an application is presented under sec 241 on behalf of any members of a company who are not entitled to apply under sec 244(1), an application for waiver of requirement provided under clause (a) and (b) of Section 244(1) shall be filed in Form NCLT 9 alongwith necessary documents and fees of Rs. 2500/-. 5. A copy of every application shall be served on the concerned company, other respondents and on such person as the Tribunal directs. Notice can be served in Form No. NCLT 5 of NCLT Rules (Rule 81(3) of NCLT Rules).

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6. Reply shall be served on the applicant and the applicant shall get an opportunity to rejoin his application. 7. If the company and the concerned persons, against whom orders are sought, fail to appear on the date specified in Form no. NCLT 5 of the NCLT Rules, the Tribunal shall dispose the application. 8. If the company and other respondent contest the application, it may file a reply along with copies of such documents on which it relies, before the date of hearing and such reply and copies of documents shall form part of the record. 9. If the circumstances of the case require, the Tribunal may hold a trial and asses the nature and weight of evidence produced before it. It may call for witnesses, appoint commissions for recoding evidence as may be required. If evidence is required to be lead, then the evidence can be led in accordance with the general principles of leading evidence read with the NCLT rules. The procedure should be such that principles of natural justice are followed. 10. The Tribunal shall notify to the parties the date of the hearing of the petition. 11. Where on the date fixed for hearing the petition or application or any other date to which hearing is adjourned, the applicant appears and respondent doesn’t, the Tribunal may adjourn the hearing or hear and decide the petition or the application ex-parte in exercise of the power conferred in sec 424(2)(f) of the Act. If the applicant fails to appear in such manner, the application may be dismissed. 12. An application filed under sec 241 cannot be withdrawn without the leave of the Tribunal. An application for withdrawal shall be in Form No. NCLT 1 (Rule 82 of NCLT Rule). 13. If on any application under sec 241, the Tribunal is of the opinion that: (a) the company’s affairs have been conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest of the company; and (b) to wind up the company would be unfair to member or members but the facts would otherwise justify the making of winding up order on the ground that it was just and equitable that company should be wound up, then the Tribunal, in order to bring matters to an end,, may make such order as it thinks fit. 14. Tribunal may pass such orders, as it may think fit in accordance with sec 242 read with sec 243. Also, regard has to be given to sections 337 to 341, as reliefs can also be passed for correcting the wrongs that are specified therein (sections 242 and 243 read with sec 246). 15. The Tribunal shall send a copy of every order passed to the parties concerned. 14.42

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16. The Tribunal shall decide every application as expeditiously as possible on perusal of documents, affidavits and other evidence, if any, and after hearing such oral arguments, as may be advanced with reference to sec 422 of the Act. 17. Contempt of Court proceeding can be filed, if the party fails to comply with the order (section 425). 18. The Tribunal can take steps to execute the order (section 242). 19. The parties can at any time during the pendency of proceeding, seek interim relief. Any party can apply for interim relief. 20. Any order of the Tribunal can be challenged before the NCLAT on questions of law and fact. Order of NCLAT can be challenged on question of law before the Supreme Court. However, orders passed with the consent of both parties cannot be challenged. There are decisions that provide guidelines on the circumstances in which consent orders can be challenged in the event of fraud and the like.

14.13

COMPARISON CHART - OPPRESSION AND MISMANAGEMENT

14.13.1 Comparison of New Act with Old Act Particulars Application to Tribunal for relief in case of oppression etc

New Act 241(1)

Application by 241(2) central government

Old Act 398(1)

• •

401

• •

• Powers of Tribunal 242(1)

397(2)

• •

Remarks The interest of the member and the company has been considered in the New Act. Under the New Act, the references to “managing agent, secretaries and treasurers” are deleted. CLBTribunal Under new Act, the CG must itself apply to Tribunal, the power of cause to be applied is removed under New Act the CG has to consider the public interest before applying to the tribunal CLBTribunal The Tribunal has to consider the public interest and company’s interest under New Act. 14.43

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Particulars Some specified powers

New Act 242(2)

Old Act 402

ROC filing 242(3) Interim Order 242(4) Alteration to MOA 242(5) to 242(7) Penalty 242(8) Termination and 243 Modification of Certain Agreement

403 404(1) to 404(3) 407

Eligibility Criteria

244

399

Class Action Application of certain provisions to proceedings under sec 241 or sec245.

245 246

406

Chapter 14

Remarks • CLBTribunal • The power of the Tribunal is enhanced under the new act. • deletion of the words “managing agent”, secretaries, treasurers. Newly inserted. CLBTribunal CLBTribunal Newly inserted. • Under the New Act, the references to “managing agent, secretaries and treasurers” are deleted. • Imprisonment is reduced to 6 months from 1 year. • Fine increased to INR 5 lakhs from INR 5,000. The proviso is added that the Tribunal can waive all or any of the requirements of the said section. Newly inserted Similar

14.13.2 Comparison of Old Act with New Act Particulars Old Act Application to 397(1) Tribunal for relief in case of oppression etc

New Act 241(1)(a)

Considerations at the 397(2) time of passing order

242(1)

14.44

Remarks • Similar • Grounds expanded to include “Prejudice to members”. • Relief can be provided against recent oppressive acts. • CLBTribunal

Chapter 14

Particulars

Oppression and mismanagement

Old Act

New Act

Application to CLB 398(1) for relief in case of mismanagement

241(1)(b)

Consideration at the 398(2) time of passing order

399(4)

Eligibility

399(1)

244(1)

Joint Shareholders Consent from other shareholders Waiver of Eligibility Criteria and Security for that Notice to CG of applications of oppression and mismanagement Right of CG to apply under sec 397 &398

399(2) 399(3)

244(2)

Remarks • The Tribunal has to consider the public interest and company’s interest under new act. • Section 398(1)(a) is deleted but consequence changes made in sec 241(1)(a) • The interest of the member and the company has been considered in the New Act. • Under the New Act, the references to “managing agent, secretaries and treasurers” are deleted. New consideration and threshold for deciding the cases is provided to Tribunal under sec 242 of the Companies Act, 2013 The proviso is added that the Tribunal can waive all or any of the requirements of the said section. This power was earlier with CG. Deleted No change

399(4) & 399(5)

Proviso to 244(1)

• Power transferred to CG • No security to be provided

400

-

Deleted

401

241(2)

Power of CLB on application u/s 397 or s.398

402

242(2)

• CLBTribunal • Under new Act, the CG has to itself apply to the Tribunal, the power of cause to be applied is removed • Under new Act, the CG has to consider the public interest before applying to the Tribunal. • CLBTribunal • The power of the Tribunal is enhanced under new act. 14.45

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Particulars

Old Act

New Act

Interim order by CLB Effect of alteration of memorandum or articles of company by order u/s 397 or 398 Penalty Addition of respondents to application u/s 397 or s.398 of old Act Application of sec 539 to 544 to proceedings u/s 397 or s 398

403

242(4)

404(1)to 404(3)

242(5) to 242(7)

CLBTribunal

404(4) 405

-

Deleted Deleted

406

246

Consequences of termination or modification of certain agreements Penalty

407(1)

243(1)

407(2)

243(2)

Leave

407(3)

Proviso 243(1)

• Similar • This is a very important provision as it allows a wide variety of reliefs in different instances. • Under the New Act, the references to “managing agent, secretaries and treasurers” are deleted. • Under the New Act, the references to “managing agent, secretaries and treasurers” are deleted. • Imprisonment is reduced to 6 months from 1 year. • Fine increased to INR 5 lakhs from INR 5,000 Similar

14.14

Remarks • deletion of the words “managing agent”, secretaries, treasurers CLBTribunal

APPENDIX A : EXTRACTS OF BENNETT COLEMAN CASE

In Bennett Coleman and Co. v Union of India and Ors. [MANU/MH/0054/1977, [1977]47CompCas92(Bom)] “16. In our view, the submissions made by Mr. Sen on the point of legality or otherwise of the impugned orders will have to be appreciated in the context of the principal question as to what are the powers of the court when it is acting in 14.46

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proceedings instituted under section 397 and 298 read with section 402 of the Companies Act. The questions whether a board of directors of the type indicted in the impugned order could be reconstituted by the court or not and whether the court had power to frame an article inconsistent with the provisions of section 255 of the Act or not must in the ultimate analysis depend upon the true ambit of the powers of the court under section 397 or 398 read with section 402, for, if these sections confer upon the court jurisdiction and powers of the widest amplitude to pass appropriate orders which the circumstances of the case may require, it would be difficult to accept Mr. Sen's submissions that the impugned orders and directions are liable to be set aside on the basis that the reconstituted board or modified article 95 was not in consonance with section 255 of the Act. To correctly appreciate the ambit of the court's jurisdiction and the amplitude of the court's powers under section 397 and 398 read with section 402 of the Companies Act, 1956, it will be necessary to consider the entire scheme of the Act pertaining to corporate management of companies. At the outset, it may be stated that all these concerned provisions occur in Part VI of the Act which deals with the management and administration of companies. It may further be pointed out that in this part there are eight chapters. Chapter I contains general provisions with regard to corporate management and administration of the companies such as registered office, registers of members and debenture-holders, annual returns, meetings and proceedings, accounts, audit, investigation, etc.; Chapter II, which includes section255, deals with directors, their qualification, disqualification and remuneration, meetings of the board, board's powers, procedure where directors are interested, etc.; Chapter III deals with managing agents, their appointment, remuneration, restrictions on their powers, etc.; Chapter IV deals with secretaries and treasurers; Chapter IV-A deals with powers of the central government to remove managerial personnel from office on the recommendation of the Tribunal; Chapter V deals with arbitration, compromises, arrangements and reconstructions; Chapter VI, which includes sections 397 to 409, deals with prevention of oppression and mismanagement; Chapter VII deals with constitution and powers of advisory committee and Chapter VIII contains miscellaneous provisions. It will thus be seen that section 255 on which substantially the entire argument of Mr. Sen is based is to be found in Chapter II which deals with directors and the constitution of the board, through which agency the corporate management of the affairs of a company is usually undertaken, while Chapter VI, which contains material provisions from sections 397 to 409, deals with matters, pertaining to prevention of oppression and mismanagement arising out of corporate management. In other words, it is very clear that Chapter II which includes section255 deals with corporate management of a company through directors in normal circumstances, while Chapter VI deals with emergent situations or extraordinary circumstances where the normal corporate management has failed and has run into oppression or mismanagement and steps are required to be taken to prevent oppression and/or mismanagement in the conduct of the affairs of a company. It is in view of this scheme which is very apparent on a fair reading of the arrangement of chapter and the sections contained in each chapter which are all grouped under Part VI of the Act 14.47

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that the question will have to be answered as to whether the powers of the court under Chapter VI (which includes sections 397, 398 and 402) should be read as subject to the provisions contained in the other chapters which deal with normal corporate management of a company and, in our view, in the context of this scheme having regard to the object that is sought to be achieved by sections 397 and 398 read with section 402, the powers of the court thereunder cannot be so read. Further, an analysis of the sections contained in Chapter VI of Part VI of the Act will also indicate that the powers of the court under section 397 or398 read with section 402 cannot be read as being subject to the other provisions contained in sections dealing with usual corporate management of a company in normal circumstances. As stated earlier, Chapter VI deals with the prevention of oppression and mismanagement and the provisions therein have been divided under two heads - under head A powers have been conferred upon the court to deal with cases of oppression and mismanagement in a company falling under section 397and 398 of the Act while under head B similar powers have been given to the central government to deal with cases of oppression and mismanagement in a company but it will be clear that some limitation have been placed on the Government's powers while there are no limitations or restrictions on the court's powers to pass orders that may be required for bringing to an end the oppression or mismanagement complained of and to prevent further oppression or mismanagement in future or to see that the affairs of the company are not being conducted in a manner prejudicial to public interest. In other words, whenever the legislature wanted to do so it has made a distinction between powers conferred on the Government (vide section 408) and powers conferred on the court (vide section 402) while dealing with similar emergent situations or extraordinary circumstances arising in the management of a company and in the case of the Government it has placed restrictions or limitations on the Government's powers but no restrictions or limitations of anything have been prescribed on the court's powers; if the legislature had desired that the court's powers while acting under section 397 or 398 read with section 402 should be exercised subject to or in consonance with the other provisions of the Act it would have said so. Moreover, the topics or subjects dealt with by sections 397 and 398 are such that it becomes impossible to read any such restriction or limitation on the powers of the court acting under section 402. Under section 397read with section 402 power has been conferred on the court "to make such orders as it thinks fit" if it comes to the conclusion that the affairs of a company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up "with a view to bringing to an end the matters complained of". Similarly, under section398 read with section 402 power has been conferred upon the court "to make such orders as it thinks fit" if it comes to the conclusion that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company or that a material change has taken place in the management or control of the company by reason of which it 14.48

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is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company, "with a view to bringing to an end or preventing the matters complained of or apprehended". Both the wide nature of the power conferred on the court and the object or object sought to be achieved by the exercise of such power are clearly indicated in sections 397 and 398. Without prejudice to the generality of the powers conferred on the court under these sections, section 402 proceeds to indicate what type of orders the court could pass and clauses (a) to (g) are clearly illustrative and not exhaustive of the type of such orders. Clauses (a) and (g) indicate the widest amplitude of the court's power: under clause (a) the court's order may provide for the regulation of the conduct of the company's affairs in future and under clause (g) the court's order may provide for any other matter for which in the opinion of the court it is just and equitable that provision should be made. An examination of the aforesaid section clearly brings out two aspects, first, the very wide nature of the power conferred on the court, and, secondly, the object that is sought to be achieved by the exercise of such power with the result that the only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed thereunder the object sought to be achieved by these sections and beyond this limitation which arises by necessary implication it is difficult to read any other restriction or limitation on the exercise of the court's power. We are, therefore, unable to accept Mr. Sen's contention that the court's powers under section 398 read with section 402 should be read as subject to the other provision of the Act dealing with normal corporate management or that the court's orders and directions issued thereunder must be in consonance with the other provisions of the Act. 18. There is another aspect of sections 397, 398 and 402 which also shows that no such limitation as is sought to be suggested by Mr. Sen can be read on the court's power while acting under the sections. Section 397 clearly suggests that the court must come to the conclusion that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members of the company and that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up before any order could be passed by it. In other words, instead of destroying the corporate existence of a company the court has been enabled to continue its corporate existence by passing such orders as it thinks fit in order to achieve the objective of removing the oppression to any member or members of a company or to prevent the company's affairs from being conducted in a manner prejudicial to public interest. Similarly, sub-section (2) of section 398 clearly provides that where the court is of the opinion that the affairs of the company are being conducted in a manner suggested in sub-section (1), then, the court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. In other words, sections 397 and 398 are intended to avoid winding up of the company if possible and keep it going while at the same time 14.49

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relieving the minority shareholders from acts of oppression and mismanagement or preventing its affairs being conducted in a manner prejudicial to public interest and if that be the objective the court must have power to interfere with the normal corporate management of the company. If under section 398 read with section 402 the court is required by its order to provide for the regulation of the conduct of the company's affairs in future because of oppression or mismanagement that has occurred during the course of normal corporate management, the court must have the power to supplant the entire corporate management, or rather corporate mismanagement by resorting to non-corporate management which may take the form of appointing an administrator or a special officer or a committee of advisers, etc., who could be in charge of the affairs of the company. If the court were to have no such power the very object of the section would be defeated. We must observe in fairness to Mr. Sen that it was not disputed by him that the powers of the court under section 398 read with section 402 of the Companies Act were wide enough to enable the court to appoint an administrator or a special officer or a committee of advisers for the future management of the company and thereby supplant completely the corporate management through the board of directors and it was conceded that it should be so for the simple reason that if as a result of corporate management that has been allowed to run for a certain period oppression or mismanagement has resulted, the court should have power to substitute the entire corporate management by some form of non-corporate management and while doing so the court cannot obviously have any regard or be subject to the other provisions dealing with the corporate form of management. But what was urged by Mr. Sen was that if while acting under section 398 read with section 402 the court thought fit to have recourse to a mode of corporate type of management, for example, if the court felt proper to have a board of directors for future management, then such corporate mode of management to be provide by the court should conform to other provisions of the Act dealing with corporate management. It is not possible to accept this contention of Mr. Sen for two reasons. In the first place, if the court's power under these sections is wide enough to have the corporate management supplanted wholly or completely, it is difficult to understand why the court should not have power to make a partial inroad or encroachment and have a truncated form of corporate management if the exigencies of the case required it, and any truncated form of corporate management can never conform to all the provisions dealing with corporate management. Secondly, it will all depend upon the facts and circumstances of each case as to how, in what manner and to what extent the court should allow the voice of the shareholders' directors on the board of directors to prevail over that of the other directors and we do not think that the court's powers in that behalf could in any manner be curbed. In our view, therefore, the position is clear that while acting under section 398 read with section 402 of the Companies Act the court has ample jurisdiction and very wide powers to pass such orders and give such direction as it thinks fit to achieve the object and there would be no limitation or restriction on such power that the same should be exercised subject to the other provisions of the Act

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dealing with normal corporate management or that such orders and directions should be in consonance with such provisions of the Act. 19. Considerable emphasis was laid by Mr. Sen on the fact that there was absence of a non-obstante clause in any of the relevant sections, viz., section 397, 398 and 402. His contention was that whenever the legislature intended that any of the provisions of the Act should be overridden and the legislature has clearly expressed its intention by using appropriate language, namely, by user of a non-obstante clause and since there was no non-obstante clause in section 397 or section398 read with section 402 of the Act, the court's powers thereunder could not override the other provisions of the Act but would be subject to such provisions. In the first place, like a deeming provision which is sometimes made with a view to make explicit what is obvious, a non-obstante clause is also used at times ex abundanti cautela to make explicit what is obvious and, therefore, the absence of that clause would not necessarily lead to an inference suggested by Mr. Sen. Secondly, normally, such non-obstante clause becomes necessary when the enacted provisions or enacted clause is necessarily going in conflict with the other provisions of the Act and if there would be no such conflict, then there would be no necessity to use a non-obstante clause and well shall indicate presently that there is no necessary conflict between the provisions of section 397 and section 398 read with section 402 and the provisions of section 255 of the Act and, therefore, the non-obstante clause must not have been used while enacting the relevant sections. By the very nature the provisions contained in sections 397 and 398 read with section 402 have been enacted to meet emergent situations and extraordinary circumstances while section 255 contains provisions which would operate when the normal corporate management of a company is being run. Normally, the two sets of circumstances in which the two sets of provisions would operate be mutually exclusive. Therefore, there is no question of a conflict necessarily arising between these two provisions and this, in our view, sufficiently explains the absence of a non-obstante clause in sections 397, 398 and 402 of the Act. It is true that while conferring powers on the central government to prevent oppression or mismanagement under section 408 a non-obstante clause has been used. But, indisputably, there is substantial difference between the powers conferred upon the court under section 397 or 398 read with section 402 and the powers conferred upon the central government under section408, inasmuch as on the powers of the court no restrictions or limitations of any kind have been put while restrictions and limitations have been placed on the Government's power to grant relief in cases of oppression and mismanagement. Even the manner in which, the extent to which and the period for which relief could be granted by the Government has been indicated and on account of this the provisions of section 408 would necessarily come in conflict with the other provisions of the Act dealing with corporate management including section 255 and, therefore, a non-obstante clause was used at the commencement of section 408. We are, therefore, inclined to take the view that the absence of a non-obstante clause in sections 397, 398 and 402 does not lead to the inference suggested by Mr. Sen. Moreover, as we have already indicated, there is neither a non-obstante clause 14.51

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contained in any of these sections nor is there language to indicate that the court's powers under these sections are to be exercised subject to any of the other provisions of the Act. In such a situation the ambit of the court's powers must be determined by the scheme of Part VI in which all the concerned sections appear, the language employed in these relevant sections and the object sought to be achieved by them and in this context it would be useful to refer to the rule of construction enunciated in Maxwell on the Interpretation of Statute, 12th edition, page 45, to which our attention was invited by Mr. Phadke. The relevant rule of construction has been stated thus : "If the choice is between two interpretations, the narrower of which would fail to achieve the manifest purpose of the legislation, we should avoid a construction which would reduce the legislation to futility and should rather accept the bolder construction based on the view that Parliament would legislate only for the purpose of bringing about an effective result." 20. The above passage is based on the judgment of Viscount Simon L.C. in the case of Nokes v. Doncaster Amalgamated Collieries Ltd. [1940] AC 1014 and, in our view, the rule could be applied to the instant case. Having regard to the admitted position that there is neither a non-obstante clause contained in any of these relevant sections nor is there anything to indicate that the court's powers under these sections are to be exercised subject to any of the other provisions of the Act, there is a choice available to the court and having regard to the manifest purpose of the legislation, it will be difficult to accept the contention of Mr. Sen that the narrower construction of these sections leading to curtailment of owners conferred upon the court should be adopted simply because the provisions do not contain any non-obstante clause; instead we are inclined to adopt a broader construction, inasmuch as such construction would have the effect of achieving the desired result. 21. It was next contended by Mr. Sen that article 95 as framed by the learned judge being in contravention of section 255would be void under section 9(b) of the Act and this indicated that the court's powers under section 398 read with section402 should be read as subject to the other provisions of the Act. According to him, under section 9(b) of the Act any provision contained in the memorandum, articles, agreement or resolution of a company, to the extent to which it is repugnant to the provisions of the Act, is declared to be void and relying upon this provision it was urged by Mr. Sen that he court's power to frame a new article 95 and substitute the same in place of the old one, since it contravened the provision of section 255, would be hit by section 9(b) and as such it should be held that the court had no power to introduce any such article. In our view, there are two aspects of section 9(b) which have a bearing on the contention; first, section 9commences with a saving clause, viz., "Save as otherwise expressly provided in the Act", and, secondly, under clause (b) thereof any provision contained in the memorandum, articles, etc., is declared to be void to the extent to which it is repugnant to the provisions of this Act. In our view, essentially it is a question of true and proper construction of the court's powers under section 397 or 398 read with section 402 and having regard to the scheme of part VI which includes all the sections dealing with management and administration of companies, 14.52

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the language employed in the relevant sections 397,398 and 402 and the object that is sought to be achieved by these sections if once it is held that on a true construction the court has the widest possible jurisdiction and ample powers to pass such orders as it thinks fit to bring about the desired result in the management of the affairs of a company and that the exercise of such powers is not subject to the other provisions of the Act, there would be no question of the court not being able to reframe or insert a new article which would be in conflict with some provisions of the Act. We are inclined to take the view that sections 397, 398 and 402 by their very nature and contents indicate that they are intended to operate as express provision to the contrary and would be covered by the phrase "Save as otherwise expressly provided in the Act". In any case, as discussed earlier, the two sets of situations in which the provisions of section 255 and provisions of Section 397 or 398 read with section 402 would respectively operate are entirely different and mutually exclusive and as such there will be no repugnancy between any article that may be reframed or inserted by the court while passing orders under section 398 read with section 402 and other provisions of the Act including section 255 which deal with normal corporate management of a company. The contention that the reframing or insertion of a new article like article 95 as done in this case will be hit by section 9(b)cannot be accepted. 22. The only other aspect which was pressed by Mr. Sen was the one emerging from sub-section (2) of section 404. Sub-section (2) of section 404 provides that the alterations made by the court's order in the memorandum or articles of a company shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of the Act. Great emphasis was laid by Mr. Sen upon the expression "shall, in all respects, have the same effect" occurring in sub-section (2) and, according to Mr. Sen, this expression clearly suggested that the altered article should not be repugnant to any of the provision of the Act for otherwise such an article would be hit by the provisions of section 9(b) of the Act. In our view, the contention is without any substance. The expression "shall, in all respects, have the same effect" is to be read in the light of section 36 of the Act which provides for effect of memorandum and articles. Section 36 provides that, subject to the provisions of the Act, the memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles. All that sub-section (2) of section 404, therefore, provides is that the altered article that may be introduce by reason of the court's order will have the same binding effect as contemplated by section 36 of the Act. In other words, the altered article will bind the company and the members thereof to the same extent as if it had been signed by the company and by each member and that it contained covenants on its and his part to observe all the provisions thereof. Besides, we have already rejected the contention that reframing or insertion of a new article by the court acting under section 398 read with section 402 will be hit by section 9(b) of the Act. 14.53

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23. Having regard to the above discussion, we are clearly of the view that the court had jurisdiction to reconstitute the board in the manner done in this case and such board is not violative of section 255 of the Companies Act and we are also of the further view that the learned judge had ample powers to alter the original article 95 of respondent No. 1-company in the manner done by him while acting under section 398 read with section 402 of the Act. 24. Turning to the contention that the reconstituted board in the manner done by the learned judge was violative of section408 of the Companies Act, it is obvious that the contention is ill-conceived. In our view, section 408, the contravention of which is complained of, is not applicable to the facts of the case, because in the instant case it is not the central government that has nominated its nominees as directors of respondent No. 1-company and hence no question of exceeding the limit of two directors as mentioned in the section can arise. The restrictions contemplated in the section are applicable when the central government exercises the power conferred on it thereunder whereas in the instant case powers have been exercised by the court under section 398 read with section 402 of the Act and as such it is difficult to accept the contention that the exercise of such power is contrary to the provisions of section 408 of the Act. In point of fact all that had happened was that the learned judge invited suggestions from counsel appearing for the Union of India to suggest names of three persons as nominees of the central government whom he wanted to appoint on the reconstituted board and after the names were mentioned to him he appointed those persons as Government nominees on the reconstituted board. The decision to reconstitute the board with three directors being the representatives of the shareholders, three directors being the representatives of the central government and five directors being appointed by the court was taken by the learned judge himself and after taking this decision he invited suggestion as to who should be the representatives of the respective parties and it is in this manner that the learned judge came to appoint the three nominees of the central government on the reconstituted board of respondent No. 1-company. The contention, therefore, that the reconstituted board is violative of section 408 is without any substance. 25. We may now briefly refer to the two decisions of the Supreme Court on which Mr. Sen relied. The first decision was the case of Hindustan Times Ltd. v. Their Workmen AIR 1963 SC 1392 and the other was the case of Dalmia Cement (Bharat) Ltd. v. Their Workmen MANU/SC/0332/1960 : (1961)IILLJ130SC . In both the cases the court was concerned with the provisions of section 22 of the Delhi Shops and Establishments Act which fixed the maximum of sick leave or casual leave with wages to a period of 12 days and further declared that such leave shall not be accumulated and both the courts held that the relief in the matter of sick leave that had been granted by the industrial court to certain workers was in contravention of section 22 of that Act and hence was illegal and required to be set aside. In the former case, admittedly, a large number of workmen covered by the reference were governed by the provisions as regards leave in the Delhi Shops and Establishments Act and the Industrial Tribunal had fixed the period of sick leave at 15 days and had permitted 14.54

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accumulation, which was contrary to the express provision of section 22 of the said Act and the court took the view that it was clear that as regards those workmen to whom the Delhi Shops and Establishments Act, 1954, applied, the Tribunal had acted illegally in fixing the period of sick leave at 15 days and permitting accumulation and on that ground the court set aside that direction in the award and instead directed that the company should allow to the workmen to whom the Delhi Shops and Establishments Act applied, sickness or casual leave of a total of 12 days with full pay and allowances and that such leave shall not be accumulated. In the other case, the clerical staff in a certain establishment used to get 12 days sick leave and 12 days casual leave while the subordinate staff was getting only 12 days sick and casual leave in a year and in that situation the Tribunal accepted the workmen's contention that the discrimination was unjustified and directed that the workmen should also get sick and casual leave as enjoyed by the clerical staff. The court had held that the Tribunal could not disregard the peremptory direction of the legislature to fix a maximum of 12 days total leave for sickness or casual leave and that the fact that clerks were allowed sick and casual leave more than the maximum mentioned in section 22 did not entitle the Tribunal to disregard those provisions. The Tribunal having thus acted illegally in directing the grant to sick and casual leave more than the maximum fixed by section 22 the said directions was set aside by the court. Obviously, the Industrial Tribunal could not give directions which were contrary to the express provision of section 22 of the Delhi Shops and Establishments Act. In our view, these decisions would not be applicable to the facts of this case there the question is what is the amplitude of the powers of the court on a true interpretation of sections 397, 398 and 402 of the Companies Act when the court is called upon to meet emergent situations or extraordinary circumstances in the management of the affairs of a company where the normal corporate management has failed. 26. In the context of the above question Mr. Phadke invited out attention to three decisions having a bearing on the court's powers under section 402 of the Act, namely, Rajahmundry Electric Supply Corporation Ltd. v. Nageswara Rao [1956] 26 Comp Cas 91 (SC), Shanti Prasad Jain v. Kalinga Tubes Ltd. MANU/OR/0075/1962 : AIR1962Ori202 and Richardson & Cruddas Ltd. v. Haridas Mundra [1959] 29 Comp Cas 549 (Cal). In the first two cases the question had arisen about the nature and scope of the court's power under section 397 read with section 402 (equivalent to section 153C of the old Act) while in the last case a question had arisen about the court's power under section 398 read with section 402. It will suffice if we refer to the last decision of the Calcutta High Court. In that case the question was whether the court had power to appoint an advisory board to assist the special officer who had been appointed by an earlier order under section 402 in a proceeding instituted under section 398 of the Companies Act and while dealing with the nature and scope of the powers conferred upon the court under section 402, Justice Mukharji, at page 550 of his judgment, has observed as follows: "Now the powers of the court under section 402 of the Companies Act are wide. In fact, the court may make any order for the regulation of the conduct of the company's 14.55

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affairs upon such terms and conditions as may, in the opinion of the court, be just and equitable in all the circumstances of the case. Constitution of an advisory board by orders of court in a proper case of company management is, therefore, in my view within the competence of the court under section 402 of the Companies Act, 1956." Further at page 550, the learned judge has observed as follows: "Since the appointment of the special officer attempts are being made by him to put the company's administration on a sound basis. The corporation now makes the application to have a board of advisers to assist the special officer of this court in regulating and managing the company's affairs and its business. The pattern of the court's power of managing under section 402 has to be worked out. The section is an innovation in company administration by the court." 27. We are in agreement with Justice Mukharji's view that section 402 is an innovation in company administration by the court and the pattern of the court's powers of managing thereunder has to be worked out but there is no doubt having regard to the scheme a Part VI in which all the sections staining to management and administration of the company's affairs occur, the language employed in sections 397, 398 and 402 and the object sought to be achieved by these sections, the court's powers to regulate the conduct of the company's affairs in future, must of necessity be of the widest amplitude and on a rue construction of section 398 read with section 402, we are clearly of the view that no limitation of the type suggested by Mr. Sen on the court's power could be placed and the same are not subject to section 255 or the other provisions of the Act dealing with normal corporate management. The court had ample powers to reconstitute the board in the manner done and to reframe article 95 in the manner done and neither the reconstituted board nor the reframed article 95 are violative of section 255 or section 408 of the Act. The orders passed and directions given by the learned judge cannot be said to be either illegal or without jurisdiction. The contention with regard to illegality of the impugned orders and directions, therefore, must fail. 28. During the course of his argument Mr. Sen submitted that the court could have achieved its objective by reconstituting the board of respondent No. 1-company in accordance with section 255 rather than by contravening the same and in that behalf he pointed out that 1/3rd of the total number of directors who are immune from retirement be rotation could have been appointed by the court and out of the remaining 2/3rds who are liable to retire by rotation half the number drawn from public life or profession could have been elected by the shareholders but subject to approval or confirmation by the court and the other half to be elected by shareholders without the approval of the court and if this had been done, there would have been no question of either altering the existing article 95 as done by the learned judge or reconstituting the board in contravention of the provisions of section 255. On a proper reading of section 255, in our view, the aforesaid submission of Mr. Sen cannot be accepted as it would be clear that the reconstitution of the board as suggested would also contravene the provisions of section 255. In the first place, under sub-section (2) of section 255 it has been provided that the remaining directors, 14.56

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meaning the directors who do not retire by rotation, have also to be appointed by the company in general meeting, subject, of course, to any regulations in the articles of the company in that behalf and as such if these were to be nominated by the court it would amount to interference with shareholders' right to have corporate management through directors appointed by them; secondly, even under sub-section (1) not less than 2/3rds of the total number of directors who are liable to retire by rotation, have also to be appointed by the company in general meeting, and if half of such 2/3rds directors were to be appointed subject to approval of the court, it would amount to placing restriction on the corporate right of the shareholders conferred upon them and as such a contravention of section 255 of the Act. It is thus clear that if the learned judge thought that giving a preponderating and effective majority to directors other than the directors representing the shareholders was necessary in the facts and circumstances of the case, the same could not be done without encroaching upon the corporate right of the shareholders to manage the company's affairs and, as stated above, this is within the competence of the court acting under section 398 read with section 402.”

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FURTHER READING

1. Dr. K. R. Chandratre, Oppression & Mismanagement, Bharat Law House; 2. A Ramaiya, Guide to the Companies Act, Sixteenth Edition, 2010, Wadhwa & Company.

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Class actions 15.1

INTRODUCTION

The concept of class action has been introduced for the first time under the Companies Act. It is a very potent remedy for shareholders. This chapter analyses the nature and scope of this new remedy. Protection of the interest of various stakeholders, especially non-promoter shareholders and depositors, has always been the concern of company law. There were several frauds and improprieties that were noticed where the key losers were the shareholders and depositors. The shareholders who invested in listed companies saw their investments and savings drying up when the companies that they invested in cheated the investors. For instance, the share price of Satyam collapsed from the heights of INR 528 per share to INR 6.30 per share post disclosure by Mr. Ramalingam Raju (which was finally sold to Mahindra at INR 58 per share). This loss was not on account of the market condition but on account of the fraud committed by the promoters and management on the shareholders. While the law was successful in punishing the offender, it was unsuccessful in bringing relief to the shareholders who lost heavily on account of the fraudulent practices. The Companies Act, 2013 has provided a very good combination where the offender will be punished and the people who are involved (whether it is the company or directors or auditor or experts or consultants) will be liable even for a civil action (namely class action), wherein they have to compensate the shareholders and depositors for the losses caused to them on account of the fraudulent practices or improprieties.

15.2

THE NEW-AGE OF INVESTOR PROTECTION

The Companies Act, 2013 has been enacted with several provisions which safeguard the investors and strengthen corporate democracy. The focus of the Act has changed from protecting the interest of only shareholders to protecting the interest of all the stakeholders, including the shareholders, depositors, creditors and the public at large. The tools which are used in the Act are of two types, namely preventive and curative tools: (a) Preventive tools- The Act has empowered several regulatory authorities to supervise and enforce the provisions of the Companies Act, 2013. The

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stakeholders have been empowered by placing more powers and rights in their hands. (b) Curative tools- A separate specialised judicial system has been created to deal with civil and criminal actions under the Act. The investor can now seek compensation in many instances. Class action is an important remedy in this context.

15.3

CLASS ACTION - MEANING, CONCEPT & SCOPE

In concept, a class suit is a lawsuit filed or defended by an individual or a small group acting on behalf of a large group. The concept of class action has been aptly described by the US Supreme Court in Hansberry v Lee, 311 U.S. 32, 41, 61 S.Ct. 115, 118 (1940), which can be briefly described as follows: A class action is a procedural device that permits one or more plaintiffs to file and prosecute a lawsuit on behalf of a larger group, or “class”. Put simply, the device allows courts to manage lawsuits that would otherwise be unmanageable if each class member (individuals who have suffered the same wrong at the hands of the defendant) were required to be joined in the lawsuit as a named plaintiff. Class action is in the nature of a representative suit where the interest of a class is represented by a few of them. The concept of representative suit is not new in India as it is a recognised concept in the Code of Civil Procedure (CPC). The CPC allows a class action suit when a number of members of a class have the same interest in the suit. In a representative suit, any decree is binding on all the persons on whose behalf or for whose benefit the suit is instituted or defended, as the case may be. A class action suit is a suit where the concept of “necessary party”1 is diluted. In a class action, the court is enabled to make an order for the entire class of shareholders or depositors even though they are not party to the class action suit. This may prevent a future litigation by taking away the necessity of a multiplicity of suits, and may make it perfectly certain that no injustice shall be done either to the parties before the court or to others who are equally entitled to a decree, but are unable to come forth to put forth their case. Class action is a model of litigation where a huge number of geographically dispersed shareholders/depositors are affected by the wrongdoings. It is a useful tool where a few may sue for the benefit of the whole or where the parties form a part of a voluntary association for public or private purposes, and may be fairly supposed to represent the rights and interests of the whole. Class action is a useful remedy where the parties are too numerous to be conveniently brought before the court.

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All persons materially interested, either as plaintiffs or defendants in the subject matter of the bill, ought to be made parties to the suit, however numerous they may be.

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15.3.1

Class Actions

Advantages of class action2

Class actions may offer a number of advantages because they aggregate a large number of individualized claims into one representative lawsuit. Aggregation can increase the efficiency of the legal process, and lower the costs of litigation. It ensures that in common issues where there are same witnesses, documents and issues are not required to be agitated on a day-to-day basis. Second, a class action may overcome “the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights” [Amchem Prods., Inc. v Windsor, 521 U.S. 591, 617 (1997) (quoting Mace v Van Ru Credit Corp., 109 F.3d 388, 344 (7th Cir. 1997)]. “A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone’s (usually an attorney’s) labor” [Amchem Prods., Inc., 521 U.S. at 617 (quoting Mace, 109 F.3d at 344)]. In other words, a class action ensures that a defendant who engages in a widespread harm – but does so minimally against each individual plaintiff – must compensate those individuals for their injuries. For example, thousands of shareholders of a public company may have suffered losses too small to justify separate lawsuits, but a class action can be brought efficiently on behalf of all shareholders. Perhaps even more important than compensation is that class treatment of claims may be the only way to impose the costs of wrongdoing on the wrongdoer, thus deterring future wrongdoing. Third, class action cases may be brought to purposely change the behavior of a class of which the defendant is a member. Landeros v Flood, 17 Cal. 3d 399, 551 P.2d 389 97 ALR 3d 324 was a landmark case used to purposefully change the behavior of doctors, and encourage them to report suspected child abuse. Otherwise, they would face the threat of civil action for damages in tort proximately flowing from the failure to report the suspected injuries. Previously, many physicians had remained reluctant to report cases of apparent child abuse, despite the existing law that required it. Fourth, in “limited fund” cases, a class action ensures that all plaintiffs receive relief and that early-filing plaintiffs do not raid the fund (i.e. the defendant) of all its assets before other plaintiffs may be compensated. A class action in such a situation centralizes all claims into one venue where a court can equitably divide the assets amongst all the plaintiffs if they win the case. Finally, a class action avoids the situation where different court rulings could create “incompatible standards” of conduct for the defendant to follow. For example, a court might certify a case for class treatment where a number of individual bondholders sue to determine whether they may convert their bonds to common stock. Refusing to litigate the case in one trial could result in different outcomes and inconsistent standards of conduct for the defendant corporation. Thus, courts will generally allow

2

https://en.wikipedia.org/wiki/Class_action, 11 September 2015.

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a class action in such a situation. See, e.g. Van Gemert v Boeing Co., 259 F. Supp. 125 (S.D.N.Y. 1966). Class action lawsuits are an important and valuable part of the legal system when they permit a fair and efficient resolution of legitimate claims of numerous parties by allowing the claims to be aggregated into a single action against a defendant that has allegedly caused harm.3

15.3.2

Nature of class action

Securities class action (where investors file a case against the company) is just one type of class action that is now recognized by the Companies Act, 2013. However, class actions are of different types and a securities class action is only one type of class action that are recognized worldwide. Some of the other types of class action are as follows4 • employees subjected to a pattern or practice of racial, age, or gender discrimination by their corporate employer; • home or business owners affected by an environmental disaster such as the BP Gulf of Mexico oil spill; • consumers who purchased the same defective product or who were deceived by the same false advertising or manipulative business practices; • patients prescribed a prescription drug with dangerous side effects that the manufacturer was aware of and failed to disclose; • consumers and small business owners who paid an inflated price for a product after a group of corporations conspired to fix prices; • individuals whose sensitive, private communications were recorded by a corporation without their knowledge or authorization.

15.3.3

Class actions worldwide

Class actions are very common in the United States. However, many other countries have recognized class actions. To name a few, Canada, Austria, and Italy have in place the provisions to permit a class action. Class action is one of the key mechanisms used for enforcement of the corporate law wherein shareholder takes action against the company or its management for breach of their duties and obligations. Such shareholder actions can be either direct actions for breaches of duties owed to the shareholders directly in which case the remedies will flow to the shareholders, or they can be derivative actions where shareholders bring them on behalf of the company for breach of duties owed to the company, in which case the remedies would flow to the company. Despite the popularity of such

3

The preamble to the Class Action Fairness Act of 2005.

4

http://www.lieffcabraser.com/About-Us/Class-Action-FAQ/#examples.

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actions in countries such as the United States, United Kingdom, and several leading jurisdictions in the commonwealth, such private shareholder actions are indeed sparsely used in India.

15.3.4

Class action in India

Public interest litigation is a kind of class action, which is quite popular in India. Another type of class action is seen in the consumer court. In 2015, the Department of Consumer Affairs (DCA) filed a class action in the National Consumer Dispute Redressal Commission (NCDRC) seeking INR 640 crores in damages. A suit was filed in public interest that alleged unfair trade practices, false labelling, and misleading advertisements. We have seen a series of such class actions in the last decade. Under the Company Law, even oppression and mismanagement is a kind of class action. However, it has its own limitations due to which the concept of class action was introduced.

15.3.5

What is the importance of class action suits in the Indian context?

The importance of the provision can be gauged from the experience of the Satyam fraud. Well over three years after the scandal broke, Indian investors are yet to get any significant compensation in the INR 8,000 crore fraud committed by the promoters of Satyam Computer Services. However, Mahindra Satyam has settled a class action with the American counterpart (who owned American depositary receipts) and has agreed to pay $125 million in settlement. Satyam is just one example. Many frauds have been highlighted in the recent past and, as a result, the shares of many companies tanked. Investors of these companies lost heavily. The Indian corporate framework has no expeditious and effective remedies for providing relief to these fraud-stricken shareholders. Thus, the need was felt for introducing class action in India.

15.3.6

Class action under the new Act

Section 245 has been introduced in the new company law to provide relief to the investors against a large set of wrongful actions committed by the company management or other consultants and advisors who are associated with the company. “245. Class Action (1) Such number of member or members, depositor or depositors or any class of them, as the case may be, as are indicated in sub-section (2) may, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors for seeking all or any of the following orders, namely: 15.5

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(a) to restrain the company from committing an act which is ultra vires the articles or memorandum of the company; (b) to restrain the company from committing breach of any provision of the company’s memorandum or articles; (c)

to declare a resolution altering the memorandum or articles of the company as void if the resolution was passed by suppression of material facts or obtained by misstatement to the members or depositors;

(d) to restrain the company and its directors from acting on such resolution; (e) (f)

to restrain the company from doing an act which is contrary to the provisions of this Act or any other law for the time being in force; to restrain the company from taking action contrary to any resolution passed by the members;

(g) to claim damages or compensation or demand any other suitable action from or against— (i)

the company or its directors for any fraudulent, unlawful or wrongful act or omission or conduct or any likely act or omission or conduct on its or their part;

(ii) the auditor including audit firm of the company for any improper or misleading statement of particulars made in his audit report or for any fraudulent, unlawful or wrongful act or conduct; or (iii) any expert or advisor or consultant or any other person for any incorrect or misleading statement made to the company or for any fraudulent, unlawful or wrongful act or conduct or any likely act or conduct on his part; (h) to seek any other remedy as the Tribunal may deem fit. (2) Where the members or depositors seek any damages or compensation or demand any other suitable action from or against an audit firm, the liability shall be of the firm as well as of each partner who was involved in making any improper or misleading statement of particulars in the audit report or who acted in a fraudulent, unlawful or wrongful manner. (3) (i) The requisite number of members provided in sub-section (1) shall be as under: (a) in the case of a company having a share capital, not less than one hundred members of the company or not less than such percentage of the total number of its members as may 15.6

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be prescribed, whichever is less, or any member or members holding not less than such percentage of the issued share capital of the company as may be prescribed, subject to the condition that the applicant or applicants has or have paid all calls and other sums due on his or their shares; (b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members. (ii) The requisite number of depositors provided in sub-section (1) shall not be less than one hundred depositors or not less than such percentage of the total number of depositors as may be prescribed, whichever is less, or any depositor or depositors to whom the company owes such percentage of total deposits of the company as may be prescribed. (4) In considering an application under sub-section (1), the Tribunal shall take into account, in particular— (a) whether the member or depositor is acting in good faith in making the application for seeking an order; (b) any evidence before it as to the involvement of any person other than directors or officers of the company on any of the matters provided in clauses (a) to (f) of subsection (1); (c) whether the cause of action is one which the member or depositor could pursue in his own right rather than through an order under this section; (d) any evidence before it as to the views of the members or depositors of the company who have no personal interest, direct or indirect, in the matter being proceeded under this section; (e) where the cause of action is an act or omission that is yet to occur, whether the act or omission could be, and in the circumstances would be likely to be— (i) authorised by the company before it occurs; or (ii) ratified by the company after it occurs; (f)

where the cause of action is an act or omission that has already occurred, whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company.

(5) If an application filed under sub-section (1) is admitted, then the Tribunal shall have regard to the following, namely:— (a) public notice shall be served on admission of the application to all the members or depositors of the class in such manner as may be prescribed; 15.7

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(b) all similar applications prevalent in any jurisdiction should be consolidated into a single application and the class members or depositors should be allowed to choose the lead applicant and in the event the members or depositors of the class are unable to come to a consensus, the Tribunal shall have the power to appoint a lead applicant, who shall be in charge of the proceedings from the applicant’s side; (c)

two class action applications for the same cause of action shall not be allowed; (d) the cost or expenses connected with the application for class action shall be defrayed by the company or any other person responsible for any oppressive act. (6) Any order passed by the Tribunal shall be binding on the company and all its members, depositors and auditor including audit firm or expert or consultant or advisor or any other person associated with the company. (7) Any company which fails to comply with an order passed by the Tribunal under this section shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees. (8) Where any application filed before the Tribunal is found to be frivolous or vexatious, it shall, for reasons to be recorded in writing, reject the application and make an order that the applicant shall pay to the opposite party such cost, not exceeding one lakh rupees, as may be specified in the order. (9) Nothing contained in this section shall apply to a banking company. (10) Subject to the compliance of this section, an application may be filed or any other action may be taken under this section by any person, group of persons or any association of persons representing the persons affected by any act or omission, specified in sub-section (1).”

15.3.7

Applicability to companies

Class action can be filed against any type of companies, whether in the public sector or in the private. It can be filed against any company which is incorporated under the Companies Act, 2013 or any previous Companies Act. The Act provides only one exemption. Section 245(9) provides as follows: “(9) Nothing contained in this section shall apply to a banking company.” 15.8

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Thus, banking companies are exempted from the provisions of the Companies Act, 2013. The Act has empowered the Central Government to exempt any company or a class of companies from the provisions of the Act.

15.3.8

Who can file a class action suit?

Section 245 states as follows: “(1) Such number of member or members, depositor or depositors or any class of them, as the case may be, as are indicated in sub-section (2) may….” Under the new Act, following people are empowered to file a class action suit: •

members

•

depositors

• a person or association representing such members or depositors who fulfils the criteria specified in sec 245(3).

15.3.8.1 Eligibility criteria for members The eligibility criteria for members and depsoitors has been modified by National Company Law Tribunal (Second Amendment) Rules, 2019. If members choose to file a class action, they should meet the following criteria: Company having a share capital •

100 members or such percentage of the total number of its members, whichever is less; or

•

any member or members holding singly or jointly not less than such percentage of the issued share capital of the company as may be prescribed

The members should have paid all calls and other sums due on the shares held by them. Rule 84 of NCLT Rules, 2016 has been amended by National Company Law Tribunal (Second Amendment) Rules, 2019. After the amendment, the criteria is as follows: Company having a share capital •

Based on Number of Members: 100 members or at least 5% of the total number of members of the company, whichever is less. This criteria is aplicable whether it is a listed or unlisted company; or

•

Based on Shareholding: o Unlisted Company: Any member or members holding singly or jointly not less than 5% of the issued share capital, in case of an unlisted company.

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Listed Company: Any member or members holding singly or jointly not less than 2% of the issued share capital of the company, in case of a listed company.

The members should have paid all calls and other sums due on the shares held by them.

Company not having a share capital Not less than one-fifth of the total number of its members. Analysis of the criteria There are many judgments on the eligibility of members to file a case for oppression and mismanagement under sec 399 of the Companies Act, 1956. The judgments provide answers to several questions that may arise in case of class action suits, including the following:  Pending approval of transfer by the board of directors, can the transferee of shares file a class action?  Can a person awaiting approval of transmission file a class action? Can we include the shares which they are entitled to get but which company has failed to transmit while calculating the percentage of holding for the purpose of determining the eligibility of members?

15.3.8.2 Eligibility criteria for depositors Section 245 (3)(ii) provides as under: • 100 depositors or not less than such percentage of the total number of depositors as may be prescribed, whichever is less; or • any depositor or depositors to whom the company owes such percentage of of the total value of outstanding deposits of the company as may be prescribed. The Draft NCLT Rules and Draft O&M rules that were issued in January 2016 provided that the percentage for total number of depositors would be 10% and with respect to the second percentage it would be 10% of the total outstanding value of deposits. However, this limits did not find place in the final NCLT Rules that were issued in 2016. This error has been rectified by introducing National Company Law Tribunal (Second Amendment) Rules, 2019 w.e.f. 8-05-2019. As per this amendment, Sub-rule (4) has been inserted in rule 84 of NCLT Rules. After this amendment, the fresh crteria as provided by the rules is as under: • 100 depositors or not less than 5% of the total number of depositors of the company; or • any depositor or depositors to whom the company owes 5% of total deposits of the company.

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Analysis of the criteria While analysing the criteria for depositors, the following questions emerge which are relevant for the purpose of calculation:  What is a meaning of deposits? Will it get a restrictive meaning that is provided in the Companies Act, 2013 read with Companies (Acceptance of Deposits) Rules, 2014? Or will be get a very wide meaning as only the definition of deposits given in sec 2(31) if to be considered?  With reference to which date should “the total value of outstanding deposits” be taken into consideration?  Should both the deposits accepted under the Companies Act, 1956 and the deposits accepted under the Companies Act, 2013 be included?  Section 2 begins with the clause “unless the context otherwise provides”. Does this section call for a wider interpretation of the term deposits where some of the exempted deposits ought to be considered?  Is “outstanding amount of interest” to be included while calculating the amount of “the total value of outstanding deposits” or “the amount owed to the depositor”? The application for class action can be filed by one or more depositors who fulfil the criteria set out in sec 245 of the Companies Act, 2013. The questions raised above are among many others that emerge about the locus standi of the members or depositors. The Act does provide any direct answers to these questions. The Draft O&M Rules that has been used in January 2016 has sought to insert an explanation to clarify the meaning of deposits. It reads as follows: “Explanation: For the purposes of this rule, the word “depositor” shall have the same meaning assigned to it under Rule 2(c)(xiv)(c) of the Companies (Acceptance of Deposit) Rules, 2014.” However, this explanation does not find place in the current notified NCLT Rules ( which has inserted many rules from draft O&M Rules). Thus, unless the said explanation is reinserted in the notified NCLT Rules, all the deposits including exempted deposits will be included within the broad definition of deposits provided in sec 2(31) which reads as follows: “(31) “deposit” includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India;” Thus, unless the explanation which was provided in the Draft O&M Rules is inserted in the NCLT rules, it may be possible to read the definition of deposits widely. It will also include those deposits that are excluded from the definition of deposits under r 2(c) of Companies (Acceptance of Deposits) Rules, 2014 as deposits. The only flip side is that it will also be included in calculating the total value of outstanding deposits (which is a relevant figure while determining eligibility). Thus, this total 15.11

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value can become very huge and may disentitle small depositors to fit in the percentage criteria provided The NCLT rule do not provide any answer to the question whether interest on deposits is to be considered in calculating the total outstanding value of deposits. The entire Act has made a distinction between the term deposits and interest on deposits. Thus, in the absence of the term “interest” being used in the eligibility criteria, the outstanding interest ought not to be taken for the purpose of calculation under class action. However, as regards whether the deposits has have become due and payable or whether it is payable at a later date, the deposit should be included for the purpose of deciding the eligibility.

15.3.9

Representative person or association

Section 245 permits a representative to file a suit for representing the aggrieved persons. As regards the permissibility, the Act provides as follows: “(10) Subject to the compliance of this section, an application may be filed or any other action may be taken under this section by any person, group of persons or any association of persons representing the persons affected by any act or omission, specified in sub-section (1).” There are certain important aspects for representatives, filing the suit:  The said application can be filed only if the person complies with sec 245. It means that the person needs to show that they are representing the members/depositors who meet the eligibility criteria.  Such application can be filed by an NGO or any association or even by a public spirited person, provided the person is able to show that they are backed by the requisite number of members or depositors.

15.3.10 Guidelines for considering applications under section 245 Section 245(4) provides for a set of guidelines for considering applications filed under sec 245. We need to closely analyse the guidelines and their rationale to understand the concept of class action as is adopted in India. (a) Good faith “245(4)(a) whether the member or depositor is acting in good faith in making the application for seeking an order” An order under the class action is binding on all shareholders/depositors. Thus, it is very essential to ascertain whether the class action is brought in by a genuine member/depositor. No other member/depositor can file a class action on the same cause of action again. Thus, it is essential that the person filing the application is genuine and is deeply interested in pursuing the matter.

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(b) Evidence “245(4)(b) any evidence before it as to the involvement of any person other than directors or officers of the company on any of the matters provided in clauses (a) to (f) of subsection (1)” In a class action, even outsiders such as auditors, experts, consultants, and other companies who are involved in the wrongful or unlawful action can be impleaded and be required to pay a compensation for damages. Such a provision is inserted with a dual purpose. On one hand, a class action against any person is publicly notified and hence may harm the reputation of consultants and experts and such other persons. Thus, necessary care ought to be taken to ensure they are not casually impleaded. On the other hand, the Tribunal is permitted to pass orders against them, if it finds at any stage that such persons were involved or have assisted the company or its directors and officers in carrying out, covering up, or in any other manner involved in the wrongful or unlawful actions. (c) Cause of action “245(4)(c) whether the cause of action is one which the member or depositor could pursue in his own right rather than through an order under this section” This is an important clause that will help the members decide whether to file a class action or go for a private remedy such as filing a case for oppression and mismanagement. This clause is formulated to avoid this remedy being used for resolving personal grievances. Thus, a member who is not being given a notice for a general meeting may not be able to avail of this remedy. They will have to consider the option of approaching the Tribunal in a case for oppression and mismanagement. However, if a group of members find that the company is stripping off the assets of the company in a wrongful way or for a wrongful purpose, it may consider filing a class action as such action by the company will harm the entire gamut of members and is a wring that will affect the rights of many members. Another example of such instance includes a shareholder who is not being provided the financial statements and not being provided an inspection of members register will have to seek a private remedy. But if the member notices that the accounts of the company are being misstated and the company is using the funds of the investor for collateral purposes which are not in line with the object of the company, then in that event, the member may file a class action. The Tribunal and the apex courts will over time elaborate on this distinction, and the law as regards the cases in which a class action may or may not be filed will be clarified. Rule 8(2) provides that for the purposes of sec 245(4)(c), while considering the desirability of an individual/separate action as opposed to a class action, the Tribunal may take into account, in particular, whether admitting separate actions 15.13

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by member or members or depositor or depositors would create a risk of: (a) inconsistent or varying adjudications in such separate actions; or (b) adjudications that, as a practical matter, would be dispositive of the interests of the other members; (c) adjudications which would substantially impair or impede the ability of other members of the class to protect their interests. (d) Views of other member “245(4)(d) any evidence before it as to the views of the members or depositors of the company who have no personal interest, direct or indirect, in the matter being proceeded under this section” Under the Act, a class of members or depositors may file a case representing the class. The Act requires the Tribunal to consider the holistic situation and consider the rights and interests of other members who are not being represented. The Act requires that their views should also be considered. (e) Further Acts/omissions Under a class action, the Tribunal can take cognizance of current and future wrongful actions and future violative actions that are proposed by the company. However, certain safeguards are provided before any orders are passed with respect to future Acts/omissions. The Act provides as follows: “(e) where the cause of action is an act or omission that is yet to occur, whether the act or omission could be, and in the circumstances would be likely to be— i.

authorised by the company before it occurs; or

ii. ratified by the company after it occurs” Example: A company is a real estate company whose object clause allows it to build residential buildings in Mumbai only. Now, it intends to take up infrastructure projects and bids for an infrastructure project for building an airport. Now some aggrieved members file a class action stating that such company is not allowed to take up the infrastructure project as such action is ultra vires the memorandum of association (MOA). The members claim that the company is misappropriating the funds. The object clause can be amended by authorization of a special majority. If the Tribunal finds that there is a possibility that the members who have come before the Tribunal are holding, say, 10% of the total share capital while a large majority exists that may allow the change in object clause, then it may allow such bidding for an infrastructure project. However, if it finds that the members before it say hold more than 45% of the total share capital, then it can take action immediately as such future action will be violative of the memorandum of association(as the company will not be able to get requisite majority of 75% needed to pass the resolution for amending the MOA). The company will not be able to pass such resolution for change 15.14

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in object clause and thus the Tribunal may decide to take action to prevent such future violative action. (f) Past violative Acts/omissions “245(4)(f) where the cause of action is an act or omission that has already occurred, whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company.” (g) Additional grounds specified by rules NCLT rule 85 provides additional grounds that the Tribunal may consider while considering the applicability of an application of class action: “(1)Without prejudice to the generality of the provisions of sub-section (4) of section 245 of the Act, the Tribunal may, while considering the admissibility of an Application under the said section, in addition to the grounds specified therein, take into account the following: (a) whether the class has so many members that joining them individually would be impractical, making a class action desirable; (b) whether there are questions of law or fact common to the class; (c) whether the claims or defences of the representative parties are typical of the claims or defences of the class; (d) whether the representative parties will fairly and adequately protect the interests of the class.” The Tribunal may not permit a class action against past events, if the same can be ratified by the company. The ambit of class action is wide. There are certain actions/omissions that can be ratified by a company in the future.

15.4

PUBLIC NOTICE

The Companies Act, 2013 requires that a public notice be given to the members and depositors. The public notice shall be given in the format provided in the Act. The Act does not state whether the Tribunal may allow members or depositors to be impleaded in a class action. However, considering that such action if filed on behalf of members or depositors, the Tribunal may favourably consider an intervention application filed by members or depositors. Further, such notice is essential as a new class action is not allowed on the same cause of action; thus, any member who is aggrieved by the action/omission complained of should come before the Tribunal expeditiously or file a separate class action which will be merged with the existing class action if the cause of action is similar.

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BAR ON FUTURE CLASS ACTION

Section 245(5) of the Companies Act, 2013 bars a future class action. Section 245(5)(c) It states as follows: “(c) two class action applications for the same cause of action shall not be allowed” It is essential to understand the meaning of this clause:  The term used is “same”. Thus, before a future class action is rejected, the Tribunal should be convinced that the cause of action is the very same. For instance, if today a 5th September 2015 resolution is challenged in a class suit, then another application for challenging the same resolution will not be allowed.  This Act does not prevent the members from seeking other remedy on the same cause of action. Only a class action cannot be filed.  The class action by any person whether by another set of members or depositors cannot be allowed. Thus, even if a member has filed a class action for a cause of action, then even a depositor cannot be allowed to file another class action on the same cause of action.  It is necessary to understand whether it is a bar on filing the class action or a bar on taking a decision on a class action for the same cause. The word use is “allowed”. When a class action is filed, a reading of the Act with the NCLT Rules indicate that such application for class action may be dealt with in two stages – admission and final hearing. Thus, the Tribunal can consider whether an application is on the “same cause of action” to decide the admissibility of the application under sec 245. Section 245(5)(b) provides the following in relation to the pending applications against a company: “(b) all similar applications prevalent in any jurisdiction should be consolidated into a single application and the class members or depositors should be allowed to choose the lead applicant and in the event the members or depositors of the class are unable to come to a consensus, the Tribunal shall have the power to appoint a lead applicant, who shall be in charge of the proceedings from the applicant’s side” The Act requires consolidation of similar applications prevalent in any jurisdiction into a single application. Here, the term used is “similar” not “same”. Thus, actions against one company may be consolidated if the cause of action or the reliefs are similar. The term used is “similar application”. Thus, we need to ask similar in what sense – similar is cause action of action, similar applicant, or similar reliefs. This is not clearly defined. However, the reading of clause (b) shows that even if the applicants are different, but their grievances are similar, a class action can be combined. If the nature of reliefs is similar, then a consolidation of application may 15.16

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make sense. Similar is the case with cause of action. Another two questions ought to be asked are:  Whether the Tribunal has the discretion of consolidation? The term used is “should be consolidated”. While this term suggests that there is some degree of mandate provided by the Act for consolidation, it is not a strict mandate as it is preceded by the words “similar application”. This is to be determined by the Tribunal and thus there is no strict mandate to consolidate every case against a company and the Tribunal may exercise its discretion.  Does the Tribunal have to appoint one lead applicant? This again is the discretion provided by the Act. The Act empowers the Tribunal to appoint a lead application if it deems fit. If it finds that interests of different classes of members or depositors are distinct, then it may at its discretion formulate another strategy to ensure that each class is adequately represented. The term similar means the class members or depositors will be given an opportunity to choose the lead applicant. If the members or depositors of the class are unable to come to a consensus, the Tribunal has the power to appoint a lead applicant, who shall be in charge of the proceedings from the applicant’s side.

15.6

WHEN CAN THE CLASS ACTION BE FILED?

Unlike sec 241 which states the circumstances in which an action for oppression and mismanagement may be filed, the Companies Act, 2013 does not specify the ground on which a class action may be filed. It only provides guidelines on how to deal with a class action. Again the Act has provided the relief that can be sought in a class action in sec 245(1). This list under sec 245 does not provide for an exhaustive set of reliefs. The Act states that inter alia the members/depositors can approach the Tribunal for different kinds of reliefs some of which are elaborated in sec 245(1). The nature of these reliefs and the reasons for which the members/depositors may seek it are discussed below: (a) Ultra vires act A company committing an act which is ultra vires the articles or memorandum can be restrained. (b) Breach A company committing breach of any provision of the company’s memorandum or articles can be restrained. For instance, if a company calls for a meeting at short notice without following the norms. (c) Invalidating resolutions The applicant can seek a declaration that a resolution altering the 15.17

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memorandum or articles of the company is void, if the resolution was passed by suppression of material facts or was obtained by making misstatement to the members or depositors. One can also seek an order restraining the company and its directors from acting on such resolution. For instance, a company shifts a registered office from one state to another on the pretext of ease of business. Later, if it is found that the office was shifted for a purpose of defrauding creditors or depositors, then in that event the said resolution can be challenged. (d) Prevent contraventions The company can be restrained from doing an act which is contrary to the provisions of this Act or any other law for the time being in force. For instance, if the company is using the employee contribution of provident fund for meeting its working capital needs, it can be restrained. (e) Acting in contravention to resolution The purpose is to restrain the company from taking any action contrary to any resolution passed by the members. For instance, the company granting intercorporate loans which exceed the limit prescribed by members. (f) Compensation from wrongdoers A fraud or any wrongful act in the company generally occurs with the assistance/connivance of many persons - insiders as well as outsiders. Thus, the Companies Act, 2013 allows the aggrieved investors to claim damages or compensation against various people. They can also demand any other suitable action. The said action can be initiated against the following people: (a) Company and its directors - For any fraudulent, unlawful, or wrongful act or omission or conduct or any likely act or omission or conduct on its or their part. (b) The individual auditor & audit firm/LLP as well as individual partners - For any improper or misleading statement of particulars made in their audit report or for any fraudulent, unlawful, or wrongful act or conduct; or (c) Any expert or advisor or consultant or any other person - The Act seeks to hold them liable for any incorrect or misleading statement made to the company or for any fraudulent, unlawful, or wrongful act or conduct or any likely act or conduct on their part. A wide variety of persons can be made liable under this Section, including merchant bankers, law firms, chartered accounts, company secretaries, and other such practicing professionals or subsidiary companies. (g) For seeking any other remedy

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Chapter 15

15.7

Class Actions

Nature of orders and their impact

Section 245(6) of the Act provides that the order passed by the Tribunal will have the following effect: “(6) Any order passed by the Tribunal shall be binding on the company and all its members, depositors and auditor including audit firm or expert or consultant or advisor or any other person associated with the company.” The order under sec 245 is very different from an order under sec 241. Under sec 241, the order of oppression and mismanagement is binding only on the parties to the petition/application. It is not binding on other members or officers of the company. However, an order under the provision of class action is in the nature of an order in rem. The order shall be binding on the “company and all its members, depositors...” Thus, the order will be binding even on those members or depositors who are not party to the suit. The persons against whom the order is binding are specified in sec 245(6). This is basically the person against whom a case of class action may be brought against.

15.7.1

Non-compliance with orders [Section 245(7) read with section 425]

The Act has put in place several deterrent provisions to ensure companies and its officers comply with the orders passed by the NCLT. The Act provides for penalties for companies and for officers. If any company fails to comply with an order passed by the Tribunal under this section, then it shall be punishable with a fine which shall not be less than INR 5 lakhs but which may extend to INR 25 lakhs. Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and with a fine which shall not be less than INR 25,000 but which may extend to INR 1 lakh. The officer who is in default will be liable to a punishment of imprisonment and fine and thus this offence is not compoundable. Further, the person will be additionally liable for contempt of the order of the NCLT and thus liable to a punishment. In addition to these, the NCLT has several powers of execution of its orders (details provided in another chapter).

15.7.2

Vexatious application

The Act has introduced sec 245(8) to create a deterrent for persons intending to file vexatious applications. It provides for a fine of upto INR 1 lakh against the persons who are found to misuse this mechanism. The sum provided is not very high. The Tribunals and the Courts will in future devise the tests in which circumstances and to what extent such penalties may be levied. This sum is, however, enough to prevent investors in small companies from initiating frivolous complaints. 15.19

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15.7.3

Chapter 15

Reimbursement of expenses in class action

The Tribunal can allow the members/depositors who have spent money on a class action to be reimbursed if they find that the said class action ultimately leads to providing reliefs that help the community of members or depositors. As with the concept of class action, this is not allowed to be filed to resolve personal grievances but is filed when larger interest of a class of members or depositors are affected. Hence, a few provisions are inserted to reimburse the investors who take the initiative to file the class action and pursue it: (a) The reimbursement of legal expenses incurred in pursuing class action suits under sec 245 by members or depositors as may be sanctioned by the Tribunal to be paid out of the Investor Education and Protection Fund [sec 125]; (b) The Tribunal may direct the company or the persons indulged in oppressive acts to pay for the expenses or costs [sec 245(5)(d)].

15.7.4

Plural remedies

Under the Companies Act, 1956, composite petitions could be filed if a there was a common cause of action. Under the Companies Act, 2013 a class action remedy along with other remedies may be sought. For instance, the Tribunal may allow filing of a class action suit along with an application for reopening of accounts. However, it is a little difficult to state whether a class action can be filed along with a petition for the prevention of oppression and mismanagement. There are differences in the two remedies that are sought to be brought out in the previous page and in light of that such composite suits may not be allowed. However, this depends on the facts and circumstances of the case, but the Tribunal may take a different stand.

15.7.5

Application of certain provisions to proceedings (Section 245)

“246. The provisions of sections 337 to 341 (both inclusive) shall apply mutatis mutandis, in relation to an application made to the Tribunal under section 241 or section 245.” Sections 337 to 341 are provisions relating to certain fraudulent/improper/illegal transactions/acts that can be challenged and for which prosecution can be initiated.

15.8

CHALLENGES IN CLASS ACTION

1. The law of class action is not yet developed in India. The clause is very widely worded and many aspects are still evolving with the dynamic change in market trends. What will come within the ambit of a wrongful act which justifies invocation of class action or other persons against whom the Act can be used is not yet clear.

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Class Actions

2. In India, we do not have the concept of plaintiff law firms which thrive in the West. They organise litigants together and file the suit. Plaintiff firms also advertise heavily, something law firms cannot do in India. Thus, in a large company, this remedy can largely get restricted to institutional investors holding a lot of shares. Further, in the United States, plaintiff firms work on a contingency model, where they take no fees upfront and usually collect a third of the settlement amount. 3. These provisions are capable of being misused. The Companies Act, 2013 has to prevent frivolous or vexatious applications by granting the NCLT power to levy costs upto INR 1 lakh on the applicant. However, principles and safeguards for using this provision have to be evolved over time.

15.9

FUTURE OF CLASS ACTION

Indian companies, auditors, advisors, consultants, and others have to prepare themselves for this new regime of investor empowerment. India has seen a rise of investor activism, especially by institutional investors. The new Act gives a weapon in the hands of the investors. The company management, all advisors, and consultants have to reassess their systems and processes and gear up to safeguard themselves against class action. It is likely that an auditor is hauled into litigation between the members and company. The auditor needs to have necessary paperwork, including certificates, evidence, and assurances in place to defend any allegations of wrongdoing. The class action lawsuits by investors have shown a steady increase abroad, especially in the United States. The US Chamber Institute for Legal Reform reported that since 1996, at least 2,758 public companies -- or 41% of the roughly 6,000 companies currently listed on the three major stock exchanges in the United States - have been named as defendants in at least one federal securities class action. This trend is likely in India.

15.10

Institutional shareholder

The shareholding structure is changing, especially in listed companies. Like western economies, India has also seen three distinct periods of shareholder structures in such companies. There was a period when the shareholdings were held mainly by the founding entrepreneurs and their families. At this time, therefore, the shareholdings were in “concentrated” form and establishing the concurrence of the shareholders was relatively easy. However, as the capital needs of such companies grew, shares were offered to the public. These shares were mostly held in small quantities by retail shareholders. Thus, over time the family shareholdings declined and small external shareholders collectively composed the bulk of shareholding, making it relatively “dispersed”, which, in turn, reduced the shareholders’ ability to act in unity and in a

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meaningful way. Having a small stake, the shareholders in large companies were thus indifferent towards their rights. However, slowly but surely, there was a change in the shareholding pattern wherein shares in public companies came into the hands of institutional investors, especially mutual funds and financial institutions. Thus, today there is considerable reconcentration of shareholdings with institutional investors. Thus, institutional shareholders may be able to decisively influence management decisions. While such investors can influence management decisions, they may not exercise such power as they have other alternatives such as offloading the shares of underperforming/mismanaged companies on stock markets. Further, institutional shareholders may not always openly come forth in general meetings and may use only private pressure to streamline company management. However, they are most vital participants to ensure better corporate governance in companies. These institutional investors can play a crucial role in investor activism. In fact, there have been instances where the institutional investors have exercised their powers and rights to foster investor activism. Some of these instances are discussed below: IIAS opposes L&T Finance boss’s pay, non-execs commissions Proxy advisory firm Institutional Investor Advisory Services (IIAS) has advised institutional investors to vote against L&T Finance Holdings’ resolution on chairman and managing director Y.M. Deosthalee's remuneration, saying it was way above the industry average. Deosthalee was formerly group Chief Financial Officer of Larsen &Toubro. L&T Finance is proposing to pay Deosthalee INR 7.3 crores, excluding retirement benefits and accommodation allowance, which have not been disclosed. Here is what the IIAS has to say on Deosthalee’s remuneration: "IIAS compared the proposed remuneration of YM Deosthalee with those of peers benchmarking these against key financial parameters of peer companies. We find that the proposed remuneration of INR 7.33 crore for YM Deosthalee is disproportionately high even in comparison to the closest peer with similar profit after tax and total income as LTFHL and to the peer set average of INR 2.4 crore. In FY12, the company reported 42.1% growth in total income (to INR 3007.3 crore) and 16.3% growth in PAT (to INR 454.8 crore). However, despite its growth the company has not declared any dividend from FY09 to FY12 unlike its peers with an average dividend payout of 21%”. According to IIAS's findings, Infrastructure Development Finance Company (IDFC) paid its Managing Director & CEO Ranjit Lall INR 6.26 crores in FY11. But then IDFC's profit after tax in FY12 was INR 1550 crores and the company paid out INR 2.3 per share (INR 347 crores) as dividend. IIAS has also recommended voting against the company's resolution on the remuneration of N. Sivaraman, President and whole-time Director of L&T Finance Holdings since October 2010. “On comparison with peers, we find that the proposed remuneration of INR 5.33 crore of N Sivaraman is significantly higher when compared to pees set average of INR 1.98 crore. We also note that L&T Finance Holdings has not declared any dividends since FY09 unlike its peers,” says the IIAS note. The third 15.22

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Class Actions

resolution that the IIAS has opposed is the one seeking to pay non-executive directors (NEDs) commissions not exceeding 1% of the net profits of the company for a period of five years from FY12. "The company has stated that the quantum of commission payable will be decided by the board. However, the evaluation criteria for deciding the quantum of commission to NEDs are not mentioned. IIAS understands that the current regulations provide for payment of commission upto 1% of net profits. However, we feel that this should be subject to an upper limit in absolute amounts based on the size of the company. In the absence of such limits we find that the proposal to pay commission to NEDs is open ended," says the IIAS note. At the current price of around INR 42, L&T Finance shares are down by 19% from its issue price of INR 52 last August. Jun 07, 2012, 08.16 Source: Moneycontrol.com

15.11

Procedure for class action

The procedure is contemplated in sec 245 read with the NCLT Rules. Unless provided otherwise, the reference to rules is of these rules. 1. Cause of Action: When the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interest of the company or its members or depositors. [sec 245(1)] 2. In such a cause of action, applications shall be filed in Form NCLT 9 by requisite number of members or depositors before the Tribunal as has been set out in sec 245(3). Also such application may be filed by any person, group of persons, or any association of persons representing the person affected by any act or omission. [sec 245 (3) & (10)] 3. A copy of every application shall be served on the company, other respondents and all such persons as the Tribunal may direct. 4. The Tribunal shall either admit the application or deny the application. 5. On the admission of an Application filed under sec 245(1) of the Act, a public notice shall be issued by the Tribunal as per Form no. NCLT 13 to all the members of the class by(a) publishing the same within seven days of admission of the Application by the Tribunal at least once in a vernacular newspaper in the principal vernacular language of the state in which the registered office of the company is situated and at least once in English in an English newspaper that is in circulation in that State; (b) requiring the company to place the public notice on the website of such company, if any, in addition to publication of such public notice in newspaper under sub-clause (a) above:

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Provided that such notice shall also be placed on the websites of the Tribunal and the Ministry of Corporate Affairs, the concerned Registrar of Companies and in respect of a listed company on the website of the concerned stock exchange(s) where the company has any of its securities listed, until the application is disposed of by the Tribunal. 6. The date of issue of the newspaper in which such notice appears shall be considered as the date of serving the public notice to all the members of the class [Rule 87(2) of NCLT Rules]. 7. The public notice shall, inter alia, contain the following(a) name of the lead applicant; (b) brief particulars of the grounds of application; (c) relief sought by such application; (d) statement to the effect that application has been made by the requisite number of members/depositors; (e) statement to the effect that the application has been admitted by the Tribunal after considering the matters stated under sec 245(4) and these rules and it is satisfied that the application may be admitted; (f) date and time of the hearing of the said application; (g) time within which any representation may be filed with the Tribunal on the application; (h) the details of the admission of the application and the date by which the form of opt out has to be completed and sent as per Form NCLT 1 and shall be accompanied with such documents as are mentioned in Annexure B. (Rule specify Annexure B. However it has not provided any list of document for class actions.) 8. The cost or expenses connected with the publication of the public notice under this rule shall be borne by the applicant and shall be defrayed by the company or any other person responsible for any oppressive act in case order is passed in favour of the applicant. 9. A member of a class action under sec 245 of the Act is entitled to opt-out of the proceedings at any time after the institution of the class action, with the permission of the Tribunal, as per Form no. NCLT 1. 10. For the purposes of opting out a class member who receives a notice under sec 245(5)(a) of the Act shall be deemed to be the member of a class, unless he expressly opts out of the proceedings, as per the requirements of the notice issued by the Tribunal in accordance with r 38. 11. A class member opting out will be not be precluded from pursuing a claim against the company on an individual basis under any other law, where a remedy may be available, subject to any conditions imposed by the Tribunal. 15.24

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Class Actions

Consolidation of Applications 12. In accordance with sec 245(5)(b) all similar applications prevalent in any jurisdiction should be consolidated into a single application and the class members or depositors should be allowed to choose the lead applicant and in the event the members or depositors of the class are unable to come to a consensus, the Tribunal shall have the power to appoint a lead applicant, who shall be in charge of the proceedings from the applicant’s side; 13. Order passed by the Tribunal shall be binding on the company and all its members, depositors, and auditors, including audit firms or experts or consultants or advisors or any other persons associated with the company [sec 245(6)] 14. Non-compliance of the order by the company shall attract a fine which shall not be less than INR 5 lakhs but which may extend to INR 25 lakhs and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years and with a fine which shall not be less than INR 25,000 but which may extend to INR 1 lakh [sec 245(7)]. 15. Where any application filed before the Tribunal is found to be frivolous or vexatious, it shall, for reasons to be recorded in writing, reject the application and make an order that the applicant shall pay to the opposite party such cost, not exceeding INR 1 lakh, as may be specified in the order [sec 245(8)].

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15.26

Chapter 15

Chapter 16

Revival and Rehabilitation of Sick Companies

Chapter XIX – Section 253 to 269 of Companies Act, 2013 have been omitted by the Insolvency and Bankruptcy Code, 2016. Companies in financial distress can take recourse to the provisions of Insolvency and Bankruptcy Code for resolving the insolvency. For academic purpose, Chapter 16 is retained in the weblink http://bit.ly/NCLT7e.

16.1

NCLT and NCLAT Law Practice and Procedure, 6e

16.2

Chapter 16

Chapter 17

Winding up

17.1 INTRODUCTION This Chapter provides an overview of the winding up provisions provided in Chapter XX of the Companies Act, 2013 as modified by the IBC.

Background A company is a corporate entity which can be created and dissolved only in the manner provided by law. The company will continue to be in existence unless it is dissolved in the manner provided by law. The Companies Act, 2013 provides the manner of winding up and dissolution of companies. Winding up was a time consuming affair under the Companies Act, 1956 and thus, need was felt to review the provisions. Eradi Committee set the ground for expediting the process of winding up. It recommended formation of specialised tribunals by consolidating the powers vested with different authorities like high courts, BIFR and Company Law Board under one umbrella. JJ Irani Committee in its report, also stressed the need to review the winding up process. It made several observations about the manner in which insolvency and winding up of companies should be tackled. It focused on the need to give companies in financial difficulties an opportunity to revive. It also stressed the need for speedy dissolution of companies and made several recommendations to improve the speed of winding up. Chapter XX of the Companies Act, 2013 was introduced with changes that were suggested by the aforesaid committees. Insolvency and Bankruptcy Code This law was further amended by the Insolvency and Bankruptcy Code, 2016. Earlier most petitions were filed under sec 433 of the Companies Act, 1956 on the ground of inability to pay debts. This ground has been removed from the Companies Act, 2013 in the year 2016. After 2016, for inability to pay debts and for default in payment to creditors, action can be initiated under the Insolvency and Bankruptcy Code, 2016 (IBC).

17.2 OVERVIEW OF CHANGES 17.2.1

Change in grounds for winding up

The grounds for involuntary winding up have changed to certain extent which have been discussed in detail in the later part of this chapter.

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17.2.2

Chapter 17

Concept of private liquidator

The Companies Act, 2013 provides for private liquidator who is a professional and can be appointed as provisional liquidator or company liquidator in case of involuntary winding up. The Act defines their powers, role and functions. Earlier, this power was with the official liquidator and courts could appoint only official liquidators for winding up. Mandatory role of an official liquidator has been specifically provided in the Act. The Tribunal however can appoint an official liquidator as a company liquidator.

17.2.3

Summary involuntary winding up procedure

Section 361 provides for a summary procedure for winding up where a fast track procedure is contemplated for speedy closure of small entities whose assets are less than INR 1 crore and other class of prescribed companies.

17.2.4

Custody of property

Under sec 283 of the Companies Act, 2013, the custody of a property is deemed to be with the Tribunal. The Companies Act, 1956 gave the custody to the official liquidator. This position has changed under the new Act.

17.2.5

Statement of affairs

Preparation of statement of affairs posed a significant difficulty under the Companies Act, 1956 as it was required to be prepared and submitted to the official liquidator after passing of the winding up order. Under the said Act, the onus of preparation was cast on the directors and other officers and employees set out in sec 454 of the Companies Act, 1956. The official liquidator used to face significant difficulties to get details of books of accounts from these officers and employees and preparation of statement of affairs took several years at times. The Companies Act, 2013 cast the onus on the company to file the statement of affairs at the time of initiation of winding up itself, if the petition is filed by the company. In other cases, it must be filed by the company and the company will not be allowed to defend the winding up until such statement is prepared and filed.

17.2.6

Overview of changes brought about by Insolvency and Bankruptcy Code, 2016 (IBC)

The amendments to Chapter XX has been provided in the Eleventh Schedule of Insolvency and Bankruptcy Code read with Chapter III, V and VII of Part II of the Code.

17.2.6.1

Change in grounds for winding up

Section 271 is amended by the IBC. The significant change is the deletion of “inability to pay debt” as a ground for winding up. All provisions regarding inability 17.2

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Winding up

to pay debts are consolidated under IBC. The table below shows the change in process brought about by IBC. Under IBC, a creditor cannot apply directly for winding up of the company if the company is unable to pay debt. First, the creditors will have to file an application for resolving the insolvency. Only if a revival plan cannot be devised for any reason, will the company go into liquidation.

17.2.6.2

Provisions for voluntary winding up omitted

As on date, provisions for voluntary winding up under Companies Act, 2013 are omitted. They will be replaced by provisions of voluntary winding up under IBC namely Chapter V Part II sec 59. Proceedings relating to cases of voluntary winding up of a company, where notice of the resolution by advertisement has been given under sub-sec (1) of sec 485 of the Companies Act, 1956 but the company has not been dissolved before 1st April, 2017, shall continue to be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959.

17.2.6.3

Qualification of Company Liquidators

The insolvency professionals who are registered under the IBC will be eligible to be provisional liquidators and company liquidators under the Companies Act, 2013 for winding up by Tribunal.

17.2.6.4

No stay on winding up for exploring revival

Under Companies Act, 2013 as also under Companies Act, 1956, even after the company is under the process of winding up, the stakeholders could explore possibility of revival of the company by furnishing a revival scheme. Section 289 in Companies Act, 2013 is deleted.

17.2.6.5

Priority of payouts

The provisions with respect to payment and preferential payments for companies in liquidation under Companies Act, 2013 is modified. Inter alia, the non-obstante clause in provisions governing overriding preferential payment is omitted. Thus, the 17.3

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provisions of Companies Act, 2013 will have to be read in conjunction with other laws that may give a different priority of payment of liabilities. For companies which are being wound up for inability to pay debt, the priority of payouts is governed by the IBC and the provisions for preferential payment and overriding preferential payment in Companies Act. 2013 are not applicable to them and Sec 326 and 327 is made expressly non-applicable to them.

17.2.6.6

Insolvency Rules inapplicable

The rules of insolvency governing a person adjudged as insolvent or proving debts and valuation of annuities are inapplicable to insolvent companies.

17.3 TYPES OF WINDING UP Winding up is a legal process by which the existence of a company is brought to an end. Under the Act, different methodologies are provided for putting an end to entities. The Act not only provides for dissolution of companies but also dissolution of other entities. Under the Companies Act, 2013, the Tribunal is empowered for winding up of the following entities: (a) Companies that are incorporated under the Companies Act, 2013; (sec 271) (b) Companies that are incorporated under the Companies Act, 1956; (sec 271) (c) Unregistered companies including partnerships, limited liability partnership, society, cooperative society, association or company comprising of more than seven persons; (sec 375) (d) Foreign Company. (sec 376) The chart below provides a brief overview of the nature of winding up under the Act.

17.4

Chapter 17

Winding up

17.4 WINDING UP AND DISSOLUTION As per the Law Lexicon Dictionary, winding up means, “closing up a company’s concerns which may be by reason of insolvency or otherwise”. As per the Black Law Dictionary, “winding up is defined as the process of settling accounts and liquidating assets in anticipation of a partnership or a corporate dissolution.” Winding up is a process under which the entire control of the business is transferred in the hands of liquidators who act as the officers of the Tribunal in case of compulsory winding up or officer appointed by members/creditors in case of voluntary winding up. The entire process where the affairs of the company are closed; its assets are sold; its liabilities are settled and dividends are distributed to its shareholders; is called winding up process. Once the said process is completed and company is considered to be fully wound up, only then a company is dissolved. While winding up is a process; dissolution is the end result where the company loses its existence. The law on winding up that is covered in this chapter discusses the different modes in which the company can get dissolved. One process which is shown in the chart above pertain to a scenario wherein a company is dissolved during a merger. This is already explained in the chapter dealing with compromise and arrangement [Chapter 13]. This chapter discusses winding up by Tribunal to the extent it is covered by Companies Act, 2013.

17.5 WINDING UP BY TRIBUNAL Sections 271 to 302 and section 324 to 365 apply exclusively to winding up by Tribunal (also called involuntary winding up by the author) under Companies Act, 2013.

17.6 GROUNDS FOR WINDING UP Section 271 deals with the circumstances in which a company is liable to be wound up. Section 271 exclusively deals with the following grounds: (a) If the company has, by special resolution, resolved that the company be wound up by the Tribunal; (b) If the company has acted against the interests of the sovereignty and integrity of India, the security of the state, friendly relations with foreign states, public order, decency or morality; (c) If in the opinion of Tribunal, any fraud is involved in the formation, operation, management or purpose of the company; (d) Company makes default in filing annual returns or annual accounts for immediately preceding five consecutive years; 17.5

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(e) Tribunal is of the opinion that it is just and equitable to wind up the company. Following grounds have been deleted by IBC a.

If the company is unable to pay its debts;

b. If the Tribunal has ordered the winding up of the company under Chapter XIX;

17.6.1

Analysis of the grounds

Several grounds under the Companies Act, 2013 are very similar to the grounds specified in the Companies Act, 1956 (but for the changes made by Insolvency Code) which is evident from the chart below: Grounds

Section under Companies Act, 2013 Inability to pay debt Omitted by IBC By passing a special resolution 271(a) to wind up Acting against the interest of 271(b) the sovereignty and integrity of India Winding up of sick company as Omitted by ordered under Chapter XIX IBC

Section Remarks under Companies Act, 1956 433(e) -

Fraud in formation and management of company Default in filing financial statement or annual returns for five consecutive years Just and equitable that the company should be wound up Non commencement of business within a year from its incorporation, or suspension of its business for a whole year Number of members is reduced, in the case of a public company,

271(c)

-

271(d)

433(g)

433(h) was not notified

271(e)

-

-

-

433(c)

Deleted

-

433(d)

Deleted

17.6

433(a)

-

433(h)

433(h) was not notified

433(i)

433(i) was inserted by Companies (Second Amendment) Act, 2002) Newly inserted

Chapter 17

Winding up

Grounds

Section under Companies Act, 2013

below seven, and in the case of a private company, below two Default is made in delivering the statutory report to the registrar or in holding the statutory meeting

Section Remarks under Companies Act, 1956

433(b)

Deleted

When can company be wound up Section 271(2) is deleted by IBC. It provided instances where a company was deemed to be unable to pay its debts. Under the Companies Act, 1956, this ground was covered under sec 433(e) and was the most common ground for filing winding up petition. Now the creditor must seek recourse to IBC in case the company fails to pay debts of creditors.

17.6.2

Applicability of principles under Companies Act, 2013

Section 465(2) (c) provides as follows – “any principle or rule of law, or established jurisdiction, form or course of pleading, practice or procedure or existing usage, custom, privilege, restriction or exemption shall not be affected, notwithstanding that the same respectively may have been in any manner affirmed or recognised or derived by, in, or from, the repealed enactments” The Act contemplates that the principles that are established in winding up cases under Companies Act, 1956 will be useful for deciding cases under the Companies Act, 2013. However, the applicability has to be considered in light of change in the new Act (Companies Act, 2013).

17.6.3

What will be the status of pending cases?

This aspect is covered in detail in the chapter 3 dealing with different aspects of transition from High Court to Tribunal.

17.6.4

Who can file a winding up petition?

As per the provisions of sec 272, following may file for winding up with the Tribunal, by way of a petition: 1. The company; 2. Any contributory; 3. The registrar; 17.7

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Chapter 17

4. Any person authorized by Central Government in this regard. 5. in a case falling under clause (b) of section 271, by the Central Government or a State Government. The power of Creditor or creditors (Including prospective or contingent creditor) to file winding up petition under Companies Act, 2013 is taken away. However, they have been empowered to file petition under IBC. Section 272 also provides the permissibility of the person named above to file petition under different grounds. Section 272 further provides that:  It also provides that, a winding up petition shall be accompanied by ‘Statement of Affairs’ in the form prescribed, which is a new provision. Under the Companies Act, 1956 the statement of Affairs were required to be filed by the Board with the official liquidator, on passing of winding up order and was not required while presenting the petition.  A copy of petition shall also be served to the registrar and the registrar shall submit his views to the Tribunal within 60 days of receipt of such petition. The Registrar shall be entitled to present a petition for winding up under section 271, except on the grounds specified in clause (a) of that section: Provided that the Registrar shall obtain the previous sanction of the Central Government to the presentation of a petition: Provided further that the Central Government shall not accord its sanction unless the company has been given a reasonable opportunity of making representations.1

17.7 ORDER IN WINDING UP PROCEEDINGS 17.7.1

Decision of tribunal

Section 273(1) provides that the Tribunal may, on receipt of a petition for winding up under sec 272 pass any of the following orders, namely: (a) dismiss it, with or without costs; (b) make any interim order as it thinks fit; (c) appoint a provisional liquidator of the company till the making of a winding up order; (d) make an order for the winding up of the company with or without costs; or (e) any other order as it thinks fit.

1

17.8

In section 272, sub-section (3) is amended by the Companies (Amendment) Act, 2019 w.e.f. 1508-2019.

Chapter 17

17.7.2

Winding up

Timeline

The Act provides that the Tribunal will decide the question of winding up within 90 days of the date of presentation of petition. However, timelines are only directory and mandatory.

17.8 EFFECT OF ORDER Winding up order will have the following effects:

17.8.1

Impact on creditors and shareholders [Section 278]

Section 278 provides that the order of winding up of a company shall operate in favour of all the creditors and all contributories of the company as if it had been made out on the joint petition of creditors and contributories.

17.8.2

Impact on litigation [Section 279]

Winding up order operates as a bar on commencement of any suit or other legal proceedings and also operates as a stay on all continuing legal proceedings against a company. Any person who is desirous of filing or continuing a case against the company can seek leave from the Tribunal. Such application seeking leave shall be disposed of within a period of 60 days.

17.8.3

Impact on officers [Section 277(3)]

The winding up order acts as a discharge notice for the officers, employees and workmen of a company. The term officer includes directors, managers and key managerial personnel. Thus, by virtue of sec 277, the Board of directors lose their powers when winding up order is passed and they cannot take any decision on behalf of the company. The only exception that is carved out is when the business of the company is to be continued.

17.8.4

Impact on company property [Section 283(2)]

All the property and effects of the company shall be deemed to be in the custody of the tribunal from the date of the order of the winding up of the company. The officers of the company lose their right to deal with the property of the company.

17.9 IMPORTANT ASPECTS IN WINDING UP Here certain aspects like role of various types of liquidators have been discussed. The procedure for involuntary winding up is dealt with in detail separately.

17.9.1

Provisional liquidator

Provisional Liquidator, as the name suggests, is a liquidator who may be appointed for an 17.9

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interim period till the Tribunal takes a decision whether or not a winding up order may be passed. Appointment of provisional liquidator is an interim remedy that is sought to safeguard the interest of the company and preserve the property of the company during the time the Tribunal takes a decision on the petition. Appointment of a provisional liquidator is a remedy that is requested by the petitioner as an interim measure to ensure that during the pendency of the petition, the assets of the company are preserved for the benefit of the stakeholders of the company.

17.9.1.1 Who can be a provisional liquidator? Section 275 providing qualification of provisional liquidator is modified by IBC. Now, the provisional liquidator or the Company Liquidator, as the case may, shall be appointed by the Tribunal from amongst the insolvency professionals registered under the Insolvency and Bankruptcy Code, 2016.

17.9.1.2 Can an official liquidator be a provisional liquidator? The Act nowhere provides that an official liquidator can be a provisional liquidator in the absence of a specific provision permitting an official liquidator to take up such role. In contrast, sec 275(1) specifies that an official liquidator can be a company liquidator.

17.9.1.3 When is a provisional liquidator appointed? The provisional liquidator may be appointed at any time before passing an order for winding up. He can be continued till the time an order for winding up is passed. If the order for winding up is passed, the Tribunal will appoint a company liquidator. If it seems right, it may appoint a provisional liquidator as well. [Section 273(1)(c)]

17.9.1.4 Right of a company to oppose appointment The Act provides that the Tribunal shall give the company an opportunity to make its representation before it takes a decision to appoint a provisional liquidator. Filing the statement of affairs is a precondition for opposing the winding up petition. But this does prevent the company from opposing appointment of provisional liquidator without filing the statement of affairs. Filing of statement of affairs is made a pre-condition for a company to get an opportunity to oppose the petition for winding up. The same takes place after the Tribunal is prima facie satisfied that a case for winding up is made out and directs the company to file its objections. The decision for appointment provisional liquidator is taken at the interim stage. At the time of hearing, the party seeking appointment tries to make out a prima facie case for winding up. Thus, in view of the author, at this stage the company is permitted to oppose the said appointment without a need for filing a statement of affairs.

17.9.1.5 When does a provisional liquidator cease to hold his position? The provisional liquidator ceases to have any power when the tribunal dismisses the application for winding up or orders that there shall be no provisional liquidator. 17.10

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Further, when a winding up order is passed, a company liquidator is appointed and the role of provisional liquidator is completed.

17.9.1.6 What are the powers of provisional liquidator? The provisional liquidator shall have the power of a liquidator (sec 275(3)). However, the Tribunal is empowered to limit or restrict his power. It can be done on the date of appointment of the provisional liquidator or thereafter by a subsequent order.

17.9.1.7 How is a provisional liquidator remunerated? Section 275(5) provides that the terms and conditions of appointment of a provisional liquidator or company liquidator and the fee payable to him shall be specified by the Tribunal on the basis of the tasks required to be performed, experience, qualification of such liquidator and size of the company.

17.9.1.8 Who pays for his remuneration? This aspect is not clear but it seems that the same will be decided by the Tribunal.

17.10 COMPANY LIQUIDATOR 17.10.1

Who can be a company liquidator?

The Company Liquidator shall be appointed by the Tribunal from amongst insolvency professionals registered under the Insolvency and Bankruptcy Code, 2016.

17.10.2

Can an official liquidator be a company liquidator?

Yes, an official liquidator can be a company liquidator. [Section 275(1)]

17.10.3

Can company liquidator/provisional liquidator be removed/replaced?

The Tribunal under sec 276 may, on a reasonable cause being shown and for reasons to be recorded in writing, remove a provisional liquidator or a company liquidator, as the case may be, as the liquidator of the company on any of the following grounds: (a) misconduct; (b) fraud or misfeasance; (c) professional incompetence or failure to exercise due care and diligence in performance of the powers and functions; (d) inability to act as provisional liquidator/company liquidator; (e) conflict of interest or lack of independence during the term of his appointment that would justify removal. A provisional liquidator or company liquidator may replace any liquidator in the event of his death, resignation or removal. 17.11

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Where the Tribunal is of the opinion that any liquidator is responsible for causing any loss or damage to the company due to fraud or misfeasance or failure to exercise due care and diligence in the performance of his powers and functions, the Tribunal may recover or cause to be recovered such loss or damage from the liquidator and pass such other orders as it may think fit. The Tribunal shall, before passing any order under this section, provide a reasonable opportunity of being heard to the liquidator.

17.10.4 Remuneration of company liquidator The remuneration and terms and conditions of appointment shall be determined by the Tribunal.

17.10.5 Powers of company liquidator Section 290 provides for the powers of a company liquidator. These powers are to be exercised subject to overall control of the Tribunal. The Tribunal may by order restrict or place conditions on the exercise of these powers. It can also direct the company liquidator to perform other duties as the Tribunal may specify. Section 290(1) provides that the subject to the direction of Tribunal, Company Liquidator shall have the following powers(a) to carry on the business of the company so far as may be necessary for the beneficial winding up of the company; (b) to do all acts and to execute, in the name and on behalf of the company, all deeds, receipts and other documents, and for that purpose, to use, when necessary, the company’s seal; (c) to sell the immovable and movable property and actionable claims of the company by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels; (d) to sell the whole of the undertaking of the company as a going concern; (e) to raise any money required on the security of the assets of the company; (f) to institute or defend any suit, prosecution or other legal proceeding, civil or criminal, in the name and on behalf of the company; (g) to invite and settle claim of creditors, employees or any other claimant and distribute sale proceeds in accordance with priorities established under this Act; (h) to inspect the records and returns of the company on the files of the registrar or any other authority; (i) to prove rank and claim in the insolvency of any contributory for any balance against his estate, and to receive dividends in the insolvency, in respect of that balance, as a separate debt due from the insolvent, and rate ably with the other separate creditors; (j) to draw, accept, make and endorse any negotiable instruments including cheque, bill of exchange, hundi or promissory note in the name and on behalf of the company, with the same effect with respect to the liability of the 17.12

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(k)

(l)

(m)

(n)

Winding up

company as if such instruments had been drawn, accepted, made or endorsed by or on behalf of the company in the course of its business; to take out, in his official name, letters of administration to any deceased contributory, and to do in his official name any other act necessary for obtaining payment of any money due from a contributory or his estate which cannot be conveniently done in the name of the company, and in all such cases, the money due shall, for the purpose of enabling the company liquidator to take out the letters of administration or recover the money, be deemed to be due to the company liquidator himself; to obtain professional assistance from any person or appoint any professional, in discharge of his duties, obligations and responsibilities and for protection of the assets of the company, appoint an agent to do any business which the company liquidator is unable to do himself; to take all such actions, steps, or to sign, execute and verify any paper, deed, document, application, petition, affidavit, bond or instrument as may be necessaryi. for winding up of the company; ii. for distribution of assets; iii. in discharge of his duties and obligations and functions as company liquidator; to apply to the Tribunal for such orders or directions as may be necessary for the winding up of the company.

Assistance of Professionals [Section 291] The company liquidator can appoint one or more chartered accountants or company secretaries or cost accountants or legal practitioners or such other professional as may be necessary to assist him in the performance of his duties and functions under the Act. Calling of meeting [Section 292(3)] The company liquidator may summon meetings of the creditors or contributories, whenever he thinks fit, for the purpose of ascertaining their wishes; and  shall summon such meetings at such times, as the creditors or contributories, as the case may be, may, by resolution, direct, or whenever requested in writing to do so by not less than one-tenth in value of the creditors or contributories, as the case may be.

17.10.6

Appeal against the decision of company liquidator [Section 292(4)]

The Act provides that any person aggrieved by any act or decision of a company liquidator may apply to the Tribunal and the Tribunal may confirm, reverse or modify

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the act or decision complained of and make such further order as it thinks just and proper in the circumstances.

17.10.7

Other provisions

There are many other powers and duties that are provided in Chapter XX of Companies Act, 2013. The role and function will be clear on reading the procedure of involuntary winding up.

17.11 OFFICIAL LIQUIDATOR 17.11.1

Appointment of official liquidator [Section 359]

The appointment of office of official liquidator, its structure and terms are to be decided by the Central Government. Section 465 provides that the exiting set up of official liquidators can be considered as the office of official liquidator set up under the Companies Act, 2013.

17.11.2

Power and functions

The role of an official liquidator has changed, rather it has been diminished. However, as the office of official liquidator exists, the Companies Act, 2013 provides that the Tribunal can appoint an official liquidator as a company liquidator for the purpose of winding up. This is, however, at the discretion of the Tribunal. Following are the powers/duties that are provided in Companies Act, 2013, which are to be exercised/discharged by the official liquidator: (a) all or any of the powers as may be exercised by a company liquidator under the provisions of this Act when the Tribunal appoints an official liquidator as a company liquidator; and (b) conduct inquiries or investigations, if directed by the Tribunal or the Central Government, in respect of matters arising out of winding up proceedings. The power to make inquiries and investigation in winding up is still vested with official liquidator and there is no provision to assign this power to a professional liquidator appointed under the Act.

17.12 PROCEDURE OF WINDING UP BY TRIBUNAL The procedures are set out considering the Companies Act, 2013. The Rules for winding up were notified on 24th January 2020 and were made effective from 1st April 2020.

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17.12.1

Winding up

Procedure of winding up by Tribunal

The reference to rules under this procedure is the reference to winding up rules unless stated otherwise expressly or implied. The procedure is primarily provided in the Companies Act, 2013 read with the Companies (Winding up) Rules (WUP Rules). This is only a brief overview. The Act and rules provide minute details about every step and aspect of the winding up process as follows: 1. A person eligible to file a petition shall the petition in triplicate for winding up of the company on the basis of grounds mentioned under sec 271(1) in Form no. WIN-1, WIN-2. Every petition shall be verified by an affidavit in Form WIN-2; 2. When the petition is made by [sec 272(5) & r 3& 4]: •

The company: It shall be accompanied by the statement of affairs in Form no. WIN-4 duly verified by an affidavit in Form WIN-5 stating the facts upto the date which shall not be a date more than 30 days prior to the date of filing the petition;

Other than company: Only petition in Form no. WIN-1, WIN-2 duly verified by affidavit in Form WIN-3 shall be presented before the Tribunal. Then the company shall upon the directions made in the order by the Tribunal file its objection through an affidavit along with statement of affairs in Form no. WIN-4; 3. A copy of the petition shall also be filed with the registrar which shall without prejudice to any other provisions submit his views to the Tribunal within 60 days of receipt of such petition; [sec 272(7)] •

4. Upon the filing of the petition, it shall be listed before the Tribunal for admission and fixing a date for its hearing and for directions as to the advertisements to be published and the persons, if any, upon whom copies of the petition are to be served. Where a petition has been filed by a person other than the company, the Tribunal shall if it thinks fit, direct notice to be given to the company and give an opportunity of being heard, before giving directions as to the advertisement of the petition; 5. If the Tribunal directs, the petition shall thereafter be advertised in Form no. WIN-6 not less than 14 days before the date fixed for hearing in one daily newspaper in English language and one daily newspaper in vernacular language widely circulated in the state or union territory in which the registered office of the company is situated; [r 7] 6. Where the petition is filed by the persons other than the company and the Tribunal is satisfied that the prima facie case for winding up has been made out, then the company may upon the directions made in the order by the Tribunal file its objection through an affidavit along with statement of affairs 17.15

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in Form no. WIN-4 within 30 days of the order. Affidavit in reply to the affidavit in opposition should be filed at least 7 days before the date fixed for hearing; [sec 274(1) read with r 11 & 12] 7. If the company fails to file the statement of affairs, the right to oppose shall be forfeited and such directors and officers of the company who are liable for the default shall be punished with an imprisonment for a term which may extend to six months or with fine which shall be at least INR 25,000 but which may extend to INR 500,000 or with both; [sec 274(4)] 8. Affidavit in reply to the affidavit in opposition should be filed at least 7 days before the date fixed for hearing; ; 9. The Tribunal shall within 90 days from the date of presentation of the petition may pass any one or more of the following order under sec 273: (a) dismiss it, with or without costs; (b) make any interim order as it thinks fit; (c) appoint a provisional liquidator in Form no. 7 of the company till the making of a winding up order; (d) make an order for the winding up of the company with or without costs; or (e) any other order as it thinks fit. Interim order appointing provisional liquidator 1. If the Tribunal intends to consider appointment of a provisional liquidator, it should give a notice to the company in Form WIN-7 and afford the company a reasonable opportunity to oppose such appointment. However, if the Tribunal feels that there are special reasons for not giving such notice, it shall record the reasons for the same and go ahead with the appointment without giving notice or opportunity to the company. [Proviso to sec 273]. 2. Where the Tribunal makes an order for the appointment of provisional liquidator, it shall cause the Intimation thereof to be sent within a period of seven days from the date of passing of the order. The intimation shall be sent in Form no. WIN-9 along with a copy of the petition, copy of statement of affairs and the affidavit, if any, filed in support thereof. The said intimation should also be sent to the ROC. [Section 277(1) read with Rule 14] 3. When the winding up order is passed by the order, the director and other officer of the company shall within 30 days of such order submit at the cost of the company, the books of accounts of the company completed and audited upto the date of the order, to such liquidator. In case of contravention of the same, such director and other officers shall be liable to punishment with imprisonment for a term which may extend to six months or with fine which shall be at least INR 25,000 but which may extend to INR 500,000 or with both. [Section 274(3) & (4)].

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4. After the appointment, the provisional liquidator must do the following things: •

He must file a declaration in Form no.WIN-10 disclosing conflict of interest or lack of independence in respect of his appointment, if any within seven days of his appointment with the Tribunal. [Section 275(6) read with r 14]

•

On an order of the Tribunal, he must take into his custody or under his control, all the properties, effects, actionable claims and books and papers of the company, and take steps to protect and preserve the assets and property of the company. It shall be the duty of all persons having custody of any of the property, books and papers of the company, to deliver possession thereof to the provisional liquidator. [Section 283(1)]

Order of winding up 1. Where the order for winding up is passed by the Tribunal, such order shall be in Form no. WIN-11. At the time of passing the winding up order, Tribunal can appoint an official liquidator or a liquidator from the panel maintained by the Central Government as the company liquidator; 2. When the order is passed, it shall be sent to the company liquidator in Form no. WIN-12 and to the registrar in Form no. WIN-13. The said order shall be sent along with the copy of petition, and the affidavit. It must be sent within seven days from the date of passing of the order; 3. A copy of the order made by the Tribunal shall also be filed by the liquidator within thirty days of the receipt with the Registrar of Companies in form INC-28 of the Companies (Incorporation) Rules, 2014. 4. In case of listed companies, the registrar of companies shall send the intimation of such order to the stock exchange, where the securities of the company are listed; 5. Unless otherwise ordered by Tribunal, Order for winding up must be advertised. The advertisement must be in Form no. WIN-14 and must be published within 14 days of making the order. It must be advertised by the petitioner in English and vernacular language widely circulated in the State or Union Territory where the registered office of company is situated and shall also be served on the person to whom the Tribunal has directed to effect service; [Rule No.20] 6. Thereafter, on receipt of the copy of the order of appointment of provisional liquidator or winding up order, the registrar shall make an endorsement to that effect in his records relating to the company and notify in the official gazette that such an order has been made and in case of listed companies, the registrar shall send the intimation about such appointment or order to stock exchange or exchanges where the securities are listed. [Section 277(2)]

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7. Effect of winding up order: •

It shall be deemed to be a notice of discharge to the officers, employees and workmen of the company, except when the business of the company is continued. [Section 277(3)]

•

The said order shall operate in favour of all the creditors and all contributories of the company as if it had been made out on the joint petition of creditors and contributories. [Section 278]

•

All the property and effects of the company shall be deemed to be in the custody of the Tribunal from the date of the order of the winding up of the company. [Section 283(2)]

8. The promoters, directors, officers and employees, who are or have been in the employment of the company or acting or associated with the company shall have to extend full cooperation to the company liquidator in discharge of his functions and duties. [Sec 284(1)] 9.

If any person required to assist or cooperate with the Company Liquidator does not assist or cooperate, the Company Liquidator may make an application to the Tribunal for necessary directions. [Section 284(2)].

10. On receiving an application for non-co-operation, the Tribunal shall, by an order, direct the person required to assist or cooperate with the Company Liquidator, to cooperate with him in discharging his functions and duties. 11. On appointment of a company liquidator, he shall do the following: [Section 277(1) & 275(1) read with r 7(1) & (4)] He must file a declaration in Form no.WIN-10 disclosing conflict of interest or lack of independence in respect of his appointment, if any, within seven days of his appointment with the Tribunal. [Section 275(6) read with r 21] 12. Custody of Property: The company liquidator must, on an order of the Tribunal, take into his custody or under his control all the properties, effects, actionable claims and books and papers of the company, and protect and preserve the same. It shall be the duty of all persons having custody of any of the property, books and papers of the company, to deliver the possession thereof to the company liquidator. [Section 283(1) read with r 22] Report on assets and plans to maximize recovery value Report on Assets: Within 60 days of the winding up order, the company liquidator shall submit a report in Form no.WIN-16 under sec 281. It should contain the details set out in Section 281. It shall also contain the viability plan of the business of company or the steps which are necessary for maximizing the value of the assets of the company. The company liquidator may make further report or reports, if he thinks fit, according to the provisions of sec 281(4). [Section 281 read with Rule 25] (a) The report shall state the manner in which the company was promoted or formed and whether in the opinion of the company liquidator, any fraud has 17.18

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been committed by any person in the promotion or formation or managing the affairs of the company or by any officer in relation to the company since its formation, and shall set out the names of the persons by whom the fraud, in his opinion, was committed and the facts on which such opinion is based. The report shall set out in a narrative form, facts and matters which the company liquidator desires to bring to the notice of the Tribunal. [Section 281(2)] (b) The Tribunal shall within seven days of the receipt of the report under sec 281(1), fix the date for consideration thereof by the Tribunal. Such date shall be notified by on the notice board of Tribunal and also to company liquidator of concerned company. (c) The consideration of the report made by the Company Liquidator pursuant to section 281, shall be placed before the Tribunal, and the Company Liquidator shall personally or by authorised representative attend the consideration of the said report and give the Tribunal any further information or explanation with reference to the matters contained therein which the Tribunal may require and on consideration of the aforesaid report, the Tribunal may pass such orders and give such directions as it may think fit. [Rule 27] Settlement of list of contributories 1. Company liquidator shall prepare and file with the Tribunal a provisional list of the contributories of the company in Form no. WIN-17 within 21 days from the date of passing of the winding up order. [Rule 28] 2. Company liquidator must obtain the date for the settlement of the list of the contributories from the Tribunal and shall give notice of the appointed date to every person in accordance with Form no. WIN-18 and intimating that in case such person intends to object with respect to his settlement and the number of shares, he should file an affidavit with Tribunal supporting his contention and serving a copy of the same to the company liquidator at least 2 days before the date fixed for the settlement. Service of such notice shall be made at least 14 days before the date fixed for the settlement in the mode set out in sec 20 of the act. [Rule 10(2)(i)] 3. Affidavit in Form no. WIN-19 for the proof of dispatch of the above notice shall also be prepared at least 2 days before the date fixed for the settlement of the list. [Rule 29] 4. The Tribunal shall settle the list of the contributories after hearing the persons who object to the same, cause rectification of the register of members in all cases where rectification is required and shall cause the assets of the company to be applied for the discharge of its liability. It can dispense with it, when it appears fit to do so. The certified list by the Tribunal shall be in Form no. WIN 20. [Section 285(1) read with r 30] 17.19

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5. Upon the settlement of the list of the contributories, the company liquidator shall forthwith give notice in Form No. WIN 21, to every contributory as finally settled either by pre-paid Registered post or speed post at the address mentioned in the list as settled. [Rule 31] 6. An affidavit of service in Form no. WIN-22 relating to the despatch of the notices to the contributories under r 31 shall be filed in the Tribunal within seven days of the settlement of the list of contributories by the Tribunal. [Rule 31] 7. At any time before or after passing a winding up order, if the Tribunal is satisfied that the person having property, accounts or papers of the company is about to leave India or otherwise to abscond or is about to remove or conceal any of his property or is about to remove or conceal any of his property for the purpose of evading payment of calls or of avoiding examination respecting the affairs of the company, the Tribunal may cause the contributory to be detained and the books and papers and movable property to be seized and safely kept until such time as the Tribunal directs. [Section 301] 8. Winding UP Committee: Within three weeks from the date of passing of the winding up order, the company liquidator shall make an application to the Tribunal for constitution of the winding up committee to assist and monitor the progress of liquidation proceeding by the company liquidator. [Section 277(4)] This committee is different from an advisory committee. The role and nature of this committee is provided under sec 277 whereas the role and function of advisory committee is contained under sec 287 read with Rules. The company liquidator must convene the meeting of the committee on monthly basis and shall send a report to the Tribunal along with the minutes of the meetings of the committee on monthly basis, duly signed by the members present in the meeting till the final report for dissolution of the company is submitted to the Tribunal. [Section 277(6)] Advisory committee 1. The Tribunal may direct to appoint an advisory committee to advise the company liquidator and to report the Tribunal. Such committee shall not consist of more than 12 members, being creditors and contributories of the company. 2. The company liquidator shall convene the meeting of the creditors and contributories within 30 days of the passing of the winding up order to determine who shall be the members of the advisory committee. [Section 287(3)]

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He shall report the result to the Tribunal in Form no. WIN-23 within seven days of the holding of the meeting of the creditors and the contributories. [Rule 37] 3. The liquidator shall advertise the notice of the date in Form no. 25 so fixed for consideration of report at least seven days before the date so fixed. [Rule 37] 4. Where the creditors and contributories have agreed upon the constitution and composition of the advisory committee and the persons who are to be members thereof, an advisory committee shall, subject to the provisions of sub-section (2) of section 287, be constituted in accordance with such decision, and the Company Liquidator shall set out in his report the names of the members of the committee so constituted. 5. After being directed by the Tribunal to constitute an advisory committee where the creditors and contributories have not agreed upon the composition of the advisory committee and the persons who are to be members thereof, the Company Liquidator shall, at the time of making his report as aforesaid, apply to the Tribunal for directions as to what shall be its composition, and who shall be the members thereof, and the Tribunal shall thereupon fix a date for the consideration of the report of the Company Liquidator and the notice of the date so fixed shall be advertised by the Company Liquidator in such manner as the Tribunal shall direct not less than seven days before the date so fixed, and the advertisement shall be in Form WIN 24. 6. On the date fixed for hearing of the said application for directions, the Tribunal may, after hearing the Company Liquidator and any creditor or contributory who may appear, decide as to who would be the members of the said advisory committee or pass such orders or give such directions in the matter, as the Tribunal may think fit. 7. The company liquidator shall summon the meetings of creditors and contributory at such intervals at he thinks fit (Section 292). The rules provide for the detailed procedure for holding of meetings of creditors and contributories. The procedure for calling such meetings is separately provided. The company liquidator shall within seven days of such meetings, report the result thereof to the Tribunal in Form no. 34. [Rule 65] 8. The company liquidator has to dispose of the assets in accordance with the provisions of Part I read with Part III of Chapter XX of Companies Act, 2013. The liabilities are to be discharged in accordance with Part I read with Part III of Chapter XX of Companies Act, 2013. The priority of making payment to creditors is provided in the Act in Part III. The money of the company remaining after discharging all the debts will be paid to the contributories as dividends in the manner provided in the Act and rules.

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9. Till the company is finally wound up, the company liquidator shall make quarterly reports in Form no. WIN-37 to the Tribunal with respect to the progress of winding up. [Rule 76] 10. For the purposes of sub-section (2) of section 294, unless otherwise ordered by the Tribunal, the Company Liquidator shall file his accounts to Tribunal twice a year and such accounts shall be made up to the 31st of March and 30th of September every year, the account for the period ending 31st March being filed not later than the 30th of June following, and account for the period ending 30th September, not later than the 31st of December following: Provided that the final accounts of the Company Liquidator shall be filed as soon as the affairs of the company have been fully wound up, irrespective of the period specified above: Provided further that the Tribunal may permit the Company Liquidator to straight away forward completed accounts of the company in liquidation in respect of relevant period to the auditor for the purpose of audit in Form WIN 42 requesting that the accounts may be audited, and the certificate of audit shall be submitted to the Tribunal not later than one month from the date of receipt of the copy of the accounts as required under subsection (3) of section 294: Provided also that the accounts need not be got audited where the transaction during the period is for ten thousand rupees or less. 92. 11. Form of account.- The account shall be a statement of receipts and payments in Form WIN 39 and shall be prepared in accordance with the instructions contained in the said form and three copies thereof shall be filed, and the account shall be verified by an affidavit of the Company Liquidator in Form WIN 40 and the final account shall be in Form WIN 41. 12. Nil account.- Where the Company Liquidator has not, during the period of account, received or paid any sum of money on account of the assets of the company, he shall file an affidavit of no receipts or payments on the date on which he shall have to file his accounts for the period. 13. . Registry to send copy of account to auditor.- As soon as the accounts are filed, the Registry shall forward to the auditor one copy thereof for purposes of audit with a requisition in Form WIN 42 requesting that the accounts may be audited and a certificate of audit be submitted to the Tribunal not later than one month from the date of receipt of the copy of the account as required under sub-section (3) of section 294: Provided that the accounts need not be got audited where the total transaction during the period is for ten thousand rupees or less. 14. Audit of Company Liquidator's accounts.- The accounts shall be preferably audited by one or more Chartered Accountants appointed by the Tribunal from out of the panel to be maintained by the Tribunal, the audit shall be a complete check of the accounts of the Company Liquidator and the Company Liquidator shall produce before the auditor all his books and 17.22

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vouchers for the purposes of the audit, and shall give the auditor all such explanations, information and assistance as may be required of him in respect of the accounts. 15. Audit certificate to be filed.- After the audit of the accounts of the Company Liquidator filed in Tribunal, the auditor shall forward to the Registry a certificate of audit relating to the account with his observations and comments, if any, on the account, together with a copy thereof and shall forward another copy to the Company Liquidator, and the Company Liquidator shall file copy of the audit certificate together with a copy of audited accounts with the Registrar of Companies and the Registry shall file the original audit certificate with the records of the Tribunal. 16. Audit fees.- The audit fees shall be fixed by the Tribunal from time to time having regard to the nature and complexity of the case . 17. Inspection of account and certificate of audit.- Any creditor or contributory shall be entitled to inspect the accounts and the auditor's certificate in the office of the Tribunal on payment of fees of one hundred rupees and to obtain a copy thereof on payment of the charges at the rate of five rupees per page. 18. Account and auditor's report to be placed before Tribunal.- Upon the audit of the account, the Registry shall place the statement of account and the auditor's certificate before the Tribunal for its consideration and orders. 19. The company liquidator and the members of advisory committee cannot be the purchaser of any part of the company’s asset except with leave of the Tribunal. [Rule 39] 20. After the affairs are wound up, company liquidator shall prepare the draft final report for consideration and approval of the winding up committee and such report shall be filed by the liquidator before the Tribunal for passing of the dissolution order in respect of the company. [Section 277(7) & (8)] 21. Final accounts of the company liquidator shall be filed in Form no. 44 before the Tribunal as soon as the affairs of the company have been fully wound up. [No time limit prescribed as such] 22. Company liquidator shall make an application to the Tribunal for dissolution of such company when the affairs of the company have been completely wound up and the final accounts have been audited. [Section 302(1)] 23. Dissolution of company - Upon the hearing of the application, the Tribunal may, after hearing the Company Liquidator and any other person to whom notice may have been ordered by the Tribunal, upon perusing the account as audited, make such orders as it may think fit as to the dissolution of the company, the application, subject to the provisions of the Act, of the balance in the hands of the Company Liquidator or the payment thereof into the Company Liquidation Dividend and Undistributed Assets Account, and the disposal of the books and papers of the company and of the liquidator. 17.23

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24. The Tribunal shall make an order for the dissolution of the company providing for the effective date of dissolution of the company (i.e. date of order) [Section 302(2)]: 25. Liquidator to pay the balance into Company Liquidation Dividend and Undistributed Assets Account. -Upon an order for dissolution being made, the Company Liquidator shall forthwith pay into the Company Liquidation Dividend and Undistributed Assets Account any unclaimed dividends payable to creditors or undistributed assets refundable to contributories in his hands on the date of the order of dissolution, and such other balance in his hands as he has been directed by the Tribunal to deposit into the Company Liquidation Dividend and Undistributed Assets Account and every order of dissolution shall direct that the Company Liquidator shall forward a certified copy of the order to the Registrar of Companies not later than seven days from the date of the order, and along with the copy of the order shall be filed with the Registrar of Companies, a statement signed by the Company Liquidator that the directions of the Tribunal regarding the application of the balance as per his final account have been duly complied with. 26. Conclusion of winding up. - The winding up of a company shall, for purposes of section 302, be deemed to be concluded at the date on which the order dissolving the company has been reported by the Company Liquidator to the Registrar of Companies unless any fund or assets of the company remaining unclaimed or undistributed in the hands or under the control of the Company Liquidator, have been distributed, or paid into the Company Liquidation Dividend and Undistributed Assets Account as provided in section 352. 27. Application to declare dissolution void.-An application under section 356 shall be made upon notice to the Central Government and the Registrar of Companies and where the Tribunal declares the dissolution to have been void, the order shall direct that the applicant shall file a certified copy of the order with the Registrar of Companies not later than twenty-one days from the date of the order. 28. Before passing an order of dissolution, the official liquidator can be directed to submit a report of dissolution. This is required if the dissolution is conducted by a private company liquidator. [Rule 35] 29. A certified copy of the order of dissolution shall be filed by company liquidator with ROC within seven days from the date of receipt of the order. 30. The Tribunal shall, within a period of thirty days from the date of the order,-(a) forward a copy of the order to the Registrar who shall record in the register relating to the company a minute of the dissolution of the company; and (b) direct the Company Liquidator to forward a copy of the order to the

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Registrar who shall record in the register relating to the company a minute of the dissolution of the company. [Section 302(3)] 31. If any disclosed fraud is of a nature set out in Part I and Part III during the course of winding up, the company liquidator shall take steps as required under the law.

17.12.1.1

Application to vacate stay on other proceedings

No new legal proceeding can be commenced or old proceedings can be continued against a company once a winding up order is passed except with the leave of the Tribunal. Any person who is desirous of filing a suit or other legal proceedings or continuing a case against the company can seek leave from the Tribunal. An application under sec 279(1) for leave of the Tribunal to commence or continue any suit or proceeding against the company shall be made in Form No. WIN 15 upon notice to the company liquidator and the parties to the suit or proceeding sought to be commenced or continued and Tribunal shall dispose of such application within 60 days. Additional Duties of company liquidator in this regard are as follows: 1. The company liquidator shall maintain proper and regular books of accounts including account of receipts and payment. 2. The account shall be a statement of receipts and payments in Form WIN 39 and shall be prepared in accordance with the instructions contained in the said form and three copies thereof shall be filed, and the account shall be verified by an affidavit of the Company Liquidator in Form WIN 40 and the final account shall be in Form WIN 41. 3. Then the registrar of Tribunal shall forward a copy to the auditor within 15 days thereof for the purpose of the audit with the requisition in Form no. 45 requesting audit of accounts and submission thereof to the Tribunal within one month of the date of the receipt of the copy. Here, there is no need to get the accounts audited where the transaction during the period amounts to INR 5,000 or less. 4. Afterwards, the company liquidator shall file a copy of the audited accounts with the Tribunal and the other copy shall be delivered to the registrar which shall be open for inspection by any creditor, contributory or person interested. The registrar shall file the original certificate with the records and forward the copy to ROC together with the copy of accounts to which it relates. 5. Also, the registrar shall place the statement of audited accounts and the auditor’s certificate before the bench for its consideration and order. 6. Where the company is a government company, the company liquidator shall forward the copy thereof to the Central Government, if Central Government is a shareholder of the said government company or to State Government if 17.25

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that State Government is a shareholder and to both if both are the shareholders. 7. The company liquidator shall send the printed copies of the audited accounts or summary thereof by post to the every creditor and every contributory.

17.12.2 Role of advisory committee The role of an advisory committee is as follows: 1. To advise the company liquidator; and 2. To inspect the books of accounts and other documents, assets and properties of the company under liquidation within a reasonable time; The members of the advisory committee cannot become the purchaser of any part of the company’s asset except with leave of the Tribunal. [Rule 39]

17.12.3 Procedure to be followed at the meetings of advisory committee Following procedure shall be followed in the meeting of an Advisory Committee: 1. Such meetings shall be chaired by the company liquidator; 2. The advisory committee shall meet at such times as it may from time to time appoint and the company liquidator or any member may also call the meeting of the committee; 3. Quorum of the meeting shall be 1/3 of the total number of members or two whichever is higher.

17.12.4

Rights of creditor and contributories

1. Every contributory of the company shall be entitled to be furnished by the petitioner or by his authorised representative with a copy of the petition within 24 hours of his requiring the same on payment of Rs. 5 per page. [Rule 6] 2. Every creditor or contributory shall be entitled by himself or by his agent at all reasonable times to inspect the report submitted in accordance with sec 281 and take copies thereof or extracts therefrom on payment of the prescribed fees. [Section 281(5)]

17.12.5 Meeting of members 1. Send notice in Form no. 27 along with the Proxy Form in Form no. 32 of the meeting at least 14 days before appointed date of the meeting, individually to every contributory of the meeting at the address mentioned in the books of the company or to such other addresses as may be known to the person summoning the meeting. The notice shall be sent by Registered AD or other 17.26

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recognised modes of service as per sec 20 of the Act so that it reaches such person in the ordinary course of post, not less than 14 days before the date appointed for the meeting and also by an advertisement in one daily newspaper in English Language and one daily newspaper in principal regional language circulating in the state or union territory where the registered office of the company is situated. 2. The company liquidator shall also give notice in Form no. 28 at least seven days before appointed date of such meeting to the officers of the company who in his opinion shall attend the meeting. 3. The Notice shall be sent either personally or by Registered AD or other recognised modes of service as per sec 20 of the Act. It shall be the duty of every such officer who receives such notice to attend the meeting and if any such officer fails to attend, the liquidator may report such failure to the Tribunal and the Tribunal may issue such direction. 4. Company liquidator thereafter needs to file a declaration supported with the proof of service before the Tribunal in Form no.29 that such notices have been duly sent. 5. The Chairman of the meeting shall be either the company liquidator or some person nominated by him. 6. The Chairman holds and convenes the general meeting and passes the following resolution with simple majority. Here the resolution shall be deemed to be passed when a majority of the creditors (in number and value) present personally or by proxy and voting on the resolution, have voted in favour of the resolution. 7. The company liquidator shall file a certified copy of every resolutions passed at the meeting with the Tribunal. 8. The Chairman shall cause the minutes of the proceeding at the meeting to be entered in the minute book and minutes shall be signed by him or the chairman of the next meeting and the list of contributories shall be made and kept in Form no. 31. 9. The company liquidator shall within seven days of the conclusion of the meeting, report the result thereof in Form no. 24 to the Tribunal. 10. Adjournments at the meeting: The chairman with the consent of the members, may adjourn the meeting which shall be held within seven days at the same place as the original meeting unless in the resolution for adjournment another place is specified or unless the Tribunal otherwise orders. Even if within half an hour from the time appointed for the meeting, the prescribed quorum is not present, then the meeting shall stand adjourned to the same day in the following week with same time and place. If at such adjourned meeting also, there is no quorum, then two members shall form a quorum and transact the business for which the meeting was convened. In 17.27

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case 2 members are also not present then the chairman of the meeting shall submit his report to the Tribunal. 11. Quorum: At least 3 members or all the contributories when the number of contributories are three only.

17.12.6 Meeting of creditors 1. Subject to any directions given by the Tribunal, Rules as hereinafter set out shall apply to meetings of creditors and contributories as may be convened in pursuance of sub-section (3) of section 287 and sub-section (3) of section 292. The Company Liquidator shall summon meetings of creditors and contributories by giving not less than fourteen days notice by sending individually to every creditor of the company a notice of the meeting of creditors, and to every contributory of the company a notice of the meeting of contributories, by sending notice by registered post or speed post or by electronic means so as to reach such person in not less than fourteen days before the date fixed for the meeting. The notices shall be in Forms WIN 25 to 29 as may be applicable. 2.

A creditor or contributory may give a general proxy or a special proxy to any person, and a general proxy shall be in Form WIN 35 and a special proxy in Form WIN 36.

3. The Company Liquidator shall also give, to each of the officers of the company, who in his opinion ought to attend the first or any other meeting of creditors or contributories, fourteen days' notice in Form WIN 30 of the time and place appointed for such meeting and the notice may either be delivered by hand or sent by registered post or speed post or by electronic means as may be convenient, and it shall be the duty of every officer who receives notice of such meeting to attend if so required by the Company Liquidator, and if any such officer fails to attend, the Liquidator may report such failure to the Tribunal and the Tribunal may issue such directions to such person as it thinks fit. 4. An affidavit by any person who sent the notice, that such notice has been duly sent, shall be sufficient evidence of the notice having been sent to the person to whom the same was addressed and the affidavit shall be filed in the Tribunal in Form WIN 31. 5. The Company Liquidator or some person nominated by him shall be the Chairman of the meeting and the nomination shall be in Form WIN 32. 6. At a meeting of creditors, a resolution shall be deemed to be passed, when a majority in value of the creditors present personally or by proxy and voting on the resolution have voted in favour of the resolution and in a winding up by the Tribunal, the value of a creditor, shall, for the purposes of a first meeting of the creditors meeting held under section 287, be deemed to be the value as shown in the books of the company, or the amount mentioned in his 17.28

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proof as referred to rule 101, whichever is less and for the purposes of any other meeting, the value for which the creditor has proved his debt or claim. 7. The creditors are entitled to vote in the case of meeting held in pursuance of sec 287 or any adjournment thereof or in case of any other meetings thereafter, a proof of debt which he claims to be a debt due to him from the company within the time specified in the notice. 8. The company liquidator shall file with the Tribunal, a certified copy of every resolutions passed at the meeting by him. 9. The chairman of the meeting shall cause minutes of the proceedings at the meeting to be drawn up and fairly entered in the Minute Book within 30 days and the minutes shall be signed by him or by the chairman of the next meeting. 10. The company liquidator shall within seven days of the conclusion of the meeting, report the result thereof in Form no. WIN 34 to the Tribunal. 11. Adjournments at the meeting: The chairman of the meeting may, with the consent of the creditors or contributories present in the meeting, as the case may be, adjourn it from time to time, but the adjourned meeting shall be held at the same place as the original meeting unless in the resolution for adjournment another place is specified or unless the Tribunal otherwise orders. 12. Quorum: At least 3 creditors or all the creditors where the number of members are only three.

17.12.6.1

Limitation on voting rights of creditors

During the meeting, the creditors shall not vote in respect of: •

Unliquidated and contingent debt;

•

Any debt value of which is not ascertained;

•

Any debt on or secured by current bill of exchange or promissory note.

17.13 PROVISIONS APPLICABLE TO INVOLUNTARY WINDING UP Most of the provisions of Part III of Chapter XX of the Companies Act, 2013 closely resemble corresponding sections under the Companies Act, 1956. Mainly, the references to official liquidator have been changed to company liquidator, references to court have been changed to Tribunal and a few other consequential changes have been made to many sections in this Part. The sections of Part III have been set out below and the changes have been analysed after the section. Further, the change brought about by IBC are also discussed. Earlier these sections were applicable to both voluntary and involuntary winding up.

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However, as provisions of voluntary winding up are deleted by IBC, consequential changes have been made to most of the provisions.

17.13.1 Section 324: Debts of all descriptions to be admitted to proof “In every winding up (in case of insolvent companies, subject to application in accordance with the provisions of this Act or of the law of insolvency), all debts payable on a contingency and all the claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to proof against the company, a just estimate being made, so far as possible, of the value of such debts or claims as may be subject to any contingency, or may sound only in damages, or for some other reason may not bear a certain value.” Changes •

This section corresponds to sec 528 of the Companies Act, 1956;

•

This section has remained unchanged (No changes).

17.13.2 Section 325: Application of insolvency rules in winding up of insolvent companies This section is omitted by IBC,

17.13.3 Section 326: Overriding preferential payments This provision is substituted by the IBC Old Provision “(1) Notwithstanding anything contained in this Act or any other law for the time being in force, in the winding up of a company,— (a) workmen's dues; and (b) debts due to secured creditors to the extent such debts rank under clause (iii) of the proviso to sec 325(1) pari passu with such dues, shall be paid in priority to all other debts: Provided that in case of the winding up of a company, the sums towards wages or salary referred to in sub-clause (i) of clause (b) of sub-section (3) of section 325, which are payable for a period of two years preceding the winding up order or such other period as may be prescribed, shall be paid in priority to all other debts (including debts due to secured creditors), within a period of thirty days of sale of assets and shall be subject to such charge over the security of secured creditors as may be prescribed.

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(2) The debts payable under the proviso to sub-section (1) shall be paid in full before any payment is made to secured creditors and thereafter debts payable under that sub-section shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions.” New Substituted Provision "326. (1) In the winding up of a company under this Act, the following debts shall be paid in priority to all other debts:— (a) workmen's dues; and (b) where a secured creditor has realised a secured asset, so much of the debts due to such secured creditor as could not be realised by him or the amount of the workmen's portion in his security (if payable under the law), whichever is less, pari passu with the workmen's dues: Provided that in case of the winding up of a company, the sums referred to in sub-clauses (i) and (ii) of clause (b) of the Explanation, which are payable for a period of two years preceding the winding up order or such other period as may be prescribed, shall be paid in priority to all other debts (including debts due to secured creditors), within a period of thirty days of sale of assets and shall be subject to such charge over the security of secured creditors as may be prescribed. (2) The debts payable under the proviso to sub-section (1) shall be paid in full before any payment is made to secured creditors and thereafter debts payable under that subsection shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. Explanation.— For the purposes of this section, and section 327— (a) "workmen'', in relation to a company, means the employees of the company, being workmen within the meaning of clause (s) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947); (b) "workmen's dues'', in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely:— (i) all wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947 (14 of 1947); 17.31

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(ii)

(iii)

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all accrued holiday remuneration becoming payable to any workman or, in the case of his death, to any other person in his right on the termination of his employment before or by the effect of the winding up order or resolution; unless the company is being wound up voluntarily merely for the purposes of reconstruction or amalgamation with another company or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in section 14 of the Workmen's Compensation Act, 1923 (19 of 1923), rights capable of being transferred to and vested in the workmen, all amount due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any workman of the company;

(iv)

all sums due to any workman from the provident fund, the pension fund, the gratuity fund or any other fund for the welfare of the workmen, maintained by the company; (c) "workmen's portion'', in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen's dues bears to the aggregate of the amount of workmen's dues and the amount of the debts due to the secured creditors. Illustration The value of the security of a secured creditor of a company is Rs. 1,00,000. The total amount of the workmen's dues is Rs. 1,00,000. The amount of the debts due from the company to its secured creditors is Rs.3,00,000. The aggregate of the amount of workmen's dues and the amount of debts due to secured creditors is Rs. 4,00,000. The workmen's portion of the security is, therefore, one-fourth of the value of the security, that is Rs. 25,000.". Changes •

The provision before it was substituted by IBC corresponds to sec 529A of the Companies Act, 1956;

•

Under the Companies Act, 1956, the official liquidator faced problems in recovering the portion of workmen dues from banks who deferred such payment unduly. Thus, now a time period of 30 days is provided within which the workers will be paid. 30 days is counted from the date of sale. This payment shall have a charge over the security of secured creditors.

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•

Winding up

The non obstante clause is deleted as the term “Notwithstanding anything contained in this Act or any other law for the time being in force,” is deleted. This is material change as now the provision of priority of debt will have to be read in conjunction will other provisions provided in other Acts.

17.13.4

Section 327: Preferential payments

“(1) In a winding up, subject to the provisions of sec 326, there shall be paid in priority to all other debts— (a) all revenues, taxes, cesses and rates due from the company to the Central Government or a State Government or to a local authority at the relevant date, and having become due and payable within the twelve months immediately before that date; (b) all wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any employee in respect of services rendered to the company and due for a period not exceeding four months within the twelve months immediately before the relevant date, subject to the condition that the amount payable under this clause to any workman shall not exceed such amount as may be notified; (c) all accrued holiday remuneration becoming payable to any employee, or in the case of his death, to any other person claiming under him, on the termination of his employment before, or by the winding up order, or, as the case may be, the dissolution of the company; (d) unless the company is being wound up voluntarily merely for the purposes of reconstruction or amalgamation with another company, all amount due in respect of contributions payable during the period of twelve months immediately before the relevant date by the company as the employer of persons under the Employees' State Insurance Act, 1948 (34 of 1948) or any other law for the time being in force; (e) unless the company has, at the commencement of winding up, under such a contract with any insurer as is mentioned in sec 14 of the Workmen's Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and vested in the workmen, all amount due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any employee of the company: Provided that where any compensation under the said Act is a weekly payment, the amount payable under this clause shall be taken to be the amount of the lump sum for which such weekly 17.33

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payment could, if redeemable, be redeemed, if the employer has made an application under that Act (f) all sums due to any employee from the provident fund, the pension fund, the gratuity fund or any other fund for the welfare of the employees, maintained by the company; and (g) the expenses of any investigation held in pursuance of sections 213 and 216, in so far as they are payable by the company. (2) Where any payment has been made to any employee of a company on account of wages or salary or accrued holiday remuneration, himself or, in the case of his death, to any other person claiming through him, out of money advanced by some person for that purpose, the person by whom the money was advanced shall, in a winding up, have a right of priority in respect of the money so advanced and paid-up to the amount by which the sum in respect of which the employee or other person in his right would have been entitled to priority in the winding up has been reduced by reason of the payment having been made. (3) The debts enumerated in this section shall— (a) rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and (b) so far as the assets of the company available for payment to general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge. (4) Subject to the retention of such sums as may be necessary for the costs and expenses of the winding up, the debts under this section shall be discharged forthwith so far as the assets are sufficient to meet them, and in the case of the debts to which priority is given under clause (d) of subsection (1), formal proof thereof shall not be required except in so far as may be otherwise prescribed. (5) In the event of a landlord or other person distraining or having distrained on any goods or effects of the company within three months immediately before the date of a winding up order, the debts to which priority is given under this section shall be a first charge on the goods or effects so distrained on or the proceeds of the sale thereof: Provided that, in respect of any money paid under any such charge, the landlord or other person shall have the same rights of priority as the person to whom the payment is made. (6) Any remuneration in respect of a period of holiday or of absence from work on medical grounds through sickness or other good cause shall be 17.34

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deemed to be wages in respect of services rendered to the company during that period. (7) Sections 326 and 327 shall not be applicable in the event of liquidation under the Insolvency and Bankruptcy Code, 2016;2 Explanation—For the purposes of this section,— (a) the expression "accrued holiday remuneration" includes, in relation to any person, all sums which, by virtue either of his contract of employment or of any enactment including any order made or direction given thereunder, are payable on account of the remuneration which would, in the ordinary course, have become payable to him in respect of a period of holiday, had his employment with the company continued until he became entitled to be allowed the holiday; (b) the expression "employee" does not include a workman; and (c) the expression "relevant date" means in the case of a company being wound up by the Tribunal, the date of appointment or first appointment of a provisional liquidator, or if no such appointment was made, the date of the winding up order, unless, in either case, the company had commenced to be wound up voluntarily before that date under the Insolvency and Bankruptcy Code, 2016;. Changes •

This section corresponds to sec 530 of the Companies Act, 1956;

•

The overall priority list is unchanged. However, the certain nature, scope and manner of computation of certain priority payments like workmen’s due has changed.

•

The provision governing priority of payment of debt will not be applicable to liquidation that takes place in accordance with provisions of IBC. In any case, the provisions of IBC will have an overriding effect on provisions of this Act.

17.13.5

Section 328: Fraudulent preference

“(1) Where a company has given preference to a person who is one of the creditors of the company or a surety or guarantor for any of the debts or other liabilities of the company, and the company does anything or suffers anything done which has the effect of putting that person into a position which, in the event of the company going into liquidation, will be better than the position he would have been in if that thing had not been done prior to six months of making winding up application, the Tribunal, if 2

Inserted by IBC

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satisfied that, such transaction is a fraudulent preference may order as it may think fit for restoring the position to what it would have been if the company had not given that preference. (2) If the Tribunal is satisfied that there is a preference transfer of property, movable or immovable, or any delivery of goods, payment, execution made, taken or done by or against a company within six months before making winding up application, the Tribunal may order as it may think fit and may declare such transaction invalid and restore the position.” Changes •

This section corresponds to sec 531 of the Companies Act, 1956;

•

Now, the transaction that are entered into six months (as against 3 months under Companies Act, 1956) prior to making a winding up application can be challenged;

•

The Tribunal is empowered to declare a transaction involving fraudulent preference to be invalid;

•

The provision in Companies Act, 2013 has elaborated this section and removed ambiguities to make it more effective.

17.13.6 Section 329: Transfers not in good faith to be void "329. Any transfer of property, movable or immovable, or any delivery of goods, made by a company, not being a transfer or delivery made in the ordinary course of its business or in favour of a purchaser or encumbrancer in good faith and for valuable consideration, if made within a period of one year before the presentation of a petition for winding up by the Tribunal under this Act shall be void against the Company Liquidator." Changes •

This section corresponds to sec 531A of Companies Act, 1956;

•

This section is substituted by Clause 20 of Eleventh Schedule of IBC.

•

The changes are consequential to the omission of provisions for voluntary winding up from Companies Act, 2013.

17.13.7 Section 330: Certain transfers to be void “Any transfer or assignment by a company of all its properties or assets to trustees for the benefit of all its creditors shall be void.” Changes •

This section corresponds to sec 532 of Companies Act, 1956;

•

No changes.

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17.13.8

Winding up

Section 331: Liabilities and rights of certain persons fraudulently preferred

“(1) Where a company is being wound up and anything made, taken or done after the commencement of this Act is invalid under sec 328 as a fraudulent preference of a person interested in property mortgaged or charged to secure the company's debt, then, without prejudice to any rights or liabilities arising, apart from this provision, the person preferred shall be subject to the same liabilities, and shall have the same rights, as if he had undertaken to be personally liable as a surety for the debt, to the extent of the mortgage or charge on the property or the value of his interest, whichever is less. (2) The value of the interest of the person preferred under sub-section (1) shall be determined as at the date of the transaction constituting the fraudulent preference, as if the interest were free of all encumbrances other than those to which the mortgage or charge for the debt of the company was then subject. (3) On an application made to the Tribunal with respect to any payment on the ground that the payment was a fraudulent preference of a surety or guarantor, the Tribunal shall have jurisdiction to determine any questions with respect to the payment arising between the person to whom the payment was made and the surety or guarantor and to grant relief in respect thereof, notwithstanding that it is not necessary so to do for the purposes of the winding up, and for that purpose, may give leave to bring in the surety or guarantor as a third party as in the case of a suit for the recovery of the sum paid. (4) The provisions of sub-section (3) shall apply mutatis mutandis in relation to transactions other than payment of money.” Changes •

This section corresponds to sec 533 of Companies Act, 1956;

•

No changes.

17.13.9

Section 332: Effect of floating charge

“Where a company is being wound up, a floating charge on the undertaking or property of the company created within the twelve months immediately preceding the commencement of the winding up, shall, unless it is proved that the company immediately after the creation of the charge was solvent, be invalid, except for the amount of any cash paid to the company at the time of, or subsequent to the creation of, and in consideration for, the charge, together with interest on that amount at the

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rate of five per cent per annum or such other rate as may be notified by the Central Government in this behalf.” Changes •

This section corresponds to sec 534 of Companies Act, 1956;

•

No changes.

17.13.10 Section 333: Disclaimer of onerous property “(1) Where any part of the property of a company which is being wound up consists of— (a) land of any tenure, burdened with onerous covenants; (b) shares or stocks in companies; (c) any other property which is not saleable or is not readily saleable by reason of the possessor thereof being bound either to the performance of any onerous act or to the payment of any sum of money; or (d) unprofitable contracts, the company liquidator may, notwithstanding that he has endeavoured to sell or has taken possession of the property or exercised any act of ownership in relation thereto or done anything in pursuance of the contract, with the leave of the Tribunal and subject to the provisions of this section, by writing signed by him, at any time within twelve months after the commencement of the winding up or such extended period as may be allowed by the Tribunal, disclaim the property: Provided that where the company liquidator had not become aware of the existence of any such property within one month from the commencement of the winding up, the power of disclaiming the property may be exercised at any time within twelve months after he has become aware thereof or such extended period as may be allowed by the Tribunal. (2) The disclaimer shall operate to determine, as from the date of disclaimer, the rights, interest and liabilities of the company in or in respect of the property disclaimed, but shall not, except so far as is necessary for the purpose of releasing the company and the property of the company from liability, affect the rights, interest or liabilities of any other person. (3) The Tribunal, before or on granting leave to disclaim, may require such notices to be given to persons interested, and impose such terms as a condition of granting leave, and make such other order in the matter as the Tribunal considers just and proper.

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(4) The company liquidator shall not be entitled to disclaim any property in any case where an application in writing has been made to him by any person interested in the property requiring him to decide whether he will or will not disclaim and the company liquidator has not, within a period of twenty-eight days after the receipt of the application or such extended period as may be allowed by the Tribunal, give notice to the applicant that he intends to apply to the Tribunal for leave to disclaim, and in case the property is under a contract, if the company liquidator after such an application as aforesaid does not within the said period or extended period disclaim the contract, he shall be deemed to have adopted it. (5) The Tribunal may, on the application of any person who is, as against the company liquidator, entitled to the benefit or subject to the burden of a contract made with the company, make an order rescinding the contract on such terms as to payment by or to either party of damages for the nonperformance of the contract, or otherwise as the Tribunal considers just and proper, and any damages payable under the order to any such person may be proved by him as a debt in the winding up. (6) The Tribunal may, on an application by any person who either claims any interest in any disclaimed property or is under any liability not discharged under this Act in respect of any disclaimed property, and after hearing any such persons as it thinks fit, make an order for the vesting of the property in, or the delivery of the property to, any person entitled thereto or to whom it may seem just that the property should be delivered by way of compensation for such liability as aforesaid, or a trustee for him, and on such terms as the Tribunal considers just and proper, and on any such vesting order being made, the property comprised therein shall vest accordingly in the person named therein in that behalf without any conveyance or assignment for the purpose: Provided that where the property disclaimed is of a leasehold nature, the Tribunal shall not make a vesting order in favour of any person claiming under the company, whether as under-lessee or as mortgagee or holder of a charge by way of demise, except upon the terms of making that person— (a) subject to the same liabilities and obligations as those to which the company was subject under the lease in respect of the property at the commencement of the winding up; or (b) if the Tribunal thinks fit, subject only to the same liabilities and obligations as if the lease had been assigned to that person at that date, and in either event as if the lease had comprised only the property comprised in the vesting order, and any mortgagee or under-lessee declining to accept a vesting order upon such terms shall be excluded from all interest in, and security upon the property, and, if there is no person claiming under the 17.39

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company who is willing to accept an order upon such terms, the Tribunal shall have power to vest the estate and interest of the company in the property in any person liable, either personally or in a representative character, and either alone or jointly with the company, to perform the covenants of the lessee in the lease, free and discharged from all estates, encumbrances and interests created therein by the company. (7) Any person affected by the operation of a disclaimer under this section shall be deemed to be a creditor of the company to the amount of the compensation or damages payable in respect of such effect, and may accordingly prove the amount as a debt in the winding up.” Changes •

This section corresponds to sec 535 of Companies Act, 1956;

•

The term ‘injured’ has been replaced by the term ‘affected’ in relation to the operation of disclaimer of onerous property by the liquidator. The term ‘affected’ as seen in the chapter on variation is a very wide term. Injured connotes a negative effect whereas affect includes any type of effect. Thus, the liability of the company is widened with respect to a person who is affected by the disclaimer of onerous property.

17.13.11 Section 334: Transfers, etc after commencement of winding up to be void "334. In the case of a winding up by the Tribunal, any disposition of the property including actionable claims, of the company and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up shall, unless the Tribunal otherwise orders, be void.". Changes •

This section corresponds to sec 536 of Companies Act, 1956;

•

This clause is inserted by IBC

•

The changes are made as a consequence of deletion of provisions of voluntary winding up.

17.13.12 Section 335: Certain attachments, executions, etc in winding up by Tribunal to be void “(1) Where any company is being wound up by the Tribunal,— (a) any attachment, distress or execution put in force, without leave of the Tribunal against the estate or effects of the company, after the commencement of the winding up; or

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(b) any sale held, without leave of the Tribunal of any of the properties or effects of the company, after such commencement, shall be void. (2) Nothing in this section shall apply to any proceedings for the recovery of any tax or impost or any dues payable to the Government.” Changes •

This section corresponds to sec 537 of Companies Act, 1956;

•

No changes.

17.13.13 Section 336: Offences by officers of companies in liquidation “(1) If any person, who is or has been an officer of a company which, at the time of the commission of the alleged offence, is being wound up, "by the Tribunal under this Act or which is subsequently ordered to be wound up by the Tribunal under this Act,— (a) does not, to the best of his knowledge and belief, fully and truly disclose to the company liquidator all the property, movable and immovable, of the company, and how and to whom and for what consideration and when the company disposed of any part thereof, except such part as has been disposed of in the ordinary course of the business of the company; (b) does not deliver up to the company liquidator, or as he directs, all such part of the movable and immovable property of the company as is in his custody or under his control and which he is required by law to deliver up; (c) does not deliver up to the company liquidator, or as he directs, all such books and papers of the company as are in his custody or under his control and which he is required by law to deliver up; (d) within the twelve months immediately before the commencement of the winding up or at any time thereafter,— (i) conceals any part of the property of the company to the value of one thousand rupees or more, or conceals any debt due to or from the company; (ii) fraudulently removes any part of the property of the company to the value of one thousand rupees or more; (iii) conceals, destroys, mutilates or falsifies, or is privy to the concealment, destruction, mutilation or falsification of, any book or paper affecting or relating to, the property or affairs of the company;

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makes, or is privy to the making of, any false entry in any book or paper affecting or relating to, the property or affairs of the company; (v) fraudulently parts with, alters or makes any omission in, or is privy to the fraudulent parting with, altering or making of any omission in, any book or paper affecting or relating to the property or affairs of the company; (vi) by any false representation or other fraud, obtains on credit, for or on behalf of the company, any property which the company does not subsequently pay for; (vii) under the false pretence that the company is carrying on its business, obtains on credit, for or on behalf of the company, any property which the company does not subsequently pay for; or (viii) pawns, pledges or disposes of any property of the company which has been obtained on credit and has not been paid for, unless such pawning, pledging or disposing of the property is in the ordinary course of business of the company; (e) makes any material omission in any statement relating to the affairs of the company; (f) knowing or believing that a false debt has been proved by any person under the winding up, fails for a period of one month to inform the company liquidator thereof; (g) after the commencement of the winding up, prevents the production of any book or paper affecting or relating to the property or affairs of the company; (h) after the commencement of the winding up or at any meeting of the creditors of the company within the twelve months next before the commencement of the winding up, attempts to account for any part of the property of the company by fictitious losses or expenses; or (i) is guilty of any false representation or fraud for the purpose of obtaining the consent of the creditors of the company or any of them, to an agreement with reference to the affairs of the company or to the winding up, he shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to five years and with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees: Provided that it shall be a good defence if the accused proves that he had no intent to defraud or to conceal the true state of affairs of the company or to defeat the law. 17.42

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(2) Where any person pawns, pledges or disposes of any property in circumstances which amount to an offence under sub-clause (viii) of clause (d) of sub-section (1), every person who takes in pawn or pledge or otherwise receives the property, knowing it to be pawned, pledged, or disposed of in such circumstances as aforesaid, shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to five years and with fine which shall not be less than three lakh rupees but which may extend to five lakh rupees. Explanation—For the purposes of this section, the expression "officer" includes any person in accordance with whose directions or instructions the directors of the company have been accustomed to act.” Changes •

This section corresponds to sec 538 of Companies Act, 1956;

•

Now, monetary limits are set with respect to fraud in connection to a property. Only if the property is worth INR 1,000 or more, only then certain sub sections like concealment get triggered. Penalty has been enhanced. The proviso now provides that it shall be a good defence if the accused proves that he had no intent to defraud or to conceal the true state of affairs of the company or to defeat the law.

•

Changes in opening paragraph to deleted reference of voluntary winding up

17.13.14 Section 337: Penalty for frauds by officers “If any person, being at the time of the commission of the alleged offence an officer of a company which is subsequently ordered to be wound up by the Tribunal under this Act,— (a) has, by false pretences or by means of any other fraud, induced any person to give credit to the company; (b) with intent to defraud creditors of the company or any other person, has made or caused to be made any gift or transfer of, or charge on, or has caused or connived at the levying of any execution against, the property of the company; or (c) with intent to defraud creditors of the company, has concealed or removed any part of the property of the company since the date of any unsatisfied judgment or order for payment of money obtained against the company or within two months before that date, he shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees.”

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Changes •

This section corresponds to sec 540 of the Companies Act, 1956;

•

Penalty has been enhanced.

•

Amended by IBC to delete reference of voluntary winding up by deleting the phrase “or which subsequently passes a resolution for voluntary winding up” from opening paragraph.

17.13.15 Section 338: Liability where proper accounts not kept “(1) Where a company is being wound up, if it is shown that proper books of account were not kept by the company throughout the period of two years immediately preceding the commencement of the winding up, or the period between the incorporation of the company and the commencement of the winding up, whichever is shorter, every officer of the company who is in default shall, unless he shows that he acted honestly and that in the circumstances in which the business of the company was carried on, the default was excusable, be punishable with imprisonment for a term which shall not be less than one year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees. (2) For the purposes of sub-section (1), it shall be deemed that proper books of account have not been kept in the case of any company,— (a) if such books of account as are necessary to exhibit and explain the transactions and financial position of the business of the company, including books containing entries made from day-today in sufficient detail of all cash received and all cash paid, have not been kept; and (b) where the business of the company has involved dealings in goods, statements of the annual stock takings and, except in the case of goods sold by way of ordinary retail trade, of all goods sold and purchased, showing the goods and the buyers and the sellers thereof in sufficient detail to enable those goods and those buyers and sellers to be identified, have not been kept.” Changes •

This section corresponds to sec 541 of Companies Act, 1956;

•

Penalties has significantly increased. The comparison chart of new and old penalties is provided in the chapter on Compounding [Chapter-18].

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17.13.16 Section 339: Liability for fraudulent conduct of business “(1) If in the course of the winding up of a company, it appears that any business of the company has been carried on with intent to defraud creditors of the company or any other persons or for any fraudulent purpose, the Tribunal, on the application of the official liquidator, or the company liquidator or any creditor or contributory of the company, may, if it thinks it proper so to do, declare that any person, who is or has been a director, manager, or officer of the company or any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Tribunal may direct: Provided that on the hearing of an application under this sub-section, the official liquidator or the company liquidator, as the case may be, may himself give evidence or call witnesses. (2) Where the Tribunal makes any such declaration, it may give such further directions as it thinks proper for the purpose of giving effect to that declaration and, in particular,— (a) make provision for making the liability of any such person under the declaration a charge on any debt or obligation due from the company to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of the company held by or vested in him, or any person on his behalf, or any person claiming as assignee from or through the person liable or any person acting on his behalf; (b) make such further order as may be necessary for the purpose of enforcing any charge imposed under this sub-section. (3) Where any business of a company is carried on with such intent or for such purpose as is mentioned in sub-section (1), every person who was knowingly a party to the carrying on of the business in the manner aforesaid, shall be liable for action under sec 447. (4) This section shall apply, notwithstanding that the person concerned may be punishable under any other law for the time being in force in respect of the matters on the ground of which the declaration is to be made. Explanation—For the purposes of this section,— (a) the expression "assignee" includes any person to whom or in whose favour, by the directions of the person liable, the debt, obligation, mortgage or charge was created, issued or 17.45

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transferred or the interest was created, but does not include an assignee for valuable consideration, not including consideration by way of marriage, given in good faith and without notice of any of the matters on the ground of which the declaration is made; (b) the expression "officer" includes any person in accordance with whose directions or instructions the directors of the company have been accustomed to act.” Changes • • •

•

This section corresponds to sec 542 of Companies Act, 1956; A more elaborate definition of officers is provided in this section to cast the liability on a larger number of persons; Past and present directors and manager or officer of the company, along with other persons who conducts business for a fraudulent purpose or intention knowingly to defraud are included. The Tribunal is empowered to make them personally liable; Penal consequences are enhanced.

17.13.17 Section 340: Power of Tribunal to assess damages against delinquent directors, etc “(1) If in the course of winding up of a company, it appears that any person who has taken part in the promotion or formation of the company, or any person, who is or has been a director, manager, company liquidator or officer of the company— (a) has misapplied, or retained, or become liable or accountable for, any money or property of the company; or (b) has been guilty of any misfeasance or breach of trust in relation to the company, the Tribunal may, on the application of the official liquidator, or the company liquidator, or of any creditor or contributory, made within the period specified in that behalf in sub-section (2), inquire into the conduct of the person, director, manager, company liquidator or officer aforesaid, and order him to repay or restore the money or property or any part thereof respectively, with interest at such rate as the Tribunal considers just and proper, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as the Tribunal considers just and proper. (2) An application under sub-section (1) shall be made within five years from the date of the winding up order, or of the first appointment of the company liquidator in the winding up, or of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer. 17.46

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(3) This section shall apply, notwithstanding that the matter is one for which the person concerned may be criminally liable.” Changes •

This section corresponds to sec 543 of the Companies Act, 1956;

•

The scope of the section has been widened and now it is applicable to persons who have been guilty of any misfeasance or breach of trust or have misapplied any money or property of the company irrespective of the fact that such person can also be punished under any other law for the time being in force.

17.13.18 Section 341: Liability under sections 339 and 340 to extend to partners or directors in firms or companies “Where a declaration under sec 339 or an order under sec 340 is made in respect of a firm or body corporate, the Tribunal shall also have power to make a declaration under sec 339, or pass an order under sec 340, as the case may be, in respect of any person who was at the relevant time a partner in that firm or a director of that body corporate.” Changes •

This section corresponds to sec 544 of the Companies Act, 1956;

•

No changes.

17.13.19 Section 342: Prosecution of delinquent officers and members of company “(1) If it appears to the Tribunal in the course of a winding up by the Tribunal, that any person, who is or has been an officer, or any member, of the company has been guilty of any offence in relation to the company, the Tribunal may, either on the application of any person interested in the winding up or suo motu, direct the liquidator to prosecute the offender or to refer the matter to the Registrar. (2) If it appears to the company liquidator in the course of a voluntary winding up that any person, who is or has been an officer, or any member, of the company has been guilty of any offence in relation to the company under this Act, he shall forthwith report the matter to the Registrar and shall furnish to him such information and give to him such access to and facilities for inspecting and taking copies of any books and papers, being information or books and papers in the possession or under the control of the company liquidator and relating to the matter in question, as the Registrar may require. (3) Where any report is made under sub-section (2) to the Registrar,— 17.47

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(a) if he thinks fit, he may apply to the Central Government for an order to make further inquiry into the affairs of the company by any person designated by him and for conferring on such person all the powers of investigation as are provided under this Act; (b) if he considers that the case is one in which a prosecution ought to be instituted, he shall report the matter to the Central Government, and that Government may, after taking such legal advice as it thinks fit, direct the Registrar to institute prosecution: Provided that no report shall be made by the Registrar under this clause without first giving the accused person a reasonable opportunity of making a statement in writing to the Registrar and of being heard thereon. (4) If it appears to the Tribunal in the course of a voluntary winding up that any person, who is or has been an officer, or any member, of the company has been guilty as aforesaid, and that no report with respect to the matter has been made by the company liquidator to the Registrar under sub-section (2), the Tribunal may, on the application of any person interested in the winding up or suo motu, direct the company liquidator to make such a report, and on a report being made, the provisions of this section shall have effect as though the report had been made in pursuance of the provisions of sub-section (2). (5) When any prosecution is instituted under this section, it shall be the duty of the liquidator and of every person, who is or has been an officer and agent of the company to give all assistance in connection with the prosecution which he is reasonably able to give. Explanation—For the purposes of this sub-section, the expression "agent", in relation to a company, shall include any banker or legal adviser of the company and any person employed by the company as auditor. Sub-section (6) has been omitted.3 Changes • • •

3

17.48

This section corresponds to sec 545 of the Companies Act, 1956; New provision has been added where if a person fails or neglects to give assistance in case of prosecution, he shall be liable to pay fine which shall not be less than INR 25,000 but not more than INR 1 lakh; Under the Companies Act, 1956, upon any report made by the ROC the Central Govt. shall investigate and through its designated person can apply to the Tribunal for conferring powers to that person for investigation of affairs of the Company. This aspect is deleted by virtue of IBC.

In section 342, sub-section (6) is omitted under The Companies Act, 2020 w.e.f. 21-12-2020.

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Previously, the defendant in the proceedings was specifically exempted to give assistance in connection with the prosecution whereas the Act does not provide for any such exemption; Actions against officers will be taken by ROC. Under the old Act, official liquidator was empowered to take actions with previous sanction of the Court. The portion which is stuck off is deleted by virtue of Clause 23 of Eleventh Schedule of IBC.

17.13.20 Section 343: Company liquidator to exercise certain powers subject to sanction “(1) The Company Liquidator may, with the sanction of the Tribunal, when the company is being wound up by the Tribunal,— (i) pay any class of creditors in full; (ii) make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim, present or future, certain or contingent, against the company, or whereby the company may be rendered liable; or (iii) compromise any call or liability to call, debt, and liability capable of resulting in a debt, and any claim, present or future, certain or contingent, ascertained or sounding only in damages, subsisting or alleged to subsist between the company and a contributory or alleged contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the assets or liabilities or the winding up of the company, on such terms as may be agreed, and take any security for the discharge of any such call, debt, liability or claim, and give a complete discharge in respect thereof.". (2) Notwithstanding anything contained in sub-section (1), in the case of a winding up by the Tribunal, the Central Government may make rules to provide that the company liquidator may, under such circumstances, if any, and subject to such conditions, restrictions and limitations, if any, as may be prescribed, exercise any of the powers referred to in sub-clause (ii) or sub-clause (iii) of clause (b) of sub-section (1) without the sanction of the Tribunal. (3) Any creditor or contributory may apply in the manner prescribed to the Tribunal with respect to any exercise or proposed exercise of powers by the company liquidator under this section, and the Tribunal shall after giving a reasonable opportunity to such applicant and the company liquidator, pass such orders as it may think fit.” Changes •

This section corresponds to sec 546 of the Companies Act, 1956;

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•

The new Act provides that the Tribunal shall after giving a reasonable opportunity of being heard to such applicant and the company liquidator, pass such orders as it may think fit. This provision was not there in the old Act;

•

Under the Companies Act, 2013, the Central Government is empowered to make rules with respect to this section. Such rule making powers were earlier conferred on the Supreme Court of India under Companies Act, 1956.

•

Sub-section 1 of Section 343 is modified by IBC. The change are consequential changes due to omission of voluntary winding up provisions.

17.13.21 Section 344: Statement that company is in liquidation “(1) Where a company is being wound up, whether by the Tribunal or voluntarily, every invoice, order for goods or business letter issued by or on behalf of the company or a company liquidator of the company, or a receiver or manager of the property of the company, being a document on or in which the name of the company appears, shall contain a statement that the company is being wound up. (2) If a company contravenes the provisions of sub-section (1), the company, and every officer of the company, the company liquidator and any receiver or manager, who wilfully authorises or permits the noncompliance, shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees.” Changes •

This section corresponds to sec 547 of the Companies Act, 1956;

•

Penalty has been enhanced in the new Act to a minimum of INR 50,000 but which may extend to INR 3,00,000.

17.13.22 Section 345: Books and papers of company to be evidence “Where a company is being wound up, all books and papers of the company and of the company liquidator shall, as between the contributories of the company, be prima facie evidence of the truth of all matters purporting to be recorded therein.” Changes •

Corresponds to sec 548 of the Companies Act, 1956;

•

No changes.

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17.13.23 Section 346: Inspection of books and papers by creditors and contributories “(1) At any time after the making of an order for the winding up of a company by the Tribunal, any creditor or contributory of the company may inspect the books and papers of the company only in accordance with, and subject to such rules as may be prescribed. (2) Nothing contained in sub-section (1) shall exclude or restrict any rights conferred by any law for the time being in force— (a) on the Central Government or a State Government; (b) on any authority or officer thereof; or (c) on any person acting under the authority of any such Government or of any such authority or officer.” Changes •

This section corresponds to sec 549 of the Companies Act, 1956;

•

The rules regarding inspection of records by any creditor or contributory were prescribed by Supreme Court under the old Act. Now, these rules will be prescribed by the Central Government under the new Act.

17.13.24 Section 347: Disposal of books and papers of company “(1) When the affairs of a company have been completely wound up and it is about to be dissolved, the books and papers of such company and those of the Company Liquidator may be disposed of in such manner as the Tribunal direct (2) After the expiry of five years from the dissolution of the company, no responsibility shall devolve on the company, the company liquidator, or any person to whom the custody of the books and papers has been entrusted, by reason of any book or paper not being forthcoming to any person claiming to be interested therein. (3) The Central Government may, by rules,— (a) prevent for such period as it thinks proper the destruction of the books and papers of a company which has been wound up and of its company liquidator; and (b) enable any creditor or contributory of the company to make representations to the Central Government in respect of the matters specified in clause (a) and to appeal to the Tribunal from any order which may be made by the Central Government in the matter.

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(4) If any person acts in contravention of any rule framed or an order made under sub-section (3), he shall be punishable with fine which may extend to fifty thousand rupees.”4 Changes •

The Central Govt. is empowered to prevent the destruction of the books and papers of a Company which has been wound up for such period as it may deem fit. Under the old Act, such power to prevent the destruction is limited to the period of five years from the dissolution of the company. This change is in line with the object of the Companies Act, 2013 to prevent any fraud from going unnoticed.

•

Sub section (1) is substitute by Clause 26 of the Eleventh Schedule of IBC. This change is consequential to the omission of provisions of voluntary winding up.

17.13.25 Section 348: Information as to pending liquidations “ (1) If the winding up of a company is not concluded within one year after its commencement, the Company Liquidator shall, unless he is exempted from so doing, either wholly or in part by the Central Government, within two months of the expiry of such year and thereafter until the winding up is concluded, at intervals of not more than one year or at such shorter intervals, if any, as may be prescribed, file a statement in such form containing such particulars as may be prescribed, duly audited, by a person qualified to act as auditor of the company, with respect to the proceedings in, and position of, the liquidation, with the Tribunal: Provided that no such audit as is referred to in this sub-section shall be necessary where the provisions of section 294 apply (2) When the statement is filed with the Tribunal under clause (a) of subsection (1), a copy shall simultaneously be filed with the Registrar and shall be kept by him along with the other records of the company. (3) Where a statement referred to in sub-section (1) relates to a Government company in liquidation, the company liquidator shall forward a copy thereof— (a) to the Central Government, if that Government is a member of the Government company; (b) to any State Government, if that Government is a member of the Government company; or (c) to the Central Government and any State Government, if both the Governments are members of the Government company. 4

17.52

In section 347, sub-section (4) is amended by The Companies Act, 2020 w.e.f. 21-12-2020.

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(4) Any person stating himself in writing to be a creditor or contributory of the company shall be entitled, by himself or by his agent, at all reasonable times, on payment of the prescribed fee, to inspect the statement referred to in sub-section (1), and to receive a copy thereof or an extract therefrom. (5) Any person fraudulently stating himself to be a creditor or contributory under sub-section (4) shall be deemed to be guilty of an offence under sec 182 of the Indian Penal Code (45 of 1860), and shall, on the application of the company liquidator, be punishable accordingly. (6)Where a Company Liquidator, who is an insolvency professional registered under the Insolvency and Bankruptcy Code, 2016 is in default in complying with the provisions of this section, then such default shall be deemed to ba a contravention of the provisions of the said Code, and the rules and regulations made thereunder for the purposes of proceedings under Chapter VI of Part IV of that Code.5 (7) {Omitted6}.” Changes •

This section corresponds to sec 551 of the Companies Act, 1956;

•

The term ‘fraudulently’ has been used under the new Act, for persons stating themselves as creditors or contributories of the Company where in they are guilty of an offence under IPC. In the old Act term ‘untruthfully’ was used;

•

Punishment has been enhanced under the new Act.

•

The provisions are modified and are different from the erstwhile provisions of Companies Act, 1956.

•

The references to voluntary winding up are deleted by substituting cl 348(1) with cl 27 of the Eleventh Schedule of IBC.

17.13.26 Section 349: Official liquidator to make payments into public account of India “Every official liquidator shall, in such manner and at such times as may be prescribed, pay the monies received by him as official liquidator of any company, into the public account of India in the Reserve Bank of India.” Changes • 5 6

This section corresponds to sec 552 of the Companies Act, 1956;

In section 348, sub-section (6) is substituted by The Companies (Amendment) Act, 2020 w.e.f. 21-12-2020. In section 348, sub-section (7) is omitted by The Companies (Amendment) Act, 2020 w.e.f. 2112-2020.

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•

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No changes.

17.13.27 Section 350: Company liquidator to deposit monies into scheduled bank “Every company liquidator of a company shall, in such manner and at such times as may be prescribed, deposit the monies received by him in his capacity as such in a scheduled bank to the credit of a special bank account opened by him in that behalf: Provided that if the Tribunal considers that it is advantageous for the creditors or contributories or the company, it may permit the account to be opened in such other bank specified by it. (2) If any company liquidator at any time retains for more than ten days a sum exceeding five thousand rupees or such other amount as the Tribunal may, on the application of the company liquidator, authorise him to retain, then, unless he explains the retention to the satisfaction of the Tribunal, he shall— (a) pay interest on the amount so retained in excess, at the rate of twelve per cent per annum and also pay such penalty as may be determined by the Tribunal; (b) be liable to pay any expenses occasioned by reason of his default; and (c) also be liable to have all or such part of his remuneration, as the Tribunal may consider just and proper, disallowed, or may also be removed from his office.” Changes •

This section corresponds to sec 553 of the Companies Act, 1956;

•

With the permission of the Tribunal, the company liquidator can open a bank account even in non-scheduled banks;

•

The cash limit that the liquidator can maintain in hand at any time has been increased from INR 500 under the old Act to INR 5,000 under the new Act;

•

Tribunal will determine the penalty for retention of money under the new Act whereas, under the previous Act it was determined by ROC.

17.13.28 Section 351: Liquidator not to deposit monies into private banking account “Neither the official liquidator nor the company liquidator of a company shall deposit any monies received by him in his capacity as such into any private banking account.”

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Changes •

This section corresponds to sec 554 of the Companies Act, 1956.

•

No changes.

17.13.29 Section 352: Company Liquidation Dividend and Undistributed Assets Account “(1) Where any company is being wound up and the liquidator has in his hands or under his control any money representing— (a) dividends payable to any creditor but which had remained unpaid for six months after the date on which they were declared; or (b) assets refundable to any contributory which have remained undistributed for six months after the date on which they become refundable, the liquidator shall forthwith deposit the said money into a separate special account to be known as the Company Liquidation Dividend and Undistributed Assets Account maintained in a scheduled bank. (2) The liquidator shall, on the dissolution of the company, pay into the Company Liquidation Dividend and Undistributed Assets Account any money representing unpaid dividends or undistributed assets in his hands at the date of dissolution. (3) The liquidator shall, when making any payment referred to in subsections (1) and (2), furnish to the Registrar, a statement in the prescribed form, setting forth, in respect of all sums included in such payment, the nature of the sums, the names and last known addresses of the persons entitled to participate therein, the amount to which each is entitled and the nature of his claim thereto, and such other particulars as may be prescribed. (4) The liquidator shall be entitled to a receipt from the scheduled bank for any money paid to it under sub-sections (1) and (2), and such receipt shall be an effectual discharge of the company liquidator in respect thereof. (5) Where a company is being wound up voluntarily, the company liquidator shall, when filing a statement in pursuance of sec 348(1), indicate the sum of money which is payable under sub-sections (1) and (2) of this section during the six months preceding the date on which the said statement is prepared, and shall, within fourteen days of the date of filing the said statement, pay that sum into the Company Liquidation Dividend and Undistributed Assets Account. (6) Any person claiming to be entitled to any money paid into the Company Liquidation Dividend and Undistributed Assets Account, whether paid in pursuance of this section or under the provisions of any previous company 17.55

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law may apply to the Registrar for payment thereof, and the Registrar, if satisfied that the person claiming is entitled, may make the payment to that person of the sum due: Provided that the Registrar shall settle the claim of such person within a period of sixty days from the date of receipt of such claim, failing which the Registrar shall make a report to the Regional Director giving reasons of such failure. (7) Any money paid into the Company Liquidation Dividend and Undistributed Assets Account in pursuance of this section, which remains unclaimed thereafter for a period of fifteen years, shall be transferred to the general revenue account of the Central Government, but a claim to any money so transferred may be preferred under sub-section (6) and shall be dealt with as if such transfer had not been made and the order, if any, for payment on the claim will be treated as an order for refund of revenue. (8) Any liquidator retaining any money which should have been paid by him into the Company Liquidation Dividend and Undistributed Assets Account under this section shall— (a) pay interest on the amount so retained at the rate of twelve per cent per annum and also pay such penalty as may be determined by the Registrar: Provided that the Central Government may in any proper case remit either in part or in whole the amount of interest which the liquidator is required to pay under this clause; (b) be liable to pay any expenses occasioned by reason of his default; and (c) where the winding up is by the Tribunal, also be liable to have all or such part of his remuneration, as the Tribunal may consider just and proper, to be disallowed, and to be removed from his office by the Tribunal.” Changes •

This section corresponds to sec 555 of the Companies Act, 1956;

•

The nomenclature has changed. The account for deposit of undistributed dividend or undistributed assets of the Company on its dissolution is now called “Company Liquidation Dividend and Undistributed Assets Account”;

•

The unpaid dividend/undistributed assets in the hands of the liquidator are to be deposited in a separate special account to be known as the “Company Liquidation Dividend and Undistributed Assets Account” maintained in a scheduled bank;

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•

While depositing money in the said account, the company liquidator has to furnish the statement to the particulars of such money to the ROC. Under the old Act, such statement was to be submitted to the officer appointed by Central Government;

•

Any person claiming to be entitled to such money may apply to ROC for refund and the registrar shall settle such claims within 60 days of receipt of such claim, failing which the ROC shall make a report to the regional director giving reasons of such failure. Whereas, under the old Act, application for such refunds is to be made before the Tribunal and the Tribunal should seek opinion of the Central Government as to why refund should not be made before allowing the refund to the concerned person.

17.13.30 Section 353: Liquidator to make returns, etc “(1) If any company liquidator who has made any default in filing, delivering or making any return, account or other document, or in giving any notice which he is by law required to file, deliver, make or give, fails to make good the default within fourteen days after the service on him of a notice requiring him to do so, the Tribunal may, on an application made to it by any contributory or creditor of the company or by the Registrar, make an order directing the company liquidator to make good the default within such time as may be specified in the order. (2) Any order under sub-section (1) may provide that all costs of, and incidental to, the application shall be borne by the company liquidator. (3) Nothing in this section shall prejudice the operation of any enactment imposing penalties on a company liquidator in respect of any such default as aforesaid.” Changes •

This section corresponds to sec 556 of the Companies Act, 1956;

•

No changes.

17.13.31 Section 354: Meetings to ascertain wishes of creditors or contributories “(1) In all matters relating to the winding up of a company, the Tribunal may— (a) have regard to the wishes of creditors or contributories of the company, as proved to it by any sufficient evidence; (b) if it thinks fit for the purpose of ascertaining those wishes, direct meetings of the creditors or contributories to be called, held and conducted in such manner as the Tribunal may direct; and

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(c) appoint a person to act as chairman of any such meeting and to report the result thereof to the Tribunal. (2) While ascertaining the wishes of creditors under sub-section (1), regard shall be had to the value of each debt of the creditor. (3) While ascertaining the wishes of contributories under sub-section (1), regard shall be had to the number of votes which may be cast by each contributory.” Changes •

This section corresponds to sec 557 of the Companies Act, 1956;

•

No changes.

17.13.32 Section 355: Court, tribunal or person, etc., before whom affidavit may be sworn “(1) Any affidavit required to be sworn under the provisions, or for the purposes, of this Chapter may be sworn— (a) in India before any court, tribunal, judge or person lawfully authorised to take and receive affidavits; and (b) in any other country before any court, judge or person lawfully authorised to take and receive affidavits in that country or before an Indian diplomatic or consular officer. (2) All tribunals, judges, Justices, commissioners and persons acting judicially in India shall take judicial notice of the seal, stamp or signature, as the case may be, of any such court, tribunal, judge, person, diplomatic or consular officer, attached, appended or subscribed to any such affidavit or to any other document to be used for the purposes of this Chapter.” Changes •

This section corresponds to sec 558 of the Companies Act, 1956;

•

Under the new Act, affidavit in countries other than India among other prescribed authorities can be sworn before Indian Diplomat or consular officer. Whereas, under the Companies Act, 1956, it was only before Indian Consular or Vice Consular.

17.13.33 Section 356: Powers of Tribunal to declare dissolution of company void “(1) Where a company has been dissolved, whether in pursuance of this Chapter or of sec 232 or otherwise, the Tribunal may at any time within two years of the date of the dissolution, on application by the company liquidator of the company or by any other person who appears to the 17.58

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Tribunal to be interested, make an order, upon such terms as the Tribunal thinks fit, declaring the dissolution to be void, and thereupon such proceedings may be taken as if the company had not been dissolved. (2) The Tribunal shall--(a) forward a copy of the order, within thirty days from the date thereof, to the Registrar who shall record the same; and (b) direct the Company Liquidator or the person on whose application the order was made, to file a certified copy of the order, within thirty days from the date thereof or such further period as allowed by the Tribunal, with the Registrar who shall record the same.”7 Changes •

This section corresponds to sec 558 of the Companies Act, 1956;

•

Punishment has been enhanced under the new Act.

17.13.34 Section 357: Commencement of winding up by Tribunal "357. The winding up of a company by the Tribunal under this Act shall be deemed to commence at the time of the presentation of the petition for the winding up." Changes •

This section corresponds to sec 441 of the Companies Act, 1956;

•

This section is modified by Clause 28 of Eleventh Schedule of IBC in consequence to the deletion of voluntary winding up provisions.

17.13.35 Section 358: Exclusion of certain time in computing period of limitation “Notwithstanding anything in the Limitation Act, 1963 (36 of 1963), or in any other law for the time being in force, in computing the period of limitation specified for any suit or application in the name and on behalf of a company which is being wound up by the Tribunal, the period from the date of commencement of the winding up of the company to a period of one year immediately following the date of the winding up order shall be excluded.” Changes • 7

This section corresponds to sec 458A of the Companies Act, 1956;

In section 356, sub-section (2) is substituted by The Companies (Amendment) Act, 2020 w.e.f. 21-12-2020.

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•

Limitation Act, 1908 has been changed to Limitation Act, 1963;

•

Manner of computation is a little different under the new Act.

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17.14 OFFICIAL LIQUIDATORS Part IV of Chapter XX does not state whether it is applicable to both voluntary and involuntary winding up. Most of the sections that are inserted herein are new provisions. Under the new Act, the role of official liquidator has changed, the role and functions vested with the official liquidator have been expressly set out here to avoid any confusion. This part provides for summary winding up procedure to expedite winding up of small companies. Section 359 provides for appointment of official liquidator and sec 360 describes their role in the new liquidation process.

17.14.1 Section 359: Appointment of official liquidator “(1) For the purposes of this Act, so far as it relates to the winding up of companies by the Tribunal, the Central Government may appoint as many official liquidators, Joint, Deputy or Assistant Official Liquidators as it may consider necessary to discharge the functions of the Official Liquidator. (2) The liquidators appointed under sub-section (1) shall be whole-time officers of the Central Government. (3) The salary and other allowances of the Official Liquidator, Joint Official Liquidator, Deputy Official liquidator and Assistant Official liquidator shall be paid by the Central Government.” Changes •

This section corresponds to sec 448 of the Companies Act, 1956;

•

As per the new Act, the official liquidator, joint, deputy or assistant official liquidator shall now be the whole time officer of the Central Govt.

17.14.2 Section 360: Powers and functions of official liquidator “(1) The official liquidator shall exercise such powers and perform such duties as the Central Government may prescribe. (2) Without prejudice to the provisions of sub-section (1), the official liquidator may (a) exercise all or any of the powers as may be exercised by a company liquidator under the provisions of this Act; and

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(b) conduct inquiries or investigations, if directed by the Tribunal or the Central Government, in respect of matters arising out of winding up proceedings.” Changes •

It is a new provision;

•

Official liquidator shall exercise such powers and perform such duties as the Central Government may prescribe;

Official liquidator may exercise all or any powers that may be exercised by the company liquidator. Section 361 provides a summary procedure for liquidation:

•

17.14.3

Section 361: Summary procedure for liquidation

“(1) Where the company to be wound up under this Chapter,— (i)

has assets of book value not exceeding one crore rupees; and

(ii)

belongs to such class or classes of companies as may be prescribed,

the Central Government may order it to be wound up by summary procedure provided under this Part. (2) Where an order under sub-section (1) is made, the Central Government shall appoint the official liquidator as the liquidator of the company. (3) The official liquidator shall forthwith take into his custody or control all assets, effects and actionable claims to which the company is or appears to be entitled. (4) The official liquidator shall, within thirty days of his appointment, submit a report to the Central Government in such manner and form, as may be prescribed, including a report whether in his opinion, any fraud has been committed in promotion, formation or management of the affairs of the company or not. (5) On receipt of the report under sub-section (4), if the Central Government is satisfied that any fraud has been committed by the promoters, directors or any other officer of the company, it may direct further investigation into the affairs of the company and that a report shall be submitted within such time as may be specified. (6) After considering the investigation report under sub-section (5), the Central Government may order that winding up may be proceeded under Part I of this Chapter or under the provision of this Part.”

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Changes •

It is a new provision. Summary procedure is a shorter process provided to expedite the process of winding up of smaller companies. If compared to the regular process provided in PART I read with Part III of Chapter XX of the Companies Act, 2013, one will find that most of the formalities and reporting requirement have been reduced for this type of winding up. This procedure will however be through the carried out by the official liquidator and not by a private liquidator. A company liquidator has no role in summary winding up.

17.14.4 Section 362: Sale of assets and recovery of debts due to company “(1) The official liquidator shall expeditiously dispose of all the assets whether movable or immovable within sixty days of his appointment. (2) The official liquidator shall serve a notice within thirty days of his appointment calling upon the debtors of the company or the contributories, as the case may be, to deposit within thirty days with him the amount payable to the company. (3) Where any debtor does not deposit the amount under sub-section (2), the Central Government may, on an application made to it by the official liquidator, pass such orders as it thinks fit. (4) The amount recovered under this section by the official liquidator shall be deposited in accordance with the provisions of sec 349.” Changes It is a new provision which allows summary procedures for winding up of companies.

17.14.5 Section 363: Settlement of claims of creditors by official liquidator “(1) The official liquidator within thirty days of his appointment shall call upon the creditors of the company to prove their claims in such manner as may be prescribed, within thirty days of the receipt of such call. (2) The official liquidator shall prepare a list of claims of creditors in such manner as may be prescribed and each creditor shall be communicated of the claims accepted or rejected along with reasons to be recorded in writing.” Changes •

It is a new provision;

•

Official liquidator shall within 30 days of his appointment serve á notice on the creditors to prove their claims within 30 days of receipt of such notice.

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OL shall prepare a list and furnish the same to the creditors about acceptance or rejection of their claims with reasons set out in writing.

17.14.6

Section 364: Appeal by creditor

“(1) Any creditor aggrieved by the decision of the official liquidator under sec 363 may file an appeal before the Central Government within thirty days of such decision. (2) The Central Government may after calling the report from the official liquidator either dismiss the appeal or modify the decision of the official liquidator. (3) The official liquidator shall make payment to the creditors whose claims have been accepted. (4) The Central Government may, at any stage during settlement of claims, if considers necessary, refer the matter to the Tribunal for necessary orders.” Changes • • •

It is a new provision; Any creditor aggrieved by decision of the official liquidator under sec 363 with respect to the settlement of its claims may file an appeal before the Central Government within 30 days of such decision; The Central Government is empowered to decide the veracity of the said claim. If necessary, it can refer the case to Tribunal for adjudication.

17.14.7

Section 365: Order of dissolution of company

“(1) The official liquidator shall, if he is satisfied that the company is finally wound up, submit a final report to— (i) (ii)

the Central Government, in case no reference was made to the Tribunal under sec 364(4); and in any other case, the Central Government and the Tribunal.

(2) The Central Government, or as the case may be, the Tribunal on receipt of such report shall order that the company be dissolved. (3) Where an order is made under sub-section (2), the Registrar shall strike off the name of the company from the register of companies and publish a notification to this effect.” Changes • •

It is a new provision; The official liquidator must submit final report once it is satisfied that the company is finally wound up. The report is made to the Central Government if no reference was made to the tribunal. In case reference is made to the Tribunal, report is provided to the CG as well as the Tribunal; 17.63

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• •

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The Central Govt. or the Tribunal on receipt of such report shall order that the company be dissolved; ROC shall strike off the name of the company from the register of companies when an order is made for dissolution and publish a notification accordingly.

17.15 FURTHER READING (a) A Ramaiya, Guide to the Companies Act, Sixteenth Edition, 2010, Wadhwa & Company; (b) Eradi Committee Report, 2000; (c) Interim Report of The Bankruptcy Law Reform Committee, February 2015; (d) J.J Irani Report on Company Law; (e) Corporate Professionals India Private Limited, Analysis of Companies Act, 2013, Wolters Kluwer India Private Limited, 2013; (f) A Ramaiya, Guide to the Companies Act, Eighteenth Edition, LexisNexis.

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Compounding of offence 18.1

INTRODUCTION

The Companies Act, 2013 has set new governance standards for the companies and has minimized the intervention of government in day to day affairs of the company. The new Act provides a regime of self-regulation and it empowers the stakeholders to take many key decisions. To ensure the smooth functioning of this new apparatus, the provisions dealing with corporate criminal liability have been thoroughly revised. The provisions for compounding have to be analysed in light of the changes in the corporate criminal liability.

18.2

OVERVIEW OF CHANGES

18.2.1

Changes by Companies Amendment Act, 2019 and 2020

A committee was formed on 13th July 2018 to make recommendations to the Government inter alia to recategorize certain acts which are punishable as compoundable offence to acts carrying civil liabilities, improvement to be made in in-house adjudication mechanism. The committee in their report submitted on August 2018 categorised compoundable offences in eight categories and recommended decriminalisation of provisions where the defaults were of technical nature or related to procedural lapses. The committee recommended that certain categorises of provisions should be decriminalised and non-compliances should be subjected to inhouse adjudication mechanism framework where defaults would be subjected to penalties levied by adjudicating officer. Similarly, Company Law Committee was formed in September 2019 and gave its recommendations in November 2019. After the committees submitted their recommendations, a series of ordinances and amendment acts were introduced. The changes brought about by these amendments have been updated in the chart at the end of this Chapter to give an overview of the manner in which the law has evolved.

18.2.2

Penalties and Fines

In Companies Act, 2013, earlier only 18 instances of defaults/violations were subjected to civil liabilities by levying penalties through an adjudicating mechanism. Between 2018 to 2020, violations of 70 provisions were re-categorised from “criminal compoundable offences’ to ‘civil wrongs’ to facilitate and promote ease of 18.1

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doing business. So now for violations of these provisions, penalty will be imposed. The quantum of penalty will be decided by the adjudicating authority (registrar of companies).

18.2.3

Changes by Company Amendment Act, 2017

The Companies amendment act has expanded the powers of NCLT with respect to compounding of offences. It has further increased the penalties. The details are discussed under the relevant topics herein.

18.2.4

Officer who is in default

The definition of this term has been expanded to include new officer. The implications of these changes are discussed later below.

18.2.5

Penalties

Under the new Act, the nature, scope, quantum and manner of levying penalties have been modified. These are discussed in the topic dealing with features of penalties.

18.2.6

Adjudication mechanism

The Act has introduced the concept of adjudication authority, which will monitor compliance with the provisions of this Act and determine the penalties to be imposed.

18.2.7

Trial of offence

The Act has introduced the institution of Special Court to try offences under this Act.

18.2.8

Compounding procedure

Compounding shall be done by different authorities depending upon the nature of offence and penalty.

18.2.9

Grace period

The Companies Act, 2013 has increased quantum of fines but till 2017 the period of compliance has also increased. A grace period of 270 days was provided for filing various documents after levying additional fees. No prosecution shall lie if the documents were filed within the extended period of 270 days from the date the filing was due. This proviso under section 403 was deleted by the Companies (Amendment) Act, 2017.

18.3

CORPORATE CRIMINAL LIABILITY

Black's Law Dictionary, 9th Edition, defines corporate crime as: "A crime committed by a corporation's representative acting on its behalf…." 18.2

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Compounding of Offence

A corporate crime is thus, a crime committed by persons who are in charge of the affairs of the company. Hence, the company is, in many cases, vicariously liable for the offences committed by the company's representatives. Thus, offences committed by the directors and officers of a corporate body, which are criminal in nature, also fasten on the corporate body, being an independent legal entity, in the same manner and to the same extent as that of its perpetrators. Following are the important aspects to be studied while dealing with corporate crimes: •

What is the offence? Who is responsible for the offence?

•

What is the penalty? Can it be compounded?

• Is the offense cognizable or non-cognizable? These aspects have been discussed below.

18.4

WHAT IS AN OFFENCE?

An offence is a violation of law. The Act provides a legal basis for various corporate governance norms that are considered essential for proper corporate operation and protecting the rights of stakeholders. Penalties for offences and violations of such norms are provided in the Act.

18.4.1

Who is responsible for the offence?

In case of violation of any provision of the Companies Act, 2013, the person responsible has to be determined for imposition of penalty. In case of corporate crimes, generally, the companies as well as its officers are charged for the offences. But, there are certain crimes that are committed by the company's representatives on the company and its shareholders like insider trading. For such crimes, only the person who has committed the crime will be charged. The Act defines the phrase "officer who is in default". This phrase has been referred in certain sections of the Act to determine the officers who are statutorily recognized as responsible for compliance of law and who will be convicted for contravention or non-compliance with such provisions. The definition of this term has been recast in the new Act to include a wider set of officers. This definition is as follows: 2..(60)“officer who is in default”, for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely: (i) whole-time director; (ii) key managerial personnel;

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(iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified; (iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default; (v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity; (vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance; (vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer;" [emphasis supplied] 2..(59) “officer includes any director, manager or key managerial personnel or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act”

18.4.1.1 Analysis of the definition Certain important changes in the definition are highlighted as under:

Enlargement of Scope Under the new Act, following additional persons have been included in the ambit of this phrase: (i) Chief executive officer; (ii) Chief financial officer; (iii) Any officer who is notified by the government as a key managerial personnel; (iv) Share transfer agent, bankers, and merchant banker to the issue or transfer. Collective liability of the board For ensuring good corporate governance, the board of any corporate entity plays a crucial role. The liability of the board is made clear and absolute under the new Act, where the board has participated in the decision making.

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Compounding of Offence

Thus, directors are liable if they authorize, actively participate, knowingly permit or knowingly fail to take active steps to prevent any default. It can also cover instances where they fail to monitor system failures. Thus, the Board cannot escape liability by delegating responsibility to a managing director or other key managerial personnel (KMP).

Shadow directors The definition of ‘directors’ has been modified. It no longer means a person who occupies the position of a director. However, there can be persons (also called as 'shadow directors') who tends to operate from behind the scenes. They continue to be liable as officers in default. Like in the old Act, under the new Act also, qualified professionals like chartered accountants, auditors, lawyer, company secretaries providing professional advices are kept out of the net. Other persons Persons other than a director or a KMP are liable only if two conditions are satisfied, viz. that he is entrusted with the functions either by the board or by the KMP and that he authorizes, actively participates, knowingly permits the default or knowingly fails to take active steps to prevent the default. Thus, unless the person plays some role in the contravention, he shall not be liable for the default. Strict interpretation While the notion of "Officer who is in Default" has been broadened, it is referred to at less than ten places in the new Act. Leaving these, the term "offer in default", "officer of the company who is in default" and such other phrases are used. While charging a person of criminal offence, the provisions have to be strictly construed. Thus, for contravention of the provisions in which the phrase "officer who is in default" is not used, only such persons who are responsible for the contravention will be charged. With regard to such matter where the phase is not used, the key managerial personnel or any other person charged by the Board with the duty of complying with the legal requirement shall be liable for punishment.

18.5

WHAT IS THE PENALTY?

The new Act has brought about a sea change in the penalty structure to provide suitable deterrence. This has been further increased by the Companies (Amendment) Act, 2017. Following are the key features of penalties imposed under the new Act:

18.5.1

Penalty levels

The quantum of penalties under new Act has been substantially enhanced with a view to increase the deterrence effect of penalties. A table annexed at the end of this chapter provides a comparative analysis of the penalties for various offences. It shows the wide quantitative leaps in penalties under the new Act. Penalties in certain cases 18.5

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range from INR 50,000 to INR 5 lakh (for offences like non filing of annual return) and in many cases are in the range of INR 1 lakh to INR 10 lakhs. In certain cases, like insider trading, the quantum of penalty is in the range of INR 1 crore to INR 25 crores. The fine per day for continuing defaults can range between INR 500 to INR 50,000. A comparison between the penalties under the old and new Act is provided in Appendix A.

18.5.2

Penalties tied to damages

Companies Amendment Act, 2017 has amended section 403. The impact of the amendment is that the grace period of 270 days under section 403 has been removed. Thus, the penal consequences under various sections associated with filing, submission and registration will apply forthwith. Further, the quantum of additional fees which is in addition to the penal consequences have also been significantly increased. In select offenses, the penalties are linked with the losses or damages sustained. The basic intent in doing so is to ensure the appropriateness of penalty in context of the damage caused to the stakeholders and to maintain the deterrent impact. Thus, in cases of violations like insider trading, forward dealings, the courts are empowered to impose a penalty which may be three times the amount of profits earned by the accused in such transactions. In case of fraud, the penalty can extend upto three times the amount involved in the fraud. Similar penalty may be imposed for mis-statements in the prospectus.

18.5.3

Enhanced imprisonment

A quick look at the table annexed with this chapter will show that the time period of imprisonment has been enhanced. Punishment by way of imprisonment has been liberally provided for in numerous sections in addition to fine. The punishment by way of imprisonment ranging from 6 months to 3 or 5 years has been provided for. The new Act has replaced the term "simple imprisonment" with "imprisonment", which means that now simple as well as rigorous imprisonment can be imposed on persons convicted under the Act. Select provisions where imprisonment has been extended are annexed at the end of this chapter as Appendix B.

18.5.4

New imprisonment

Fine has been replaced with imprisonment and/or fine for certain offence like contravention of sec 186 (loans and investments). Some of the provisions where imprisonment is newly inserted are annexed at the end of this chapter as Appendix C.

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18.5.5

Compounding of Offence

Non-executive director

The liability of non-executive directors is limited to only such occurrences where they are a party to or are aware of the defaults. (Section 149(12))

18.5.6

Statutory limits

The new Act has prescribed the minimum and maximum quantum of penalties for many offences.

18.5.7

Distinct penalty for companies

Under the new Act, a company is identified as a separate entity for imposition of penalties distinct from that of the officers in default. This is in keeping with the fact that a company being an artificial person can be indicted only with monetary penalties. On the other hand, in many cases, offences are attributed to the company alone and the company is made solely liable for the default.

18.5.8

Frauds

Frauds have been carved out in a separate segment. It has been defined and deterrent liabilities are prescribed for fraudulent activities. The details are discussed in chapter dealing with frauds.

18.5.9

Provisions for reducing delays

The new Act has introduced a new means for trial of offences. It has introduced the apparatus of special courts, which may reduce delays in prosecution of offences and thus, boost the deterrent effects of penal provisions.

18.5.10 Technical defaults The Act deals with defaults of a technical nature by levying additional fee. Section 403 before its amendment in 2017 provided that if there was a default in filing of certain documents within the prescribed time, it could still be done within a period of 270 days from the date the filing was due, which would then avert any probable prosecution for the same. Only if the delay exceeds this extended period, then the company could still file the returns and other documents while also being liable for a prosecution. However, this grace period has been deleted by the Company (Amendment) Act, 2017. It has removed the grace period of 270 days from sec 403 and thus, now filing will have to be done within the period prescribed in the respective sections.

18.5.11 Disclosures of offences The new Act mandates the publication of information relating to penalties and punishments imposed on the company, on its directors and officers and details of the

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appeals against such penalties or punishments in the annual return, which shall also be made a part of the board report.

18.5.12 Compulsory filing To discourage withholding of vital disclosures from the public and stakeholders, the Act provides special powers to compounding authority, to compel filing of documents by passing an order despite imposition of a penalty. Non-compliance with this order shall be ensued by additional penalties.

18.5.13 Adjudication of penalty The power to determine and impose penalty is vested in the adjudicating officer under the new Act. Any person aggrieved by the order passed by the adjudicating officer may, in appeal, approach the regional director.

18.5.14 Protection to whistle blowers The new Act, by recognizing the “whistle blower" concept, has inserted protective provisions for individuals, who expose offences committed or being committed by the companies. One such safe harbor is provided to professionals like auditors, who detect and report fraud. Furthermore, the registrar, any officer of the government or any other person shall not be compelled to disclose the name of the informant to any court, tribunal or other authority. The new penalties and the mechanism for imposing the penalties is a drastic departure from the old practice and likely to be more effective.

18.5.15 Trial of offenses All offenses under this Act shall be tried before the Special Court. The Special Court has a right to try cases summarily. This structural change will help expedite trial of offences. The Companies Act, 2013 prior to its amendment in 2017 provided that only offences with imprisonment of 2 years or more could be tried by a Special Court (Sec 435). However after the Companies (Amendment) Act, 2017, sec 435 has been modified and now Special Court are empowered to try any offence under the Companies Act. Constitution of Special Court has been suitably modified to deal with the additional matters.

18.6

CAN OFFENCES BE COMPOUNDED?

The norms for compounding of offences have been given under sec 441 of the new Act. These norms have been altered from those provided in the old Act and the power to compound is given to different authorities.

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18.6.1

Compounding of Offence

What offences can be compounded?

Offences that are charged with following are compoundable •

Fine only; or

•

Imprisonment or fine.

As the company can be charged only with fine, all offenses by the company per se are compoundable.

18.6.2

What offences cannot be compounded?

Offence which are charged with following are non-compoundable •

Imprisonment only; or

•

Imprisonment and fine.

18.6.3

Who is authorised to compound an offence?

Nature of punishment

Regulatory authority authorised to compound

Offences charged only with fine, where Regional director or any officer the prescribed maximum amount does not authorized by the Central Government exceed INR 500,000 This limit is now increased to Rs.25 lakh vide Companies (Amendment) Ordinance, 2018 w.e.f. 2/11/2018 Offences charged only with fine, or with Regional director or any officer fine or imprisonment, where the authorized by the Central Government prescribed maximum amount of fine does not exceed INR 500,000 This limit is now increased to Rs.25 lakh vide Companies (Amendment) Ordinance, 2018 w.e.f. 2/11/2018 Offences charged only with fine without any limit

Tribunal

Offences punishable with fine or imprisonment

Tribunal (Vide changes made by the Companies (Amendment) Act, 2017) Earlier, these offences could be compounded under the Companies Act, 2013 only with the permission of the Special Court in accordance with the procedure for compounding laid down 18.9

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Nature of punishment

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Regulatory authority authorised to compound in the Act. However, section 441 was amended in 2017.1

18.6.4

When can they be compounded?

Offences may be compounded either before or after the institution of any prosecution irrespective of the stage of criminal proceeding.

18.6.5

Quantum of fees

Compounding is permitted on payment of a sum determined by the compounding authority. However, such sum should not exceed the maximum quantum of fine prescribed by the law for that offence. In specifying the sum, additional fee already paid by the company or officer, as the case may be, shall also be taken into account. The Companies Amendment Act has introduced Section 446A and 446B for determining the nature and extent of fine/punishment which will also be useful for deciding compounding fees. The section reads as under: “446A. The court or the Special Court, while deciding the amount of fine or imprisonment under this Act, shall have due regard to the following factors, namely:— (a) size of the company; (b) nature of business carried on by the company; (c) injury to public interest; (d) nature of the default; and (e) repetition of the default. 446B. Notwithstanding anything contained in this Act, if a One Person Company or a small company fails to comply with the provisions of subsection (5) of section 92, sub-section (2) of section 117 or sub-section (3) of section 137, such company and officer in default of such company shall be punishable with fine or imprisonment or fine and imprisonment, as the case may be, which shall not be more than one-half of the fine or imprisonment or fine and imprisonment, as the case may be, of the minimum or maximum fine or imprisonment or fine and imprisonment, as the case may be, specified in such sections.". 1

The Companies (Amendment) Act, 2017 allows compounding of offences with imprisonment or fine not only by the Tribunal but also by the Regional Director (within prescribed monetary limit). While section 441(1) is amended, section 441(6) has not been modified by deleting the provisions that require permission of Special Court. Thus, there is still confusion whether the permission of Special Courts will be required.

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Compounding of Offence

Section 446B is further amended by Companies (Amendment) Ordinance, 2018 “29. Amendment of section 446B. In section 446B of the principal Act, for the portion beginning with “punishable with fine” and ending with “specified in such sections”, the words “liable to a penalty which shall not be more than one half of the penalty specified in such sections” shall be substituted.” Section 446B was substituted by the following provisions vide Companies (Amendment) Act, 2020 “446B. Notwithstanding anything contained in this Act, if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case may be. Explanation.—For the purposes of this section(a) "Producer Company" means a company as defined in clause (l) of section 378A; (b) "start-up company" means a private company incorporated under this Act or under the Companies Act, 1956 and recognised as start-up in accordance with the notification issued by the Central Government in the Department for Promotion of Industry and Internal Trade.”

18.6.6

Procedure for compounding

●

Application for compounding an offence shall be made to the ROC;

●

ROC shall forward the same to the concerned authority with his comments;

●

If offence is compounded, the company shall inform the ROC within seven days.

18.6.7

Bar on compounding

In the following events, compounding shall not be permitted: ● ●

Investigation: If investigation proceedings are initiated or are pending against the company; Subsequent Offence: When a similar offence has been committed and compounded under sec 441 of the Act. However, any second or subsequent offence committed after the expiry of a period of three years shall be compoundable. 18.11

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●

18.6.8

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Observation: The section bars compounding, only for an offence which is committed under sec 441. What if a similar offence was committed and compounded under sec 621A of the old Act within a period of three years? There is no express prohibition for such companies and officers and it can be safely inferred that they can apply for compounding.

Effects of compounding

●

The person is acquitted or discharged from the offence;

●

Effect on Prosecution: On acceptance of the compounding application, no prosecution shall be launched against the company and the officer(s). If prosecution is pending before any Court, the ROC is required to intimate such Court. On such notice of the compounding, the company or its officer in relation to whom the offence is so compounded shall be discharged i.e. the proceeding will be discontinued as against such company or the officer (whose compounding application is accepted).

18.6.9

Penalty

Any officer or other employee of the company who fails to comply with any order made by the Tribunal or the regional director or any officer authorized by the Central Government, shall be punishable with imprisonment for a term which may extend to 6 months or with fine not exceeding INR 1 lakh or with both.

18.7

COGNIZABLE AND NON-COGNIZABLE OFFENCES

18.7.1

What are cognizable offences?

Under sec 2(c) of the Code of Criminal Procedure, 1898, the term "cognizable offence" is defined as follows: "Cognizable offence means an offence for which, and "cognizable case" means a case in which, a police officer may, in accordance with the first schedule or under any other law for the time being in force, arrest without warrant.” Thus, cognizable cases are those where a culprit can be arrested without a warrant and the case can be investigated without any orders or directions from a criminal court. Section 212(6) of the Companies Act, 2013 earlier provides a list of offences that were cognizable. However, the said list was deleted by Companies (Amendment) Act, 2015. The said amendment was brought into force w.e.f 29 May 2015. The clause dealing with amendment to sec 212 reads as under: “17. In section 212 of the principal Act, in sub-section (6), for the words, brackets and figures "the offences covered under sub-sections (5) and (6) 18.12

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Compounding of Offence

of section 7, section 34, section 36, sub-section (1) of section 38, subsection (5) of section 46, sub-section (7) of section 56, sub-section (10) of section 66, sub-section (5) of section 140, sub-section (4) of section 206, section 213, section 229, sub-section (1) of section 251, sub-section (3) of section 339 and section 448 which attract the punishment for fraud provided in section 447", the words and figures "offence covered under section 447" shall be substituted.” Thus, due to the said amendment, all the offences that are covered under sec 447 will be cognizable.

18.7.2

What are non-cognizable offences?

All offences under the Act that are not specified in the above list are non-cognizable offence, where the person accused cannot be arrested without a warrant.

18.8

APPENDIX A: PENALTIES UNDER THE OLD AND NEW PROVISIONS2

Nature of Default Section (Old Act) Failing to hold 168 AGM in accordance with AGM provisions Failure to file annual accounts with ROC

2

Penalty

Section (New Penalty Act ) INR 50,000 & 99 Officers in default: INR 2,500 per Up to INR 1 lakh & day INR 5,000 per day, during which the default continues 220(3) & INR 500 per day 137(3) Company: 162(1) INR 10,000 and in case of continuing failure – 100 per day up to INR 2 lakh. MD/CFO/Director: INR 10,000 and in case of continuing failure – 100 per day up to INR 2 lakh. Imprisonment up to 6 months or fine from INR 1 lakh to

The penalties are amended from time to time. The said penal amounts and imprisonment provision are amended by Companies (Amendment) Act, 2017 and Companies (Amendment) Ordinance, 2018. The said tables are shown only to show the extent of changes. They have to be read alongwith subsequent amendments to find latest penalties.

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Nature of Default Section Penalty (Old Act)

Default in laying accounts at the AGM Improper issue, circulation or publication of Balance sheet or Profit and Loss Account

Section (New Penalty Act ) INR 5 lakhs, both.

210(5) (6) Imprisonment up to 6 months or fine up to INR 10,000 or both 218 Fine up to 134(8) INR 5,000

Failure to send to 219(3) the members, Annual Accounts/Auditors

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Fine up to INR 5,000

136(3)

or

Amended by The Companies (Amendment) Act, 2020 ‘2020 amendment act’ Company: INR 10,000 and in case of continuing failure – 100 per day up to INR 2 lakh. MD/CFO/Director: INR 10,000 and in case of continuing failure – 100 per day up to INR 50,000. No specific penalty prescribed for this default Company: INR 50,000 to INR 25 lakhs. Officers: Imprisonment up to 3 years or fine INR 50,000 to INR 5 lakhs, or both Amended by The Companies (Amendment) Act, 2020 Company: 3 lakhs Officers: fine INR 50,000 Company: Fine INR 25,000 Officers: Fine INR 5,000

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Nature of Default Section (Old Act) Report 21 days before meeting Default in 219(4) complying with certain demands for copies of Annual Accounts within 7 days Non-compliance 162(1) with the provisions pertaining to Annual Return

Failure to file with 192(1) MCA certain Resolutions or Agreements

Compounding of Offence

Penalty

Section (New Penalty Act )

Fine up to INR 5,000

No penalty prescribed for this default

Fine up to 92(5) INR 500 for every day during which the default continues

Company: Fine from INR 50,000 to INR 5 lakhs Officers in default: Imprisonment upto 6 months or fine INR 50,000 to INR 5 lakhs, or both

Fine up to 117(2) INR 200 per day

Amended by The Companies (Amendment) Act, 2019 and Companies (Amendment) Act, 2020 Company: Fine INR 10,000 and in case of continuing failure INR 100 per day up to INR 2 Lakhs. Officers: INR 10,000 plus in case of continuing failure INR 100 per day up to 50,000. Company: Fine INR 5 lakhs to INR 25 lakhs Officers: Fine INR 1 lakh to INR 5 lakhs

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Nature of Default Section Penalty (Old Act)

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Section (New Penalty Act ) After Companies Amendment Act, 2017 Company: Fine INR 1 lakhs to INR 25 lakhs Officers: Fine INR 50,000 to INR 5 lakhs. After Companies Act, 2019 Company: Fine INR 1 lakh plus in case of continuing failure INR 500 per day up to INR 25 Lakhs. Officers and Liquidator of the Company: INR 50,000 plus in case of continuing failure INR 500 per day up to INR 5 Lakhs. Amended by The Companies (Amendment) Act, 2020 Company: Fine INR 10,000 plus in case of continuing failure INR 100 per day up to INR 2 Lakhs. Officers and Liquidator of the Company: Fine INR 10,000 plus in case of continuing failure INR 100 per day up to INR 50,000. Default in 217(5), (6) Imprisonment up 134(8) Company: complying with the to 6 months or INR 50,000 to INR 25 lakhs provisions fine up to regarding 18.16

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Nature of Default Section Penalty (Old Act) disclosures in the INR 20,000 or boards report with both

Section (New Penalty Act ) Officers: Imprisonment up to 3 years or fine of INR 50,000 to INR 5 lakhs or both Amended by The Companies (Amendment) Act, 2020 Company: 3 lakhs Officers: fine INR 50,000 118(11) Company: INR 25,000 Officers: INR 5,000

Non-compliance 193(6) Fine up to with provisions INR 500 regarding maintaining minutes of proceedings of general meeting Omitting to state in 176(2) Fine up to 105(3) notice that a INR 5,000 member is entitled to appoint a proxy and that the proxy need not be a member Failure to prepare 211(7) (8) For each offence, 129(7) Annual Accounts in Imprisonment up the form & contents to 6 months or specified in the INR 10, 000, or section both Non-registration of 142(1) information about creation of a charge or payment or satisfaction of a debt in respect of which a charge has been registered

Fine upto 86 INR 5,000 for every day during which the default continues

Companies (Amendment) Act, 2019 Fine INR 5,000

MD/ WTD/ CFO/ Appointed persons/ Directors: Imprisonment up to 1 year or fine from INR 50,000 to INR 5 lakhs, or both Company: Fine from INR 1 lakh to INR 5 lakhs Officers: imprisonment up to 6 months or fine from INR 25,000 to INR 1 lakh, or both.

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Nature of Default Section Penalty (Old Act)

Willful omission of 143(2) any entry in the Register of charges

18.18

Fine upto INR 5,000

Chapter 18

Section (New Penalty Act ) Amended by The Companies (Amendment) Act, 2019 and Companies (Amendment) Act, 2020 (1) Company: Fine INR 5 Lakhs Officers in default: Fine INR 50,000. (2) If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered as per section 77, shall be liable under section 447. 86 Company: Fine from INR 1 lakh to INR 5 lakhs. Officers: imprisonment up to 6 months or fine from INR 25,000 to INR 1 lakh, or both. Amended by The Companies (Amendment) Act, 2019 and Companies (Amendment) Act, 2020 (1) Company: Fine INR 5 Lakhs

Chapter 18

Compounding of Offence

Nature of Default Section Penalty (Old Act)

Refusal to grant 144(3) inspection of Register of Charge.

Section (New Penalty Act ) Officers in default: Fine INR 50,000. (2) If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered as per section 77, shall be liable under section 447. Fine upto 86 Company: Fine INR 500, which from INR 1 lakh to INR 5 lakhs. may extend to Officers: INR 200 for imprisonment up to every day during 6 months or fine which the refusal from INR 25,000 to continues. INR 1 lakh, or both. Amended by The Companies (Amendment) Act, 2019 and Companies (Amendment) Act, 2020 (1) Company: Fine INR 5 Lakhs Officers in default: Fine INR 50,000. (2) If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material 18.19

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Nature of Default Section Penalty (Old Act)

Failure to intimate 146(4) Registrar about change of Registered Office.

Failure to paint or 147(2) affix the name and the address of the company or to keep the same painted or affixed outside the office Failure to print its 147(3) name on the seal or on letter heads, notices, hundies, promissory notes, cheques etc. Failure to publish 148(2) Authorised, Subscribed and Paid– up Capital simultaneously. Failure to maintain 150(2) Register of members

18.20

Section (New Penalty Act ) information, required to be registered as per section 77, shall be liable under section 447. Fine upto 12(8) Company and every INR. 500 for defaulting Officer: Fine of INR 1,000 every day during for every day during which the default which the default continues. continues, not exceeding INR 1 lakh. Fine upto 12(8) Company and every INR 500 for defaulting Officer: Fine of INR 1,000 every day during for every day during which its name which the default not so kept continues, not painted or exceeding INR 1 affixed. lakh. Fine upto 12(8) Company and every INR 5,000. defaulting Officer: Fine of INR 1,000 for every day during which the default continues, not exceeding INR 1 lakh. Fine upto 60(2) Company: Fine INR 10,000. INR. 10,000. Officers: INR 5,000 for each default. Fine upto INR 500 88(5) for every day during which the default continues.

Fine from INR 50,000 to INR 3 lakhs and INR 1,000 for each day during which the failure continues.

Chapter 18

Compounding of Offence

Nature of Default Section Penalty (Old Act)

Failure to maintain index of members.

151(4)

Failure to maintain Index of Debenture holders.

152(3)

Failure to change its 25(10) name to a name not containing the words “Chambers of Commerce” on revocation of license.

Section (New Penalty Act ) Amended by The Companies (Amendment) Act, 2020 Company: Fine INR 3 Lakhs. Officers: INR 50,000. Fine upto 88(5) Fine from INR 500. INR 50,000 to INR 3 lakhs and INR 1,000 for each day during which the failure continues. Amended by The Companies (Amendment) Act, 2020 Company: Fine INR 3 Lakhs. Officers: INR 50,000. Fine upto 88(5) Fine from INR 500. INR 50,000 to INR 3 lakhs and INR 1,000 for each day during which the failure continues. Amended by The Companies (Amendment) Act, 2020 Company: Fine INR 3 Lakhs. Officers: INR 50,000. Fine upto 8(11) Company: Fine from INR 5,000 for Not specific to INR 10 lakhs to every day during Chambers of INR 1 crore. Directors and which the default Commerce Officers in default: continues. Imprisonment upto 3

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Nature of Default Section Penalty (Old Act)

Failure to file 44(3) Prospectus or Statement in lieu of Prospectus with the Registrar upon any alteration in the Articles Untrue statement in 44(4) any prospectus or statement in lieu of prospectus filed

18.22

Fine upto INR 5,000 for every day during which the default continues. Fine upto INR 50,000 and imprisonment upto 2 years.

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Section (New Penalty Act ) yrs. or fine from INR 25,000 to INR 25 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 10 lakhs to INR 1 Crore. Directors and Officers in default: Fine from INR 25,000 to INR 25 Lakhs. No such corresponding provision/penalty.

34, 448, 447

Person authorizing the issue: Imprisonment of 6 months to 10 yrs. And fine of the amount involved upto three times the amount involved in fraud. Amended by The Companies (Amendment) Act, 2019 Person authorizing the issue: Fraud involving an amount of at least 10 lakh rupees or one percent of the Company’s

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Compounding of Offence

Nature of Default Section Penalty (Old Act)

Default in supplying 40(2) latest copies of MOA/AOA (with changes, if any, made till issue date) Investments of 49(9) company to be held in its own name

Section (New Penalty Act ) turnover, whichever is lower: Imprisonment of 6 months to 10 yrs. And fine of the amount involved upto three times the amount involved in fraud. If fraud involves public interest, minimum 3 years imprisonment. If fraud is of less than INR 10 Lakhs or 1% of Company’s turnover, whichever is lower and does not involve public interest – guilty person shall be punishable with imprisonment upto 5 yrs or fine upto INR 50 Lakhs or both. INR 100 for each 15(2) Company and every copy so issued. defaulting officer: Fine INR 1,000 for each copy so issued. Fine upto INR 50,000.

187(4)

Company: Fine INR 25,000 to INR 25 lakhs. Officers: Imprisonment up to 6 months or fine INR 25,000 to INR 1 lakh or both. Amended by The Companies (Amendment) Act, 2020

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Nature of Default Section Penalty (Old Act)

Non-declaration by 153B(3) trustee of shares and (a) debentures held in trust False declaration by 153B(3) trustee (b) If the register of 154(2) members and debenture holders is closed without giving notice or giving a notice of less than 7 days If any inspection, or 163(5) the making of any extract under sec 163 is not sent

If default is made in 165(9) complying with section 165 (holding of Statutory Meeting and preparation of Statutory Report) If default is made in 168 holding an AGM (Sec 166) or in complying with any directions of the CG (Sec 167) 18.24

Section (New Penalty Act ) Company: Fine INR 5 Lakhs. Officers in default: Fine INR 50,000. Fine upto No such INR 5,000 and corresponding INR 100 for every provision/penalty in the Companies Act, day during which 2013. the default continues. Imprisonment up No such to 2 years and corresponding provision/penalty in fine. the new Act. Fine upto 91(2) Company and every INR 5,000 for defaulting officer: Fine INR 5,000 for every day during which the register every day during is so closed. which the register is so closed, subject to a maximum of INR 1 lakh. Fine upto 94(4) Fine INR 1,000 for INR 500 for every day during which the every day during default/refusal which the refusal continues, up to or default INR 1 lakh, for each continues, for each offence. default/refusal. Fine up to Requirement of INR 5,000. statutory meeting and statutory report ruled out by the new Act. Fine upto 99 INR 50,000 and INR 2,500 for every day after the first during

Company and every defaulting officer: Fine upto INR 1 lakh and upto INR 5,000 for every day during which

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Compounding of Offence

Nature of Default Section Penalty Section (New (Old Act) Act ) which such default continues. Default in giving a 176(2) Fine upto 105(3) statement with INR 5,000. reasonable prominence in the notice as to right of a member to appoint a Proxy Default in 188(8) circulation of member’s resolution Fraudulently 192A(5) defacing or destroying the ballot paper send by shareholder in case of postal Default made in 192A(6) passing of resolutions by postal ballot Default in keeping 193(6) Minutes of proceedings of General Meeting, Board Meeting and other meetings If inspection of 196(3) minute books is refused or any copy of minutes on demand, is not furnished If an undischarged 202(1) insolvent discharges any of

Fine upto INR 50,000.

111(5)

Penalty the default continues. Officers in default: Fine upto INR 5,000. Amended by The Companies (Amendment) Act, 2019 Officers in default: Fine INR 5,000. Company and every defaulting officer: Fine INR 25,000.

Imprisonment for 110 a term which may extend to six months or with fine or both.

No such corresponding provision/penalty in the new Act.

Fine upto INR 50,000 in respect of each such default. Fine upto INR 5,000.

110

No such corresponding penalty.

118(11)

Company: INR 25,000. Officers: INR 5,000.

Fine upto INR 5,000 in respect of each offence.

119(3)

Imprisonment up 164(1), to 2 years or with 167(1), fine upto 167(2)

Fine Fine

For each such refusal or default: Company: Fine INR 25,000. Officers: Fine INR 5,000. Imprisonment upto 1 year or fine INR 1 lakh to INR 5 lakhs, or both. 18.25

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Nature of Default Section Penalty (Old Act) the functions of a INR 50,000, or director both.

If any person acts 203(7) in contravention of an order made under sec 203 Default in repayment of amount of deposit

58A(5)

If a company accepts 58A(6) any deposit in excess (a)(i) of the limits prescribed

If a company invites 58A(6) any deposit in excess (a)(ii) of the limits prescribed

18.26

Section (New Penalty Act ) Amended by The Companies (Amendment) Act, 2020 Fine from INR 1 Lakh to INR 5 Lakhs. Imprisonment for No such a term which corresponding provision/penalty in may extend to 2 years or with fine the new Act. up to INR 50,000 or, both. Company: Fine 74(3) Company: Fine not less than from INR 1 crore to INR 10 crores. twice the amount Officers: in relation to imprisonment up to which the 7 years or fine from repayment of INR 25 lakhs to deposit has not INR 2 crores or been made. both. Officers: imprisonment up to 5 years & fine. Company: Fine which shall not be less than an amount equal to the amount of deposit so accepted. Officers: imprisonment for a term which may extend to 5 years & fine. Company: Fine which shall not be less than an amount equal to the amount of

No such corresponding provision/penalty in the new Act.

No such corresponding provision/penalty in the new Act.

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Nature of Default Section Penalty (Old Act) deposit so accepted. Officers: imprisonment for a term which may extend to 5 years & fine. Failure in 58A(10) Imprisonment compliance with the which may extend order of Company to 3 years and fine Law Board passed of not less than under Sec 58A(9) INR 500 for every regarding repayment day during which of deposit such noncompliance continues. Knowingly failing to 58AA (9) Imprisonment comply with the which may extend order of Company to 3 years and fine Law Board passed of not less than under Sec 58AA(9) INR 500 for every (regarding small day during which depositors) such noncompliance continues. If any prospectus is 59(1) Fine which may issued in extend to contravention of INR 50,000. sec 57 & 58

Compounding of Offence

Section (New Penalty Act )

73(4)

No corresponding penalty specified in the new Act.

Concept of Small Depositors does not exist in the new Act.

26(9)

Company: Fine INR 50,000 to INR 3 lakhs. Parties to the issue: Imprisonment up to 3 years or fine INR 50,000 to INR 3 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 50,000 to INR 3 Lakhs.

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Nature of Default Section Penalty (Old Act)

If a prospectus is 60(5) issued without a copy being delivered to the Registrar or without the copy so delivered having endorsed thereon and attached thereto the required consent or documents

Fine which may extend to INR 50,000.

Mis-statement or 63(1) untrue statement in prospectus

Imprisonment for a term which may extend to 2 years or wit fine which may extend to INR 50,000, or both.

18.28

Chapter 18

Section (New Penalty Act ) Parties to the issue: Fine from INR 50,000 to INR 3 Lakhs. 26(9) Company: Fine INR 50,000 to INR 3 lakhs. Parties to the issue: Imprisonment up to 3 years or fine INR 50,000 to INR 3 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 50,000 to INR 3 Lakhs. Parties to the issue: Fine from INR 50,000 to INR 3 Lakhs. 34, 447 Fraud involving an amount of at least 10 lakh or one percent of turnover whichever is lower: Imprisonment for 6 months to 10 years and fine which shall not be less than the amount involved in the fraud, up to three times the amount involved in the fraud. Fraud involving an amount less than 10 lakh or one percent of turnover whichever is lower

Chapter 18

Nature of Default Section Penalty (Old Act)

Compounding of Offence

Section (New Penalty Act ) and does not involve public interest: Imprisonment upto 5 years or with fine which may extend to 25 lakh or with both. Amended by The Companies (Amendment) Act, 2019 Person authorizing the issue: Fraud involving an amount of at least 10 lakh rupees or one percent of the Company’s turnover, whichever is lower: Imprisonment of 6 months to 10 yrs. And fine of the amount involved upto three times the amount involved in fraud. If fraud involves public interest, minimum 3 years imprisonment. If fraud is of less than INR 10 Lakhs or 1% of Company’s turnover, whichever is lower and does not involve public interest – guilty person shall be punishable with imprisonment upto 5 yrs or fine upto INR 50 Lakhs or both. 18.29

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default Section (Old Act) Any person who 68 knowingly or recklessly makes any statement, promise or forecast which is false, deceptive or misleading

18.30

Penalty

Chapter 18

Section (New Penalty Act ) Imprisonment for 36, 447 Fraud involving an a term, which amount of at least 10 lakh or one may extend to 5 percent of turnover years or with whichever is lower: fine, which may Imprisonment for 6 extend to INR 1 months to 10 years lakh, or both. and fine which shall not be less than the amount involved in the fraud, up to three times the amount involved in the fraud. Fraud involving an amount less than 10 lakh or one percent of turnover whichever is lower and does not involve public interest: Imprisonment upto 5 years or with fine which may extend to 25 lakh or with both, Before Companies Amendment Act, 2017 Imprisonment for 6 months to 10 years and fine which shall not be less than the amount involved in the fraud, up to three times the amount involved in the fraud. Amended by The Companies (Amendment) Act, 2019

Chapter 18

Compounding of Offence

Nature of Default Section Penalty (Old Act)

Any person who 68A(1) makes application in a fictitious name for acquiring shares, etc

Section (New Penalty Act ) Person authorizing the issue: Fraud involving an amount of at least 10 lakh rupees or one percent of the Company’s turnover, whichever is lower: Imprisonment of 6 months to 10 yrs. And fine of the amount involved upto three times the amount involved in fraud. If fraud involves public interest, minimum 3 years imprisonment. If fraud is of less than INR 10 Lakhs or 1% of Company’s turnover, whichever is lower and does not involve public interest – guilty person shall be punishable with imprisonment upto 5 yrs or fine upto INR 50 Lakhs or both. Imprisonment for 38, 447 Fraud involving an a term which amount of at least 10 lakh or one percent may extend to 5 of turnover years. whichever is lower: Imprisonment for 6 months to 10 years and fine which shall not be less than the amount involved in the fraud, up to three 18.31

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default Section Penalty (Old Act)

18.32

Chapter 18

Section (New Penalty Act ) times the amount involved in the fraud. Fraud involving an amount less than 10 lakh or one percent of turnover whichever is lower and does not involve public interest: Imprisonment upto 5 years or with fine which may extend to 25 lakh or with both, Before Companies Amendment Act, 2017 Imprisonment for 6 months to 10 years and fine which shall not be less than the amount involved in the fraud, up to three times the amount involved in the fraud. Amended by The Companies (Amendment) Act, 2019 Person authorizing the issue: Fraud involving an amount of at least 10 lakh rupees or one percent of the Company’s turnover, whichever is lower: Imprisonment of 6 months to 10 yrs. And fine of the amount involved upto three times the

Chapter 18

Compounding of Offence

Nature of Default Section Penalty (Old Act)

Section (New Penalty Act ) amount involved in fraud. If fraud involves public interest, minimum 3 years imprisonment. If fraud is of less than INR 10 Lakhs or 1% of Company’s turnover, whichever is lower and does not involve public interest – guilty person shall be punishable with imprisonment upto 5 yrs or fine upto INR 50 Lakhs or both. 39, 40 Company and Officers in default: For each default, fine INR 1,000 for each day during which the default continues or INR 1 lakh, whichever is less. Concept of Statement in lieu of Prospectus has been removed in the new Act.

Contravention of 69(4) the provisions (Sec. 69(4) of the old Act) regarding deposit and refund of application money received

Fine which may extend to INR 50,000.

Where a statement 70(5) in lieu of prospectus delivered to the Registrar includes any untrue statement

Imprisonment for a term, which may extend to 2 years or with fine, which may extend to INR 50,000 or with both. Fine which may 40(5) extend to INR 50,000 and where repayment is not made within 6 months from the expiry

Repayment of 73(2B) excess application money received in the event of oversubscription

Company: Fine INR 5 lakhs to INR 50 lakhs. Officers in default: Imprisonment upto 1 year or fine INR 50,000 to

18.33

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default Section Penalty (Old Act) of eighth day, also with imprisonment, which may extend to one year.

Failure in keeping 73(3) the application money received in a separate bank account maintained with a schedule bank

Every prospectus 79(4) relating to the issue of the shares shall contain particulars of the discount allowed on the issue of the shares or of so much of 18.34

Chapter 18

Section (New Penalty Act ) INR 3 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 5 lakhs to INR 50 lakhs. Officers in default: Fine from INR 50,000 to INR 3 Lakhs. Fine which may 40(5) Company: Fine extend to INR 5 lakhs to INR 50 lakhs. INR 50,000. Officers: Imprisonment up to 1 year or fine INR 50,000 to INR 3 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 5 lakhs to INR 50 lakhs. Officers in default: Fine from INR 50,000 to INR 3 Lakhs. Fine which may 53 Issue of shares at a extend to discount is barred INR 500. by the new Act except sweat equity shares. Amended by The Companies

Chapter 18

Compounding of Offence

Nature of Default Section Penalty (Old Act) that discount as has not been written off at the date of the issue of the prospectus

Failure to 207 distribute dividends within 30 days

Improper issue, 218 circulation or publication of Balance Sheet or Profit and Loss a/c

Section (New Penalty Act ) (Amendment) Act, 2019 Company and every defaulting officer shall be liable to a penalty which may extend to an amount equal to the amount raised through the issue of shares at a discount or INR 5 Lakhs, whichever is less. And also refund the amount received with interest @12% pa. Simple 127 Director’s party to imprisonment for default: a term which Imprisonment up to 2 years and fine not may extend to 3 less than INR 1,000 years and shall for every day during also be liable to which the default fine of INR 1,000 for every day continues. Company: simple during which the interest @ 18% p.a. default continues during the period for and the company which the default shall also be continues. liable to pay simple interest at the rate of 18% p.a. during the period for which such default continues. Fine which may 134(8) Company: Fine extend to INR 50,000 to INR 5,000. INR 25 lakhs. Officers: Imprisonment up to 3 years or fine INR 50,000 to

18.35

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default Section Penalty (Old Act)

Default in 232 complying with the provisions of sections 225 to 231

Willful noncompliance by auditors with the provisions of sections 227 and 229

18.36

233

Chapter 18

Section (New Penalty Act ) INR 5 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine INR 3 Lakhs. Officers in default: INR 50,000. Fine which may 147(1) Company: Fine extend to For INR 25,000 to INR 5,000. contravention INR 5 lakhs Officers: of sections Imprisonment up to 139 to 146 1 year or fine INR 10,000 to INR 1 lakh, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 25,000 to INR 5 lakhs Officers in default: Fine from INR 10,000 to INR 1 Lakh. Fine which may 147(2) Auditor extend to For contravening sec INR 10,000. contravention 139 and sec 143: Fine INR 25,000 to of sections 139, 143, 144, INR 5 lakhs or four 145 times the remuneration of the auditor, whichever is less. Amended by The Companies (Amendment) Act, 2020

Chapter 18

Compounding of Offence

Nature of Default Section Penalty (Old Act)

If, after the expiry 272 of the period of 2 months, any person acts as a director of the company when he does not hold the qualification shares (as referred in sec 270) If any person who 279 holds office or acts as a Director of more than specified number of companies

Failure in disclosing 302(5) to members of Director’s interest in contract appointing manager, managing director

Section (New Penalty Act ) Auditor contravening sec 139: Fine from INR 25,000 to INR 5 lakhs or four times the remuneration of the auditor, whichever is less Fine which may No such extend to provision/penalty INR 500 for under the new Act. every day between such expiry and the last day on which he acted as a director. Fine which may 165(6) Fine INR 5,000 to extend to For INR 25,000 for INR 50,000 in directorship every day during respect of each of in more than which the those companies 20 companies contravention after the first 15. continues. Amended by The Companies (Amendment) Act, 2020 Fine INR 2,000 for each day during which the violation continues, subject to a maximum of INR 2 Lakhs. Fine up to 190(3) Company: INR 10,000. (regarding Fine INR 25,000. register of Officers in default: contracts Fine INR 5,000 for each default. appointing Managing or Whole-time Directors

18.37

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default Section Penalty (Old Act)

Failure in 303(3) maintaining the Register of Director

Refusal for 304(2) inspection of Register of Director

18.38

Chapter 18

Section (New Penalty Act ) being open for inspection by members) Fine which may 172 Fine INR 50,000 to extend to INR 500 INR 5 lakhs. for every day Amended by The during which the Companies (Amendment) Act, default continues. 2020 Company: Fine INR 50,000 and in case of continuing failure fine INR 500 for each day till default continues, subject to a maximum of INR 3 Lakhs. Every defaulting officer: Fine INR 50,000 and in case of continuing failure fine INR 500 for each day till default continues, subject to a maximum of INR 1 Lakh. Fine which may 172 Fine INR 50,000 to extend to INR 5 lakhs. Amended by The INR 500. Companies (Amendment) Act, 2020 Company: Fine INR 50,000 and in case of continuing failure fine INR 500 for each day till default continues, subject to a maximum of INR 3 Lakhs. Every defaulting officer: Fine INR 50,000 and in case of

Chapter 18

Compounding of Offence

Nature of Default Section Penalty (Old Act)

Duty of directors 308(3) and persons deemed to be directors to make disclose shareholdings

If any director, 322(3) manager or proposer makes default in adding a statement that the liability of the person holding the office will be unlimited

Contravention of the 371 provisions of sec 370 or 370A including any person to whom the loan is made or in whose interest the guarantee is given or the security is provided

Section (New Penalty Act ) continuing failure fine INR 500 for each day till default continues, subject to a maximum of INR 1 Lakh. Imprisonment for 184(4) Director in default: a term, which may Imprisonment upto 1 extend to 2 years year or fine INR 50,000 to INR 1 or with fine, which may extend lakh, or both. to INR. 50,000, or Amended by The both. Companies (Amendment) Act, 2020 Director in default: Fine INR 1 Lakh. Fine, which may No such extend to corresponding INR 10,000 and provision/penalty. shall also be liable for any damage, which the person so appointed may sustain from the default but the liability of the person appointed shall not be affected by the default. Fine which may 186(13) Company: extend to Fine from INR 25,000 to INR 5 INR 50,000 or Lakhs. with simple Officers in default: imprisonment for Imprisonment upto 2 a term, which may years And fine from extend to 6 INR 25,000 to INR 1 months. Lakh.

18.39

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default Section (Old Act) Penalty for 374 contravention of sec 372 or 373

Section (New Penalty Act ) Fine which may 186(13) Company: Fine from extend to INR 25,000 to INR 5 lakhs. INR 50,000. Officers in default: Imprisonment upto 2 years and fine from INR 25,000 to INR 1 lakh. Failure in having a 383A (1A) Fine which may 203(5) Company: Fine whole time secretary extend to INR 500 INR 1 lakh to INR 5 lakhs. for every day Directors & KMP: during which the Fine INR 50,000 and default continues. INR 1,000 for every day during which the default continues. Amended by The Companies (Amendment) Act, 2019 Company: Fine INR 5 Lakhs. Every Director and KMP in default: Fine INR 50,000 and in case of continuing default a further penalty of INR 1,000 for each the default continues but not exceeding INR 5 Lakhs. Failure in filing copy 404(4) Fine which may 242(8) Company: Fine of every order extend to INR 1 lakh to INR 25 lakhs. altering or giving INR 50,000. Officers in default: leave to alter Imprisonment upto 6 company’s months or fine memorandum or INR 25,000 to INR 1 articles within 30 lakh, or both. days Amended by The Companies 18.40

Penalty

Chapter 18

Chapter 18

Compounding of Offence

Nature of Default Section Penalty (Old Act)

Contravention of the 420 provisions Regarding provident fund of employees (sections 417, 418 and 419) Non compliance 423 with sections 421 and 422. (Regarding filing of accounts of receivers and Invoices, etc. to refer to receiver, where there is one) Failure in 485(2) publication of resolution of winding up in the Official Gazette and also in newspaper circulating in the district Failure in giving the notice of appointment of liquidator to the registrar

493(3)

Section (New Penalty Act ) (Amendment) Act, 2020 Company: Fine from INR 1 lakh to INR 25 lakhs. Officers in default: Fine from INR 25,000 to INR 1 Lakh. Imprisonment for No such a term which may corresponding extend to 6 months provision/penalty in or with fine which the new Act. may extend to INR 10,000. Fine which may No such extend to corresponding provision/penalty in INR 2,000. the new Act.

Fine which may 307(2) extend to INR 500 for every day during which the default continues.

Fine which may 312(2) extend to INR 1,000 for every day during which the default continues.

Company & Officers in default: Fine INR 5,000 for every day during which the default continues. Omitted by Insolvency and Bankruptcy Code, 2016 dated 15th November, 2016. Company & Officers in default: Fine INR 500 for every day during which the default continues.

18.41

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default Section Penalty (Old Act)

Duty of liquidator 496(2) to call general meeting at end of each year, in the event of the winding up continuing for more than 1 year Failure in sending a 497(3) copy of account and return to the registrar and official liquidator

For each failure, fine which may extend to INR 1,000.

Failure in 501(2) submitting with the registrar, copy of resolution passed at a creditor’s meeting

Fine which may extend to INR 500 for every day during which the default continues.

Duty of liquidator to 508(2) call meetings of company and of creditors at the end of each year

Fine which may extend to INR 1,000.

18.42

Fine which may extend to INR 500 for every day during which the default continues.

Chapter 18

Section (New Penalty Act ) Omitted by Insolvency and Bankruptcy Code, 2016 dated 15th November, 2016. 316(2) Company Liquidator: Fine up to INR 10 lakhs. Omitted by Insolvency and Bankruptcy Code, 2016 dated 15th November, 2016. 318(8) Company Liquidator: Fine up to INR 1 lakh. Omitted by Insolvency and Bankruptcy Code, 2016 dated 15th November, 2016. 306(5) Company: Fine from INR 50,000 to INR 2 lakhs. Director in default: imprisonment up to 6 months or fine from INR 50,000 to INR 2 lakhs, or both. Omitted by Insolvency and Bankruptcy Code, 2016 dated 15th November, 2016. 316(2) Company Liquidator: Fine up to INR 10 lakhs. Omitted by Insolvency and Bankruptcy Code, 2016 dated 15th November, 2016.

Chapter 18

Compounding of Offence

Nature of Default Section (Old Act) If a body corporate 513(3) is appointed as a liquidator

Penalty

Corrupt inducement 514 affecting appointment as a liquidator Failure in giving the 516(2) notice of appointment of liquidator by the liquidator.

Fine which may extend to INR 10,000.

Falsification of books

539

Imprisonment for 336(1) a term which may extend to 7 years and shall also be liable to fine.

Default in keeping proper accounts

541(1)

Imprisonment for 338(1) a term which may extend to 1 year.

Fraudulent conduct 542(3) of business with intent to defraud creditors or any person or for any fraudulent purpose

Fine which may extend to INR 10,000.

Section (New Penalty Act ) No such corresponding provision/penalty in the new Act.

Fine which may 312(2) extend to INR 500 for every day during which the default continues.

Imprisonment for 339(3), 447 a term, which may extend to 2 years or with fine, which may extend to INR 50,000 or both.

No such corresponding provision/penalty in the new Act. Company & Officers in Default: Fine which may extend to INR 500 for every day during which the default continues. Omitted by Insolvency and Bankruptcy Code, 2016 dated 15th November, 2016. Officers: Imprisonment of 3 to 5 years and fine from INR 1 lakh to INR 3 lakhs. Officers: Imprisonment of 1 year to 3 years and fine from INR 1 lakh to INR 3 lakhs. Fraud involving an amount of at least 10 lakh or one percent of turnover whichever is lower: Imprisonment for 6 months to 10 years and fine which shall not be less than the amount involved in 18.43

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default Section Penalty (Old Act)

18.44

Chapter 18

Section (New Penalty Act ) the fraud, up to three times the amount involved in the fraud. Fraud involving an amount less than 10 lakh or one percent of turnover whichever is lower and does not involve public interest: Imprisonment upto 5 years or with fine which may extend to 25 lakh or with both, Before Companies Amendment Act, 2017 Imprisonment for 6 months to 10 years and fine which shall not be less than the amount involved in the fraud, up to three times the amount involved in the fraud. Amended by The Companies (Amendment) Act, 2019 Person authorizing the issue: Fraud involving an amount of at least 10 lakh rupees or one percent of the Company’s turnover, whichever is lower: Imprisonment of 6 months to 10 yrs.

Chapter 18

Compounding of Offence

Nature of Default Section Penalty (Old Act)

Failure in filing of information as to pending liquidations

551

Section (New Penalty Act ) And fine of the amount involved upto three times the amount involved in fraud. If fraud involves public interest, minimum 3 years imprisonment. If fraud is of less than INR 10 Lakhs or 1% of Company’s turnover, whichever is lower and does not involve public interest – guilty person shall be punishable with imprisonment upto 5 yrs or fine upto INR 50 Lakhs or both. Imprisonment for 348 Company a term which Liquidator: may extend to 6 Fine upto INR 5,000 for every months or with day during which fine which may the default extend to continues. INR 10,000 or Amended by The both and Companies INR 5,000 for (Amendment) Act, every day during 2020 which the Where a Company offence Liquidator is in continues. default, then such default shall be deemed to be contravention of the provision of the Insolvency and Bankruptcy Code, 2016 and rules and regulations mde 18.45

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default Section Penalty (Old Act)

If any foreign company fails to comply with the provisions of the Companies Act

598

Fine which may extend to INR 10,000 and in case of continuing offence, with an additional fine which may extend to INR 1,000 for every day during which the default continues.

Any person who is 606 knowingly responsible for the issue, circulation, distribution of a prospectus for the

Imprisonment for a term which may extend to 6 months or fine which may extend to

18.46

Chapter 18

Section (New Penalty Act ) thereunder for the purposes of proceedings under Chapter VI of Part IV of that Code. 392 Company: Fine INR 1 lakh to INR 3 lakhs and INR 50,000 for every day during which the contravention continues. Officers: imprisonment upto 6 months or fine INR 25,000 to INR 5 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Foreign Company: Fine from INR 1 lakh to INR 3 lakhs and upto INR 50,000 for every day during which the contravention continues. Officer of Foreign Company in default: Fine from INR 25,000 to INR 5 Lakhs. No such corresponding provision/penalty in the new Act.

Chapter 18

Compounding of Offence

Nature of Default Section (Old Act) issue of a form of application for shares, debentures or Indian Depository Receipts in contravention with provisions of sections 603, 604, 605 and 605A Failure in 615(6) complying with the order of the Central Government to furnish information or statistics or knowingly furnishing any information or statistics which is incorrect or incomplete

Penalty

Non-compliance 621A with order made by CLB or the RD to file or register with or deliver or send to the registrar any return, account or other document

Imprisonment which may extend to 3 months or fine which may extend to INR 10,000 or both.

Section (New Penalty Act )

INR 50,000 or both.

Imprisonment, which may extend to 3 months or fine, which may extend to INR 10,000 or both.

405(4)

Company: INR 25,000. Officers: Imprisonment up to 6 months or fine INR 25,000 to INR 3 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company and every defaulting officer: Fine INR 20,000 and in case of continuing failure INR 1,000 for each day the failure continues subject to a maximum of INR 3 Lakhs. No such corresponding provision/penalty in the new Act.

18.47

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default Section (Old Act) Making a statement 628 which is false in any material particular or which omits any material fact by any person

18.48

Penalty

Chapter 18

Section (New Penalty Act ) Imprisonment for 448 & Fraud involving an a term which 447(Fraud) amount of at least 10 lakh or one may extend to 2 percent of turnover years and shall whichever is lower: also be liable to Imprisonment for 6 fine. months to 10 years and fine which shall not be less than the amount involved in the fraud, up to three times the amount involved in the fraud. Fraud involving an amount less than 10 lakh or one percent of turnover whichever is lower and does not involve public interest: Imprisonment upto 5 years or with fine which may extend to 25 lakh or with both, Before Companies Amendment Act, 2017 Imprisonment for 6 months to 10 years and fine which shall not be less than the amount involved in the fraud, up to three times the amount involved in the fraud. Amended by The Companies (Amendment) Act, 2019

Chapter 18

Compounding of Offence

Nature of Default Section Penalty (Old Act)

Giving false evidence by any person

629

Penalty where no 629A specific penalty is provided elsewhere in the Act

Section (New Penalty Act ) Person authorizing the issue: Fraud involving an amount of at least 10 lakh rupees or one percent of the Company’s turnover, whichever is lower: Imprisonment of 6 months to 10 yrs. And fine of the amount involved upto three times the amount involved in fraud. If fraud involves public interest, minimum 3 years imprisonment. If fraud is of less than INR 10 Lakhs or 1% of Company’s turnover, whichever is lower and does not involve public interest – guilty person shall be punishable with imprisonment upto 5 yrs or fine upto INR 50 Lakhs or both. Imprisonment for 449 Imprisonment of 3 a term which years to 7 years and fine up to INR 10 may extend to 7 lakhs. years, and shall also be liable to fine. Fine, which may 450 Company & every extend to officer in default: Upto INR 10,000 INR 5,000 and and INR 1,000 for where the contravention is a each day till the 18.49

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default Section Penalty Section (New (Old Act) Act ) continuing one, further fine which may extend to INR 500 for every day after the first day during which the contravention continues.

Penalty for 630(1) wrongful withholding of property by any officer or employee Improper use of 631 words “Limited” and “Private Limited” by any person

18.50

Fine which may 452(1) extend to INR 10,000. Fine which may 453 extend to INR 500 for every day upon which that name or title has been used.

Chapter 18

Penalty contravention continue. Amended by The Companies (Amendment) Act, 2020 Company: Fine INR 10,000 and in case of continuing contravention INR 1,000 for each day till the contravention continues subject to a maximum of INR 2 Lakhs. Defaulting officers: Fine INR 10,000 and in case of continuing contravention INR 1,000 for each day till the contravention continues subject to a maximum of INR 50,000. INR 1 lakh to INR 5 lakhs.

INR 500 to INR 2,000 for every day for which that name or title has been used.

Chapter 18

Compounding of Offence

NEW PENALTIES UNDER THE COMPANIES ACT, 2013 Offence Contravention of any of the provisions of sec 8 regarding incorporation and revocation of license of companies formed for charitable purposes, etc

Section 8(11)

Commencement of business without filing a declaration and verification of registered office with the registrar

11(2)

Default in complying with the direction of Central Government to change the company’s name

16(3)

Issuing prospectus in contravention of sec 26 regarding matters to be stated therein

26(9)

Penalty Company: Fine INR 10 lakhs to INR 1 crore. Directors/Officers in default: Imprisonment upto 3 years or fine INR 25,000 to INR 25 lakhs. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 10 lakhs to INR 1 Crore. Directors and Officers in default: Fine from INR 25,000 to INR 25 Lakhs. Company: Fine INR 5,000. Officers in default: Fine INR 1,000 for every day during which the contravention continues. Omitted by the Companies (Amendment) Act, 2015, w.e.f. 29-052015. Company: Fine INR 1,000 for every day during which the default continues. Officers in default: Fine INR 5,000/to INR 1 lakh. Amended by The Companies (Amendment) Act, 2020 If a company is in default in complying with any direction given under sub section (1), the Central Government shall allot a new name to the company and the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate of incorporation with the new name, which the company shall use thereafter. Company: Fine INR 50,000 to INR 3 lakhs. Every person knowingly a party to the offence: Imprisonment upto 3 years or

18.51

NCLT and NCLAT Law Practice and Procedure, 7e

Offence

Section

Damage sustained by any person on subscribing for securities depending upon any misleading statement/omission in the prospectus

35(1)

Knowingly and recklessly making any statement to fraudulently induce persons to invest money

36, 447

Chapter 18

Penalty fine INR 50,000 to INR 3 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 50,000 to INR 3 Lakhs. Parties to the issue: Fine from INR 50,000 to INR 3 Lakhs. Without prejudice to any punishment under sec 36. Director, Promoter, Expert, etc.: Liable to compensate for the loss/damage sustained and be personally liable under sub-section (3). Fraud involving an amount of at least 10 lakh or one percent of turnover whichever is lower: Imprisonment for 6 months to 10 years and fine which shall not be less than the amount involved in the fraud, up to three times the amount involved in the fraud. Fraud involving an amount less than 10 lakh or one percent of turnover whichever is lower and does not involve public interest: Imprisonment upto 5 years or with fine which may extend to 25 lakh or with both, If offence is of public nature, min. 3 years imprisonment. Before Companies Amendment Act, 2017 Imprisonment for 6 months to 10 years and fine which shall not be less than the amount involved in the fraud, up to three times the amount involved in the fraud. Amended by The Companies (Amendment) Act, 2019 Person authorizing the issue: Fraud involving an amount of at least 10 lakh rupees or one percent of the

18.52

Chapter 18

Compounding of Offence

Offence

Section

Making application for securities in a fictitious name, making multiple applications in different names or inducing, directly or indirectly, to allot securities in a fictitious name

37, 447

Penalty Company’s turnover, whichever is lower: Imprisonment of 6 months to 10 yrs. And fine of the amount involved upto three times the amount involved in fraud. If fraud involves public interest, minimum 3 years imprisonment. If fraud is of less than INR 10 Lakhs or 1% of Company’s turnover, whichever is lower and does not involve public interest – guilty person shall be punishable with imprisonment upto 5 yrs or fine upto INR 50 Lakhs or both. Person making the application: Fraud involving an amount of at least 10 lakh or one percent of turnover whichever is lower: Imprisonment for 6 months to 10 years and fine which shall not be less than the amount involved in the fraud, up to three times the amount involved in the fraud. Fraud involving an amount less than 10 lakh or one percent of turnover whichever is lower and does not involve public interest: Imprisonment upto 5 years or with fine which may extend to 25 lakh or with both. Before Companies Amendment Act, 2017 Imprisonment for 6 months to 10 years and fine which shall not be less than the amount involved in the fraud, up to three times the amount involved in the fraud If offence is of public nature, min. 3 years imprisonment (sec 447). Amended by The Companies (Amendment) Act, 2019 Person authorizing the issue: Fraud involving an amount of at least 10 lakh rupees or one percent of the 18.53

NCLT and NCLAT Law Practice and Procedure, 7e

Offence

Contravention of S. 40 regarding dealing of securities on a recognized stock exchange and related matters

Issue of duplicate share certificate with intent to defraud

18.54

Section

Chapter 18

Penalty Company’s turnover, whichever is lower: Imprisonment of 6 months to 10 yrs. And fine of the amount involved upto three times the amount involved in fraud. If fraud involves public interest, minimum 3 years imprisonment. If fraud is of less than INR 10 Lakhs or 1% of Company’s turnover, whichever is lower and does not involve public interest – guilty person shall be punishable with imprisonment upto 5 yrs or fine upto INR 50 Lakhs or both. 40(5) Company: Fine INR 5 lakhs to INR 50 lakhs. Officers in default: Imprisonment of 1 year or fine INR 50,000 to INR 3 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 5 lakhs to INR 50 lakhs. Officers in default: Fine from INR 50,000 to INR 3 Lakhs. 46(5), 447 Company: Fine of an amount which shall be not less than 5 times the face value of shares involved but which may extend upto 10 times the face value of shares involved or INR 10 crore, whichever is higher. Officers in default: Fraud involving an amount of at least 10 lakh or one percent of turnover whichever is lower: Imprisonment for 6 months to 10 years and fine which shall not be less than the amount involved in the fraud, up to three times the amount involved in the fraud. Fraud involving an amount less than 10 lakh or one percent of turnover

Chapter 18

Offence

Contravention of S. 48 dealing with variation of shareholders rights

Issue of shares at a discount

Compounding of Offence

Section

48(5)

53

Penalty whichever is lower and does not involve public interest: Imprisonment upto 5 years or with fine which may extend to 25 lakh or with both, If offence is of public nature, min. 3 years imprisonment. Before Companies Amendment Act, 2017 Imprisonment for 6 months to 10 years and fine which shall not be less than the amount involved in the fraud, up to three times the amount involved in the fraud (sec 447). Amended by The Companies (Amendment) Act, 2019 Person authorizing the issue: Fraud involving an amount of at least 10 lakh rupees or one percent of the Company’s turnover, whichever is lower: Imprisonment of 6 months to 10 yrs. And fine of the amount involved upto three times the amount involved in fraud. If fraud involves public interest, minimum 3 years imprisonment. If fraud is of less than INR 10 Lakhs or 1% of Company’s turnover, whichever is lower and does not involve public interest – guilty person shall be punishable with imprisonment upto 5 yrs or fine upto INR 50 Lakhs or both. Company: Fine INR 25,000 to INR 5 lakhs. Officers in default: Imprisonment of 6 months or fine INR 25,000 to INR 5 lakhs, or both. Omitted by the Companies (Amendment) Act, 2020, w.e.f. 21-122020. Company: Fine INR 1 lakh to INR 5 lakhs. Officers in default: 18.55

NCLT and NCLAT Law Practice and Procedure, 7e

Offence

Contravention of sec 56 dealing with transfer and transmission of securities

Transfer of shares by Depository or Depository Participant with intention to defraud a person

18.56

Section

Chapter 18

Penalty Imprisonment up to 6 months or fine INR 1 lakh to INR 5 lakhs, or both. Amended by The Companies (Amendment) Act, 2019 Company and every defaulting officer shall be liable to a penalty which may extend to an amount equal to the amount raised through the issue of shares at a discount or INR 5 Lakhs, whichever is less. And also refund the amount received with interest @12% pa. 56(6) Company: Fine INR 25,000 to INR 5 lakhs. Officers in default: Fine INR 10,000 to INR 1 lakh. Amended by The Companies (Amendment) Act, 2020. Company and every defaulting officer: Fine INR 50,000. 56(7), 447 Imprisonment of 6 months to 10 years and fine of the amount involved in the offence extending up to 3 times of the amount. If offence is of public nature, min. 3 years imprisonment. (sec 447). Amended by The Companies (Amendment) Act, 2019 Person authorizing the issue: Fraud involving an amount of at least 10 lakh rupees or one percent of the Company’s turnover, whichever is lower: Imprisonment of 6 months to 10 yrs. And fine of the amount involved upto three times the amount involved in fraud. If fraud involves public interest, minimum 3 years imprisonment. If fraud is of less than INR 10 Lakhs or 1% of Company’s turnover, whichever is lower and does not involve public interest – guilty person shall be punishable with imprisonment upto 5 yrs or fine upto INR 50 Lakhs or both.

Chapter 18

Compounding of Offence

Offence Deceitfully impersonating an owner of any security in a company and obtaining any security or interest due to such owner Contravention of order of Tribunal on appeal from refusal to register transfer of securities Contravention of order of Tribunal to rectify register of members

Section 57

Penalty Imprisonment of 1 year to 3 years and fine from INR 1 lakh to INR 5 lakhs.

58(6)

Imprisonment of 1 year to 3 years and fine from INR 1 lakh to INR 5 lakhs.

59(5)

Failure to give notice to Registrar about alteration/increase/redemption of share capital

64(2)

Company: Fine INR 1 lakh to INR 5 lakhs. Officers in default: Imprisonment upto 1 year or fine INR 1 lakh to INR 3 lakhs, or both. Omitted by the Companies (Amendment) Act, 2020, w.e.f. 21-122020 Company and Officers in default: Fine INR 1,000 for each day during which the default continues or INR 5 lakhs, whichever is less. Amended by The Companies (Amendment) Act, 2019 and Companies (Amendment) Act, 2020. Company: Fine INR 500 for each day during which the default continues, subject to a maximum of INR 5 Lakhs. Defaulting Officers: Fine INR 500 for each day during which the default continues, subject to a maximum of INR 1 Lakh.

Failure in publication of order of confirmation of reduction of share capital passed by the Tribunal

66(11)

Contravention of sec 67 dealing with restrictions on purchase by company or giving of loans by it for purchase of its shares

67(5)

Company: Fine INR 5 lakhs to INR 25 lakhs. Omitted by the Companies (Amendment) Act, 2020, w.e.f. 21-122020. Company: Fine INR from 1 lakh to INR 25 lakhs. Officers in default: Imprisonment upto 3 years and fine from INR 1 lakh to INR 25 lakhs.

18.57

NCLT and NCLAT Law Practice and Procedure, 7e

18.9

Chapter 18

APPENDIX B: IMPRISONMENT INCREASED (ILLUSTRATIVE SAMPLE PROVISIONS WHERE THE QUANTUM OF IMPRISONMENT HAS INCREASED)

Nature of Default

Section under the old Act Failure to file 220(3) & Annual Accounts 162(1) with ROC

Penalty

Section under the new Act

Penalty

INR 500 per day.

137(3)

Improper issue, 218 circulation or publication of Balance sheet or Profit and Loss Account

Fine up to INR 5,000.

134(8)

Company: INR 1,000 per day up to INR 1 lakh. Director/CFO: imprisonment up to 6 months or fine from INR 1 lakh to INR 5 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 ‘2020 amendment act’ Company: INR 10,000 and in case of continuing failure – 100 per day up to INR 2 lakh. MD/CFO/Director: INR 10,000 and in case of continuing failure – 100 per day up to INR 50,000. Company: INR 50,000 to INR 25 lakhs. Officers: Imprisonment up to 3 years or fine from INR 50,000 to INR 5 lakhs, or both. Amended by The Companies

18.58

Chapter 18

Nature of Default

Compounding of Offence

Section under the old Act

Penalty

Section under the new Act

Non-Filing 142(1) information about creation or satisfaction

Fine upto INR 5,000 for every day during which the default continues.

86

Willful omission 143(2) of any entry in

Fine upto INR 5,000.

86

Penalty (Amendment) Act, 2020 Company: 3 lakhs Officers: fine INR 50,000. Company: Fine from INR 1 lakh to INR 5 lakhs. Officers: imprisonment up to 6 months or fine from INR 25,000 to INR 1 lakh, or both. Amended by The Companies (Amendment) Act, 2019 and Companies (Amendment) Act, 2020 (1)Company: Fine INR 5 Lakhs Officers in default: Fine INR 50,000. (2) If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered as per section 77, shall be liable under section 447. Company: Fine from INR 1 lakh to INR 5 lakhs. 18.59

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default

Section under the old Act

Penalty

Section under the new Act

the Register of charges

Refusal for inspection of Register of Charge

18.60

144(3)

Fine upto 86 INR 500 which may extend to INR 200 for every day during which the refusal continues.

Chapter 18

Penalty Officers: imprisonment up to 6 months or fine from INR 25,000 to INR 1 lakh, or both. Amended by The Companies (Amendment) Act, 2019 and Companies (Amendment) Act, 2020 (1)Company: Fine INR 5 Lakhs Officers in default: Fine INR 50,000. (2) If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered as per section 77, shall be liable under section 447. Company: Fine from INR 1 lakh to INR 5 lakhs. Officers: imprisonment up to 6 months or fine from INR 25,000 to INR 1 lakh, or both. Amended by The Companies

Chapter 18

Nature of Default

Investments of company to be held in its own name

Compounding of Offence

Section under the old Act

49(9)

Penalty

Fine upto INR 50,000.

Section under the new Act

187(4)

Penalty (Amendment) Act, 2019 and Companies (Amendment) Act, 2020 (1) Company: Fine INR 5 Lakhs Officers in default: Fine INR 50,000. (2) If any person wilfully furnishes any false or incorrect information or knowingly suppresses any material information, required to be registered as per section 77, shall be liable under section 447. Company: Fine INR 25,000 to INR 25 lakhs. Officers: Imprisonment up to 6 months or fine INR 25,000 to INR 1 lakh, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine INR 5 Lakhs. Officers in default: Fine INR 50,000.

18.61

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default

Section under the old Act Prospectus issued 59(1) in contravention to the provisions

Penalty

Prospectus issued 60(5) without delivering copy to the Registrar or delivery without endorsement or necessary attachments

Fine which 26(9) may extend to INR 50,000.

18.62

Section under the new Act

Fine which 26(9) may extend to INR 50,000.

Chapter 18

Penalty Company: Fine INR 50,000 to INR 3 lakhs. Parties to the issue: Imprisonment up to 3 years or fine INR 50,000 to INR 3 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 50,000 to INR 3 Lakhs. Parties to the issue: Fine from INR 50,000 to INR 3 Lakhs. Company: Fine INR 50,000 to INR 3 lakhs. Parties to the issue: Imprisonment up to 3 years or fine INR 50,000 to INR 3 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 50,000 to INR 3 Lakhs. Parties to the issue: Fine from INR 50,000 to INR 3 Lakhs.

Chapter 18

Nature of Default Failure to keep application money in a separate bank account

Compounding of Offence

Section under the old Act 73(3)

Improper issue, 218 circulation or publication of Balance Sheet or Profit and Loss a/c

Default in 232 complying with the provisions of sections 225 to 231

Penalty

Section under the new Act

Penalty

Fine which 40(5) may extend to INR 50,000.

Company: Fine from INR 5 lakhs to INR 50 lakhs. Officers: Imprisonment up to 1 year or fine from INR 50,000 to INR 3 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 5 lakhs to INR 50 lakhs. Officers in default: Fine from INR 50,000 to INR 3 Lakhs. Fine which 134(8) Company: Fine may extend to INR 50,000 to INR 5,000. INR 25 lakhs. Officers: Imprisonment up to 3 years or fine INR 50,000 to INR 5 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company: 3 lakhs Officers: fine INR 50,000. Fine which 147(1) Company: Fine may extend to For contravention INR 25,000 to INR 5,000. of sections 139 to INR 5 lakhs. 146 Officers: Imprisonment up 18.63

NCLT and NCLAT Law Practice and Procedure, 7e

Nature of Default

Section under the old Act

Penalty

Section under the new Act

Failure in 501(2) submitting with the registrar copy of resolution passed at a creditor’s meeting

Fine which 306(5) may extend to INR 500 for every day during which the default continues.

If any foreign company fails to comply with the provisions of Companies Act

Fine, which 392 may extend to INR 10,000 and in case of continuing offence, with an additional fine which may extend to INR 1,000 for every day during which

18.64

598

Chapter 18

Penalty to 1 year or fine from INR 10,000 to INR 1 lakh, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 25,000 to INR 5 lakhs Officers in default: Fine from INR 10,000 to INR 1 Lakh. Company: Fine INR 50,000 to INR 2 lakhs. Director: imprisonment up to 6 months or fine INR 50,000 to INR 2 lakhs, or both. Omitted by Insolvency and Bankruptcy Code, 2016 dated 15th November, 2016. Company: Fine from INR 1 lakh to INR 3 lakhs and INR 50,000 for every day during which the contravention continues Officers: imprisonment upto 6 months or fine from INR 25,000 to

Chapter 18

Nature of Default

Compounding of Offence

Section under the old Act

Penalty

Section under the new Act

the default continues.

Failure to renew 25 the license of maintaining the words “Chambers of Commerce” in its name

Fine upto INR 5,000 for every day during which the default continues.

8

Penalty INR 5 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Foreign Company: Fine from INR 1 lakh to INR 3 lakhs and upto INR 50,000 for every day during which the contravention continues. Officer of Foreign Company in default: Fine from INR 25,000 to INR 5 Lakhs. Company: Fine from INR 10 lakhs to INR 1 crore. Officers: directors & officer imprisonment upto 3 years or fine of INR 25,000 to INR 25 lakhs, or both. Amended by The Companies (Amendment) Act, 2020 Company: Fine from INR 10 lakhs to INR 1 Crore. Directors and Officers in default: Fine from INR 25,000 to INR 25 Lakhs. 18.65

NCLT and NCLAT Law Practice and Procedure, 7e

18.10

Chapter 18

APPENDIX C: NEW IMPRISONMENT PROVISIONS

(Illustrative sample cases where the contravention of these provisions is liable to be punished with imprisonment under the new Act) Particular of section for which offense is charged Variation of shareholders rights

Section of Nature of Penalty the New Act 48

Company: Fine from INR 25,000 to INR 5 lakhs. Officers: Imprisonment up to 6 months or fine from INR 25,000 to INR 5 lakhs, or both. This imprisonment provision is now deleted by Companies (Amendment) Act, 2020.

Prohibition on issue of shares at discount

53

Company: Fine from INR 1 lakh to INR 5 lakhs. Officers: Imprisonment up to 6 months or fine from INR 1 lakh to INR 5 lakhs, or both. This imprisonment provision is now deleted by Companies (Amendment) Act, 2020

Rectification of registration of members

59

Company: Fine INR 1 lakh to INR 5 lakhs. Officers: Imprisonment up to 1 year or fine INR 1 lakh to INR 3 lakhs, or both. This imprisonment provision is now deleted by Companies (Amendment) Act, 2020

Restriction on purchase by company or giving loans for purchase of its shares

67

Company: Fine INR 1 lakh to INR 25 lakhs. Officers: Imprisonment up to 3 years or fine from INR 1 lakh to INR 25 lakhs.

Power of company to purchase own securities

68

Company: Fine from INR 1 lakh to INR 3 lakhs. Officers: Imprisonment up to 3 years or fine from INR 1 lakh to INR 3 lakhs, or both.

18.66

Chapter 18

Particular of section for which offense is charged

Compounding of Offence

Section of Nature of Penalty the New Act This imprisonment provision is now deleted by Companies (Amendment) Act, 2020

Debentures

71

Officers: Imprisonment up to 3 years or fine from INR 2 lakhs to INR 5 lakhs, or both. This imprisonment provision is now deleted by Companies (Amendment) Act, 2020

Repayment of deposits, etc., accepted before commencement of this Act

74

Company: Fine from INR 1 crore to INR 10 crores. Officers: Imprisonment up to 7 years or fine from INR 25 lakh to INR 2 crore, or both.

Punishment for contravention

86

Company: Fine from INR1 lakh to INR 10 lakhs. Officers: Imprisonment up to 6 months or fine from INR 25,000 to INR 1 lakh, or both. This imprisonment provision is now deleted by Companies (Amendment) Act, 2020

Annual return

92

Company: Fine from INR 50,000 to INR 5 lakhs. Officers: Imprisonment up to 6 months or fine from INR 50,000 to INR 5 lakhs, or both. This imprisonment provision is now deleted Companies (Amendment) Act, 2019.

Punishment for failure to distribute dividends

127

Officers: Imprisonment up to 2 years or fine INR 1,000 every day during which such default continues and shall be liable to pay simple interest of 18% p.a. during the period for which such default continues. This imprisonment provision is now deleted by Companies (Amendment) Act, 2020 18.67

NCLT and NCLAT Law Practice and Procedure, 7e

Particular of section for which offense is charged

Chapter 18

Section of Nature of Penalty the New Act

Books of account, etc., to be kept by company

128

Company: Fine from INR 50,000 to INR 5 lakhs. Officers: Imprisonment up to 6 months or fine from INR 50,000 to INR 5 lakhs, or both. This imprisonment provision is now deleted by Companies (Amendment) Act, 2020

Financial Statements

129

Officers: Imprisonment up to 1 year or fine from INR 50,000 to INR 5 lakhs, or both.

Financial Statement, Board's report, etc

134

Company: Fine from INR 50,000 to INR 25 lakhs. Officers: Imprisonment up to 3 years or fine from INR 50,000 to INR 5 lakhs, or both. This imprisonment provision is now deleted by Companies (Amendment) Act, 2020

Copy of financial statement to be filed with registrar

137

Company: Fine of INR 1,000 every day during the failure continues to INR 10 lakhs. Officers: Imprisonment up to 6 months or fine from INR 1 lakh to INR 5 lakhs, or both. This imprisonment provision is now deleted by Companies (Amendment) Act, 2019

Appointment and qualifications of directors- punishment for contravention

159

Officers: Imprisonment up to 6 months or fine from INR 50,000 to INR 500 for every day after the first during which the contravention continues. This imprisonment provision is now deleted by Companies (Amendment) Act, 2019

Vacation of office of director

167

Officers: Imprisonment up to 1 year or fine from INR 1 lakh to INR 5 lakhs, or both (if a person, functions as a director even when he knows that the office of

18.68

Chapter 18

Particular of section for which offense is charged

Compounding of Offence

Section of Nature of Penalty the New Act director held by him has become vacant on account of any of the disqualifications specified in under sec 167(1)). This imprisonment provision is now deleted by Companies (Amendment) Act, 2020

Nomination and remuneration committee and stakeholders relationship committee

178

Company: Fine from INR 1 lakh to INR 5 lakhs. Officers: Imprisonment up to 1 year or fine from INR 25,000 to INR 1 lakh, or both. This imprisonment provision is now deleted by Companies (Amendment) Act, 2020

Prohibitions & restrictions regarding political contributions

182

Company: Fine may extend to five times the amount contributed. Officers: Imprisonment up to 6 months and with fine which may extend to 5 times the amount so contributed.

Disclosure of interest by director

184

Director: Imprisonment up to 1 year and up the fine extend to 5 times the amount so contributed.

Loan to directors

185

Company: Fine from INR 5 lakhs to INR 25 lakhs. Director: Imprisonment up to 6 months or fine from INR 5 lakhs to INR 25 lakhs. Director or other person to whom loan/guarantee/security provided: Imprisonment up to 6 months or fine from INR 5 lakhs to INR 25 lakhs or both.

Loan and investment by company

186

Company: Fine from INR 25,000 to INR 5 lakhs. Officers: Imprisonment up to 2 years and fine from INR 25,000 to INR 1 lakh, or both.

18.69

NCLT and NCLAT Law Practice and Procedure, 7e

Particular of section for which offense is charged

Chapter 18

Section of Nature of Penalty the New Act

Investments of company to be held in its own name

187

Company: Fine from INR 25,000 to INR 25 lakhs. Officers: Imprisonment up to 6 months or fine from INR 25,000 to INR 1 lakh, or both.

Related party transactions

188

Officers: Imprisonment up to 1 year or fine from INR 25,000 to INR 5 lakhs, or both.

Prohibition on forward dealings in securities of company by director or key managerial personnel

194

Officers: Imprisonment up to 2 years or fine from INR 1 lakh to INR 5 lakhs, or both.

Conduct of inspection and inquiry

207

Officers: Imprisonment up to 1 year and fine from INR 25,000 to INR 1 lakh.

Procedure, power, etc., of inspectors

217

Officers: Imprisonment up to 1 year and fine INR 25,000 to INR 1 lakh.

Freezing of assets of company on inquiry and investigation

221

Company: Fine from INR1 lakh to INR 25 lakhs. Officers: Imprisonment up to 3 years or fine from INR 50,000 to INR 5 lakhs, or both.

Imposition of restrictions upon securities

222

Company: Fine from INR 1 lakh to INR 25 lakhs. Officers: Imprisonment up to 6 months or fine from INR 25,000 to INR 5 lakhs, or both.

Merger & amalgamation of companies

232

Company: Fine from INR 1 lakh to INR 25 lakhs. Officers: Imprisonment up to 1 years or fine from INR 1 lakh to INR 3 lakhs, or both.

Powers of tribunal

242

Company: Fine from INR 1 lakh to INR 25 lakhs. Officers: Imprisonment up to 6 months or fine from INR 25,000 to INR 1 lakh, or both.

18.70

Chapter 18

Particular of section for which offense is charged

Compounding of Offence

Section of Nature of Penalty the New Act

Consequence of termination or modification of certain agreements

243

Officers: Imprisonment up to 6 months or fine of INR 5 lakhs, or both.

Class action

245

Company: Fine from INR 5 lakhs to INR 25 lakhs. Officers: Imprisonment up to 3 years and fine from INR 25,000 to INR 1 lakh, or both.

Direction for filing statement of affairs

274

Officers: Imprisonment up to 6 months or fine from INR 25,000 to INR 5 lakhs, or both.

Declaration of solvency in case of proposal to wind up voluntarily

305

Officers: Imprisonment from 3 years to 5 years or fine from INR 50,000 to INR 3 lakhs, or both.

Meeting of creditors

306

Company: Fine from INR 50,000 to INR 2 lakhs. Director: Imprisonment up to 6 months or fine from INR 50,000 to INR 2 lakhs, or both.

Liability where proper accounts not kept

338

Officers: Imprisonment up to 1 year but may extent to 3 years and fine from INR 1 lakh to INR 3 lakhs.

Power of central government to direct companies to furnish information or statistics

405

Company: Fine upto INR 25,000. Officers: Imprisonment up to 6 months or fine from INR 25,000 to INR 3 lakhs, or both.

Compounding of certain offences

441

Officers: Imprisonment up to 6 months or fine upto INR 1 lakh, or both.

Punishment in case of repeated default

451

Officers: twice the amount of fine for such offence in addition to any imprisonment provided for that offence.

Punishment for wrongful withholding of property

452

Officers: Imprisonment up to 2 years.

Adjudication of penalties

454

Officers: Imprisonment up to 6 months or fine from INR 25,000 to INR 1 lakh, or both.

18.71

NCLT and NCLAT Law Practice and Procedure, 7e

18.11

Chapter 18

PROCEDURE FOR COMPOUNDING OF OFFENCE

For the purpose of determining the procedure of compounding, one must refer to the sec 441 and NCLT Rules. 1. The offences shall is compoundable by the Tribunal, where the maximum amount of fine which that may be imposed for an offence exceeds INR 500,000 (now after the ordinance of 2018 if the amount exceed Rs. 25 lakh). If does not, then such amount shall be compoundable by regional director or any officer authorised by the Central Government. [Section 441(1)] 2. Application for compounding an offence shall be made to the registrar of companies. 3. Registrar of companies shall forward the application to the concerned authority i.e. either Tribunal or regional director or any officer authorised by Central Government along with his comments. [Section 441(3)(a)] 4. Reference to Tribunal of the application for compounding under sec 441(1) shall be made by way of petition or application in Form No. NCLT 9 and shall be accompanied by the documents as may be prescribed. IN NCLT rules, Annexure B is specified in r 88 of NCLT Rules however no document are specified therein. 5. If the offence which is to be compounded comprises of any offence punishable with imprisonment or fine or with imprisonment or fine or with both, then permission of Special Court is required; 6. The Tribunal may compound the offence and determine the amount that will be payable by the company/officers/director for compounding the offence. 7. The amount determined by the Tribunal is to be paid in accordance with the direction of the Tribunal. 8. If offence is compounded, the company shall inform the Registrar of Companies within 7 days from the date on which the offence is so compounded. [Section 441(3)(b)]

18.12

COMPARISON CHART COMPOUNDING OF OFFENCE

18.12.1 Comparison of New Act with Old Act Particulars Compounding of certain offences

18.72

New Act Old Act Remarks 441(1) 621(A)(1) ● CLBTribunal. ● RD can compound upto INR 5 lakhs. ● Under new Act, "Any officer authorised by the Central Government" has been given power of Compounding the Offence.

Chapter 18

Particulars

Compounding of Offence

New Act

Old Act

Bar on compounding in 3 years Procedure

441(2)

621A(2)

Returns/documents

441(4)

Penalty

441(5)

Which offense can be compounded Which offences cannot be compounded

441(6)

● CLBTribunal. ● Under the new Act, The Application can also be made to "Any officer authorised by the Central Government". ● Under new Act, the word 'Composition' has been replaced by 'Compounding' under sec 441(3)(d). 621(A)(5) ● CLBTribunal. ● Under the new Act, The proposal for compounding can also be dealt by "Any officer authorised by the Central Government". 621(A)(6) ● CLBTribunal. ● Under the new Act, "order made by 'any officer authorised by the Central Government' " is newly inserted. ● The Fine is increased from INR 5,000 to INR 1 lakh. 621(A)(7) CourtSpecial Court.

441(7)

621(A)(8) Similar provision.

441(3)

Remarks ● Also the newly inserted proviso states that the offence by the company and its officers shall not be compounded where the investigation proceedings has been initiated or pending against such company under the act. Similar provision.

621A(4)

18.12.2 Comparison of Old Act with New Act Particulars

Old Act New Act Remarks

Composition of certain 621A(1) offences (old Act) that can be compounded and the

441(1)

● CLBTribunal. ● Two authorities for compounding – One is Tribunal and other one is the RD.

18.73

NCLT and NCLAT Law Practice and Procedure, 7e

Particulars

Chapter 18

Old Act New Act Remarks

● Offences upto INR 5 lakhs can be compounded by RD. ● The power to compound upto INR 5 lakhs can be given by CG to any officer authorised by the Central Government. ● Also the newly inserted Proviso states that the offence by the company and its officers shall not be compounded where the investigation proceedings has been initiated or pending against such company under the act.

fees that will be charged

Bar on compounding

621A(2)

441(2)

Similar provision.

Manner of applying

621A(3)

441(3)

● Procedure is similar. ● Under new Act, the word 'Composition' has been replaced by 'Compounding' under sec 441(3)(d).

Filing of returns/accounts/other documents

621A(4)

441(4)

● CLBTribunal. ● Under the new Act, The Application can also be made to "Any officer authorised by the Central Government".

Penalty

621A(5)

441(5)

● Under the new Act, the term "order made by 'any officer authorised by the Central Government' " is newly inserted. ● The Fine is increased from INR 5,000 to INR 1 lakh.

Compoundable offences

621A(6)

441(6)

Court  Special Court.

Non compounding of other offences

621A(7)

441(7)

Same.

18.74

Chapter 19

Miscellaneous powers of Tribunal 19.1

INTRODUCTION

In addition to the powers that are described in the previous chapters, others powers are also vested with the Tribunal. Many of these powers are procedural in nature and some of them do not warrant inserting an entire separate chapter. Thus, all these powers and the laws and procedures for them are aggregated in this chapter.

19.2

CHANGE IN FINANCIAL YEAR

Section 2(41) has undergone significant changes in 2018 and 2019. It was amended by Companies (Amendment) Ordinance, 2018, Companies (Amendment) Ordinance 2019 and finally by Companies (Amendment) Act, 2019 and as it stands today reads as follows: (41) "financial year", in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up: Provided that where a company or body corporate, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Central Government may, on an application made by that company or body corporate in such form and manner as may be prescribed, allow any period as its financial year, whether or not that period is a year: Provided further that any application pending before the Tribunal as on the date of commencement of the Companies (Amendment) Act, 2019, shall be disposed of by the Tribunal in accordance with the provisions applicable to it before such commencement Provided also that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause; 19.1

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Which forum will deal with the petition?

1. New Application filed after the Central Government (power delegated to commencement of Companies Regional Director vide notification dated (Amendment) Act, 2019 (i.e. 2nd 20th December 2018) November 2018) 2. Application pending before the NCLT NCLT that was filed on or before 2nd November 2018

In the subsequent paragraphs the procedure to be followed before Tribunal is explained. This will be relevant only for petitions that were filed and were pending on 2nd November 2018 before the NCLT.

Position prior to Companies (Amendment) Ordinance, 2018 and Companies (Amendment) Act, 2019 Section 2(41) of the Companies Act, 2013 was notified to be effective with effect from 1 April 2014. The Act requires that every company or body corporate, new or existing, must have a uniform financial year ending on 31 March on the commencement of the Companies Act, 2013. Interim provisions are made for newly incorporated companies to have first financial year longer than twelve months. If the company’s financial year does not end on 31 day of March every year, then the company is provided with a grace period of two years, from the date of commencement of this section to comply with sec 2(41). However, the Act provides an exception where certain companies can apply to the Tribunal to have a different financial year.

19.2.1

Application to Tribunal

A company or a body corporate can make an application to the Tribunal. As the Tribunal was not notified at the time when this section was notified, the power to alter the financial year on application were granted to the CLB. The regulation provides the manner for making the application to CLB. The same has notified on the site of CLB vide order dated 28 January 2015. All the application that are not disposed of on 1st June 2016, will also be transferred to the Tribunal.

19.2.2

Who can apply?

The power to have a financial year other than the financial year provided under the Act is available only to the following: “a company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to

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follow a different financial year for consolidation of its accounts outside India” The company or body corporate that intends to apply has to show the Tribunal the following: (a) That it should be a holding company or subsidiary company; (b) This should be in relation to a company incorporate outside India; (c) As it is related to a company incorporate outside India, it will be plausible that it is recognized as holding or subsidiary as per the law of the country where such company is incorporated; (d) It should be “required” to follow a different financial year. The term required connotes, that such separate financial year should be a necessity. If the company can consolidate the account without changing the year and if such practice is recognized or allowed, the Tribunal may not grant consent to keep a separate financial year. Thus, this will be a conscious decision taken by a Tribunal. For instance, if the Tribunal finds that the Indian company is a holding public listed company and it will be easier for the foreign subsidiary to change its financial year, then, it may not grant the approval.

19.2.3

Period of financial year

The Act provides that if Tribunal is satisfied then it can: “allow any period as its financial year, whether or not that period is a year” Thus, it is permissible for the Tribunal to allow any period. For instance, it can provide for a year ending on June or December or any other date. It can also allow the financial year to be for a period of more than 12 months. There is no restriction on the number of months that can be there in such financial year for the concerned company for the purpose of Companies Act.

19.2.4

Procedure for making application under section 2(41)

Rule 67 of NCLT Rules requires that a petition under sec 2(41) of Companies Act, 2013 shall be filed with the Tribunal in Form no. NCLT 1 and shall be accompanies with documents set out in Annexure B. As details of the procedure are not provided, the general procedure provided in NCLT Rules will apply. The power to decide application under sec 2(41) was provided to Company Law Board (CLB) till the time the NCLT was constituted. The CLB Regulations had been amended on 28 January 2015 wherein an application to CLB under sec 2(41) was to be filed in Form No.6 read with reg 52 of Company Law Board Regulations.

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Position after Companies (Amendment) Ordinance, 2018 followed by Companies (Amendment) Act, 2019 The power to change financial years is now transferred to Central Government. Further, this power is now expanded. Thus, now even if the company or body corporate is an associate company of a company incorporated outside India, it can file an application to change the financial year provided the other conditions are satisfied. Further, applications pending before the Tribunal on the date of commencement of the ordinance will be disposed of by the Tribunal in accordance with the provisions applicable before the commencement of ordinance.

19.3

COMPANY CONVERSION (POWER NOW TRANSFERRED TO CENTRAL GOVERNMENT)

The Companies Act, 2013 provides detailed provisions for incorporation of company under sec 3 to 22 read with Companies (Incorporation) Rules, 2014. Under the Act, different type of companies can be incorporated. The types of companies can be classified in different categories inter alia on the basis their liability, their membership, their ownership.

19.3.1

Conversion of companies

Company of one kind registered under the Companies Act, 2013 can convert itself into another kind of company by virtue of sec 18.

19.3.1.1

Permissibility of conversion

Section 18 is a provision that permits conversion of any kind of company into another kind of company under the ambit of the Companies Act, 2013. It reads as follows: “(1) A company of any class registered under this Act may convert itself as a company of other class under this Act by alteration of memorandum and articles of the company in accordance with the provisions of this Chapter. …”

19.3.1.2

General process of conversion

The general procedure is to alter the MOA and AOA and make an application to the ROC along with altered MOA and AOA. If the ROC registrar is satisfied that company has complied with all the requirements of the other kind of company, the ROC is empowered to issue a fresh Certificate of Incorporation. Conversion of one class of company to other shall not affect the debts and liabilities of the company. Thus, under the Companies Act following conversions are possible: 1. Conversion of public company to a private company; 2. Conversion of private company to a public company; 3. Conversion of OPC into private or public limited company; 4. Conversion of private limited company into an OPC; 5. Conversion of sec 8 company into any other kind of company. 19.4

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The conversion of companies involves different nature of procedural formalities. Dealing with the details of each conversion is beyond the scope of this book. The conversion of public company into a private company before the amendments to sec 14 required prior approval of Tribunal. However, this position has changed in the amended Act.

19.3.2

Conversion of public company into private company

Sections 13, 14, 15 and 18 of the Companies Act, 2013 regulate the conversion of public limited company into private limited company. Conversion becomes effective from the date of approval from the registrar by means of issuing a new certificate of incorporation.

19.3.2.1

Conditions for conversion

The Companies (Incorporation) Rules, 2014 provides for Rules for certain types of conversion. Rule 41 of these Rules govern the formalities to be followed for conversion of public companies into private companies. Before the amendment to sec 14, this section required approval of Tribunal for conversion of company from public to private. Before amendments in 2018 and 2019, sec 14 read as under: “(1) Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may, by a special resolution, alter its articles including alterations having the effect of conversion of— (a) a private company into a public company; or (b) a public company into a private company: Provided that where a company being a private company alters its articles in such a manner that they no longer include the restrictions and limitations which are required to be included in the articles of a private company under this Act, the company shall, as from the date of such alteration, cease to be a private company: Provided further that any alteration having the effect of conversion of a public company into a private company shall not take effect except with the approval of the Tribunal which shall make such order as it may deem fit.” After the changes that are introduced by the Companies (Amendment) Ordinance, 2018. The section is amended as follows: “In section 14 of the principal Act, (i) In sub-section (1), for the second proviso, the following provisos shall be substituted, namely:“Provided further that any alteration having the effect of conversion of a public company into a private company shall not be valid unless it is

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approved by an order of the Central Government on an application made in such form and manner as may be prescribed: Provided also that any application pending before the Tribunal, as on the date of commencement of Companies (Amendment) Ordinance, 2018, shall be disposed of by the Tribunal in accordance with the provisions applicable to it before such commencement. (ii) In sub-section (2), for the word “Tribunal”, the words “Central Government” shall be substituted.” After the Companies (Amendment) Act of 2019, section 14 reads as under: “(1) Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may, by a special resolution, alter its articles including alterations having the effect of conversion of – (a) a private company into a public company; or (b) a public company into a private company: Provided that where a company being a private company alters its articles in such a manner that they no longer include the restrictions and limitations which are required to be included under the articles of the company under this Act, the company shall, as from the date of such alteration, cease to be a private company: Provided further that any alteration having the effect of conversion of a public company into a private company shall not be valid unless it is approved by an order of the Central Government on an application made in such form and manner as may be prescribed. Provided also that any application pending before the Tribunal, as on the date of commencement of the Companies (Amendment) Act, 2019, shall be disposed of by the Tribunal in accordance with the provisions applicable to it before such commencement.” In subsequent paragraphs the procedure to be followed before the Tribunal is explained. This will be relevant only for petitions that were filed and were pending on 2nd November 2018 before the NCLT. In brief, the position of the law as it stands with respect to applications filed under sec 14 is as follows: Status of Application

Which forum will deal with the petition? 1. New applications filed after the Central Government (power delegated to commencement of Companies (Amendment) Regional Director vide notification dated Act, 2019 (i.e. 2nd Nov. 2018) 20th December 2018) 2. Applications pending before the NCLT NCLT that was filed on or before 2nd Nov. 2018 19.6

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Procedure and Practices for Application that will be dealt with by NCLT Position prior to Companies (Amendment) Ordinance, 2018 (which was followed by Companies (Amendment) Act, 2019) The Tribunal may at its discretion impose certain conditions subject to which approvals may be granted (sec 459). It may also put certain restrictions before giving such approval. In the view of the author, this general power given in sec 459 can be very useful while dealing with instances of conversion. Conditions may be imposed for safeguarding the interest of stakeholders, who have been dealing with a public company that is intending to convert in a private company. In the author’s view the nature of such conditions may differ on case to case basis and may inter alia be based on: (a) Quantum of public money invested in share capital of company; (b) Debenture issued to public; (c) Public deposits; (d) Investment by banks and financial institutions. The Tribunal will be within its powers to direct return of public money in instalment. Further, there are no restrictions placed on the nature and type of conditions that the Tribunal may impose. Thus, it is possible that if there is public money invested in a company, the Tribunal may direct the company to give them an offer of buy back as a condition precedent to conversion.

19.3.2.2

Consequential changes

When a company intends to convert from a public company to a private company, there are several changes that need to be made. Some of the important changes include the following:

Change of name The Memorandum of Association needs to be altered to change the name of the company. Section 13 provides as follows: “(1) Save as provided in section 61, a company may, by a special resolution and after complying with the procedure specified in this section, alter the provisions of its memorandum. (2) Any change in the name of a company shall be subject to the provisions of subsections (2) and (3) of section 4 and shall not have effect except with the approval of the Central Government in writing: Provided that no such approval shall be necessary where the only change in the name of the company is the deletion therefrom, or addition thereto, of the word “Private”, consequent on the conversion of any one class of

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companies to another class in accordance with the provisions of this Act…..” Observation The Act uses the words “no such approval” in the proviso. It seems that the terms is used to denote the approval that is required from the Central Government. It does not exempt the company from seeking approval from member, which is specified in sec 13(1). Thus, the company needs special resolution from its shareholders but is not required to seek approval from the Central Government for change of its name by adding the word “private”.

Changes in Certificate of Incorporation (COI) The change in name must be recorded in the certificate of incorporation. The Act provides the procedure for incorporation of the changes in name to be made in the COI. “13(3) When any change in the name of a company is made under subsection (2), the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate of incorporation with the new name and the change in the name shall be complete and effective only on the issue of such a certificate.” Changes in Articles of Association (AOA) Several changes are necessary in the AOA to align them with the restriction applicable to the private companies. Inter alia following changes are required: 1. Insert restrictions that are applicable to private companies; 2. Delete the privileges that are applicable to a public company eg acceptance of public deposit. The said changes will be made by way of a special resolution. Changes in books and papers The change of name and nature of the company has to be made in every letterhead, stamp, seal, name displayed outside registered office and at all places. The same may have to be conveyed to the concerned statutory organisation.

19.3.2.3

Impact on debts and contracts

Section 18 inter alia describes the impact of conversion. It will not affect (a) Any debts incurred by the company eg loans taken from another company; (b) Any liabilities for contravention of any provision; (c) Obligations e.g. obligation to pay workmen in accordance with labour laws; (d) Contracts incurred or entered into, by or on behalf of the company.

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Such debts, liabilities, obligations and contracts may be enforced in the manner as if such conversion had not taken place.

19.3.2.4

Effective date of conversion

The Act does not provide a date when the conversion will be effective. But a combined reading of sections 133 and 18 suggests that the conversion will be effective once the registration is completed with the registrar of companies. Second proviso to sec 14(1) provided further that any alteration having the effect of conversion of a public company into a private company shall not take effect except with the approval of the Tribunal which shall make such order as it may deem fit.

19.3.2.5

Listed companies

If a listed company intends to become a private company, one mode for conversion is to first delist the equity shares in accordance with the terms of delisting guidelines issued by SEBI and thereafter, the procedure of conversion of public into private can be complied. If other securities are listed, the company must first check the need for delisting and the delisting may take place in accordance with the regulations laid down in that regard. However, the NCLT Rules contemplate conversion of listed companies into private companies after giving notice to the SEBI and other concerned people. It may be possible that Tribunal may permit filing of the petition for conversion and make the order of conversion subject to the delisting of equity shares. However, the former course seems to be more plausible.

19.3.2.6

Procedure for conversion of public into private company

The procedure for converting a public company to a private company is covered in the NCLT Rules (Rule 68). The Rules, Forms, Annexures that are referred here are from NCLT Rules, unless provided otherwise. 1. Board Meeting: While converting public limited company to private limited company, a Board meeting shall be convened to meet with primary requirements under the Companies Act, 2013. The Agenda of this Board Meeting will inter alia include: (a) A board resolution for approving the conversion; (b) Approval of changes to Article and Memorandum of Association and other consequential changes; (c) Approval must be subject to the approval of the Central Government; (d) Fixing the date, time and venue of EOGM to pass a special resolution for conversion of the company; (e) Approval of Notice of EOGM & explanatory statement under sec 102 of the Companies Act, 2013 and authorization of company secretary or director or any other person authorized for issue of Notice;

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(f) A person should be authorised for completing the necessary compliances, formalities and intimating the change of name and type of company to the people concerned. 2.

Issue of notice: Notice of EOGM must be issued to members, directors and auditors according to the provisions of sec 101. The company shall send notice to its members, directors and auditors 21 clear days before the date of general meeting in writing or through electronic mode. Notice can also be given at shorter period, if 95% or more members entitled to vote at EOGM give their consent to such shorter notice. Consent may be given in writing or through electronic mode.

3. Convening EOGM: General Meeting shall be convened to pass special resolution for alteration of article of association and memorandum of association as per sec 14 of the Act. Proper quorum shall be present and presence of auditor is must as per sec 146. 4. Filing MGT-14: As per sec 117(3), company shall file special resolution with ROC in Form No. MGT-141 within 30 days from the date of passing of such resolution. Following documents should be attached to MGT-14: 1. Notice and explanatory statement under sec 102; 2. CTC of special resolution; 3. Altered MOA; 4. Altered AOA; 5. CTC of Board Resolution. 5. Filing petition under sec 14: The petition under second provision to sec 14(1) for the approval of conversion of a public company into a private company shall be filed with the Tribunal. As per the provisions of sec 14, no alteration of Article shall take place unless the approval from the Tribunal is obtained and the Tribunal shall make an order as it may deem fit. Here, vide General circular No. 18/2014, this power to approve such conversion is presently delegated to the ROC. Once the Tribunal is constituted, the power will be transferred to the Tribunal. 6. Three month window: The petition to Tribunal shall be filed not less than three months from the date of passing of special resolution. 7. Filing Petition: The said petition shall be filed in NCLT Form No. NCLT 1 and shall be accompanied with such documents as are mentioned in Annexure B. The petition shall inter alia provide the following additional details: (a) Date of the board meeting and general meeting at which the proposal for alteration of articles was approved;

1

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(b) State where registered office of the company is situated; (c) State number of members in the company, number of members who attended the meeting and number of members voted for and against; (d) Reason for conversion into a private company, effect of such conversion on shareholders, creditors, debenture holders and other related parties; (e) State listed or unlisted public company; (f) State the nature of the company i.e. a company limited by shares, a company limited by guarantee (having share capital or not having share capital) or an unlimited company; (g) State whether a company registered under sec 8 of the Act; (h) There shall be attached to the application, a list of creditors and debenture holders, drawn up to the latest practicable date preceding the date of filing of petition by not more than two months, setting forth the following details: •

the names and address of every creditor and debenture holder of the company;

•

the nature and respective amounts due to them in respect of debts, claims or liabilities;

•

in respect of any contingent or unascertained debt or any such claim admissible to proof in winding up of the company, the value, so far as can be justly estimated of such debt or claim:

Provided that the petitioner company shall file an affidavit, signed by the company secretary of the company, if any and not less than two directors of the company, one of whom shall be a managing director, where there is one, to the effect that they have made a full enquiry into the affairs of the company and having done so, have formed an opinion that the list of creditors is correct and that the estimated value as given in the list of the debts or claims payable on a contingency are proper estimates of the values of such debts and claims and that there are no other debts or claims against the company to their knowledge; (i) A duly authenticated copy of such list of creditors shall be kept at the registered office of the company and any person desirous of inspecting the same may, at any time during the ordinary hours of business, inspect and take extracts of the same on payment of INR 10 per page to the company. 8. Advertisement: The petitioner shall at least 14 days before the date of hearing, advertise the petition in accordance with rule 35 of NCLT Rules; 9. Notice: The company shall serve notices to the following:

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(a) Notice to creditors: Notice of the hearing of the petition shall be served on each debenture-holder and creditor of the company by RPAD. The individual notice(s) shall be Form No. NCLT 3 B of NCLT Rules. (b) Notice to authorities: Notice of hearing of petition together with the copy of the petition shall be served to the Central Government, registrar of companies and to the Securities and Exchange Board, in the case of listed companies and to the regulatory body, if the company is regulated under any Act. 10. Objections: Where the petitioner has received any objection of any person whose interest is likely to be affected by the proposed petition, the company shall serve a copy thereof to the registrar of companies on or before the date of hearing. 11. Hearing: Tribunal shall hear the company and all the parties that have raised objections and are desirous of being heard. It will also take note of the observations/objections, if any, received from the statutory authorities. After hearing all the parties concerned, if it is satisfied, having regard to the circumstances of the case, that the conversion is in the interest of the company and it is not being made with a view to contravene or to avoid complying with the provisions of the Act, it shall allow the conversion. Else, the Tribunal may disallow the petition with reasons recorded in writing. 12. Filing of altered articles with ROC: The altered articles of association are filed with ROC in Form No. INC-27 (Companies (Incorporation) Rules, 2014). Following documents are required to be attached with INC-27. i. Minutes of the general meeting in which approval for conversion is obtained. ii. Order of the competent authority sanctioning such conversion. iii. Affidavit from director or MD or WTD affirming letter of no objection is obtained from the all creditors and debenture holders and no demand from sales tax, excise or income tax is pending. iv. Certified list of creditors and members as on date of EOGM. v. Proof of filing of statutory report with ROC. vi. List of pending litigation 13. Approval from ROC: On being satisfied that all the information and documents are submitted and all requirements under the Act are complied with, ROC shall issue a new certificate of incorporation to the company after registering all the documents and information.

Position after Companies (Amendment) Ordinance, 2018 This provision has been amended by the Companies (Amendment) Ordinance, 2018. By the said ordinance, this power to approve conversion has been transferred from 19.12

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NCLT to Central Government. The application which are pending in the NCLT before the commencement of Companies (Amendment) Ordinance, 2018, shall be disposed of by the NCLT.

19.4

EXTENSION OF TIME FOR REDEMPTION OF PREFERENCE SHARES

Section 55 provides the manner of issue and redemption of preference shares and also provides relief in instances where company is not able to redeem the preference shares in accordance with the terms of the preference shares. “55. Issue and redemption of preference shares (1) No company limited by shares shall, after the commencement of this Act, issue any preference shares, which are irredeemable. (2) A company limited by shares may, if so authorised by its articles, issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue subject to such conditions as may be prescribed: Provided that a company may issue preference shares for a period exceeding twenty years for infrastructure projects, subject to the redemption of such percentage of shares as may be prescribed on an annual basis at the option of such preferential shareholders: Provided further that—

(a) no such shares shall be redeemed except out of the profits of the company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purposes of such redemption; (b) no such shares shall be redeemed unless they are fully paid; (c) where such shares are proposed to be redeemed out of the profits of the company, there shall, out of such profits, be transferred, a sum equal to the nominal amount of the shares to be redeemed, to a reserve, to be called the Capital Redemption Reserve Account, and the provisions of this Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if the Capital Redemption Reserve Account were paid-up share capital of the company; and (d) (i) in case of such class of companies, as may be prescribed and whose financial statement comply with the accounting standards prescribed for such class of companies under section 133, the premium, if any, payable on redemption shall be provided for out of the profits of the company, before the shares are redeemed: Provided also that 19.13

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premium, if any, payable on redemption of any preference shares issued on or before the commencement of this Act by any such company shall be provided for out of the profits of the company or out of the company’s securities premium account, before such shares are redeemed. (ii) in a case not falling under sub-clause (i) above, the premium, if any, payable on redemption shall be provided for out of the profits of the company or out of the company’s securities premium account, before such shares are redeemed. (3) Where a company is not in a position to redeem any preference shares or to pay dividend, if any, on such shares in accordance with the terms of issue (such shares hereinafter referred to as unredeemed preference shares), it may, with the consent of the holders of threefourths in value of such preference shares and with the approval of the Tribunal on a petition made by it in this behalf, issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares, and on the issue of such further redeemable preference shares, the unredeemed preference shares shall be deemed to have been redeemed: Provided that the Tribunal shall, while giving approval under this subsection, order the redemption forthwith of preference shares held by such persons who have not consented to the issue of further redeemable preference shares. Explanation—For the removal of doubts, it is hereby declared that the issue of further redeemable preference shares or the redemption of preference shares under this section shall not be deemed to be an increase or, as the case may be, a reduction, in the share capital of the company. (4) The capital redemption reserve account may, notwithstanding anything in this section, be applied by the company, in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares. Explanation—For the purposes of sub-section (2), the term ‘‘infrastructure projects’’ means the infrastructure projects specified in Schedule VI.” (Emphasis supplied) Section 55(3) allows the company that is not able to redeem the preference shares the facility to issue further preference shares in lieu of such shares. The language of sec 55(3) is a little similar to the wording in proviso to sec 80A(1)(b) of the Companies Act, 1956. However, the context is quite distinct. Section 80A was introduced and came into effect with effect from 15 June 1988. This amendment was the outcome of the recommendations made by the Sachar 19.14

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Committee, which gave elaborate rationale for introduction of this section. Section 80A of the Companies Act, 1956 was inserted to disallow irredeemable preference shares and to provide a route in which the existing preference shares can be phased out. The provision to approach Tribunal was given to limited number of companies for assisting the companies in financial distress, who were unable to comply with sec 80A and were unable to repay irredeemable and long term preference shares. The provision for approaching the Tribunal under sec 55(3) is available to any company in financial distress, which is unable to pay its preference shareholders.

19.4.1

Who can approach?

The company can approach the Tribunal under sec 55(3), where it is unable to redeem the preference shares or the interest thereon provided it satisfies the other conditions of the sub-section. Infrastructure companies This facility is available even to infrastructure companies. The Act allows such companies to issue preference share for a period exceeding 20 years but not exceeding 30 years. This facility is however subject to certain restrictions, which are inter alia set out in rule 10 of Companies (Share capital and Debenture) Rules, 2014. “10. Issue and redemption of preference shares by company in infrastructural projects: A company engaged in the setting up and dealing with of infrastructural projects may issue preference shares for a period exceeding twenty years but not exceeding thirty years, subject to the redemption of a minimum ten percent of such preference shares per year from the twenty first year onwards or earlier, on proportionate basis, at the option of the preference shareholders.” Infrastructure companies have long gestation period and this rule 10 may prove burdensome in certain instances. This provision under sec 55(3) can be useful in such cases. If the infrastructure companies are not able to redeem the preference shares in accordance with the terms of issue or are not able to comply with the aforesaid compulsory proportionate redemption rule, they can approach the Tribunal, provided other conditions are satisfied.

19.4.2

Approval

Section 55(3) requires that approval of the following members be sought: “it may, with the consent of the holders of three-fourths in value of such preference shares” The Act uses the term “such” before preference shares. Thus, approval is to be sought only from those preference shareholders whose shares are to be redeemed or dividend is payable but the company is not able to do as per the agreed terms. Thus, for instance, if for an infrastructure project it is necessary to redeem 10% of the shares in the 11th year and the company is not able to do so, then in that event, the company 19.15

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can approach the Tribunal with the consent of 3/4th shareholders of such preference shares who hold 10% preference shares which are to be redeemed. Further, the Act does not require 3/4th majority in numbers but 3/4th majority in value of all the concerned preference shares.

19.4.3

Inability to redeem

The said provision can be used only if the company “is not in a position” to redeem preference shares or pay their dividends. The CLB under the Companies Act, 1956 had tried to analyse the intent of sec 80A and the instances where it can be used. The same rationale is applicable under the new Act: In Re: Mangalore Chemicals and Fertilizers Ltd. [MANU/CL/0005/1994 : [1994] 79 CompCas 551 (CLB)] [CLB(SRB) Company Petition No. 60/80A/SRB/93 dated 08.12.1993], it was held that: “21. The question that is to be considered is whether the company is bound to redeem the preference shares notwithstanding the financial position of the company as is evident from the recommendations of the Sachar Committee and also the Notes on Clauses. The very purpose of introduction of Section 80A is to ensure that all preference shares, whether redeemable or irredeemable, which were in existence on the commencement of the Act should be redeemed within such period as stipulated in the section itself. The proviso is only a saving clause to take care of instances where a company is not in a position to redeem any such shares within the period aforesaid and to pay the dividend. This proviso is a non obstante proviso to the effect that notwithstanding anything contained in the Act once the Company Law Board is satisfied that a company is unable to redeem its preference shares, the company can issue further redeemable preference shares in place of the existing preference shares. From the petition of the company it is clear that the financial position of the company is not sound and as a matter of fact a new group has already taken over the management of the company and even the proposal of the company to go in for a "rights issue" us indicated in its annual report for the year 1091-92 has not materialised due to uncertainty of the revival process started by the new group. The company in its annual report has highlighted the problems it is facing with regard to mobilisation of working capital and also the efforts taken in respect of the rehabilitation efforts. 22. Section 80A was inserted by the 1988 Amendment Act, which came into effect from June 15, 1988, enabling companies in financial distress, if they are unable to redeem such shares on the due dates, to issue further (fresh) preference shares in lieu of the old ones, with the consent of the Company Law Board. The power conferred on the Company Law Board under the proviso to Section 80A(1) is not only discretionary but also 19.16

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extraordinary and is intended to obviate hardship to companies which are in financial difficulties. The phrase "Notwithstanding anything contained in this Act" used in the proviso read with Sub-section (2) thereof is of great significance. They give absolute and unfettered powers to the Company Law Board in dealing with such cases. 23. Therefore, while exercising this discretionary power, the paramount consideration should be the interest of the company while the interest of all others is only secondary or subordinate. 24. I am convinced that the company has not been in a position to redeem the preference shares when they are due along with dividend thereon. Non-grant of some time for redemption of these preference shares and immediate payment thereon would, in my view, on the basis of the facts narrated in the petition and also as found in its annual report, affect drastically the financial position of the company and, therefore, I am inclined to give my consent to the prayer of the company for the issue of 2,99,825--13 per cent redeemable preference shares, in place of the existing ones.”

19.4.4

Nature of order

The Tribunal may, if it considers fit, allow the company to issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares and on the issue of such further redeemable preference shares, the unredeemed preference shares shall be deemed to have been redeemed. The Tribunal is required to provide an order for redemption of the preference shares that have not consented to the issue of further redeemable preference shares. The issue of further redeemable preference shares or the redemption of preference shares under this section shall not be deemed to be an increase or a reduction, as the case may be, in the share capital of the company.

19.4.5

Applicability of previous judgments

While on the first look proviso to sec 80A(1)(b) of the Companies Act, 1956 looks very similar to sec 55(3). However, as seen above, the context in which they are inserted are different and thus, the Tribunal may have to take a different perspective while deciding matters under sec 55(3). However, the trigger point, namely inability to pay/redeem is a common factor. Thus, the tests that the CLB have used for deciding application under sec 80A of Companies Act, 1956 may be useful for considering applications under sec 55(3).

19.4.6

Usefulness of section 55(3)

Section 55(3) seems to be more useful where there is a compulsory redemption coming up in terms of the Act, where the redemption is necessary as per the terms of the Act. In other cases, the company may use the provision of variation of rights. 19.17

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19.4.7

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Procedure for seeking extension of time for redemption of preference shares

Unless otherwise provided, the Rules, forms and annexures mentioned herein are from NCLT Rules. 1. Company shall seek consent from 3/4th in value of such preference shares that it is not able to redeem and for which it proposes to issue preference shares. 2. The company must file a petition to the Tribunal in Form No. NCLT 1 (NCLT Rule 69). 3. The petition shall be accompanied by documents mentioned in Annexure B of NCLT Rules and shall set out: (a) the particulars of registration; (b) the capital structure, the different classes of shares into which the share capital of the company is divided; (c) the provisions of the memorandum or articles authorizing the issue of preference shares; (d) the total number of preference shares issued; (e) Details of such preference shares, which are not redeemed or are not paid dividend; (f) Terms and conditions of issue of such existing preference shares. (g) the total number of such preference shares (unredeemed) and number of holders consented for, with value of such preference shares and percentage of holders who have consented for; (h) The date or dates on which the consent was given or the resolution was passed. 4. The Tribunal shall give notice of the application in Form No. NCT 5 to every person, who appears to the Tribunal to be interested in the petition. 5. If such person files a reply or opposes the application, the company can file a rejoinder providing its response to the reply filed by the person opposing the petition. 6. The Tribunal may give the parties, who appear to be interested, an opportunity of being heard. 7. If after hearing the parties concerned, the Tribunal is satisfied, having regard to all the circumstances of the case, it may approve the issue of further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of unredeemable preference shares.

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8. If any preference shareholder opposes the further issue, the Tribunal shall, while giving approval, order the redemption forthwith of preference shares held by such persons who have not consented to the issue of further redeemable preference shares. 9. The Tribunal can also pass such orders as to costs as it thinks fit. 10. The decision of the Tribunal on the petition shall be final.

19.5

CONSOLIDATION OF SHARES “61. Power of limited company to alter its share capital: (1) A limited company having a share capital may, if so authorised by its articles, alter its memorandum in its general meeting to— (a) increase its authorised share capital by such amount as it thinks expedient; (b) consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares: Provided that no consolidation and division which results in changes in the voting percentage of shareholders shall take effect unless it is approved by the Tribunal on an application made in the prescribed manner; (c) convert all or any of its fully paid-up shares into stock, and reconvert that stock into fully paid-up shares of any denomination; (d) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; (e) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled. (2) The cancellation of shares under sub-section (1) shall not be deemed to be a reduction of share capital.”

The expression ‘consolidation of shares’ is not defined under the Act. Consolidation is the a mode of restructuring of capital structure, by combining a specified number of shares into a new share, where the new share has to be of a nominal value equal to the aggregate of the shares so consolidated.

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It is defined as follows in the Finance Glossary: “the process by which a company changes the structure of its share capital by reducing the number of shares it has in issue and increasing the par value of each. As a shareholder, the number of shares you own would be reduced, their nominal value would rise to compensate, and the market price of the shares should also rise to reflect the greater 'ownership' which each share represents in the company.”- Finance glossary2 Section 61(1)(b) gives power to a company to alter its share capital, by way of consolidation and division of all or any of its share capital into shares of larger amount than its existing shares under the authority of Articles of Association of the company. However, under the new Act a proviso is inserted to this sub-clause, where certain type of consolidation is not possible without approval of the Tribunal. Thus, for a transaction, which falls within the purview of proviso to sec 61(1)(b), the company will be required to take approval of the Tribunal in addition to approval in the general meeting.

19.5.1

In what all cases is approval necessary?

The Act provides that only consolidation of shares that “results in changes in the voting percentage of shareholders” needs approval of Tribunal. This clause is necessary in view of the facility given to company to issue share with differential voting rights. Example 1: Company has 1 lakh equity shares of INR 1 each, carrying one vote per share. In this example, if the company intends to consolidate 1 lakh equity share of INR 1 each carrying one vote per share into 1000 equity shares of INR 100 each by consolidating the shares, a person who is holding, say 1000 equity shares of INR 1 each has 1000/100,000 * 100 = 1 % voting rights in the company. After consolidation of shares, the shareholder will hold 10 equity share of INR 100 each. The total value of shareholding is INR 1,000, which continues to be 1 % of the total percentage of voting rights and thus, in this case there will be no change in the voting percentage of shares. Example 2: Company has 1 lakh equity shares of INR 1 each carrying one vote per share. The company also has another 50,000 equity shares of INR 2 each, carrying one vote per 100 shares. In this example, if the company intends to consolidate 1 lakh equity share of INR 1 each carrying one vote per share into 1,000 equity shares of INR 100 each carrying one vote per share by consolidating the shares, it will result in change in voting percentages of shareholding. The proviso is a new addition to the provision of share capital alteration under the Companies Act, 2013. The proviso is presently not notified and will be effective once the provisions for Tribunals are notified. 2

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http://www.finance-glossary.com/define/consolidation/12444/0/C

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19.5.2

Miscellaneous Powers of Tribunal

Procedure for consolidation of shares under the Act

By altering the capital clause of Memorandum of Association (MOA), alteration of share capital by way of consolidation can be done. Thus, the following process is followed in accordance with sections 13, 14 and sec 61(1) and 64 of the Act, rule 15 of the Companies (Share Capital and Debentures) Rules, 2014 and rule 24 of the Companies (Management & Administration) Rules, 2014: 1. Ensure that its articles of association contain a clause, authorizing it to consolidate its shares. If there is no such provision, the articles should be first altered by passing special resolution in accordance with the provisions of sec 14 of the Act. 2. In case of listed companies, notice of the proposed consolidation of the shares has to be given to the stock exchanges, where the securities of the company are listed in accordance with guidelines provided by SEBI. 3. Make an application to the stock exchanges, where the securities of the company are listed and any other stock exchange where the company proposes to get its consolidated shares listed. 4. Convene and hold a Board meeting to – (a) Pass a resolution approving the proposed consolidation of the shares of the company; (b) Fix time, date and venue for holding a general meeting of the company to pass a special resolution, if so required by the articles for this purpose [Section 13 (1)]; (c) Approve notice, agenda and explanatory statement to be annexed to the notice of the general meeting as per sections 101 and 102 of the Act; (d) Authorize the company secretary or some other competent officer to issue, on behalf of the Board, notice of the general meeting as approved by the Board. 5. In case of a listed company, soon after the conclusion of the Board meeting, particulars of such alteration of share capital of the company has to be sent to the stock exchanges, where the securities of the company are listed. 6. Issue notice of the general meeting along with the explanatory statement to all members, directors and auditors of the company. 7. In case of a listed company, forward copies of the notice of the general meeting along with the explanatory statement, to the concerned stock exchanges. 8. Hold the general meeting and have the resolution (ordinary or special, as the case may be) passed. 9. If the consolidation and division of all or any of share capital into shares of a larger amount than its existing shares results in changes in the voting 19.21

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percentage of shareholders, an application shall be filed in Form No. NCLT. 1 before NCLT for obtaining its approval.[NCLT Rule 71] 9.1 The application shall be accompanied with such documents as are mentioned in Annexure B and shall, inter alia, set forth the following: a.

provision of articles authorizing such consolidation or division;

b. existing capital structure of the company; c.

new capital structure of the company after the consolidation or division; d. class of shares being consolidated or divided;

e.

face value of shares pre and post consolidation or division;

f.

Justification for such consolidation or division.

9.2 The company shall at least 14 days before the date of hearing a.

advertise the petition in accordance with rule 35; and

b. serve, by registered post with acknowledgement due, a notice together with the copy of the application to the Central Government, registrar of companies and to the Securities and Exchange Board, in the case of listed companies and to the regulatory body, if the company is regulated under any other Act. 9.3 Where any objection of any person whose interest is likely to be affected by the proposed application has been received by the applicant, it shall serve a copy thereof to the Central government of Companies and Securities Exchange Board of India, in the case of listed companies and to any regulator, if the company is regulated under any other Act on or before the date of hearing. 9.4 Upon hearing the application or any adjourned hearing thereof, the Tribunal may pass such order, subject to such terms and conditions, as it thinks fit. 10. In case of a listed company, forward a copy of the proceedings of the general meeting to the concerned stock exchanges. 11. File with the ROC, Form MGT – 14 (Companies (Management and Administration) Rules, 2014) along with a certified copy of the resolution, notice and the explanatory statement annexed to the notice of the general meeting at which the resolution was passed and copy of altered Memorandum of Association and Articles of Association, within 30 days of the passing of the resolution. [Section 117, 179 and rule 24 of the Companies (Management & Administration) Rules, 2014] 12. File notice of alteration of share capital by way of consolidation of the shares of the company, to the registrar in Form SH –7, within 30 days of the passing of the resolution, along with the prescribed filing fee specifying the shares 19.22

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consolidated. The registrar will record the alteration in the memorandum of the company. [Section 64, rule 15 of the Companies (Share Capital and Debentures), Rules, 2014] 13. In case of a listed company, forward to the concerned stock exchanges, copies of all the notices sent by the company to its members with respect to the alteration of the conditions in the memorandum of association and six copies (one of which must be certified) of such amendments to the memorandum of association as soon as they are adopted by the company in general meeting. 14. Make necessary changes in all the copies of the memorandum of association of the company.[Section 15] 15. Comply with the formalities contemplated under SEBI (Listing Obligation and Disclosure Requirements) Regulation, 2015.

19.6

Rights of debentures holders to seek reliefs “71. Debentures: (1) A company may issue debentures with an option to convert such debentures into shares, either wholly or partly at the time of redemption: Provided that the issue of debentures with an option to convert such debentures into shares, wholly or partly, shall be approved by a special resolution passed at a general meeting. (2) No company shall issue any debentures carrying any voting rights. (3) Secured debentures may be issued by a company subject to such terms and conditions as may be prescribed. (4) Where debentures are issued by a company under this section, the company shall create a debenture redemption reserve account out of the profits of the company available for payment of dividend and the amount credited to such account shall not be utilised by the company except for the redemption of debentures. (5) No company shall issue a prospectus or make an offer or invitation to the public or to its members exceeding five hundred for the subscription of its debentures, unless the company has, before such issue or offer, appointed one or more debenture trustees and the conditions governing the appointment of such trustees shall be such as may be prescribed. (6) A debenture trustee shall take steps to protect the interests of the debenture holders and redress their grievances in accordance with such rules as may be prescribed.

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(7) Any provision contained in a trust deed for securing the issue of debentures, or in any contract with the debenture-holders secured by a trust deed, shall be void in so far as it would have the effect of exempting a trustee thereof from, or indemnifying him against, any liability for breach of trust, where he fails to show the degree of care and due diligence required of him as a trustee, having regard to the provisions of the trust deed conferring on him any power, authority or discretion: Provided that the liability of the debenture trustee shall be subject to such exemptions as may be agreed upon by a majority of debenture-holders holding not less than three fourths in value of the total debentures at a meeting held for the purpose. (8) A company shall pay interest and redeem the debentures in accordance with the terms and conditions of their issue. (9) Where at any time the debenture trustee comes to a conclusion that the assets of the company are insufficient or are likely to become insufficient to discharge the principal amount as and when it becomes due, the debenture trustee may file a petition before the Tribunal and the Tribunal may, after hearing the company and any other person interested in the matter, by order, impose such restrictions on the incurring of any further liabilities by the company as the Tribunal may consider necessary in the interests of the debenture-holders. (10) Where a company fails to redeem the debentures on the date of their maturity or fails to pay interest on the debentures when it is due, the Tribunal may, on the application of any or all of the debenture-holders, or debenture trustee and, after hearing the parties concerned, direct, by order, the company to redeem the debentures forthwith on payment of principal and interest due thereon. (11) If any default is made in complying with the order of the Tribunal under this section, every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than two lakh rupees but which may extend to five lakh rupees, or with both.3 (12) A contract with the company to take up and pay for any debentures of the company may be enforced by a decree for specific performance. (13) The Central Government may prescribe the procedure, for securing the issue of debentures, the form of debenture trust deed, the procedure for the debenture-holders to inspect the trust deed and to obtain copies thereof, quantum of debenture redemption reserve required to be created and such other matters.” 3

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Section 71(9) deals with instances where a debenture trustee can approach the Tribunal for interim reliefs whereas sec 71(10) provides instances where debenture holders can approach the Tribunal for seeking repayment of their debt.

19.6.1 19.6.1.1

Application under section 71(9) for interim reliefs Who can apply?

Only a debenture trustee can file the application to Tribunal.

19.6.1.2

In which case?

The Act provides that the debenture trustee can approach the Tribunal when it comes “to a conclusion that the assets of the company are insufficient or are likely to become insufficient to discharge the principal amount as and when it becomes due”. Thus, it includes instance of present distress in company or likelihood of future distress.

19.6.1.3

Who will be given opportunity of being heard?

The Act provides that the company will be given an opportunity to controvert the application before the Tribunal takes any decision for safeguarding the interest of the debentures. Further, Tribunal will give an opportunity to any person who is interested in the matter. The Act has not defined the term person who is interested. It can mean any person who will be affected by the decision passed against the company for instance, the shareholders, promoter or creditor. If a person feels that he is interest in the outcome of the application but is not a party, he can intervene in the matter.

19.6.1.4

Nature of reliefs?

If the debenture trustee is able to convince the Tribunal about the need to protect the debenture holders, the Tribunal can order such restrictions on incurring any further liabilities by the company, as the Tribunal may consider necessary in the interests of the debenture-holders. The scope of the orders under this section is thus restricted to ordering restrictions. The nature and extent of such restriction may depend on the fact of each case.

19.6.2

Application to Tribunal for seeking repayment

If the company fails to redeem the debentures on the date of their maturity or fails to pay interest on the debentures, then the debentures holders may apply to the Tribunal. All or any debenture holder can apply. There is no threshold limit for making such application and even a single debenture holder can make this application. When the Tribunal receives such application, the principles of natural justice will require that the company should be given an opportunity of being heard. The Tribunal has discretion to direct redemption of debentures and payment of principal and interest

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due thereon. However, if the company is in financial distress, the Tribunal is given discretion that they may defer passing of any order for redemption.

19.6.3

Penalty

If a person fails to comply with the orders or direction of the Tribunal, then every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than INR 2 lakhs but which may extend to INR 5 lakhs, or with both. This is over and above the punishment for contempt of court contemplated under the Act.

19.6.4

Procedure for application under section 71(9) seeking Interim Reliefs by Debenture Trustee

No separate procedure is provided for making an application for seeking reliefs under sec 71(9). The general procedure provided in NCLT Rules will apply.

19.6.5

Procedure for filing application under section 71(10) for failure to Redeem Debentures [NCLT Rule 73]

Unless otherwise provided the references to Rules, forms and annexures are of NCLT Rules. 1. All the debenture holders or any of the debenture holder(s) concerned or debenture trustees can file an application under sec 71(10), where a company fails to redeem the debentures. It must be filed with the Tribunal in Form No. NCLT 11 in duplicate and shall be accompanied by such documents as are mentioned in Annexure B. 2. There shall be attached to the application, a list of debenture holders, as the case may be, setting forth the following details in respect of every such debenture holder: (a) Full name, age, father’s/mother’s/spouse’s name, occupation and full residential address; (b) Debenture certificate number; (c) Date of maturity; (d) Amount due to such person by the company; (e) Amount already paid by the company, if any; (f) Total amount due as on the date on the application. It seems that a reasonable interpretation of this Rule is this that those debenture holders who are party to the application should furnish the list. 3. The Rules contemplate a situation that company can be an applicant. The Rules provide that if a company is an applicant, it shall file an affidavit stating the list of debenture holder (s) is correct and that the estimated values 19.26

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as given in the list of the amount payable to such depositors or debenture holders are proper estimates of such debts and claims. Observation This proviso is contrary to the Act, where this right to apply under sec 7(10) is not given to the company but only to the debenture holders and debenture trustees. 4. Tribunal shall give notice to the company and other persons who are interested in the matter in Form No. NCLT 5. 5. The Applicant, if he wants may file a rejoinder. 6. The Tribunal will fix a date of hearing. After hearing all the parties, the Tribunal shall pass an appropriate order. The Rule provides that such order ought to be passed within a period of sixty days from the date of receipt of application. However, such time lines are only indicative and directory. 7. The Tribunal may, if it is satisfied, on the application filed under sub-rule (1), that it is necessary so to do, to safeguard the interests of the company, the debenture holder(s) or the depositor(s), as the case may be, or in the public interest, by order may direct, the company to make repayment of such deposit or debenture or part thereof forthwith or within such time and subject to such conditions as may be specified in the order: 8. While passing such an order, the Tribunal shall consider the financial condition of the company, the amount or deposit or debenture or part thereof and the interest payable thereon.

19.7

INSPECTION OF MINUTES “119. Inspection of minute-books of general meeting. (1) The books containing the minutes of the proceedings of any general meeting of a company or of a resolution passed by postal ballot, shall— (a) be kept at the registered office of the company; and (b) be open, during business hours, to the inspection by any member without charge, subject to such reasonable restrictions as the company may, by its articles or in general meeting, impose, so, however, that not less than two hours in each business day are allowed for inspection. (2) Any member shall be entitled to be furnished, within seven working days after he has made a request in that behalf to the company, and on payment of such fees as may be prescribed, with a copy of any minutes referred to in sub-section (1).

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(3) If any inspection under sub-section (1) is refused, or if any copy required under sub-section (2) is not furnished within the time specified therein, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be liable to a penalty of five thousand rupees for each such refusal or default, as the case may be. (4) In the case of any such refusal or default, the Tribunal may, without prejudice to any action being taken under sub-section (3), by order, direct an immediate inspection of the minute-books or direct that the copy required shall forthwith be sent to the person requiring it.” The member shall make an application under this section, where the company fails to provide inspection of the minutes of general meeting. The Tribunal may either require the company to provide copy of the minutes or require immediate inspection of the minutes.

19.7.1

Procedure for making application for inspection

Rule 76 of NCLT Rules provide that where ay member has requested the company for inspection of minute-book of general meeting on payment of requisite fees and the company has refused to give such inspection, he may apply to the Tribunal in Form NCLT 9. The general procedure provided in NCLT Rules will apply mutatis mutandis. The general procedures are dealt with in the Chapter dealing with General practices and procedures in NCLT.

19.8

INJUNCTION ON REPRESENTATIONS BY OUTGOING DIRECTORS

Section 169 deals with the provisions for removing directions and gives certain rights to directors who are removed: “169. Removal of directors. (1) A company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard: [Provided that an independent director re-appointed for second term under sub-section (10) of section 149 shall be removed by the company only by passing a special resolution and after giving him a reasonable opportunity of being heard]4 Provided further that nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 4

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Proviso inserted by the Companies (Removal of Difficulties) Order, 2018, w.e.f. 21-2-2018.

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163 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation. (2) A special notice shall be required of any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed. (3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting. (4) Where notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so,— (a) in any notice of the resolution given to members of the company, state the fact of the representation having been made; and (b) send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company), and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting: Provided that copy of the representation need not be sent out and the representation need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Tribunal is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; and the Tribunal may order the company’s costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it. (5) A vacancy created by the removal of a director under this section may, if he had been appointed by the company in general meeting or by the Board, be filled by the appointment of another director in his place at the meeting at which he is removed, provided special notice of the intended appointment has been given under sub-section (2). (6) A director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed. (7) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the provisions of this Act:

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Provided that the director who was removed from office shall not be reappointed as a director by the Board of Directors. (8) Nothing in this section shall be taken— (a) as depriving a person removed under this section of any compensation or damages payable to him in respect of the termination of his appointment as director as per the terms of contract or terms of his appointment as director, or of any other appointment terminating with that as director; or (b) as derogating from any power to remove a director under other provisions of this Act.”

19.8.1

Scope of the application

The director is entitled to make representation to the members in instances, where a resolution is proposed for removing him from the directorship. This is a provision to ensure that director has a say and he is able to covey his opposition. However, proviso to sec 169(4) ensures that this power, which is granted to director, is not abused. The director does not misuse this provision to defame the company or any other directors. In the author’s view this provision should have been ideally extended even to avoid filing of letter of resignation, which give false reasons for resignation that have a possibility of defaming the company.

19.8.2

Who can apply?

In this case, the company or any person who is aggrieved can apply. Thus, it includes a wide spectrum of people. For instance, if the director has in his representation used abusive language against the directors and tried to make incorrect allegations against him, in that event, they may apply. If any shareholder or promoter who is privy to the letter feels that such letter is written to give misleading information, which can cause ripples in the market, he may apply.

19.8.3

Under which instances?

The relief under this section can be sought only when the opportunity to make representation “is being abused to secure needless publicity for defamatory matter”. The word that is used is defamatory and abuse. Black Law Dictionary defines ‘defamation’ as follows: “The Act of harming the reputation of another by making false statement to a third person 2. A false written or oral statement that damages another’s reputation.” The person aggrieved can approach the Tribunal, if the director tries to make false allegations or statements against the company. However, if the director is threating to reveal internal state of affairs which happen to be true, then in that event the Tribunal cannot prevent it, as the Tribunal can prevent the director only from making false statement defamatory. Thus, if the director makes an allegation, the Tribunal will have to ascertain the truth of the statement before granting any relief under this Act. 19.30

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19.8.4

Miscellaneous Powers of Tribunal

What relief?

The Tribunal can order that the representation made by the Tribunal need not be made public i.e. need not be sent to the members and need not be read out in the meeting. Further, the Tribunal can even order the director to pay costs of the application.

19.8.5

Procedure for making application under section 169

Rule 79 of NCLT Rules provides that a company or any other person who claims to be aggrieved may make an application to the Tribunal in Form No. NCLT 1. The Rules state that it will be accompanies with such documents as specified in Annexure B but the list of documents is not provided in Annexure B. The general procedure provided in NCLT Rules will apply mutatis mutandis.

19.9

BENEFICIAL OWNERSHIP

Companies (Amendment) Act, 2017 has substituted a new sec 90 which deals with significant beneficial ownership. In this a new power has been provided to the Tribunal. This was subsequently amendment in 2018 and 2019. The new sec 90 reads as under: “90. Register of significant beneficial owners in a company (1) Every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests, of not less than twenty-five per cent. or such other percentage as may be prescribed, in shares of a company or the right to exercise, or the actual exercising of significant influence or control as defined in clause (27) of section 2, over the company (herein referred to as "significant beneficial owner"), shall make a declaration to the company, specifying the nature of his interest and other particulars, in such manner and within such period of acquisition of the beneficial interest or rights and any change thereof, as may be prescribed: Provided that the Central Government may prescribe a class or classes of persons who shall not be required to make declaration under this subsection. (2) Every company shall maintain a register of the interest declared by individuals under sub-section (1) and changes therein which shall include the name of individual, his date of birth, address, details of ownership in the company and such other details as may be prescribed. (3) The register maintained under sub-section (2) shall be open to inspection by any member of the company on payment of such fees as may be prescribed. (4) Every company shall file a return of significant beneficial owners of the company and changes therein with the Registrar containing names, 19.31

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addresses and other details as may be prescribed within such time, in such form and manner as may be prescribed. (4A) Every company shall take necessary steps to identify an individual who is a significant beneficial owner in relation to the company and require him to comply with the provisions of this section.5 (5) A company shall give notice, in the prescribed manner, to any person (whether or not a member of the company) whom the company knows or has reasonable cause to believe— (a) to be a significant beneficial owner of the company; (b) to be having knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge; or (c) to have been a significant beneficial owner of the company at any time during the three years immediately preceding the date on which the notice is issued, and who is not registered as a significant beneficial owner with the company as required under this section. (6) The information required by the notice under sub-section (5) shall be given by the concerned person within a period not exceeding thirty days of the date of the notice. (7) The company shall,— (a) where that person fails to give the company, the information required by the notice within the time specified therein; or (b) where the information given is not satisfactory, apply to the Tribunal within a period of fifteen days of the expiry of the period specified in the notice, for an order directing that the shares in question be subject to restrictions with regard to transfer of interest, suspension of all rights attached to the shares and such other matters as may be prescribed. (8) On any application made under sub-section (7), the Tribunal may, after giving an opportunity of being heard to the parties concerned, make such order restricting the rights attached with the shares within a period of sixty days of receipt of application or such other period as may be prescribed. (9) The company or the person aggrieved by the order of the Tribunal may make an application to the Tribunal for relaxation or lifting of the restrictions placed under sub-section (8), within a period of one year from the date of such order:

5

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Miscellaneous Powers of Tribunal

Provided that if no such application has been filed within a period of one year from the date of the order under the sub-section (8), such shares shall be transferred, without any restrictions, to the authority under subsection (5) of section 125, in such manner as may be prescribed. (9A) the Central Government may make rules for the purposes of this section. (10) If any person fails to make a declaration as required under subsection (1), he shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to a maximum of 2 lakh rupees. (11) If a company, required to maintain register under sub-section (2) and file the information under sub-section (4) or required to take necessary steps under sub-section (4A), fails to do so or denies inspection as provided therein, the company shall be liable to a penalty of one lakh rupees and in case of continuing failure, with a further penalty of five hundred rupees for each day, after the first during which such failure continues, subject to a maximum of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with a further penalty of two hundred rupees for each day, after the first during which such failure continues, subject to a maximum of one lakh rupees. (12) If any person wilfully furnishes any false or incorrect information or suppresses any material information of which he is aware in the declaration made under this section, he shall be liable to action under section 447.” Under the substituted sec 90, the company has to find out the individual who is the ultimate beneficiary of the shares. The said section is introduced after considering the report of Company Law Committee published in February 2016. The committee noticed that issue of corporate vehicles for the purpose of evading tax or laundering money for corrupt or illegal purposes, including for terrorist activities has been a concern worldwide. Complex structures and chains of corporate vehicles are used to hide the real owner behind the transactions made using these structures. Realising this, jurisdictions world over have been putting in place mechanisms to identify the natural person controlling a corporate entity. Thus, even in India, now section 90 is introduced to find the real owner of the company. The company is permitted to approach the Tribunal if the persons who are liable to provide details of beneficial owners as per sec 90 read with Companies (Significant Beneficial Owners) Rules, 2018 fail to do so. Thus, it allows company to approach the Tribunal to withdraw benefits pertaining to shares whose owners/beneficial owners refuse to provide necessary information. The company can approach the Tribunal in following situation: 19.33

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(a) where that person fails to give the company the information required by the notice within the time specified therein. The Rules provide the persons who are liable to give information. (b) where the information given is not satisfactory. In such situations, the company can approach Tribunal within a period of fifteen days from the expiry of the period specified in the notice. The company can inter alia ask for an order directing that the rights associated with the shares in question like rights to receive dividends, right to vote, right to transfer shares be suspended or be subject to restrictions. A period of one year is provided to any person who is aggrieved by the order of the Tribunal under sec 90(7) to approach the Tribunal for seeking modification of the order by relaxation or lifting of restrictions. This is in additional to the power to appeal against the order in terms of sec 421 of the Companies Act, 2013. If within one year a person does not approach the Tribunal, then the shares shall be transferred to IEPF.

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Powers of Tribunal under other Acts 20.1

INTRODUCTION

20.2

POWER UNDER RBI ACT

NCLT has been conferred with powers under other Act also, namely Reserve Bank of India Act, 1934 (RBI Act) and Limited Liability Partnership Act, 2008 (LLP Act). This chapter discusses the nature, scope and extent of these powers.

To Order Repayment of Deposits The RBI Act provides specific provisions for non-banking finance companies (NBFCs). Section 45QA provides that the depositors of an NBFC can approach CLB for repayment of their deposits, if their deposits are not repaid by the NBFC as per terms of the issue. This power of CLB has been transferred to NCLT from 1-062016. Section 45QA of the RBI Act provides as follows: “45QA. Power of Company Law Board to order repayment of deposit (1) Every deposit accepted by a non-banking financial company, unless renewed, shall be repaid in accordance with the terms and conditions of such deposit. (2) Where a non-banking financial company has failed to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the Company Law Board constituted under section 10E of the Companies Act, 1956 (1 of 1956), may, if it is satisfied, either on its own motion or on an application of the depositor, that it is necessary so to do to safeguard the interests of the company, the depositors or in the public interest, direct, by order, the non-banking financial company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order: Provided that the Company Law Board may, before making any order under this sub-section, give a reasonable opportunity of being heard to the nonbanking financial company and the other persons interested in the matter.” Rule 65 of the NCLT Rules provides the following provisions with regards to the transition of the pending matters before CLB to NCLT: 20.1

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“65. Petition or Application under sub-section (2) of section 45QA of the Reserve Bank of India Act, 1934 (2 of 1934) (i) Provisions of these rules shall apply, mutatis mutandis, to the application or petition made under sub-section (2) of section 45QA of the Reserve Bank of India Act, 1934 (2 of 1934) or under such other analogous provision of the other Act(s).”

20.3

POWER UNDER LIMITED LIABILITY PARTNERSHIP ACT, 2008

Tribunal is referred to in the Limited Liability Partnership Act, 2008 and it is conferred with certain powers under the LLP Act. However, the Tribunals referred in LLP Act are those that were proposed to be introduced under the Companies Act, 1956 by way of an amendment in 2002. However, the Companies Act, 2013 has provided a reference to LLP Act and the Tribunals constituted under the Companies Act, 2013 will exercise the powers and discharge the role and function that was contemplated to be taken up by the Tribunals. Section 465 of the Companies Act, 2013 provides as follows: “465. Repeal of certain enactments and savings (1) The Companies Act, 1956 and the Registration of Companies (Sikkim) Act, 1961 (hereafter in this section referred to as the repealed enactments) shall stand repealed: ….. Provided also that provisions of the Companies Act, 1956 referred in the notification issued under section 67 of the Limited Liability Partnership Act, 2008 shall, until the relevant notification under such section applying relevant corresponding provisions of this Act to limited liability partnerships is issued, continue to apply as if the Companies Act, 1956 has not been repealed.” Thus, once notification is issued, the Tribunals will assume the powers under the LLP Act. The LLP Act confers the following role on the Tribunals.

20.3.1

Power to reduce/waive penalty

Any person who assists in providing information in investigation can be provided some reliefs in terms of the penalty that is levied. This discretion is inter alia given to the Tribunal. Section 31 of the LLP Act provides as under: “31. Whistle Blower (1) The Court or Tribunal may reduce or waive any penalty leviable against any partner or employee of a limited liability partnership, if it is satisfied that20.2

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Powers of Tribunal under other Acts

(a) such partner or employee of a limited liability partnership has provided useful information during investigation of such limited liability partnership; or (b) when any information given by any partner or employee (whether or not during investigation) leads to limited liability partnership or any partner or employee of such limited liability partnership being convicted under this Act or any other Act. (2) No partner or employee of any limited liability partnership may be discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against the terms and conditions of his limited liability partnership or employment merely because of his providing information or causing information to be provided pursuant to sub-section 1).”

20.3.2

Power to enforce filing

If any return need to be made or any documents or details need to be filed or resubmitted by the limited liability partnership and if the LLP fails to do so, the Registrar can enforce its direction by seeking assistance of the Tribunal. Section 41 of the LLP Act reads as under: “41. Enforcement of duty to make returns, etc. (1) If any limited liability partnership is in default in complying with(a) any provisions of this Act or of any other law which requires the filing in any manner with the Registrar of any return, account or other document or the giving of notice to him of any matter; or (b) any request of the Registrar to amend or complete and resubmit any document or to submit a fresh document, and fails to make good the default within fourteen days after the service on the limited liability partnership of a notice requiring it to be done, the Tribunal may, on application by the Registrar, make an order directing that limited liability partnership or its designated partners or its partners to make good the default within such time as specified in the order. (2) Any such order may provide that all the costs of and incidental to the application shall be borne by that limited liability partnership. (3) Nothing in this section shall limit the operation of any other provision of this Act or any other law imposing penalties in respect of any default referred to in this section on that limited liability partnership.”

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Chapter 20

Investigations

The Tribunal can suo motu or on application by prescribed number of partners make an order for investigations into the affairs of a LLP and can pass any orders that are incidental thereto. Section 43 & 44 of the LLP Act provides as under: “43. Investigation of the affairs of limited liability partnership (1) The Central Government shall appoint one or more competent persons as inspectors to investigate the affairs of a limited liability partnership and to report thereon in such manner as it may direct if(a) the Tribunal, either suo motu, or on an application received from not less than one-fifth of the total number of partners of limited liability partnership, by order, declares that the affairs of the limited liability partnership ought to be investigated; or (b) any Court, by order, declares that the affairs of a limited liability partnership ought to be investigated. (2) The Central Government may appoint one or more competent persons as inspectors to investigate the affairs of a limited liability partnership and to report on them in such manner as it may direct. (3) The appointment of inspectors pursuant to sub-section (2) may be made,(a)

if not less than one-fifth of the total number of partners of the limited liability partnership make an application along with supporting evidence and security amount as may be prescribed; or (b) if the limited liability partnership makes an application that the affairs of the limited liability partnership ought to be investigated; or (c) if, in the opinion of the Central Government, there are circumstances suggesting(i) that the business of the limited liability partnership is being or has been conducted with an intent to defraud its creditors, partners or any other person, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive or unfairly prejudicial to some or any of its partners, or that the limited liability partnership was formed for any fraudulent or unlawful purpose; or (ii) that the affairs of the limited liability partnership are not being conducted in accordance with the provisions of this Act; or (iii) that, on receipt of a report of the Registrar or any other investigating or regulatory agency, there are sufficient

20.4

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Powers of Tribunal under other Acts

reasons that the affairs of the limited liability partnership ought to be investigated.” “44. Application by partners for investigation An application by partners of the limited liability partnership under clause (a) of sub-section (1) of section 43 shall be supported by such evidence as the Tribunal may require for the purpose of showing that the applicants have good reason for requiring the investigation and the Central Government may, before appointing an inspector, require the applicants to give security, of such amount as may be prescribed, for payment of costs of the investigation.”

20.3.4

Merger and amalgamations

The Tribunal has the power to sanction and supervise Compromise and Arrangement under the LLP Act. The relevant sections of LLP Act are as follows: “60. Compromise or arrangement of limited liability partnerships (1) Where a compromise or arrangement is proposed(a) between a limited liability partnership and its creditors; or (b) between a limited liability partnership and its partners, the Tribunal may, on the application of the limited liability partnership or of any creditor or partner of the limited liability partnership, or, in the case of a limited liability partnership which is being wound up, of the liquidator, order a meeting of the creditors or of the partners, as the case may be, to be called, held and conducted in such manner as may be prescribed or as the Tribunal directs. (2) If a majority representing three-fourths in value of the creditors, or partners, as the case may be, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Tribunal, by order be binding on all the creditors or all the partners, as the case may be, and also on the limited liability partnership, or in the case of a limited liability partnership which is being wound up, on the liquidator and contributories of the limited liability partnership: Provided that no order sanctioning any compromise or arrangement shall be made by the Tribunal unless the Tribunal is satisfied that the limited liability partnership or any other person by whom an application has been made under sub-section (1) has disclosed to the Tribunal, by affidavit or otherwise, all material facts relating to the limited liability partnership, including the latest financial position of the limited liability partnership and the pendency of any investigation proceedings in relation to the limited liability partnership.

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(3) An order made by the Tribunal under sub-section (2) shall be filed by the limited liability partnership with the Registrar within thirty days after making such an order and shall have effect only after it is so filed. (4) If default is made in complying with sub-section (3), the limited liability partnership, and every designated partner of the limited liability partnership shall be punishable with fine which may extend to one lakh rupees. (5) The Tribunal may, at any time after an application has been made to it under this section, stay the commencement or continuation of any suit or proceeding against the limited liability partnership on such terms as the Tribunal thinks fit, until the application is finally disposed of. 61. Power of Tribunal to enforce compromise or arrangement. (1) Where the Tribunal makes an order under section 60 sanctioning a compromise or an arrangement in respect of a limited liability partnership, it(a) shall have power to supervise the carrying out of the compromise or an arrangement; and (b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. (2) If the Tribunal aforesaid is satisfied that a compromise or an arrangement sanctioned under section 60 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the limited liability partnership, make an order for winding up the limited liability partnership, and such an order shall be deemed to be an order made under section 64 of this Act 62. Provisions for facilitating reconstruction or amalgamation of limited liability partnerships (1) Where an application is made to the Tribunal under section 60 for sanctioning of a compromise or arrangement proposed between a limited liability partnership and any such persons as are mentioned in that section, and it is shown to the Tribunal that(a) compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of any limited liability partnership or limited liability partnerships, or the amalgamation of any two or more limited liability partnerships; and (b) under the scheme the whole or any part of the undertaking, property or liabilities of any limited liability partnership concerned in the 20.6

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Powers of Tribunal under other Acts

scheme (in this section referred to as a "transferor limited liability partnership" is to be transferred to another limited liability partnership (in this section referred to as the "transferee limited liability partnership"),the Tribunal may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provisions for all or any of the following matters, namely:(i) the transfer to the transferee limited liability partnership of the whole or any part of the undertaking, property or liabilities of any transferor limited liability partnership; (ii) the continuation by or against the transferee limited liability partnership of any legal proceedings pending by or against any transferor limited liability partnership; (iii) the dissolution, without winding up, of any transferor limited liability partnership; (iv) the provision to be made for any person who, within such time and in such manner as the Tribunal directs, dissent from the compromise or arrangement; and (v) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out: Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a limited liability partnership, which is being wound up, with any other limited liability partnership or limited liability partnerships, shall be sanctioned by the Tribunal unless the Tribunal has received a report from the Registrar that the affairs of the limited liability partnership have not been conducted in a manner prejudicial to the interests of its partners or to public interest: Provided further that no order for the dissolution of any transferor limited liability partnership under clause (iii) shall be made by the Tribunal unless the Official Liquidator has, on scrutiny of the books and papers of the limited liability partnership, made a report to the Tribunal that the affairs of the limited liability partnership have not been conducted in a manner prejudicial to the interests of its partners or to public interest. (2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to and vest in, and those liabilities shall be transferred to 20.7

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and become the liabilities of, the transferee limited liability partnership; and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect. (3) Within thirty days after the making of an order under this section, every limited liability partnership in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration. (4) If default is made in complying with the provisions of sub-section (3), the limited liability partnership, every designated partner of the limited liability partnership shall be punishable with fine which may extend to fifty thousand rupees. Explanation-In this section "property" includes property, rights and powers of every description; and "liabilities" includes duties of every description.”

20.3.5

Winding up of LLP

LLP Act provides for involuntary winding up by the Tribunal. The relevant provisions of LLP Act are as follows: “63.Winding up and dissolution The winding up of a limited liability partnership may be either voluntary or by the Tribunal and limited liability partnership, so wound up may be dissolved. 64. Circumstances in which limited liability partnership may be wound up by Tribunal A limited liability partnership may be wound up by the Tribunal,(a) if the limited liability partnership decides that limited liability partnership be wound up by the Tribunal; (b) if, for a period of more than six months, the number of partners of the limited liability partnership is reduced below two; (c) [Omitted] (d) if the limited liability partnership is unable to pay its debts; (e) if the limited liability partnership has acted against the interests of the sovereignty and integrity of India, the security of the State or public order; (f) if the limited liability partnership has made a default in filing with the Registrar the Statement of Account and Solvency or annual return for any five consecutive financial years; or

20.8

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(g) if the Tribunal is of the opinion that it is just and equitable that the limited liability partnership be wound up.”

20.4

COMPETITION ACT

With effect from 26th May 2017, the NCLAT is empowered to hear appeals against decisions of Competition Commission. The Competition Appellate Tribunal was dissolved. The said changes were brought about by Finance Act, 2017 by which provisions of Competition Act, 2002 were amended. The extract of relevant portion of Finance Act is set out below: “THE FINANCE ACT, 2017 'PART XIV AMENDMENTS TO CERTAIN ACTS TO PROVIDE FOR MERGER OF TRIBUNALS AND OTHER AUTHORITIES AND CONDITIONS OF SERVICE OF CHAIRPERSONS, MEMBERS, ETC. A.— PRELIMINARY 156. The provisions of this Part shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint, and different dates may be appointed for different provisions of this Part and any reference in any provision to the commencement of this Part shall be construed as a reference to the coming into force of that provision. 157. In this Part, unless the context otherwise requires,— (a) "appointed day", in relation to any provision of this Part, means such date as the Central Government may, by notification in the Official Gazette, appoint; (b) "Authority" means the Authority, other than Tribunals and Appellate Tribunals, specified in the Eighth Schedule or Ninth Schedule, as the case may be; (c) "notification" means a notification published in the Official Gazette; (d) "Schedule" means the Eighth Schedule and Ninth Schedule appended to this Act. H.—AMENDMENTS TO THE COMPETITION ACT, 2002 AND THE COMPANIES ACT, 2013. 171. In the Competition Act, 2002,— (a) in section 2, for clause (ba), the following clause shall be substituted, namely:— '(ba) "Appellate Tribunal" means the National Company Law Appellate Tribunal referred to in sub-section (1) of section 53A;'; (b) in Chapter VIIIA, for the heading, the following heading shall be substituted, namely:— "APPELLATE TRIBUNAL"; 20.9

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(c) for section 53A, the following section shall be substituted, namely:— "53A. The National Company Law Appellate Tribunal constituted under section 410 of the Companies Act, 2013 shall, on and from the commencement of Part XIV of Chapter VI of the Finance Act, 2017, be the Appellate Tribunal for the purposes of this Act and the said Appellate Tribunal shall— (a) hear and dispose of appeals against any direction issued or decision made or order passed by the Commission under sub-sections (2) and (6) of section 26, section 27, section 28, section 31, section 32, section 33, section 38, section 39, section 43, section 43A, section 44, section 45 or section 46 of this Act; and (b) adjudicate on claim for compensation that may arise from the findings of the Commission or the orders of the Appellate Tribunal in an appeal against any finding of the Commission or under section 42A or under sub-section (2) of section 53Q of this Act, and pass orders for the recovery of compensation under section 53N of this Act."; (d) sections 53C, 53D, 53E, 53F, 53G, 53H, 53-I, 53J, 53K, 53L, 53M and 53R shall be omitted; (e) in section 63, in sub-section (2), clauses (mb), (mc) and (md) shall be omitted. 172. In the Companies Act, 2013,— (a) in section 410, for the words "for hearing appeals against the orders of the Tribunal", the following shall be substituted, namely:— "for hearing appeals against,— (a) the order of the Tribunal under this Act; and (b) any direction, decision or order referred to in section 53N of the Competition Act, 2002 in accordance with the provisions of that Act."; (b) after section 417, the following section shall be inserted, namely: — "417A. Notwithstanding anything contained in this Act, the qualifications, appointment, term of office, salaries and allowances, resignation, removal and other terms and conditions of service of the Chairperson and other Members of the Appellate Tribunal appointed after the commencement of Part XIV of Chapter VI of the Finance Act, 2017, shall be governed by the provisions of section 184 of that Act: Provided that the Chairperson and Member appointed before the commencement of Part XIV of Chapter VI of the Finance Act, 2017, shall continue to be governed by the provisions of this Act and the rules made thereunder as if the provisions of section 184 of the Finance Act, 2017 had not come into force." 20.10

Chapter 21

Appeals, Reviews and Writs 21.1

INTRODUCTION

Any order of NCLT can be challenged before NCLAT and any order of NCLAT can be challenged before the Supreme Court.

21.2

APPEAL FROM ORDER OF NCLT

Any order of NCLT can be challenged before NCLAT. The nature and scope of this right to appeal has been analysed in the forthcoming paras in light of similar provisions contained under other Acts.

21.2.1

Section 421 of the Companies Act, 2013

Section 421 deals with the appeal to NCLAT. It states as follows: “421. Appeal from orders of Tribunal (1) Any person aggrieved by an order of the Tribunal may prefer an appeal to the Appellate Tribunal. (2) No appeal shall lie to the Appellate Tribunal from an order made by the Tribunal with the consent of parties. (3) Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date on which a copy of the order of the Tribunal is made available to the person aggrieved and shall be in such form, and accompanied by such fees, as may be prescribed: Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days from the date aforesaid, but within a further period not exceeding forty-five days, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within that period.

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(4) On the receipt of an appeal under sub-section (1), the Appellate Tribunal shall, after giving the parties to the appeal a reasonable opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against. (5) The Appellate Tribunal shall send a copy of every order made by it to the Tribunal and the parties to appeal.”

21.2.2

Section 10F of the Companies Act, 1956

This section dealing with appeal against orders of CLB reads as under: “10F. Appeals against the orders of the Company Law Board Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order: Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.”

21.2.3

Section 25 of SICA

The Sick Industrial Companies (Special Provisions) Act, 1985 dealing with appeals from BIFR has a provision to appeal against the order of SICA under sec 25 which reads as under: “25. Appeal (1) any person aggrieved by an order of the Board made under this Act may, within forty-five days from the date on which a copy of the order is issued to him, prefer an appeal to the Appellate Authority: Provided that the Appellate Authority may entertain any appeal after the said period of forty-five days but not after sixty days from the date aforesaid if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal in time. (2) On receipt of an appeal under sub-section (1), the Appellate Authority may, after giving an opportunity to the appellant to be heard, if he so desires, and after making such further inquiry as it deems fit, confirm, modify or set aside the order appealed against or remand the matter to the Board for fresh consideration.”

21.2

Chapter 21

21.2.4

Appeals, reviews and writs

Distinction between section 10F of Companies Act, 1956 and section 421 of the Companies Act, 2013

Under sec 10F of the Companies Act, 1956, the appeal against the order of CLB lies before the High Court whereas under sec 421 of the Companies Act, 2013, the appeal lies before another specialised Tribunal called NCLAT. Under sec 10F, the appeal lies only with respect to a question of law whereas any question of law or fact can be challenged before NCLAT. Further, under sec 10F any decision or order can be challenged whereas under sec 421, only an order can be challenged. Further, the maximum period for filing an appeal under sec 10F is 120 days which is reduced to 90 days under the Companies Act, 2013. The High Court as an appellate forum is a constitutional body having wide powers conferred by the Constitution of India. The NCLAT is a statutory body created under the Companies Act, 2013 and its powers are derived from that Act.

21.2.5

Similarities/distinction under SICA and Companies Act, 2013

The provisions under SICA and Companies Act, 2013 are quite similar. Under both the Acts, any order of the first forum can be challenged at the appellate forum. Further, challenge is allowed on both, questions of law as well as questions of facts. Thus, the language used is similar and the principles/propositions/law points may prove to be useful. Both the authorities, AAIFR and NCLAT have been conferred with such powers under the statute.

21.2.6

Applicability of case laws under Companies Act, 1956?

The term “order” has also been used for an appeal under sec 10F of the Companies Act, 1956 to determine the instance wherein the appeal will lie against the order of CLB. However, the case laws permitting the appeal is to be considered carefully after looking at the matter bearing in mind the following important points: (a) The term used under sec 10F is “any decision or order”. Thus, the term “decision” makes the appellate provisions very wide and thus there was no need to understand the true meaning, nature scope and limitation of the term “order”. The High Court might have allowed appeals on various aspects which it would not otherwise term as an “order”. (b) The appeals under sec 10F pertained to the questions of law only. On the other hand, appeals under sec 421 of Companies Act, 2013 are permissible on question of fact as well as question of law. This is an important distinction. The scope of appeal under sec 421 is much wider and all the aspects of an order can be challenged under sec 421. Thus, case laws under the old Act which took a narrow view of the right to appeal may be easily distinguished in new Act and are not useful for the purpose of interpretation of the new provision. 21.3

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(c) Scope of Interference: In Purnima Manthena and Ors. v Renuka Datla and Ors.[ MANU/SC/1121/2015], a regular appeal was distinguished from an appeal under sec 10F of Companies Act, 1956 by the High Court and it was held that: “46. Section 10F of the Act engrafts the requirement of the existence of a question of law arising from the decision of the CLB as an essential precondition for the maintainability of an appeal thereunder. While the language applied therein evinces that all orders, whether final or interlocutory, can be the subject-matter of appeal, if it occasions a question of law, in our comprehension, the Section per se defines the perimeters of inquisition by the appellate forum conditioned by the type of the order under scrutiny. The nature and purport of the order i.e., interlocutory or final, would thus logically present varying canvases to traverse and analyse. These too would define the limits of adjudication qua the appellate forum. Whereas in an appeal Under Section 10F from an order granting or refusing interim relief, being essentially in the exercise of judicial discretion and based on equity is an appeal on principle and no interference is merited unless the same suffers from the vice of perversity and arbitrariness, such constrictions may not necessarily regulate and/or restrict the domain of examination in a regular appeal on facts and law. Section 10F, thus, statutorily demarcates the contours of the jurisdictional exercise by an appellate forum depending on the nature of the order impugned i.e. interlocutory or final and both cannot be equated, lest the pending proceeding before the lower forum, if the order impugned is purely of interlocutory nature, and does not decide any issue on a consideration of the rival assertions on merits, stands aborted and is rendered superfluous for all intents and purposes.” While dealing with the limitation of sec 10F, the Apex Court has remarked that interlocutory orders as well as final orders can be appealed against and this position will stand even under the new Act. Further, this case also distinguishes the appellate remedies under sec 10F from other appellate remedies. The Apex Court has held that under sec 10F, the right to interfere with an interlocutory relief is very limited. However, in the words of Apex Court, this limitation will not apply to a “regular appeal on facts and law”. An appeal filed before the Appellate Tribunal is a regular appeal where both questions of law and facts can be challenged. Thus, the scope of interference with an interlocutory order by the Appellate Tribunal under Companies Act, 2013 can be much more than a High Court under Companies Act, 1956.

21.2.7

What orders can be appealed against?

Section 10F of the Companies Act, 1956 states that “Any person aggrieved by any decision or order of the Company Law Board” may file an appeal to the High Court. 21.4

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Whereas the Companies Act, 2013 provides that “Any person aggrieved by an order of the Tribunal” may file an appeal to the Appellate Tribunal. Under the Companies Act, 2013, only an order can be challenged. The term order thus has to be analysed:

21.2.7.1

Dictionary meaning

“Order: 1. A command, direction or instruction 2. A written direction or command delivered by a judge or a court - The word generally embraces final decrees as well as interlocutory directions or commands” Order as defined in the 2nd Edition of The Law Lexicon by P. Ramanatha Aiyer is as follows: “An authoritative direction, injunction, mandate; a decision of a court or judge made or entered in writing. … The terms judgment, degree, decision, and order are more or less cognate as applied in legal proceedings and closely allied in meaning. The term ‘order’ is not infrequently used in more restricted sense than the word judgment. It may be defined to be a command, direction, or decision of the Court or Judge on some intermediate point or issue in the case, but without finally disposing of the main issue or issues in the case. Then it is merely interlocutory. But the term is something given a more extensive signification, even in legal controversies and is occasionally used as a synonym of judgment or decree.”

21.2.7.2

Case laws on meaning of the term ‘order’

In Arunachalam Muthu v Nafan BV [MANU/MH/1954/2012 : 2013 (2) ALLMR 127 : 2013 (7) Bom CR 407 : [2013] 115 CLA 252 (Bom) : [2013] 179 CompCas 249 (Bom) : [2013] 119 SCL 434 (Bom)], the nature and scope of an order than can be challenged has been discussed which is useful even under the Companies Act, 2013. “4. There is one more reason why the impugned order must be held to be appealable under Section 10F of the Act. The impugned order does raise substantial questions of law, inter alia, as to whether the Learned Chairman of the CLB in the facts of the present case as mentioned above, has validly exercised his discretion and jurisdiction. The decision of the Hon'ble Supreme Court in the case of Raj Kumar Shivhare vs. Assistant Director, Directorate of Enforcement and another MANU/SC/0249/2010 : (2010) 4 SCC 772 considered the scope of an appeal under the FEMA Act under an appeal provision that is in pari materia to Section 10F of the Act. The 1 Hon'ble Supreme Court laid down the position as to the right to appeal, wherein it observes as under: 21.5

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19. The word "any" in this context would mean "all". We are of this opinion in view of the fact that this section confers a right of appeal on any person aggrieved. A right of appeal, it is well settled, is a creature of statute. It is never an inherent right, like that of filing a suit. A right of filing a suit, unless it is barred by statute, as it is barred here under Section 34 of FEMA, is an inherent right (See Section 9 of the Civil Procedure Code) but a right of appeal is always conferred by a statute. While conferring such right a statute may impose restrictions, like limitation or pre-deposit of penalty or it may limit the area of appeal to questions of law or sometime to substantial questions of law. Whenever such limitations are imposed, they are to be strictly followed. But in a case where there is no limitation on the nature of order or decision to be appealed against, as in this case, the right of appeal cannot be further curtailed by this Court on the basis of an interpretative exercise. 20. Under Section 35 of FEMA, the legislature has conferred a right of appeal to a person aggrieved from "any" "order or "decision" of the Appellate Tribunal. Of course such appeal will have to be on a question of law. In this context the word "any" would mean "all" Section 10F of the Act uses identical language and provides that "any person aggrieved by any decision or order of the Company Law Board made before the commencement of the Companies (Second Amendment) Act, 2002 may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order..." It is therefore clear that the ambit of Section 10F of the Act, by analogy, would include an appeal against any order, irrespective of its nature, so long as the test of a "question of law" being raised, is met. 5. In the circumstances, I hold that the impugned order is amenable to Appeal under Section 10F of the Act.”

21.2.8

Who can appeal?

The appeal can be filed by “any person aggrieved”. This word is used in numerous provisions dealing with appeal under various acts like SICA, Companies Act, 1956, RDDB Act1, the Telecom Regulatory Authority of India Act, 1997 and so on so forth.

1

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21.2.8.1

Appeals, reviews and writs

Dictionary meaning of “person aggrieved”

The 9 Edition of Black’s Law Dictionary defines the term “aggrieved party” as follows: th

“A party entitled to remedy; esp, a party whose personal, pecuniary or property rights have been adversely affected by another person’s actions or by a court’s decree or judgment.”

21.2.8.2

Case laws on “person aggrieved”

Adi Pherozshah Gandhi v H.M. Seervai, Advocate General of Maharashtra, Bombay [MANU/SC/0044/1970, AIR1971SC385, (1970)2SCC484, [1971]1SCR863 is a landmark case and is cited in several decisions for analysing the interpretation of the term “person aggrieved”: “7. The expression a 'person aggrieved' is not new, nor has it occurred for the first time in the Advocates Act. In fact it occurs in several Indian Acts and in British Statutes for more than a hundred years. In the latter a right of appeal to a 'person aggrieved' is conferred in diverse contexts. It occurs in the Ale House Act, the Bankruptcy Acts, Copyright Act, Highway Act, Licensing Acts, Milk and Dairies (Amendment) Act, Rating and Valuation Act, Summary Jurisdiction Act, Union Committee Act, Local Acts, in certiorari proceedings and the Defence of Realm Regulations to mention only a few. The list of Indian Acts is equally long. 8. As a result of the frequent use of this rather vague phrase, which practice, as Lord Parker pointed out in Baling Corporation v Jones L.R. [1959] 1 Q.B.D. 384, has not been avoided, in spite of the confusion it causes, selections from the observations of judges expounding the phrase in the context of these varied statutes were cited before us for our acceptance. The observations often conflict since they were made in different contexts and involved the special standing of the party claiming the right of appeal. Yet these definitions are not entirely without value for they disclose a certain unanimity on the essential features of this phrase, even in the diversity of the contexts. The font and origin of the discussion is the well-known definition of the phrase by James L.J. in In Re Side-hotham Ex. J. Sidebotham (1880) 14 Ch. D. 458 C.A. It was observed that the words 'person aggrieved' in Section 71 of the Bankruptcy Act of 1869 meant: not really a person who is disappointed of a benefit which he might have received, if some order had been made. A 'person aggrieved' must be a man who had suffered a legal grievous, a man against whom a decision has been pronounced which had wrongfully deprived him of something or wrongfully refused him something or wrongfully affected his title to something.

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The important words in this definition are 'a benefit which he might have received' and 'a legal grievance' against the decision which 'wrongfully deprives him of something' or affects 'his title to something'. 9. The definition was held in later cases to be not exhaustive and several other features of the phrase were pointed out. Thus under the Bankruptcy Acts, where the Board of Trade summoned to support the validity of the appointment of a trustee, went before the judge, and failed, it was considered a 'person aggrieved' on the principle that a person who is brought before the Court to submit to its decision, but not a person who is heard in a dispute between others must be treated as a 'person aggrieved' (see In Re Lamb Ex., p. Board of Traded [1894] 2 Q. B. D. 805 per Lord Esher). Here again the words to notice are 'brought before the court to submit to its decision', that is to say, a person who is in the nature of a party as contra-distinguished from a person who is next described as 'a person who is heard in a dispute between others.' To distinguish between these two positions I may refer to a few more decisions. In Re Kitson, Ex. p. Sugden (Thomas) and Sons Ltd. [1911] 2 K. B. 109, it was further explained that the mere fact that an order is wrongly made does not of itself give a grievance to a person not otherwise aggrieved. (per Phiilimore J.) It was added that a person deprived of the fruits of litigation which he had instituted in the hope for them, is a 'person aggrieved'. Similarly, a creditor who did not wish an 'adjudication order to be made was held not to be a 'person aggrieved'--See In Re Brown Ex. p. Debtor v. Official Receiver [1943] Ch. D. D. 177. The utmost that this series of cases goes is to be found in the observations of James L.J. in Ellis Ex. p. Ellis [1876] 2 Ch. D. 797 that even a person not bound by the order of adjudication must be treated as a 'person aggrieved' if the order embarrasses him. In a later case (In Re Woods Ex. P. Ditton [1879] 40 L. T. 297 C.A. 79 Cotton L.J. held that even so the person must be aggrieved by the very order and not by any of the consequences that ensue. This was clarified in R. v London County Keepers of the Peace and Justices [1890] 20 Q. B. D. 357, by Lord Coleridge C.J. while dealing with the Highway Act, denying the right of appeal in these words: “Is a person who cannot succeed in getting a conviction against another a 'person aggrieved'? He may be annoyed at finding that what he thought was a breach of the law is not a breach of law; but is he aggrieved because some one is held not to have done wrong? It is difficult to see that the section meant anything of the kind. The section does not give an appeal to anybody but a person who is by the direct act of the Magistrate 'aggrieved'--that is who has had something done or determined against him by the Magistrate. 21.8

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These observations again show that the person must himself suffer a grievance, or must be aggrieved by the very order because it affects him. 10. Two cases which may usefully be seen in the same context may next be mentioned. In Jennings v. Kelly [174] A. C. 206 in relation to the Government of Ireland Act 1920, Lord Wright did say that if a person was treated in certiorari proceedings as a competent party and notice was served on him as being a proper party he would be a 'person aggrieved.' The point to bear in mind is that the person must be treated as a party. However the force of the observation was considerably weakened because the party there was ordered to pay costs and the right of appeal was held to be available on. that limited ground. Further qualification is to be found in In Re Riviere (1884) 26 Ch. D. 48 where Lord Sel-borne observed: ... It must be a legal grievance; it must not be a stet pro ratione voluntas; the applicant must not come merely saying do not like this thing to be done', it must be shown that it tends to his injury, or to his damage, in the legal sense of the word. The locus standi of the person aggrieved must be found from his position in the first proceeding and his grievance must arise from that standing taken with the effect of the order on him. 11. These cases are of course far removed from the one before me and as Branwell L.J. observed in Robinycn v. Currey [1881] 7 Q. B. D. 465. the expression is nowhere defined and, thereby, must be construed by reference to the context of the enactment in which it appears and all the circumstances. He pointed out that 'the words are ordinarily English words, which are to have the ordinary meaning put upon them.' 12. From these cases it is apparent that any person who feels disappointed with the result of the case is not a 'person aggrieved.' He must be disappointed of a benefit which he would have received if the order had gone the other way. The order must cause him a legal grievance by wrongfully depriving him of something. It is no doubt a legal grievance and not a grievance about material matters but his legal grievance must be a tendency to injure him. That the order is wrong or that it acquits some one who he thinks ought to be convicted does not by itself give rise to a legal grievance. These principles are gathered from the cases cited and do not, as I shall show later, do violence to the context in which the phrase occurs in the Advocates Act. Although I am aware that in Seven Oaks Urban District Council v. Twynham [1929] 2 K. B. 440 Lord Hewart C.J. uttered words of caution, again emphasised by Lord Parker C.J. in Baling Corporation v. Jones L. R. [1959] 1 Q. B. D. 384, in applying too readily the definitions given in relation to other

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statutes but I do not think I am going beyond what Lord Hewart C.J. said and what Lord Parker C.J. did in the case. Lord Parker observed: ... As Lord Hewart C.J. pointed out in Seven Oaks Urban District Council v. Twynam : 'But as has been said again and again there is often little utility in seeking to interpret particular expressions in one statute by reference to decisions given upon similar expressions in different statutes which have been enacted alio in-tuitu. The problem with which we are concerned is not, what is the meaning of the expression 'aggrieved' in any one of a dozen other statutes, but what is its meaning in this part of this statute?' Accordingly, T only look at the cases to which we have been referred to see if there are general principles which can be extracted which will guide the court in approaching the question as to what the words 'person aggrieved' mean in any particular statute. If I may say respectfully I fully endorse this approach.” The case of Kailash Singh v State of U.P. and Ors. [MANU/UP/1196/2015], further affirmed the aforesaid decision while elucidating the concept further: “9. “… A legal right is an averment of entitlement arising out of law. In fact, it is a benefit conferred upon a person by the rule of law. Thus, a person who suffers from legal injury can only challenge the act or omission. There may be some harm or loss that may not be wrongful in the eyes of law because it may not result in injury to a legal right or legally protected interest of the complainant but juridically harm of this description is called damnum sine injuria. 59. The complainant has to establish that he has been deprived of or denied of a legal right and he has sustained injury to any legally protected interest. In case he has no legal peg for a justiciable claim to hang on, he cannot be heard as a party in a lis. A fanciful or sentimental grievance may not be sufficient to confer a locus standi to sue upon the individual. There must be injuria or a legal grievance which can be appreciated and not a stat pro ratione valuntas reasons i.e. a claim devoid of reasons. 60. Under the garb of being necessary party, a person cannot be permitted to make a case as that of general public interest. A person having a remote interest cannot be permitted to become a party in the lis, as the person wants to become a party in a case, has to establish that he has a proprietary right which has been or is threatened to be violated, for the reason that a legal injury creates a remedial right in the injured person. A person cannot be heard as a party unless he answers the description of aggrieved party. (Vide: Adi Pherozshah Gandhi v. H.M. Seervai, Advocate General of Maharashtra, MANU/SC/0044/1970 : AIR 1971 SC 385; Jasbhai Motibhai Desai v. Roshan Kumar, Haji Bashir Ahmed & Ors.,MANU/SC/0011/1975 : AIR 1976 SC 578; Maharaj Singh 21.10

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v. State of Uttar Pradesh & Ors., MANU/SC/0361/1976 : AIR 1976 SC 2602; Ghulam Qadir v. Special Tribunal & Ors., MANU/SC/0608/2001 : (2002) 1 SCC 33; and Kabushiki Kaisha Toshiba v. Tosiba Appliances Company & Ors.,MANU/SC/2223/2008 : (2008) 10 SCC 766). The High Court failed to appreciate that it was a case of political rivalry. The case of the appellant has not been considered in correct perspective at all." … 10. A "legal right", means an entitlement arising out of legal rules. Thus, it may be defined as an advantage, or a benefit conferred upon a person by the rule of law. The expression, "person aggrieved" does not include a person who suffers from a psychological or an imaginary injury; a person aggrieved must therefore, necessarily be one, whose right or interest has been adversely affected or jeopardised. (Vide: Shanti Kumar R. Chanji v Home Insurance Co. of New York, MANU/SC/0017/1974MANU/SC/0017/1974: AIR 1974 SC 1719; and State of Rajasthan & Ors. v Union of India & Ors., MANU/SC/0370/1977MANU/SC/0370/1977 : AIR 1977 SC 1361)…"

21.2.8.3

Analysis of the term “person aggrieved” under Companies Act, 2013

The concept of aggrieved person remains the same in the new Act. The Act not only confers the right to appeal only to a person who is a party to the appeal but also extends it to a wider set of people who may be aggrieved by the order. Under the new Act, Tribunal has wide powers to pass an order and it is possible that the order passed affects persons other than the parties in the proceedings. Some of situations where the term “person aggrieved” will be required to be more broadly interpreted are as follows:

Impact of new remedies For instance, in a class action, the decision taken is binding on all shareholders. Thus, every shareholder will have a right to appeal against such decision as he otherwise has to accept the decision taken in the class action. Impact due to nature and effect of Tribunal’s orders Similarly, the scheme devised by the Tribunal in case of revival and rehabilitation is binding on all the stakeholders of the company. Thus, a wider number of people may feel aggrieved by the decision and may challenge the decision. Impact of new powers Tribunal has wide powers with respect to many remedies. For instance, in a single cause of action, say for mismanagement discovered in a class action, the Tribunal can take an action against the director directing him to pay compensation; consultants for being accessory to the fraudulent actions; may direct auditors to pay 21.11

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compensation for failure to notify the fraud. Thus, as the orders can be passed against a wider set of people, these people can also challenge the order if they are aggrieved by the order, though they may not have been party to the original matters.

21.2.9

Time period for filing an appeal

An appeal against an order of NCLT can be challenged by a person aggrieved within a period of 45 days. If a person is not able to file an appeal within a period of 45 days, then he can file the appeal within an additional period of 45 days on sufficient cause being shown by the aggrieved person. If the appeal is not filed within this period, the aggrieved person loses the right to appeal. Limitation Act is applicable to the Companies Act, 2013 to the extent it is not inconsistent to the Act (this aspect is discussed in detail in the Chapter-23 dealing with Limitation). Thus, sec 5 of the Limitation Act which allows the Tribunal to extent time on sufficient cause being shown has limited applicability. The condonation of delay that can be granted by the Appellate Tribunal on sufficient cause being show is limited to 45 days and no Appellate Tribunal has power to grant any further time. Part III of the Limitation Act provides for the calculation of the period of limitation for filing the appeal. (Part III is discussed in the Chapte-23 dealing with Limitation) If Part III does not consider a particular time period in the calculation, the same shall be excluded. For instance, Part III does not consider the time required for obtaining a certified copy of the order for the purpose of calculation. Thus, the time required for the person to apply and obtain an order or till the time a copy of sent to the party. Such time will be excluded from the period of 45 days and 90 days, as the case may be. The Apex Court has held that the time period for filing appeal cannot go beyond 90 days In Bengal Chemists & Druggists Assn. v Kalyan Chowdhury (SC- Civil Appeal No. 684 of 2018): Facts: The present appeal was against an order of the National Company Law Appellate Tribunal dated 31.07.2017 by which the Appellate Tribunal, after setting out sec 421(3) of the Companies Act, 2013, (for short 'the Act') has dismissed the appeal as not maintainable, inasmuch as the appeal has been filed 9 days after the period of limitation of 45 days has expired and a further period of another 45 days has also expired. Held: The relevant extract of the order is set out below: “A cursory reading of Section 421(3) makes 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. Section 433 obviously cannot come to the aid of the appellant because the provisions of the Limitation Act only apply “as far as may be”. In a case like the present, where there is a special provision contained in Section 421(3) proviso, Section 5 of 21.12

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the Limitation Act obviously cannot apply. Another very important aspect of the case is 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. According to us, this is a peremptory provision, which will otherwise be rendered completely ineffective, if we were to accept the argument of learned counsel for the appellant. If we were to accept such argument, it would mean that notwithstanding that the further period of 45 days had elapsed, the Appellate Tribunal may, if the facts so warrant, condone the delay. This would be to render otiose the second time limit of 45 days, which, as has been pointed out by us above, is peremptory in nature. 6) We are fortified in this conclusion by the judgment of this Court in Chhattisgarh SEB v. Central Electricity Regulatory Commission, 2010 (5) SCC 23. The language of Section 125 of the Electricity Act, 2003, which is similar to the language contained in Section 421 (3) of the Companies Act, 2013, came up for consideration in the aforesaid decision. The issue that arose before this Court was whether Section 5 of the Limitation Act can be invoked for allowing the aggrieved person to file an appeal beyond 60 days plus the further grace period of 60 days. 5 This Court held that Section 5 cannot apply to Section 125 of the Electricity Act in the following terms: “25. Section 125 lays down that any person aggrieved by any decision or order of the Tribunal can file an appeal to this Court within 60 days from the date of communication of the decision or order of the Tribunal. Proviso to Section 125 empowers this Court to entertain an appeal filed within a further period of 60 days if it is satisfied that there was sufficient cause for not filing appeal within the initial period of 60 days. This shows that the period of limitation prescribed for filing appeals under Sections 111(2) and 125 is substantially different from the period prescribed under the Limitation Act for filing suits, etc. The use of the expression “within a further period not exceeding 60 days” in the proviso to Section 125 makes it clear that the outer limit for filing an appeal is 120 days. There is no provision in the Act under which this Court can entertain an appeal filed against the decision or order of the Tribunal after more than 120 days.” The aforesaid judgment was reiterated and followed in ONGC v. Gujarat Energy Transmission Corporation Limited, 2017 (5) SCC 42 at Para 5. 6 7) … the language of the proviso to Section 421(3) which contains mandatory or peremptory negative language and speaks of a second period not exceeding 45 days, which would have the same effect as the expression “but not thereafter” used in Section 34(3) proviso of the Arbitration Act, 1996.”

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21.2.10 Sufficient cause The test of what constitutes a sufficient cause has been clearly laid in several Supreme Court cases. Some of which have been provided below:

21.2.10.1 Test laid down to determine sufficient cause The Supreme Court in the case of Esha Bhattacharjee v Managing Committee of Raghunathpur Nafar Academy & Ors., [MANU/SC/0932/2013, 2013 AIR SCW 6158] relying on various earlier decisions has culled out the principles which are required to be looked into at the time of considering a petition for condonation of delay. It was held that: "15. From the aforesaid authorities the principles that can broadly be culled out are: There should be a liberal, pragmatic, justice-oriented, non-pedantic approach while dealing with an application for condonation of delay, for the courts are not supposed to legalise injustice but are obliged to remove injustice. The terms "sufficient cause" should be understood in their proper spirit, philosophy and purpose regard being had to the fact that these terms are basically elastic and are to be applied in proper perspective to the obtaining fact-situation. Substantial justice being paramount and pivotal the technical considerations should not be given undue and uncalled for emphasis. No presumption can be attached to deliberate causation of delay but, gross negligence on the part of the counsel or litigant is to be taken note of. Lack of bona fides imputable to a party seeking condonation of delay is a significant and relevant fact. It is to be kept in mind that adherence to strict proof should not affect public justice and cause public mischief because the courts are required to be vigilant so that in the ultimate eventuate there is no real failure of justice. The concept of liberal approach has to encapsule the conception of reasonableness and it cannot be allowed a totally unfettered free play. There is a distinction between inordinate delay and a delay of short duration or few days, for to the former doctrine of prejudice is attracted whereas to the latter it may not be attracted. That apart, the first one warrants strict approach whereas the second calls for a liberal delineation.

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The conduct, behaviour and attitude of a party relating to its inaction or negligence are relevant factors to be taken into consideration. It is so as the fundamental principle is that the courts are required to weigh the scale of balance of justice in respect of both parties and the said principle cannot be given a total go by in the name of liberal approach. If the explanation offered is concocted or the grounds urged in the application are fanciful, the courts should be vigilant not to expose the other side unnecessarily to face such a litigation. It is to be borne in mind that no one gets away with fraud, misrepresentation or interpolation by taking recourse to the technicalities of law of limitation. The entire gamut of facts are to be carefully scrutinized and the approach should be based on the paradigm of judicial discretion which is founded on objective reasoning and not on individual perception. The State or a public body or an entity representing a collective cause should be given some acceptable latitude.” In Manoharan v Sivarajan & Ors. [MANU/SC/1192/2013, (2014) 4 SCC 163], the Apex Court while considering the issue of condonation of delay has quoted the observation of the Apex Court in various earlier judgments and condoned the delay in filing the appeal before the High Court. In para 8 and 17 the Court has observed that"8. In State of Bihar v. Kameshwar Prasad Singh MANU/SC/ 0358/2000MANU/SC/0358/2000 : (2000) 9 SCC 94, it was held that power to condone the delay in approaching the Court has been conferred upon the Courts to enable them to do substantial justice to parties by disposing the cases on merit. The relevant paragraphs of the case read as under: (SCC pp.102-104, paras 11-13) 11. Power to condone the delay in approaching the Court has been conferred upon the Courts to enable them to do substantial justice to parties by disposing of matters on merits. This Court in Collector, (LA) v. Katiji MANU/SC/0460/1987MANU/SC/0460/1987 : (1987) 2 SCC 107 held that the expression 'sufficient cause' employed by the legislature in the Limitation Act is adequately elastic to enable the Courts to apply the law in a meaningful manner which subserves the ends of justice-that being the life-purpose for the existence of the institution of Courts. It was further observed that a liberal approach is adopted on principle as it is realised that: (SCC p.108, para 3) '1. Ordinarily a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As

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against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties. 3. 'Every day's delay must be explained' does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational common sense pragmatic manner. 4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. 5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk. 6. It must be grasped that judiciary is respected not on account of its power to legalise injustice on technical grounds but because it is capable of removing injustice and is expected to do so.' 12. After referring to the various judgments reported in New India Insurance Co. Ltd. v. Shanti Misra MANU/SC/0547/1975MANU/SC/0547/1975 : [1976] 2 SCR 266, Brij Inder Singh v. Kanshi Ram (1918) ILR 45 Cal 94, Shakuntala Devi Jain v. Kuntal Kumari [1969]1 SCR 1006, Concord of India Insurance Co. Ltd. v. Nirmala Devi MANU/SC/0384/1979MANU/SC/0384/1979 : [1979] 118 ITR 507 (SC), Lala Mata Din v. A. Narayanan MANU/SC/0621/1969MANU/SC/0621/1969 : [1970] 2 SCR 90, State of Kerala v. E.K. Kuriyipe 1981 (Supp) SCC 72, Milavi Devi v. Dina Nath (1982)3 SCC 366, O.P. Kathpalia v. Lakhmir Singh MANU/SC/0322/1984MANU/SC/0322/1984 : AIR (1984) 4 SCC 66, Collector, Land Acquisition v. Katiji MANU/SC/0460/1987MANU/SC/0460/1987 : (1987) 2 SCC 107, Prabha v. Ram Parkash Kalra 1987 Supp (1) SCC 399, G. Ramegowda, Major v. Sp. Land Acquisition Officer MANU/SC/0161/1988MANU/SC/0161/1988 : [1988] 3 SCR 198, Scheduled Caste Co-op. Land Owning Society Ltd. v. Union of India (199) 1 SCC 174, Binod Bihari Singh v. Union of India MANU/SC/0194/1993MANU/SC/0194/1993 : AIR 1993 SC 1245, Shakambari & Co. v. Union of India 1993 Supp (1) SCC 487, Ram Kishan v. U.P. SRTC 1994 Supp (2) SCC 507 and Warlu v. Gangotribai MANU/SC/0080/1994MANU/SC/0080/1994 : 1995 Supp (1) SCC 37, this Court in State of Haryana v. Chandra Mani MANU/SC/0426/1996MANU/SC/0426/1996 : 2002 (143) ELT 249 (SC) held: (SCC p.138, para 11) '11......The expression 'sufficient cause' should, therefore, be considered with pragmatism in justice-oriented process approach rather than the 21.16

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technical detection of sufficient cause for explaining every day's delay. The factors which are peculiar to and characteristic of the functioning of the governmental conditions would be cognizant to and requires adoption of pragmatic approach in justice-oriented process. The Court should decide the matters on merits unless the case is hopelessly without merit. No separate standards to determine the cause laid by the State visa-vis private litigant could be laid to prove strict standards of sufficient cause. The Government at appropriate level should constitute legal cells to examine the cases whether any legal principles are involved for decision by the Courts or whether cases require adjustment and should authorize the officers to take a decision or give appropriate permission for settlement. In the event of decision to file appeal needed prompt action should be pursued by the officer responsible to file the appeal and he should be made personally responsible for lapses, if any. Equally, the State cannot be put on the same footing as an individual. The individual would always be quick in taking the decision whether he would pursue the remedy by way of an appeal or application since he is a person legally injured while State is an impersonal machinery working through its officers or servants.' To the same effect is the judgment of this Court in Tehsildar (LA), v. K.V. Ayisumma MANU/SC/0694/1996MANU/SC/0694/1996 : AIR 1996 SC 2750. 13. In Nand Kishore v. State of Punjab MANU/SC/0831/1995 MANU/SC/0831/1995 : (1995)6 SCC 61 this Court under the peculiar circumstances of the case condoned the delay in approaching this Court of about 31 years. In N. Balakrishnan v. M. Krishnamurthy MANU/SC/0573/1998MANU/SC/0573/1998 : 2008(228) ELT 162 this Court held that the purpose of Limitation Act was not to destroy the rights. It is founded on public policy fixing a life span for the legal remedy for the general welfare. The primary function of a Court is to adjudicate disputes between the parties and to advance substantial justice. The time limit fixed for approaching the Court in different situations is not because on the expiry of such time a bad cause would transform into a good cause. The object of providing legal remedy is to repair the damage caused by reason of legal injury. If the explanation given does not smack mala fides or is not shown to have been put forth as a part of a dilatory strategy, the Court must show utmost consideration to the suitor. In this context it was observed in N. Balakrishnan v. M. Krishnamurthy MANU/SC/0573/1998MANU /SC/0573/1998 : 2008(228) ELT 162: (SCC p. 127, para 9) '9. It is axiomatic that condonation of delay is a matter of discretion of the Court. Section 5 of the Limitation Act does not say that such discretion can be exercised only if the delay is within a certain limit. 21.17

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Length of delay is no matter, acceptability of the explanation is the only criterion. Sometimes delay of the shortest range may be uncontainable due to a want of acceptable explanation whereas in certain other cases, delay of a very long range can be condoned as the explanation thereof is satisfactory. Once the Court accepts the explanation as sufficient, it is the result of positive exercise of discretion and normally the superior Court should not disturb such finding, much less in revisional jurisdiction, unless the exercise of discretion was on wholly untenable grounds or arbitrary or perverse. But it is a different matter when the first Court refuses to condone the delay. In such cases, the superior Court would be free to consider the cause shown for the delay afresh and it is open to such superior Court to come to its own finding even untrammelled by the conclusion of the lower Court.' 17. In view of the aforesaid reasons, the impugned judgment passed by the High Court is not sustainable and is liable to be set aside as per the principle laid down by this Court in as much the High Court erred in rejecting the application for condonation of delay filed by the appellant. We accordingly, condone the delay in filing the appeal in the High Court as well." In the case of Basawaraj & Anor v Spl. Land Acquisition officer AIR 2014 SC 746: (2013) 14 SCC 81, Civil Appeal No.6974 of 2013, the Supreme Court in Para 15 of the judgment has observed thus"15. The law on the issue can be summarised to the effect that where a case has been presented in the court beyond limitation, the applicant has to explain the court as to what was the "sufficient cause" which means an adequate and enough reason which prevented him to approach the court within limitation. In case a party is found to be negligent, or for want of bonafide on his part in the facts and circumstances of the case, or found to have not acted diligently or remained inactive, there cannot be a justified ground to condone the delay. No court could be justified in condoning such an inordinate delay by imposing any condition whatsoever. The application is to be decided only within the parameters laid down by this court in regard to the condonation of delay. In case there was no sufficient cause to prevent a litigant to approach the court on time condoning the delay without any justification, putting any condition whatsoever, amounts to passing an order in violation of the statutory provisions and it tantamounts to showing utter disregard to the legislature." In the case of Brijesh Kumar v State of Haryana & Ors., MANU/SC/0217/2014 : AIR 2014 SC 1612, the Supreme Court in Para 11has observed that"11. The courts should not adopt an injustice-oriented approach in rejecting the application for condonation of delay. However the court while allowing such application has to draw a distinction between delay 21.18

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and inordinate delay for want of bona fides of an inaction or negligence would deprive a party of the protection of Section 5 of the Limitation Act, 1963. Sufficient cause is a condition precedent for exercise of discretion by the Court for condoning the delay. This Court has time and again held that when mandatory provision is not complied with and that delay is not properly, satisfactorily and convincingly explained, the court cannot condone the delay on sympathetic grounds alone.”

21.2.11 Consent orders Consent orders are passed by the Tribunal where both parties agree to the terms. In many instances, both parties mutually settle the issues that are raised in the Tribunal and submit “consent terms” i.e. the terms on which they intend to settle the dispute that has arisen between the parties. The consent order passed by the Tribunal cannot be challenged as both parties have agreed to the said order. However, the courts in certain instances have allowed challenge to consent orders that are obtained fraudulently. The fraud can be practiced on the court (here Tribunal) or on the other party. In such cases, the consent order can be challenged as there is no real consent and such consent orders are obtained fraudulently. This bar with respect to filing of appeals against the judgments obtained by consent acts as an estoppel. A consent decree can be set aside only on the ground which would invalidate an agreement such as misrepresentation, fraud or mistake. This can only be done by a suit and a consent decree cannot be set aside by an appeal for review. In Sheikh Rahim Bux v Sheikh Muhammad Jamshed Ali [MANU/WB/0382/1953, (1955) ILR 1Cal25], it was held as follows: “5. There can be no doubt that the general rule is that the inherent power of a court under Section 151 cannot be exercised when there is an alternative remedy. This principle is laid down in the case of J.C. Galstaun v. Pramatha Nath Roy (1929) I.L.R. 57 Cal. 154, and also in the case of Subodh Chandra Mukherjee v. Sudhir Kumar Basu (1949) 54 C.W.N. 106. But there is an exception to this general rule in cases where a consent order is sought to be set aside on the ground that the order was obtained by practising fraud upon the court. The reported decisions of this Court recognise a distinction between cases where a consent order is obtained by practising fraud upon the court and cases where a consent order is obtained by practising fraud upon a party to the suit. This distinction has been recognised by B.K. Mukherjea and Roxburgh, JJ. in the case of Suresh Chandra Sen v. Jogesh Chandra Sen (1939) 43 C.W.N. 969, 972. Mukherjea, J', observes as follows: A distinction is drawn between the factum of consent and its reality. It is stated that when an order is obtained from the Court on the allegation that the parties have assented to it and it is asserted by one party later on that he never gave his consent, it was open to the Court to investigate 21.19

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the matter and review its own order if it was satisfied that the party did not give his consent at all.. But when there is apparent consent given by a party to the suit and he impeaches the decree afterwards on the ground that his consent was obtained by fraud, in such cases the court has got no inherent jurisdiction to set aside the previous decree or order and the remedy of the party would be by way of a suit.” An appeal was held to be maintainable to challenge the jurisdiction of the CLB (now Tribunal) to pass consent orders. Prakash Timber P. Ltd. v. Sushma Shingla (Smt.). AIR 1995 All 320. The court cannot interfere in the terms of a consent order unless both parties give their consent for any modification. The CLB did not have the power of reviewing its own orders under the existing provisions of the Companies Act. Paulose (M.V.) v. City Hospital P. Ltd., (1998)15 SCL 49: (1998) 28 CLA 46 (CLB-N. Del). A dispute as to shareholding pattern was resolved by the CLB (now Tribunal) by consent order under agreement of the parties. There was no grievance as to the genuineness of consent. The order could not be interfered with in appeal. Subhash Mohan Dev v. Santosh Mohan Dev, 2000 CLC 1151: (2001) 104 Com Cases 404 (Gau).” The question of consent orders also came up in Cyrus Investment P Limited v Tata Sons Limited and Ors. [(2017) 203 Com Cas 14 (NCLAT)] where the Appellate Tribunal dealt with several issues and inter alia held that consent order cannot be appealed against.

21.2.12 Grounds of appeal The appeal before NCLAT can be filed on questions of law and questions of fact. Thus, the powers of Appellate Tribunal are wide and they deal with a wide range of issues arising out of questions of facts and questions of law. Under Companies Act, 1956, CLB was the final fact finding authority and only a question of law could be referred to the High Court under sec 10F. In the Companies Act, 2013, the factual aspect can be considered at two stages. The term “question of law” is defined in the 9th Edition of Black’s law dictionary as follows: “Question of Law: An issue to be decided by the judge, concerning the application or interpretation of the law (a jury cannot decide questions of law, which are reserved for the court). A question that law itself has authoritatively answered, so that the court may not answer it as a matter of discretion (the enforceability of an arbitration clause is the question of law).

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An issue about what the law is at particular, an issue in which parties argue about and the court must decide, what the true rule of law is (both parties appealed on the question of law). An issue that, although it may turn on a factual point, is reserved for the court and excluded from jury; an issue that is exclusively within the province of the judge and not the jury (whether a contractual ambiguity exists is question of law)- Also termed legal question, law question.” The term is defined by Ramanatha Aiyer in Law Lexicon as follows: ‘Question of law: The proper effect of proved fact is a question of law.’ “Question of facts” is explained in Black’s Law Dictionary as follows: “Question of Facts: An issue that has not been predetermined and authoritatively answered by the law An example is whether a criminal defendant is guilty of an offence or whether the contractor has delayed unreasonably in constructing a building. An issue that doesn’t involve what the law is on a given point. A disputed issue tom be resolved by the jury in a jury trial or by the judge in a bench trial An issue capable of being answered by way of demonstration, as opposed to a question of unverifiable opinion.”

21.3

APPEAL TO THE SUPREME COURT

Section 423 of the Companies Act, 2013 provides as follows: “423. Any person aggrieved by any order of the Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date of receipt of the order of the Appellate Tribunal to him on any question of law arising out of such order: Provided that the Supreme Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.”

21.3.1

Similar provisions in other Acts

Sections are couched in similar language in other Acts to provide for an appeal against decisions of authorities under the Act. Thus, for purpose of interpretation of the nature and scope of the terms used in this section and the scope of this appeal,

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the principles laid down even in the other Acts may be studied to determine their relevance.

21.3.1.1

The Electricity Act, 2003

Under the Electricity Act, 2003, sec 125 provides as follows: “Appeal to Supreme Court-Any person aggrieved by any decision or order of the Appellate Tribunal, may, file an appeal to the Supreme Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal to him, on any one or more of the grounds specified in sec 100 of the Code of Civil Procedure, 1908 (5 of 1908): Provided that the Supreme Court may, if it is satisfied that the Appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.”

21.3.1.2

The National Green Tribunal Act, 2010

Under the National Green Tribunal Act, 2010, sec 22 provides as follows: “Appeal to Supreme Court-Any person aggrieved by any award, decision or order of the tribunal, may, file an appeal to the Supreme Court, within ninety days from the date of communication of the award, decision or order of Tribunal, to him, on any one or more of the grounds specified in sec 100 of the Code of Civil Procedure, 1908 (5 of 1908) Provided that the Supreme Court may, entertain any appeal after the expiry of ninety days, if it is satisfied that the Appellant was prevented by sufficient cause from preferring the appeal.”

21.3.1.3

The Telecom Regulatory Authority of India Act, 1997

Under the Telecom Regulatory Authority of India Act, 1997, sec 18 provides as follows: “Appeal to Supreme Court-(1) Notwithstanding anything contained in the Code of Civil Procedure, 1908 (5 of 1908) or in any other law, an appeal shall lie against any order, not being an interlocutory order, of the Appellate Tribunal to the Supreme Court on one or more of the grounds specified in sec 100 of that code. (2) No appeal shall lie against any decision or order made by the Appellate Tribunal with the consent of the parties. (3) Every appeal under this section shall be preferred within a period of ninety days from the date of the decision or order appealed against:

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Provided that the Supreme Court may entertain the appeal after the expiry of the said period of ninety days, if it is satisfied that the Appellant was prevented by sufficient cause from preferring the appeal in time.”

21.3.1.4

The Securities and Exchange Board of India Act, 1992

Under the Securities and Exchange Board of India Act, 1992, sec 15Z provides as follows: “Appeal to Supreme Court.-Any person aggrieved by any decision or order of the Securities Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date of communication of the decision or order of the Securities Appellate Tribunal to him on any question of law arising out to such order: Provided that the Supreme Court may, if it is satisfied that the applicant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.”

21.3.1.5

The Companies Act, 1956

Under the Companies Act, 1956, sec 10GF provides as follows: “Section 10GF. Appeal to Supreme Court.-Any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising out of such decision or order: Provided that the Supreme Court may, if it is satisfied that the Appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.”

21.3.2

Terms used in the section

In case of appeal against the order of the Appellate Tribunal, the term “person aggrieved” and “order” will be interpreted in a manner similar to what has been discussed earlier in this chapter in case of appeal before the Appellate Tribunal.

21.3.3

Period of filing the appeal

The Appeal can be filed within a period of 60 days. The days shall be counted from the date of receipt of the order of the Appellate Tribunal. The said appeal can be filed within a further period of 60 days if sufficient cause is shown. However, after a period of 120 days, further delay cannot be condoned. In Sivakumar Spinning Mills Pvt., Ltd. v Shanmughavelayutham and Ors. [MANU/TN/3760/2009 : 2009 (6) CTC 847], it was held as follows: 21.23

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“10. In view of the above decision, and in view of the language used in Section 10F of the Companies Act 1956, this Court holds that an appeal against order of the Company Law Board has to be filed within a period of 60 days from the date of the communication of the decision or an order and beyond that period the appeal could be filed with a petition to condone the delay within another 60 days and not beyond that period. In view of the proviso under Section 10F of the Companies Act, it is not possible for the High Court to condone the delay of more than 60 days in preferring the appeal.”

21.3.4

Scope of appeal

Appeal on any ‘question of law’ arising out of an order of the Appellate Tribunal can be filed before the Supreme Court. The meaning of the term “question of law” has already been discussed hereinabove.

21.3.4.1

Difference between a “questions of law” and “questions of fact

Under the old Act (Companies Act, 1956), the order of CLB could be challenged before High Court only on questions of law. Under the new Act (Companies Act, 2013), only questions of law arising out of orders of NCLAT can be challenged before Supreme Court. Thus, with respect to appeals going to Supreme Court, it is imperative to understand the distinction between questions of law and questions of fact. In this regard, the case laws under the old Act provide for some useful guidelines. Case 1: Chand Mall Pincha v Hathi Mall Pincha (1999) 35 Com Cases 368 Held: An appeal cannot be allowed if two conclusions are possible and the lower court takes a plausible conclusion based on the finding of the case. Here, CLB provides a solution to the warring family members with respect to the shares of the company. The said order was within the four corners of sec 402 of the Companies Act, 1956. The High Court did not interfere with this factual solution of the problem adopted by the CLB. Case 2: Meenakshi Mills Co. Ltd. v CIT, AIR 1957 SC 49 Held: This case inter alia discussed and relied on the case laws where the tests for making a distinction between question of law and questions of fact was established. These observations again emphasise the distinction between inferences which are themselves questions of fact and inferences on mixed questions of law and fact. This question was the subject of further consideration by the Privy Council in – (1) Wali Mohammad v Mohammad Baksh MANU/PR/0230/1929 : 1930 (32) BOMLR 380;

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(2) Secretary of State for India in Council v Rameswaram Devasthanam MANU/PR/0121/1934, (1934) 3 AWR 713, 38CWN533, (1934)ILR 57PR652, 1934-39-LW613, 61M.I.A.163; (3) Lakshmidhar Misra v Rangalal MANU/PR/0121/1934; In Wali Mohammad v Mohammad Baksh MANU/PR/0054/1949 : AIR 1950 PC 56, Sir Benod Mitter exhaustively reviewed the authorities on the questions and stated the law in the following terms: "No doubt questions of law and fact are often difficult to disentangle, but the following propositions are clearly established: (1) There is no jurisdiction to entertain a second appeal on the ground of erroneous finding of facts, however gross the error may seem to be. (See Musumat Durga Choudrain v Jawahir Singh Choudhri(1)). (2) The proper legal effect of a proved fact is essentially a question of law, but the question whether a fact has been proved when evidence for and against has been properly admitted is necessarily a pure question of fact. (Nafar v Shukur (2)). (3) Where the question to be decided is one of fact, it does not involve an issue of law merely because documents which were not instruments of title or otherwise the direct foundation of rights but were really historical matters, have to be construed for the purpose of deciding the question. (See Midnapur Zamindary Co. v Uma Charan Mandal (3)). (4) A second appeal would not lie because some portion of the evidence might be contained in a document or documents and the first appellate court had made a mistake as to its meaning. (See Nowbutt Singh v Chutter Dharee Singh (4)). Great reliance was placed by the appellants counsel on Dhanna Mal v. Moti Sagar (5) but there, the tenancy was admitted and the question was whether it was permanent or not, and the solution of it depended upon what was the legal inference to be drawn from proved facts, or in other words, the question was what was the legal effect of proved facts". It was further held that finding of a fact without any evidence to support it or if it is otherwise perverse, is a question of law. A decision as to the legal effect of a finding of fact is a question of law. The interpretation of a statute or document is a question of law. Case 3: Bachan Singh v Dhian Das, AIR 1974 SC 708 Held: The Court observed that if it can be shown that the lower court has disregarded a material piece of evidence or the court misdirected itself in dealing with evidence, or has based the finding where there is no evidence to support the finding, or the finding is supported by irrelevant evidence, or where is evidence

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which is not considered, in such event the High Court can intervene even if appeal is allowed only on questions of law. Case 4: Privy Council in Nafar Chandra Pal v Shukur (1918) 45 IA 183 at 187 Held: It was held as follows: “Questions of law and of fact are sometimes difficult to disentangle. The proper legal effect of a proved fact is necessarily a question of law, so also the question of admissibility of evidence and the question whether any evidence has been offered, on one side or the other; but the question whether the fact has been proved, when evidence for and against has been properly admitted, is necessarily a pure question of fact.” Case 5: CIT v Scindia Steam Navigation Co. Ltd. AIR 1961 SC 1633 : MANU/SC/0194/1961 : [1961]42 ITR 589 (SC) Held: “(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order. (2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order. (3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order. (4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it.”

21.4

POWER TO REVIEW

In the Act, there is no specific power given to review except in few select instances as provided in certain cases viz. review of a sanctioned scheme of revival and rehabilitation under sec 262(6) and review of orders passed in winding up on receipt of report of Company Liquidator under sec 288. In APC Credit rating P Limited v Registrar of Companies, NCT of Delhi and Haryana, [(2017) 205 Com Cas 492 (NCLAT)] the NCLAT held that Tribunal has no general power to review its own judgement. Section 420(2) [which deals with rectification of apparent errors] or rule 11 of NCLT Rules [which deals with inherent power of NCLT] cannot be used by NCLT to review its own orders. However, under sec 424 of the Act, the central government is empowered to specify the powers of civil courts that are vested in Tribunal.

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21.5

WRIT JURISDICTION Background The Constitution of India confers on its people, the right to approach the High Court under Art. 226 and Art. 227 and the Supreme Court under Art. 32 by way of a writ petition if the rights of a person are infringed. The High Court can be approached for infringement of any right of a person and the scope of Art. 226 and Art. 227 are much wider than Art. 32 where the Supreme Court can be approached only for violation of fundamental rights. Art. 227 is in the nature of supervisory jurisdiction over lower courts and tribunals. Writ remedy is not barred by the Companies Act, 2013 and is available if the Tribunal acts in violation of natural justice and if it exercises improper jurisdiction. However, the Court are slow in exercising this remedy where there is an alternate remedy available. The case laws where the Courts have analysed the law in this regards is set out below: In Manibhai Hathibhai Patel v C.W.E. Arbuthnot [MANU/MH/0123/1946 : AIR 1947 Bom 413 : 1947(49) BOMLR 454], it was observed as follows: “Rex v. North: Oakey, Ex parte [1927] 1 K.B. 491 . To the same effect are also the observations in Note (r) at page 822 of Halsbury's Laws of England, Vol. IX, where it is stated: The fact of there being a remedy by way of appeal is no answer to a writ of prohibition, where the want of jurisdiction complained of is based upon the breach of a fundamental principle of justice. But unless the error involves the doing of something which is contrary to the general law of the land, or is so vicious as to violate some fundamental principle of justice, the Court will not, it seems, grant a writ of prohibition, if the applicant has an alternative remedy by way of appeal. On principle there is no difference between a writ of certiorari and a writ of prohibition, and these observations hold equally good in the case of a writ of certiorari as in the case of a writ of prohibition. Mr. Banaji for the petitioners did not contest these propositions, but relied upon the passage in Halsbury's Laws of England, Hailsham Edition, Vol. IX, at p. 822: The Court, in deciding whether or not to grant a writ of prohibition, will not be fettered by the fact that an alternative remedy exists to correct the absence or excess of jurisdiction, or an appeal lies against such absence or excess. He contended that these were immaterial objections to the issue of a writ and the Court had jurisdiction nonetheless to issue a writ of certiorari or prohibition if the facts of the particular case warranted the issue of such a writ.”

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Again, in Bangalore Turf Club Ltd. v Union of India [MANU/KA/3515/2014 : 2015 (2) AKR 82 : (2015) 277 CTR (Kar) 221 : ILR 2015 KARNATAKA 1825 : [2015] 228 TAXMAN 234 (Kar)], past cases laws on exercise of writ jurisdiction when alternate remedy is available were discussed, as follows: “As such it is contended that assessment orders are liable to be quashed in writ jurisdiction by this court and availability of alternate remedy of appeal in the background of factual aspects would not bar the petitioner to approach this Court invoking exercise of extraordinary jurisdiction. In support of his submission he has relied upon the following Judgments: "(1) Baburam Prakash Chandra Maheshwari v Antarim Zila Parishad MANU/SC/0399/1968 : AIR 1969 SC 556 (2) Whirlpool Corporation v Registrar of Trade Marks MANU/SC/0664/1998 : [l998] 8 SCC 1 (3) Harbanslal Sahnia v Indian Oil Corpn. Ltd. MANU/SC/1199/2002 : [2003] 2 SCC 107 (4) State of H.P. v Gujarat Ambuja Cement Ltd. MANU/SC/0421/2005 : [2005] 6 SCC 499" ….19. It is well settled law that when an alternate or efficacious remedy is available to a litigant same should be exhausted before invoking the extraordinary jurisdiction and when such jurisdiction is invoked the existence of adequate alternate remedy will be taken note of before issuing writ or exercising the extraordinary jurisdiction. Where such alternate remedy is available it would be normal to refrain from exercising extraordinary jurisdiction unless there are good grounds thereof. However, writ Courts would not lose sight of the fact that a writ in the nature of certiorari will issue, provided the requisite grounds exist and mere existence of alternate remedy would not per se act as a barrier to the issuance of such writs. The exercise of extraordinary jurisdiction by the writ Court would depend upon variety of individual facts which is pre-eminently one of discretion. No inflexible rule can be laid down or in other words there cannot be any straight jacket formula in this regard. 20. The Hon'ble Apex Court in Babu Ram Prakash Chandra Maheshwari's case (supra) has held that existence of alternate remedy would not bar filing of the writ petition where it is alleged that the authorities had acted under the provisions of law which are ultra vires or where it is alleged that authorities is acted in violation of principles of natural justice or exercise of jurisdiction is one without authority of Law. It has been held in the said judgment as under: "3. It is a well-established proposition of law that when an alternative and equally efficacious remedy is open to a litigant he should be required to pursue that remedy and not to invoke the special jurisdiction 21.28

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of the High Court to issue a prerogative writ. It is true that the existence of a statutory remedy does not affect the jurisdiction of the High Court to issue a writ. But, as observed by this Court in Rashid Ahmed v. Municipal Board, Kairana, MANU/SC/0005/1950 : 1950 SCR 566 : (AIR 1950 SC 163), "the existence of an adequate legal remedy is a thing to be taken into consideration in the matter of granting writs" and where such a remedy exists it will be a sound exercise of discretion to refuse to interfere in a writ petition unless there are good grounds therefor. But it should be remembered that the rule of exhaustion of statutory remedies before a writ is granted is a rule of self-imposed limitation, a rule of policy, and discretion rather than a rule of law and the Court may therefore in exceptional cases issue a writ such as a writ of certiorari notwithstanding the fact that the statutory remedies have not been exhausted. In The State of Uttar Pradesh v. Mohammad Nooh, MANU/SC/0125/1957 : 1958 SCR 595,605 : (AIR 1958 SC 86,93), S.R. Das, C.J., speaking for the Court, observed: "In the next place it must be borne in mind that there is no rule, with regard to certiorari as there is with mandamus, that it will lie only where there is no other equally effective remedy. It is well established that, provided the requisite grounds exist, certiorari will lie although a right of appeal has been conferred by statute. (Halsbury's Laws of England, 3rd Ed., Vol. n, p. 130 and the cases cited there). The fact that the aggrieved party has another and adequate remedy may be taken into consideration by the superior court in arriving at a conclusion as to whether it should, in exercise of its discretion, issue a writ of certiorari to quash the proceedings and decisions of inferior Courts subordinate to it and ordinarily the Superior Court will decline to interfere until the aggrieved party has exhausted his other statutory remedies, if any. But this rule requiring the exhaustion of statutory remedies before the writ will be granted is a rule of policy, convenience and discretion rather than a rule of law and instances are numerous where a writ of certiorari has been issued in spite of the fact that the aggrieved party had other adequate legal remedies. In the King v. Postmaster-General Ex parte Carmichael [1928 (1) KB 291] a certiorari was issued although the aggrieved party had an alternative remedy by way of appeal. It has been held that the superior court will readily issue a certiorari in a case where there has been a denial of natural justice before a Court of summary jurisdiction. The case of Rex v. Wandsworth Justices Ex parte Read, 1942(1)KB 281 is an authority in point. In that case a man had been convicted in a Court of summary jurisdiction without giving him an opportunity of being heard. It was held that his remedy was not by a case stated or by an appeal before the quarter sessions but by application to

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the High Court for an order of certiorari to remove and quash the conviction." There are at least two well-recognised exceptions to the doctrine with regard to the exhaustion of statutory remedies. In the first place, it is well-settled that where proceedings are taken before a Tribunal under a provision of law, which is ultra vires, it is open to a party aggrieved thereby to move the High Court under Article 226 for issuing appropriate writs for quashing them on the ground that they are incompetent, without his being obliged to wait until those proceedings run their full course. -(See the decisions of this Court in Carl Still G.m.b.H. v. State of Bihar MANU/SC/0309/1961 : AIR 1961 SC 1615 and Bengal Immunity Co. Ltd. v. State of Bihar, MANU/SC/0083/1955 : [1955] 2 SCR 603 : (AIR 1955 SC 661). In the second place, the doctrine has no application in a case where the impugned order has been made in violation of the principles of natural justice. (See MANU/SC/0125/1957 : 1958 SCR 595, 605 : (AIR 1958 SC 86, 93)'. 21. The Hon'ble Apex Court in the case of Whirlpool Corporation (supra) while examining the maintainability of writ petition against a show cause notice has held that availability of alternate remedy would not operate as a bar to invoke the extraordinary jurisdiction at least in three contingencies namely, where writ petition has been filed for enforcement of fundamental rights or where there has been violation of principles of natural justice or where the order or proceedings is wholly without jurisdiction or the vires of an Act is challenged. It has been held as under: "14. The power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for "any other purpose". 15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without 21.30

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jurisdiction or the vires of an Act is challenged. There is a plethora of case-law on this point but to cut down this circle of forensic whirlpool, we would rely on some old decisions of the evolutionary era of the constitutional law as they still hold the field." 22. Yet again the Hon'ble Apex Court in Harbanslal Sahnia (supra) has held that rule of exclusion of writ jurisdiction on account of availability of alternate remedy is of discretion and not of compulsion and has laid down the broad contours under which the High Courts would exercise its writ jurisdiction in spite of availability of alternate remedy. 23. The above principles have been reiterated by Hon'ble Apex Court in the case of Gujarat Ambuja Cement Ltd. {supra). It came to be held as under: "17. Stand of the respondents on the other issues was to the effect that the submissions of the appellants do not carry any weight and have been made overlooking the factual and legal position. The submissions completely overlook the essence of the notifications and are based on misreading them. 18. We shall first deal with the plea regarding alternative remedy as raised by the appellant-State. Except for a period when article 226 was amended by the Constitution (42nd Amendment) Act, 1976, the power relating to alternative remedy has been considered to be a rule of selfimposed limitation. It is essentially a rule of policy, convenience and discretion and never a rule of law. Despite the existence of an alternative remedy it is within the jurisdiction of Constitution. At the same time, it cannot be lost sight of that though the matter relating to an alternative remedy has nothing to do with the jurisdiction of the case, normally the High Court should not interfere if there is an adequate efficacious alternative remedy. If somebody approaches the High Court without availing the alternative remedy provided the High Court should ensure that he has made out a strong case or that there exist good grounds to invoke the extraordinary jurisdiction. 19. Constitution Benches of this Court in K.S. Rashid and Son v. Incometax Investigation Commission MANU/SC/0123/1954 : AIR 1954 SC 207, Sangram Singh v. Election Tribunal, Kotah MANU/SC/0044/1955 : AIR 1955 SC 425, Union of India v. T.R. Varma MANU/SC/0121/1957 : AIR 1957 SC 882, State of U.P v. Mohammad Nooh MANU/SC/0125/1957 : AIR 1958 SC 86 and K.S. Venkataraman and Co. (P) Ltd., v. State of Madras MANU/SC/0293/1965 : AIR 1966 SC 1089, held that article 226 of the Constitution confers on all the High Courts a very wide power in the matter of issuing writs. However, the remedy of writ is an absolutely discretionary remedy and the High Court has always the discretion to refuse to grant any writ if it is satisfied that the aggrieved party can have 21.31

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an adequate or suitable relief elsewhere. The Court, in extraordinary circumstances, may exercise the power if it comes to the conclusion that there has been a breach of principles of natural justice or procedure required for decision has not been adopted. 20. Another Constitution Bench of this Court in State of Madhya Pradesh v. Bhailal Bhai etc. etc., MANU/SC/0029/1964 : AIR (1964) SC 1006, held that the remedy provided in a writ jurisdiction is not intended to supersede completely the modes of obtaining relief by an action in a civil court or to deny defence legitimately open in such actions. The power to give relief under Article 226 of the Constitution is a discretionary power. Similar view has been re-iterated xxx in MANU/SC/1053/2002 : [2003] 1 SCC 72. 21. In Harbanslal Sahnia v. Indian Oil Corporation Ltd. MANU/SC/1199/2002 : [2003] 2 SCC 107, this Court held that the rule of exclusion of writ jurisdiction by availability of alternative remedy is a rule of discretion and not one of compulsion and the court must consider the pros and cons of the case and then may interfere if it comes to the conclusion that the petitioner seeks enforcement of any of the fundamental rights; where there is failure of principles of natural justice or where the orders or proceedings are wholly without jurisdiction or the vires of an Act is challenged. 22. In G. Veerappa Pillai v. Raman and Raman Ltd. MANU/SC/ 0057/1952 : AIR (1952) SC 192; MANU/SC/0452/2001: [2001] 6 SCC 569, this Court held that where hierarchy of appeals is provided by the statute, party must exhaust the statutory remedies before resorting to writ jurisdiction". 24. Division Bench of this Court in [Sasken Communication Technologies Ltd. (supra)] has held that when the case involves interpretation of constitutional provisions and when the authorities have already interpreted these provisions in a particular manner, the party approaching the very departmental authorities would make no difference and as such entertainment of a writ petition though statute provides an alternate remedy would not be a bar. It has been held by the Division Bench as under: "55. It was contended that against the order passed by the assessing authority, a statutory first appeal and against that appeal, a statutory second appeal is provided and therefore the learned single judge was justified in directing the parties to approach the appellate forum and this court should not entertain these appeals. Normally, when the statute provides an alternative remedy by way of an appeal, this court declines to entertain a writ petition against such assessment orders. But, it is not an invariable rule specifically when the case involves interpretations of 21.32

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constitutional provisions and when the authorities have already interpreted these provisions in a particular manner, the question of the party approaching the very departmental authorities would make no difference. That apart, these assessment orders are passed after coming into force of the Finance Act, 1994 and when service tax was imposed. The question for consideration is, when once by a parliamentary legislation, service tax is levied on the entire consideration received by the assessee, whether it is open to the State Legislature to levy sales tax on any portion of the said consideration which has already suffered service tax. Even otherwise also, the question for consideration is as discussed above, whether the contract in question is an indivisible contract or a composite contract and even if it is a composite contract, what is the dominant nature of the contract. These are matters which require to be interpreted by this court. It will have an effect not only on the assessee before this court, but to all the assessees who are similarly placed in the State, so that the law is settled and assessment orders to be passed by the authorities would be in accordance with law. Therefore we do not see any merit in the contention that merely because an alternative remedy is provided against these orders by way of statutory appeals, that this court should not entertain these writ appeals." 30. Yet again, Apex Court in the case of S.P. Gupta v. UOI [MANU/SC/0080/1981 : 1981](supp.) SCC 87 where legal wrong or legal injury is caused to a determinate class or group of persons or the constitutional or legal rights of such determinate class or group of persons is violated, then judicial redressal would be permissible. It has been held in the said judgment as under: "17. It may therefore now be taken as well-established that where a legal wrong or a legal injury is caused to a person or to a determinate class of persons by reason of violation of any constitutional or legal right or any burden is imposed in contravention of any constitutional or legal provision or without authority of law or any such legal wrong or legal injury or illegal burden is threatened and such person or determinate class of persons is by reason of poverty, helplessness or disability or socially or economically disadvantaged position, unable to approach the Court for relief, any member of the public can maintain an application for an appropriate direction, order or writ in the High Court under Article 226 and in case of breach of any fundamental right of such person or determinate class of persons, in this Court under Article 32 seeking judicial redress for the legal wrong or injury caused to such person or determinate class of persons. Where the weaker sections of the community are concerned, such as under-trial prisoners languishing in jails without a trial, inmates of the Protective Home in Agra or Harijan workers engaged in road 21.33

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construction in the district of Ajmer, who are living in poverty and destitution, who are barely eking out a miserable existence with their sweat and toil, who are helpless victims of an exploitative society and who do not have easy access to justice, this Court will not insist on a regular writ petition to be filed by the public-spirited individual espousing their cause and seeking relief for them. This Court will readily respond even to a letter addressed by such individual acting pro bono publico. It is true that there are rules made by this Court prescribing the procedure for moving this Court for relief under Article 32 and they require various formalities to be gone through by a person seeking to approach this Court. But it must not be forgotten that procedure is but a handmaid of justice and the cause of justice can never be allowed to be thwarted by any procedural technicalities. The Court would therefore unhesitatingly and without the slightest qualms of conscience cast aside the technical rules of procedure in the exercise of its dispensing power and treat the letter of the public-minded individual as a writ petition and act upon it. Today a vast revolution is taking place in the judicial process; the theatre of the law is fast changing and the problems of the poor are coming to the forefront. The Court has to innovate new methods and devise new strategies for the purpose of providing access to justice to large masses of people who are denied their basic human rights and to whom freedom and liberty have no meaning. The only way in which this can be done is by entertaining writ petitions and even letters from public spirited individuals seeking judicial redress for the benefit of persons who have suffered a legal wrong or a legal injury or whose constitutional or legal right has been violated but who by reason of their poverty or socially or economically disadvantaged position are unable to approach the Court for relief. It is in this spirit that the Court has been entertaining letters for Judicial redress and treating them as writ petitions and we hope and trust that the High Courts of the country will also adopt this pro-active, goal-oriented approach. But we must hasten to make it clear that the individual who moves the Court for judicial redress in cases of this kind must be acting bona fide with a view to vindicating the cause of justice and if he is acting for personal gain or private profit or out of political motivation or other oblique consideration, the Court should not allow itself to be activised at the instance of such person and must reject his application at the threshold , whether it be in the form of a letter addressed to the Court or even in the form of a regular writ petition filed in Court. We may also point out that as a matter of prudence and not as a rule of law, the Court may confine this strategic exercise of jurisdiction to cases where legal wrong or legal injury is caused to a determinate class or group of persons or the constitutional or legal right of such determinate class or group of persons is violated and as far as possible, not entertain cases of 21.34

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individual wrong or injury at the instance of a third party, where there is an effective legal-aid organisation which can take care of such cases. 18. The types of cases which we have dealt with so far for the purpose of considering the question of locus standi are those where there is a specific legal injury either to the applicant or to some other person or persons for whose benefit the action is brought, arising from violation of some constitutional or legal right or legally protected interest. What is complained of in these cases is a specific legal injury suffered by a person or a determinate class or group of persons. But there may be cases where the State or a public authority may act in violation of a constitutional or statutory obligation or fail to carry out such obligation, resulting in injury to public interest or what may conveniently be termed as public injury as distinguished from private injury. Who would have standing to complain against such act or omission of the State or public authority? Can any member of the public sue for judicial redress? Or is the standing limited only to a certain class of persons? Or is there no one who can complain and the public injury must go un-redressed? To answer these questions it is first of all necessary to understand what is the true purpose of the Judicial function. This is what Prof. Thio states in his book on Locus Standi and Judicial Review: Is the judicial function primarily aimed at preserving legal order by confining the legislative and executive organs of government within their powers in the interest of the public (Jurisdiction de droit objectif ) or is it mainly directed towards the protection of private individuals by preventing illegal encroachments on their individual rights (jurisdiction de droit subjectif)? The first contention rests on the theory that Courts are the final arbiters of what is legal and illegal....Requirements of locus standi are therefore unnecessary in this case since they merely impede the purpose of the function as conceived here. On the other hand, where the prime aim of the judicial process is to protect individual rights, its concern with the regularity of law and administration is limited to the extent that individual rights are infringed. We would regard the first proposition as correctly setting out the nature and purpose of the judicial function, as it is essential to the maintenance of the rule of law that every organ of the State must act within the limits of its power and carry out the duty imposed upon it by the Constitution or the law. If the State or any public authority acts beyond the scope of its power and thereby causes a specific legal injury to a person or to a determinate class or group of persons, it would be a case of private injury actionable in the manner discussed in the preceding paragraphs. So also if the duty is owed by the State or any public authority to a person or to a determinate class or group of persons, it would give rise to a corresponding right in such person or determinate class or group of 21.35

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persons and they would be entitled to maintain an action for judicial redress. But if no specific legal injury is caused to a person or to a determinate class or group of persons by the act or omission of the State or any public authority and the injury is caused only to public interest, the question arises as to who can maintain an action for vindicating the rule of law and setting aside the unlawful action or enforcing the performance of the public duty. If no one can maintain an action for redress of such public wrong or public injury, it would be disastrous for the rule of law, for it would be open to the State or a public authority to act with impunity beyond the scope of its power or in breach of a public duty owed by it. The Courts cannot countenance such a situation where the observance of the law is left to the sweet will of the authority bound by it, without any redress if the law is contravened. The view has therefore been taken by the Courts in many decisions that whenever there is a public wrong or public injury caused by an act or omission of the State or a public authority which is contrary to the Constitution or the law, any member of the public acting bona fide and having sufficient interest can maintain an action for redressal of such public wrong or public injury. The strict rule of standing which insists that only a person who has suffered a specific legal injury can maintain an action for judicial redress is relaxed and a broad rule is evolved which gives standing to any member of the public who is not a mere busybody or a meddlesome interloper but who has sufficient interest in the proceeding. There can be no doubt that the risk of legal action against the State or a public authority by any citizen will induce the State or such public authority to act with greater responsibility and care thereby improving the administration of justice. Lord Diplock rightly said in Rex v. Inland Revenue Commissioners. [1981] 2 WLR 722, 740. “It would, in my view, be a grave lacuna in our system of public law if a pressure group, like the federation, or even a single public-spirited taxpayer, were prevented by outdated technical rules of locus standi from bringing the matter to the attention of the Court to vindicate the rule of law and get the unlawful conduct stopped.... It is not, in my view, a sufficient answer to say that judicial review of the actions of officers or departments of Central Government is unnecessary because they are accountable to Parliament for the way in which they carry out their functions. They are accountable to Parliament for what they do so far as regards efficiency and policy, and of that Parliament is the only judge; they are responsible to a Court of Justice for the lawfulness of what they do, and of that the Court is the only judge. This broadening of the rule of locus standi has been largely responsible for the development of public law, because it is only the availability of judicial remedy for enforcement which invests law with meaning and 21.36

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purpose or else the law would remain merely a paper parchment, a teasing illusion and a promise of unreality. It is only by liberalising the rule of locus standi that it is possible to effectively police the corridors of powers and prevent violations of law. It was pointed out by Schwartz and H.W.R. Wade in their book on Legal Control of Government at page 354: Restrictive rules about standing are in general inimical to a healthy system of administrative law. If a plaintiff with a good case is turned away, merely because he is not sufficiently affected personally, that means that some government agency is left free to violate the law, and that is contrary to the public interest. Litigants are unlikely to expend their time and money unless they have some real interest at stake. In the rare cases where they wish to sue merely out of public spirit, why should they be discouraged? It is also necessary to point out that if no one can have standing to maintain an action for judicial redress in respect of a public wrong or public injury, not only will the cause of legality suffer but the people not having any judicial remedy to redress such public wrong or public injury may turn to the street and in that process, the rule of law will be seriously impaired. It is absolutely essential that the rule of law must wean the people away from the lawless street and win them for the court of law." 31. Even in the following cases apart from the citations noticed hereinabove, it has been held that an association has a locus standi to file a writ petition on behalf of its members:-"(a) Bandhua Mukti Morcha v. Union of India MANU/SC/0051/1983 : [1984] 3 SCC 161. (b) Supreme Court Advocates-On Record-Association v. Union of India MANU/SC/0073/1994 : [1993] 4 SCC 441. (c) Steel Executives Association v. Rashtriya Ispat Nigam Ltd. MANU/AP/0949/1998 : [2000] 241 ITR 20/109 Taxman 127 (AP) (d) Bhel Employees Association v. Union of India MANU/KA/0046/2003 : [2003] 261 ITR 15/128 Taxman 309 (Kar.) (e) (f)

Bhel Executive/Officers Association. Dy. CIT MANU/TN/1983/2003 : [2004] 269 ITR 390/141 Taxman 40 (Mad.) All India Federation Of Tax Practitioners v. Union of India MANU/DE/0444 : 1998 : [l999] 236 ITR 1 : [1998] 101 Taxman 401 (Delhi)

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(g) Federation Of Hotel & Restaurant Association Of India v. Union of India MANU/SC/0180/1989 : [1989] 178 ITR 97/46 Taxman 47 (SC) " 32. In that view of the matter, it cannot be gainsaid by the revenue that writ petitions are not maintainable and said contention raised by the revenue is hereby rejected.” The Manibhai Hathibhai Patel’s case nicely summarizes the laws on availability of writ remedy.

21.6

FURTHER READING

(a) A Ramaiya, Guide to the Companies Act, Sixteenth Edition, 2010, Wadhwa & Company; (b) Dr. K. R. Chandratre, Oppression & Mismanagement, Bharat's; (c) V. G Ramchandran's Law of Writs, Sixth Edition, Eastern Book Company; (d) S P Sathe, Administrative Law, Seventh Edition, Third Reprint 2008, LexisNexis Butterworths Wadhwa.

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General practice and procedure 22.1

INTRODUCTION

The Tribunals are empowered to devise their own procedures for dealing with the cases that are filed with the Tribunal. NCLT rules also contemplate a framework for e-filing of cases in NCLT. The rules provide for two processes, one is E-filing and the other is Physical filing. It provides for digitalization of the entire filing set up once the necessary system are in place. These rules inter alia provide a few default rules. It will apply unless anything contrary is provided in the NCLT Rules or other Rules under the Companies Act. The applicability may vary depending upon the matters. In a matter like merger, if there are no objections, this procedure may not be relevant. However, if there are hotly contested matters like an oppression and mismanagement matter or a class action suit, then one may have to refer many of these default rules and the procedures set out below will become relevant.

22.2

GENERAL PROCEDURE & PRACTICE

The procedure set out below is a general procedure that is followed in civil cases. The Tribunal has discretion to require or dispense with any step that is provided here. While doing so, however, the Tribunal will be governed by the principle of natural justice. Unless otherwise provided, the reference to rules, forms and annexures are from Notified NCLT Rules. In the Notified NCLT Rules, general procedures and practices for working of the Tribunals are provided. An elaborate framework was specified in the draft National Company Law Tribunal Rules, 2013. However, this was deleted in the National Company Law Tribunal Draft Rules that were issued in 2016. The procedures that were specified in 2013, though they are deleted, are relevant as Tribunal may choose to follow them if the nature of cases require a detailed inquiry into the factual aspects and require taking of evidence. The notified NCLT Rules bear some similarity to the draft NCLT rules that were issued in January 2016.

22.2.1

Territorial jurisdiction

A petition or an application, including any reply or documents related thereto, to the Tribunal shall be filed to the Registry of Tribunal or such Bench (s) having territorial jurisdiction. 22.1

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22.2.2

Chapter 22

Filing of petition/application

22.2.2.1 Who can file The applicant (who is eligible to file) can file either in person or by his duly authorized representative. The eligibility of the person will depend on the subject matter that is agitated before the Tribunal. Rule 23A of NCLT Rule as amended by NCLT (Amendment) Rules, 2016 provides for presentation of joint petition. It provides that the Bench may permit more than one person to join together and present a single petition if it is satisfied, having regard to the cause of action and the nature of relief prayed for, that they have a common interest in the matter. Such permission shall be granted where the joining of the petitioners by a single petition is specifically permitted by the Act A petition shall be based upon a single cause of action and may seek one or more reliefs provided that the reliefs are consequential to one another[r 38A of NCLT rules as amended by NCLT (Amendment) Rules, 2016].”.

22.2.2.2 Modes of filing -

E-Filing (once the systems are established for the same);

-

Physical Filing (till the e-filing set up)

E-filing The system of e-filing is being slowly established in NCLT and NCLAT. In the system, a user id and password are created by an authorised representative and thereafter the authorised representative can file petitions and applications through the e-portal created for e-filing. A user manual for e-filing of NCLT and NCLAT is provided on the website of NCLT and NCLAT. While the overall process of efiling is the same, the process of completing the formalities for filing needs to be ascertained from the specific Tribunal where the petition is to be filed. After efiling, hard copies need to be submitted. During the Covid pandemic, certain relaxations had been given which later had been withdrawn. Thus, the procedure of e-filing is established but the specific process is followed in individual tribunals.

22.2.2.3 How to file an application/petition ●

Every petition or application shall be filed in Form No. NCLT 1 with attachments thereto accompanied by Form No. NCLT 2 verified by an affidavit in Form No. NCLT 6.

●

In case of interlocutory application, the same shall be filed in Form No. NCLT 1 accompanied by such attachments thereto along with Form No. NCLT 3. Interlocutory application shall be verified by an affidavit in Form No. NCLT 6. Date of presentation shall be the date on which the application or the petition is presented.

●

22.2

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●

Till the implementation of the E-filing system contemplated by the Ministry of Corporate Affairs implemented the documents including petitions, applications and other documents shall be filed physically.

●

Rule 20 to 33 of NCLT rules provide the details of manner in which the petition/application are to be prepared & verified. A checklist for filing documents in NCLT is provided as Annexure I to this chapter. Further, the manner in which old matter will be numbered is annexed as Annexure II.

● ●

22.2.3

Documents to accompany the petition or application

A petition or an application shall be accompanied by documents: -

As prescribed in Annexure B of notified NCLT Rules;

-

Index of documents;

-

Memorandum of Appearance or Power of Attorney in Form No. NCLT 12 in case where authorized representative enters appearance or Vakalatnama where legal practitioner/advocate enters appearance.

22.2.4

Scrutiny of application/petition

As a general procedure in courts and tribunal, upon the receipt of the application, the registrar of the tribunal, or the officer authorized by him, shall endorse every petition or application with the date on which it is presented shall add details in the dairy and give it a dairy number (r 28 of NCLT Rules).

22.2.5

Advertisement [Rule 35]

(a) The advertisement of any application, petition or reference that is required to be advertised shall be made in Form No. NCLT 3A, unless: - The tribunal otherwise orders. - The NCLT rules otherwise provide. (b) Additional compliances for advertisement: • If advertisement made by the company, the same should also be placed on the website of the company • Advertisement to be made at least 14 days before the date fixed for hearing, at least once in a vernacular newspaper in the principal vernacular language of the district in which the proposed company is situated and at least once in an English language in an English newspaper circulating in that district. • Affidavit, stating that the advertisement of petition in accordance with r 35 and service of notice, if any, have been duly served upon the persons to be served, shall be filed with the Tribunal at least 3 days before the date fixed

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for hearing. The said advertisement shall be accompanied by the proof of advertisement or of service. (c) Where the obligation under this r 35 is not followed, as regards the advertisement and service of petition, The Tribunal may either dismiss the application or give such further direction as it may think fit. Also the Tribunal has the power to dispense with any advertisement required by this rule, if it thinks fit. (d) The contents of the advertisements are as follows: • the date on which the application, petition/reference was presented, • the name and address of the applicant/petitioner and his authorized representative, if any; • the nature and substance of application, petition/reference; • the date fixed for hearing; • a statement to the effect that any person whose interest is likely to be affected by the proposed petition or who intends either to oppose or support the petition/reference at the hearing shall send a notice of his intention to the concerned bench and the petitioner or his authorised representative, if any indicating the nature of interest and grounds of opposing, so as to reach him not later than two days previous to the day fixed for hearing.

22.2.6

Notice to opposite party [Rule 37]

(a) The Tribunal shall serve the notice in Form No. NCLT 5 accompanied by a copy of the application to the respondent to show cause against the application on a date of hearing to be specified therein. (b) In pursuance of the notice: Respondent Action

Tribunal Reaction

Appears on the date of hearing Tribunal may dispose of the application and admits the facts stated in the on merits petition/application Does not appears on the date of hearing and admits in the petition/application

Tribunal may dispose of the application on merits

Appears and contests the matter. Tribunal shall deal with the matter and It may file its reply consider the reply, which will also form part of the record of the case.

22.2.7

Filing of affidavit of service/advertisement

(a) Affidavit, stating that the advertisement of petition is published and notice served in accordance with the rules shall be filed. It is called the affidavit of service. It is required to be filed as per r 35 with the Tribunal at least 3 days 22.4

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before the date fixed for hearing. The said affidavit shall be accompanied by the proof of publication of advertisement or proof of service of notice, as the case may be. (b) Also, in r 38 where a notice issued by the Tribunal is served by the party himself by "hand delivery", he shall file with the registrar or such other person duly authorised by the registrar in this behalf, the acknowledgment together with an affidavit of service and in case of service by registered post or by speed post, file with the registrar, or such other person duly authorised by the registrar in this behalf, an affidavit of service of notice along with the proof of delivery.

22.2.8

Service of notice and processes issued by the Tribunal [Rule 38]

(a) Notices or processes by the Tribunal may be served through: -

Electronic form at valid e-mail address as provided in the petition or application or in the reply or,

-

Physical modes as such directed by the Tribunal • by hand delivery through a process server or respective authorized representative; • by registered post or speed post with acknowledgement due or; • service by the party himself

-

in any other manner, as it appears to Tribunal just and convenient but it shall be after the consideration of the number of respondents and their place of residence or work or service [Rule 38(4)].

-

Notice can be made by way of substituted service in the event when notice cannot be made by the aforesaid methods. This can be done with the permission of the Tribunal [Rule 38(4)]. (b) Upon whom the notice can be served:

22.2.9

-

Applicant or respondent who is required to be served or

-

The authorized representative of such applicant or respondent

-

Any person authorized to accept a notice or process on their behalf

Filing of reply and other documents by the respondents [Rule 41]

(a) Each respondent may file his reply to the petition or application and copies of documents with the registry and a copy thereof shall be served on the applicant also.

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(b) In reply filed by the respondent, it shall specifically admit, deny or explain the facts stated by the applicant in the petition or application to which the reply is given. It may state such additional facts as may be necessary.

22.2.10 Filing of rejoinder [Rule 42] The applicant/petitioner is permitted to file a rejoinder rebutting to what is stated in the reply filed by the respondent. A copy of the same needs to be filed with the Registrar of the Tribunal with a copy served to respondent.

22.2.11 Additional pleadings Petition/application, reply and rejoinder are called pleadings. If the respondent intends to file his rebuttal to the rejoinder, he has to seek permission from the Tribunal to file the reply to rejoinder (it is called sur-rejoinder). A reply to sur-rejoinder is called a sur surrejoinder. These additional pleadings can be filed only with the permission of the Tribunal who may permit it in the interest of justice. There is no express permission in the rules that permits filing of these documents to the parties but Tribunal is empowered to determine its own procedure and can exercise this power to permit additional filings.

22.2.12 Framing of Issues If the Tribunal thinks fit, it can frame issues, which have to be decided in order to decide the case.

22.2.13 Admission and denial of documents/discover and production of documents The Tribunal may, like in a civil suit, before framing issues ascertain from parties or their authorised representatives, whether they admit or deny documents accompanying the petition or the application or reply, if any, and shall record such admission and denial. The NCLT Rules provide the following rules for discovery, production and return of documents: “131. Application for production of documents, form of summons (1) Except otherwise provided hereunder, discovery or production and return of documents shall be regulated by the provisions of the Code of Civil Procedure, 1908 (5 of 1908). (2) An application for summons to produce documents shall be on plain paper setting out the document the production of which is sought, the relevancy of the document and in case where the production of a certified copy would serve the purpose, whether application was made to the proper officer and the result thereof. (3) A summons for production of documents in the custody of a public officer other than a court shall be in Form NCLT-15 and shall be addressed to the 22.6

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concerned Head of the Department or such other authority as may be specified by the Tribunal. 132. Suo motu summoning of documents Notwithstanding anything contained in these rules, the Tribunal may, suo motu, issue summons for production of public document or other documents in the custody of a public officer. 133. Marking of documents (1)The documents when produced shall be marked as follows : (a) (b) (c)

If relied upon by the appellant’s or petitioner’s side, they shall be numbered as ‘A’ series. If relied upon by the respondent’s side, they shall be marked as ‘B’ series. The Tribunal exhibits shall be marked as ‘C’ series.

(2) The Tribunal may direct the applicant to deposit with the Tribunal by way of Demand Draft or Indian Postal Order drawn in favour of the Pay and Accounts Officer, Ministry of Corporate Affairs, New Delhi, a sum sufficient to defray the expenses for transmission of the records before the summons is issued. 134. Return and transmission of documents (1) An application for return of the documents produced shall be numbered and no such application shall be entertained after the destruction of the records. (2) The Tribunal may, at any time, direct return of documents produced subject to such conditions as it deems fit.”

22.2.14 Filing of affidavit of evidence [Rule 39] If a petition contains facts that need to be proved, the Tribunal can also direct the parties to give evidence by way of affidavit. Affidavit shall be in accordance with the norms provided in rules 125 to 130 in Part XVI of the NCLT Rules.

22.2.15 Cross examination of any deponent [Rule 39] When a party gives evidence of any person, the opposing party, as a principle of natural justice, should have a right to cross examine the witness. The rules provide that Tribunal, if it considers necessary for just decision of the case, it may order cross-examination of any deponent either through information and communication technology (ICT) facilities like video conferencing or otherwise as may be decided by the Tribunal. Crossexamination through video conferencing is indeed a new concept that is introduced through NCLT Rules.

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22.2.16 Summoning the witness and method of recording evidence [Rule 52] (a) If any party to the proceedings for summoning of witnesses presents a petition or an application, the Tribunal shall issue summons for the appearance of such witnesses unless it considers that their appearance is not necessary for the just decision of the case. (b) The Tribunal may make a brief memorandum of the substance of the evidence of every witness, as the examination of the witness proceeds and such memorandum shall form part of the record; (c) Where summons are issued by the Tribunal to any witness to give evidence or to produce any document, the person so summoned shall be entitled to such travelling and daily allowance sufficient to defray the travelling and other expenses as may be determined by the registrar of the Tribunal which shall be paid by the party as decided by the registrar. NCLT Rules (as mentioned below) provide for additional provisions for examination of witnesses and issue of commissions in Part XVIII. “133. Marking of documents. (1)The documents when produced shall be marked as follows : (a)

If relied upon by the appellant’s or petitioner’s side, they shall be numbered as ‘A’ series.

(b)

If relied upon by the respondent’s side, they shall be marked as ‘B’ series.

(c)

The Tribunal exhibits shall be marked as ‘C’ series.

(2) The Tribunal may direct the applicant to deposit with the Tribunal by way of Demand Draft or Indian Postal Order drawn in favour of the Pay and Accounts Officer, Ministry of Corporate Affairs, New Delhi, a sum sufficient to defray the expenses for transmission of the records before the summons is issued. 134. Return and transmission of documents (1) An application for return of the documents produced shall be numbered and no such application shall be entertained after the destruction of the records. (2) The Tribunal may, at any time, direct return of documents produced subject to such conditions as it deems fit. 135. Procedure for examination of witnesses, issue of Commissions The provisions of the Orders XVI and XXVI of the Code of Civil Procedure, 1908 (5 of 1908), shall mutatis mutandis apply in the matter of summoning and enforcing attendance of any person and examining him

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on oath and issuing commission for the examination of witnesses or for production of documents. 136. Examination in camera The Tribunal may in its discretion examine any witness in camera. 140. Form recording of deposition (1) The Deposition of a witness shall be recorded in Form NCLT-16. (2) Each page of the deposition shall be initialed by the Members constituting the Bench. (3) Corrections, if any, pointed out by the witness may, if the Bench is satisfied, be carried out and duly initialled. If not satisfied, a note to the effect be appended at the bottom of the deposition. 141. Numbering of witnesses The witnesses called by the applicant or petitioner shall be numbered consecutively as PWs and those by the respondents as RWs. 142. Grant of discharge certificate Witness discharged by the Tribunal may be granted a certificate in Form NCLT-17 by the Registrar. 143. Witness allowance payable (1) Where the Tribunal issues summons to a Government servant to give evidence or to produce documents, the person so summoned may draw from the Government travelling and daily allowances admissible to him as per rules.

22.2.17 Oath to witness [Rule 47] The Bench officer or the Court Officer, as the case may be, shall administer the following oath to a witness: “I do swear in the name of God/solemnly affirm that what I shall state shall be truth and nothing but the truth.”

22.2.18 Hearing of petition or application [Rule 44] The Tribunal shall notify to the parties the date and place of hearing of the petition or application in such manner as the Tribunal as the president or a member may, by general or special order, direct. Where at any stage prior to the hearing of the petition or application, if the applicant desires to withdraw his petition or application, he shall make an application to that effect to the Tribunal and the Tribunal on hearing the applicant, if necessary, the others arrayed as opposite parties in the petition or the application or otherwise may

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permit such withdrawal upon imposing such costs as it may deem fit and proper in the interest of the justice.

22.2.19 Action on application for applicants default [Rule 48]

22.2.20 Ex-parte hearing and disposal of petition or application [Rule 49] Respondents Action

Tribunal's Reaction

The respondent fails to appear on the date It can do any of the following things: of the hearing Adjourn the hearing, or Hear and decide the petition or application ex-parte in exercise of the powers conferred on it in exercise of the powers conferred on it in sec 424(2)(f) of the Companies Act, 2013. In the case, where the hearing and decision was made ex-parte, such respondent may by application satisfy the Tribunal that the notice was not duly served or that he was or they were prevented by any sufficient cause.

The Tribunal may make an order setting aside the ex-parte hearing as against him or them upon such terms as it thinks fit in exercise of the powers conferred on it in sec 424(2)(f) of the Companies Act, 2013.

22.2.21 Decision of the Tribunal The Tribunal shall decide every petition or application as expeditiously as possible on perusal of documents, affidavits and other evidence, if any, and after hearing such oral arguments as may be advanced with reference to sec 422 of the Companies Act, 2013.

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Observation In many sections, time lines are provided for taking a decision. For instance, in sec 422, a period of three months is given to the Tribunal to take a decision. However, there are many judgments where the courts have held that such time lines are only directory. They should be used as a guideline, but they cannot be used to undermine doing justice to the parties.

22.2.22 Order to be passed and signed [Rule 149 & 150] (a) The Tribunal may, in its discretion, pass such order in respect of the cost incidental to any proceedings, as it may deem fit. (b) The Tribunal after hearing the applicant and respondent shall pronounce the order either at once or reserve the order. If the order is reserved, the rule mandates that such order shall be passed not later than 30 days from the hearing of the Tribunal. (c) An order made by the Tribunal shall be executable as the decree of a civil court and provisions of Code of Civil Procedure, 1908, shall apply as provided in sec 424(3) of the Companies Act 2013. (d) Every order of the Tribunal shall be in writing and shall be signed and dated by the president or members constituting the bench, who heard and pronounced the order. Kamal K. Singh v Union of India [Bombay High Court Writ Petition (L) No. 3250 of 2019; 29th November 2019] In this case, the order of admission under section 7 was held null and void inter alia on the ground that the order was not pronounced. The HC observed that: “83. In fact, the judicial proceedings, the orders and judgments therein, have a certain sanctity. Inviolability of judicial proceeding is at the root of everything. The heart of the matter is that the conduct of judicial proceedings or discharge of judicial function by a court of law inspires confidence and maintains the trust and faith of the litigants in the justice delivery system. If that is shaken and destroyed, then, justice itself is a casualty. We must avoid such a situation at all costs. That is why the requirement to pronounce orders is emphasised repeatedly by the Hon’ble Supreme Court. We do not think that the decisions of the Hon’ble Supreme Court in the case of Surendra Singh (supra) and in the case of State of Uttar Pradesh and Ors. (supra) can be brushed aside. These judgments are binding on us. They continue to hold the field. In fact, the decision rendered in the case of Surendra Singh (supra) has been followed later in a decision in the case of Iqbal Ismail Sodawala vs. The State of Maharashtra .” (e) A certified copy of order shall be communicated to the parties. One certified copy shall be sent free of cost (Rule 50). 22.11

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(f) Every order of the judgment shall bear the seal of the Tribunal.

22.2.23 Filing of order of the Tribunal The order of the Tribunal is required to be filed with the ROC. This is provided under several sections. Unless, a form is provided for uploading specific forms, it is likely that the orders will be uploaded under INC 28 of Companies (Incorporation) Rule, 2014.

22.2.24 Application for execution Any order made by the Tribunal may be enforced by it in the same manner as if it were a decree made by a court in a suit pending therein, and it shall be lawful for the Tribunal to send for execution of its orders to the court within the local limits of whose jurisdiction (as per sec 424(3) of the Act): •

In case of order against the company, the registered office of the company situated; or

In case of an order against any other person, the person concerned voluntarily resides or carries on business or personally works for gain. The Tribunal may transmit order made by it to any court for enforcement on application made by either of the parties to the order or suo motu [Rule 27]. •

For execution of order passed by the Tribunal, the holder of an order shall make an application to the Tribunal in Form No. NCT 8 of the NCLT Rules.

22.2.25 Effect of non-compliance [Rule 58] Failure to comply with any requirement of these rules shall not invalidate any proceeding, merely by reason of such failure, unless the bench is of the view that such failure has resulted in miscarriage of justice. Further, the Act also provides Tribunal the right to initiate proceedings against the party for contempt of court.

22.2.26 Procedure for imposition of penalty under the Act [Rule 59] (a) Notwithstanding anything to the contrary contained in any rules or regulations framed under the Act, no order or direction imposing a penalty under the Act shall be made unless the person or the company or a party to the proceeding, during proceedings of the bench, has been given a show cause notice and reasonable opportunity to represent his or her or its case before the Bench or any officer authorized in this behalf. (b) In case the bench decides to issue show cause notice to any person or company or a party to the proceedings, as the case may be, under sub-rule (1), the registrar of the Tribunal/Registry shall issue a show cause notice giving not less than fifteen days asking for submission of the explanation in writing within the period stipulated in the notice. 22.12

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(c) The bench shall, on receipt of the explanation, and after oral hearing if granted, proceed to decide the matter of imposition of penalty on the facts and circumstances of the case. Observation It is unclear whether, this applies only to penalties that are provided in the Act for non-compliance with the orders of the Tribunal or they are applicable for initiating any kinds of proceedings for levying fines on the defaulting party.

22.2.27 Preservation of record [Rule 103] All necessary documents and records relating to petitions or applications dealt with by the Tribunal shall be stored or maintained as provided in these rules and other physical records kept in a record room shall be preserved for a period of five years after the passing of the final order. However, with respect to the electronic record of the petitions or applications dealt with by the Tribunal including the orders and directions passed by the Tribunal, shall be maintained by the Registry of the Tribunal for a period of fifteen years after the passing of the final order.

22.2.28 Fees (a) In respect of the several types of cases mentioned in Annexure B of NCLT Rules, there shall be paid fees as prescribed in Schedule of fees of these rules which is annexed to this Chapter as Schedule A. Provided that no fee shall be payable or shall be liable to be collected on a petition or application filed or reference etc. made by the registrar of companies, regional director or by any officer on behalf of the central government. (b) In respect of every interlocutory application there shall be paid fees as prescribed in NCLT rules: Provided that no fee shall be payable or shall be liable to be collected on an application filed by the registrar of companies, regional director or by an officer on behalf of the central government. (c) In respect of a petition or application filed or references made etc before the principal bench or the bench of the Tribunal, fees payable under these rules shall be paid by means of a bank draft drawn in favour of the “Pay and Accounts Officer, Ministry of Corporate Affairs, New Delhi/Kolkata/Chennai/Mumbai”, as the case may be.

22.3

REPRESENTATION BEFORE NCLT/NCLAT

A party to any proceeding or appeal before the Tribunal or the Appellate Tribunal, as the case may be, may either appear in person or authorise one or more of the following persons to present his case before the Tribunal or Appellate Tribunal: 22.13

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(a) Chartered accountants; (b) Company secretaries; (c) Cost accountants; (d) Legal practitioners; (e) Any other person like officer of the company. The person who is so authorised is called “authorised representive” in the Act and Rules.

22.3.1

Authorised representative

22.3.1.1 Right to legal representation. Section 432 provides as under: “A party to any proceeding or appeal before the Tribunal or the Appellate Tribunal, as the case may be, may either appear in person or authorise one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any other person to present his case before the Tribunal or the Appellate Tribunal, as the case may be” Thus, every party has a right to appoint an authorized representative. The party is allowed to appoint for any professional that are set out in sec 432. It may also represent itself in the Tribunal or may appoint its employees or officer or any other person to represent its case. Rule 119 to r 122 provides as follows “119. Appearance of authorised representative.- Subject to as hereinafter provided, no legal practitioner or authorised representative shall be entitled to appear and act, in any proceeding before the Tribunal unless he files into Tribunal vakalatnama or Memorandum of Appearance as the case may, duly executed by or on behalf of the party for whom he appears. 120. Consent for engaging another legal practitioner.-: A legal practitioner proposing to file a Vakalatnama or Memorandum of Appearance as the case may be, in any pending case or proceeding before the Tribunal in which there is already a legal practitioner or authorised representative on record, shall do so only with the written consent of the legal practitioner or the authorised representative on record or when such consent is refused, with the permission of the Tribunal after revocation of Vakalatnama or Memorandum of Appearance as the case may be, on an application filed in this behalf, which shall receive consideration only after service of such application on the counsel already on record. 121. Restrictions on appearance.- A legal practitioner or the authorised representative as the case may be, who has tendered advice in connection with the institution of any case or other proceeding before the Tribunal or 22.14

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has drawn pleadings in connection with any such matter or has during the progress of any such matter acted for a party, shall not, appear in such case or proceeding or other matter arising therefrom or in any matter connected therewith for any person whose interest is opposed to that of his former client, except with the prior permission of the Tribunal. 122. Restriction on party’s right to be heard.- The party who has engaged a legal practitioner or authorised representative to appear for him before the Tribunal may be restricted by the Tribunal in making presentation before it.”

22.3.1.2 Special authorized representatives NCLT r 123 empowers the Tribunal to establish a panel of special authorized representatives. The Tribunals may draw up a panel of legal practitioners or company secretaries in practice or chartered accountant in practice or cost accountant in practice or valuer or such other experts as may be required for assisting the NCLT or NCLAT in several proceedings that are before it. The President may call upon any of the persons from this panel for assistance in the proceedings before the Bench, if so required. The remuneration payable and other allowances and compensation admissible to such persons shall be specified in consultation with the Tribunal.

22.3.1.3 Amicus curiae An amicus curiae (literally, friend of the court; plural, amici curiae) is someone who is not a party to a case and offers information that bears on the case, but who has not been solicited by any of the parties to assist a court. 1 The Tribunal may, at its discretion, permit any person or persons, including the professionals and professional bodies to render or to communicate views to the Tribunal as Amicus Curiae on any point or points or legal issues, as the case may be, as assigned to such Amicus Curiae. The Tribunal may permit an Amicus Curiae to have access to the pleadings of the parties. The Tribunal shall enable the parties to submit timely observations on an amicus brief. The Tribunal shall be at liberty to direct either of the parties or both the parties to the proceedings involving a point on which the opinion of the Amicus Curiae has been sought, to bear such expenses or fee, as may be, ordered by the Tribunal. The judgment and any appended opinions shall be transmitted to the parties and to Amicus Curiae (Rule 62).

22.3.1.4 Dress for the authorised representatives Rule 124 provides that the authorized representative shall wear the professional dress as prescribed in their respective code of conduct while appearing before the Tribunal. Every authorized representative as provided in sec 432 of the Companies Act, 2013, other than a relative or regular employee of the party shall appear before the Tribunal in his professional dress, if any, and if there is no such dress, it is desirable that a male 1

https://en.wikipedia.org/wiki/Amicus_curiae

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shall be in a suit or buttoned–up coat over a pant or national dress that is a long buttoned-up coat on dhoti or churidar pyjama, and a female shall be in a coat over white or any other sober coloured saree or in any other sober dress. In case of a company secretary, the professional dress has been prescribed by ICSI. The professional dress for male members is a navy blue suit and white shirt with a tie (preferably of the ICSI) or navy blue buttoned-up coat over a pant or a navy blue safari suit. The professional dress for female members is a saree or any other dress of a sober color with a navy blue jacket. ICSI requires that practicing company secretaries appearing before any Tribunal or quasi-judicial body should adhere to dress code for appearing before such Tribunal or quasi-judicial body or if allowed the aforesaid professional dress. In case of practicing chartered accountants, ICAI regulations provide that white shirt, white pant with black coat, a black tie or a buttoned-up black coat will be the dress code in summer. Striped or black trousers may be worn in place of white trousers in winter. In the case of female Members, however, the dress shall be black coat over white saree or any other sober saree.

22.3.2

Dress for and for the parties in person

NCLT Rules provide that parties appearing in person before the Tribunal shall be properly dressed.

22.3.2.1 Memorandum of appearance The authorised representatives shall make an appearance through the filing of memorandum of appearance or a power of attorney in Form No. NCLT 12 representing the respective parties to the proceedings. In case of legal practitioner/advocate, he may make appearance by filing Vakalatnama.

22.3.2.2 Clerk of authorised interns Rule 46 provides for registration of authorised representative’s interns. No intern employed by an authorised representative shall act as such before the Tribunal or be permitted to have access to the records and obtain copies of the orders of a bench of the Tribunal in which the authorised representative ordinarily appears, unless his name is entered in the register of interns maintained by the bench. An authorised representative desirous of registering his intern shall make a petition or an application to the registrar in Form NCLT 10 and on such application being allowed by the registrar, his name shall be entered in the register of interns

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General Practice and Procedure

SCHEDULE A: SCHEDULE OF FEES SCHEDULE OF FEES

S. Section of the Nature of application/petition No. Companies Act, 2013 1. Section 2(41) Application for change in financial year

Fees

2.

Section 7(7)

Application to Tribunal where company has been incorporated by furnishing false or incorrect info or by any fraudulent action.

5,000/-

3.

Section 14(1)

5,000/-

4.

Section 55(3)

Conversion of public company into a private company. Application for issue further redeemable preference shares.

5.

Section 58(3)

Appeal against refusal of registration of shares. 1,000/-

6.

Section 59

Appeal for rectification of register of member. 1,000/-

7.

Section 62(4)

8.

Section 71(9)

Appeal against order of Govt. fixing terms and 5,000/conditions for conversion of debentures and shares. Petition by Debenture-trustees. 2,000/-

9.

Section 71(10)

5,000/-

5,000/-

Application in the event of failure of redeeming 1,000/of debentures.

10. Section 73(4)

Application by deposition for repayment of deposit or interest.

11. Section 74(2)

Application to allow further time as considered 5,000/reasonable to the company to repay deposits.

12. Section 97(1)

Application for calling of Annual General meeting. Application for calling of general meeting of company other than annual general meeting

13. Section 98(1)

500/-

1,000/1,000/-

14. Section 119(4)

Petition to pass an order directing immediate 500/inspection of minutes books or directing a copy thereof be sent forthwith to person requiring it.

15. Section 130(1)

Application for re-opening of books of account, 5,000/if made by any person other than Central Government, Income Tax authorities, SEBI or any other statutory regulatory body or authority.

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SCHEDULE OF FEES S. Section of the Nature of application/petition Fees No. Companies Act, 2013 16. Section 131(1) Application by company for voluntary revision 5,000/of financial statement on Board's report. 17. Section 140(4)

Application for not sending the copy of representation of auditor to the members. Application by any other person concerned for cheque of auditors. Application for not sending copies of representation Application to Tribunal for investigation into company affairs. Application for approval for action proposed against employee. Application for imposition of restrictions on securities. Application in cases of oppression and mismanagement. Application for regulating the conduct of company. Application for appointment as Managing Director Application for waiver of requirement specified in clause (a) or (b) of Section 224 (1)

1,000/-

27. Section 245

Application for class action suits.

5,000/-

28. Section 441

Application for compounding of certain offences. Appeals to NCLAT

1,000/-

18. Section 140(5) 19. Section 169(4) 20. Section 213 21. Section 218(1) 22. Section 222(1) 23. Section 241(1) 24. Section 242(4) 25. Section 243(1)(b) 26. Section 244(1)

29. Section 421

2,000/1,000/5,000/1,000/2,500/10,000/2,500/5,000/2,500/-

5,000/-

30. Application under any other provisions specifically not mentioned herein 1,000/above 31. Fee for obtaining certified true copy of final order passed to parties other 5/- per than concerned parties under Rule 50. page

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Schedule of Fess for Provisions Notified in December 2016 S. No. 1. 2. 3.

Sl. No. 1.

Sections of the Companies Act, 2013 Sub-section (1) of section 230 Sub-section (2) of section 235 Sub-section (2) of section 238

SCHEDULE OF FEES Rule Nature of application or Number petition.

Fees

3(1)

Rs. 5,000/-

29

Section of the Companies Act, 2013 Sub-section (1) of section 66

Application for compromise arrangement and amalgamation. Application by dissenting shareholders. Appeal against order of Registrar refusing to register any circular.

SCHEDULE OF FEES Nature of application / petition. Application for reduction of share capital.

Rs. 1,000/Rs. 2,000/-

Fees in Rs. Rs. 5,000/-

♦♦♦♦

Annexure I – Checklist NCLT No. 25/2/2016-NCLT Government of India National Company Law Tribunal

6th Floor. Block -3. CGO Complex. Lodhi Road New Delhi-110003 Dated 28th July, 2016 ORDER Reference NCLT Rules, 2016 notified on 21.7.2016 by the Ministry of Corporate Affairs. 2. A uniform check list for scrutiny of the petition/application/appeal to be filed before all Benches of the National Company Law Tribunal as per the NCLT Rules, 2016 is attached (Annexure 'A") for necessary action. By order of ‘the National Company Law Tribunal. 22.19

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Annexure ‘A’ (Order No. 25/2/2016-NCLT dt. 28.7.2016) National Company Law Tribunal New Delhi Diary No...... Check List for Scrutiny of Petition/ Application /Appeal/Reply S. To be Ascertained Yes/No No. 1 Whether the petition/application/appeal falls under the territorial jurisdiction of New Delhi--- Bench of NCLT? 2 Whether petition/ application/ reply and all enclosures are legible and in English language? 3 Whether petition/application/appeal reply has been printed in double spacing on one side of standard petition paper with an inner margin of about four centimeter width on top and with a right margin of 2.5 cm, left margin of 5 cm and duly paginated, indexed and stitched together in paper book form? 4 Whether the relevant provisions of the Companies Act 2013/NCLT rules. 2016 have been clearly mentioned in the petition/application/appeal? 5 Whether petitioner/applicant/appellant is entitled to and have the requisite qualification to file the petition e.g. under section 241 and 242 or the Companies Act, 2013 in accordance with section 244 of the Act & attached documentary proof of entitlement? 6 Whether the petitioner/application/reply has been signed at the foot of each page by all the petitioner/ applicant / appellant /respondent and their name(s) has also been mentioned? 7 Whether name of the petitioner/applicant/ appellant/respondent, complete address viz. the name of the road, street, lane and Municipal Division or Ward Municipal Door and other number of the house; the name of the town or village; the post office. postal district and PIN Code has been mentioned in the petition/application/ appeal/ reply? 8 Whether fax number, mobile number, valid email address of the petitioner/ applicant/ appellant/ respondent have been mentioned? 22.20

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9

10

11

12

13

14

15 16 17 18

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Whether in every interlineations, eraser or correction or deletion in petition/ application / appeal / document/reply has been initialed by the party or his authorized representative? Whether affidavits (Form No. NCLT. 6 ) verifying the petition/ application/appeal/ reply from all the petitioner / applicant /appellant /respondent drawn on non-judicial stamp paper of requisite value duly attested by Notary Public I Oath Commissioner have been filed? Whether full name, parentage, age, description of each party, date, address and in case a party sues or being sued in a representative character, has been set out in accordance to rule 20 (5) of NCLT Rules, 2016? Whether petition/ application /appeal /reply has been drawn in prescribed form as per Annexure · ‘A’ of NCLT Rules, 20l6 with stipulated fee given in the schedule of these rules? The fee is to be paid by way of demand draft/IPO drawn in favour of “The Pay & Account Officer, Ministry of' Corporate Affairs, New Delhi", Whether documents accompanied to petition / application / appeal /reply have been duly certified by the authorized representative or advocate filing the petition or application or appeal? Whether the accompanied documents to the petition / application/appeal/reply has been verified from the originals and are in line with the provisions of -Rule 23 NCLT. Rules. 2016? The original should be brought before the Deputy Registrar for verification? Whether petition / application / appeal/ reply has been filed in three authenticated copies and delivered 10 the opposite party? Whether all relevant enclosures to the petition / application /appeal/ reply have been attached as per the Annexure 'B' of NCLT Rules.2016? Whether Annexures to the petition/ application/appeal /reply has been numbered serially? Whether Vakalatnama (with enrolment no.) flied, is bearing court fee stamp of Rs. 2.75 p and in accordance with the Circular No. 13/Rules/DHC dated 26.10.2009 issued by the Registrar General, Delhi High Court? Whether documents with regard to shareholding/paid up capital/balance sheet of the petitioner/applicant / appellant have been attached? 22.21

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Whether notice to be given to the Central Government along with copy of petition / application / appeal under the relevant provision of the Companies Act 2013? Whether proof of service of the petition/ application/appeal/reply on the concerned Registrar of Companies and Regional Director, Ministry of Corporate Affairs has been filed? Whether proof of service of the petition/ application / appeal / reply on all the respondents as well as caveat or (s), if any has been filed? Whether brief of synopsis within two or three pages has been filed? Whether date of events within two or three pages has been filed?

Scrutiny Clerk

♦♦♦♦

Annexure II – Naming of old matters No. 25/2/2016-NCLT Government of India National Company Law Tribunal

6th Floor, Block ·3. CGO Complex. Lodhi Road New Delhi-110003

Dated 23 July, 2016 ORDER In continuation of notification no. S.0.1934 (E), 1935 (E) dated 1.6.2016 and notification NCLT Rules. 2016, dated 21.7.2016, issued by the Central Government, Ministry of Corporate Affairs. 2 Consequent to aforementioned notifications of provisions of the Act and NCLT Rules. 2016. The cases/applications filed/to be filed before the National Company Law Tribunal are hereby given the following nomenclature and abbreviations: S. Name Application Suggested No. Nomenclature No/Section/ 1 Transfer Petition The pending cases before CI.B/BIFR/ TP AAIFE/ HC as on the date, the relevant New Bench/Year provisions of the Act notified/will be (C.P.....or notified received in the NCLT on ....No.......) transfer. 22.22

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S. Name No.

2 3

4 5

6 7

8 9

10 11

General Practice and Procedure

Application

Suggested Nomenclature (CLB/BIFR/ AAIFR/HC / Company Petition For fresh cases which are being filed CP No before the NCLT post 1st June, 2016 Section/Bench/ Year of filing The petitions received under chapter Rehab. Petition Rehabilitation XIX of the Act (RP) No petition Section/Bench/Year of filing Inter Bench Will apply for any transfer of any TA No...../Year (CP petition/application from one bench of No......../ RP No.....) Transfer NCLT to another bench. Application for stay, direction, IA No....in CP Interlocutory condonation of delay, exemption from No..../TP No .../ RP Application production of copy of order appealed No.../TA No..... against or extension of time prayed for in pending matters etc. For an application for review of an RA No... in CP No Review order/judgment passed by NCLT ./TP No..../ RP Application No..../ TA No..... Where a petition is filed by the Rst.A No .....in CP Restoration petitioner for restoring his/her case No...../TP Application which has been dismissed for default No...../RP No....../ TA No...... Will apply wherein a third party Ivn. P No.....in CP Intervention applies to the NCLT for adding him as No..../TP No...../ Petition a party to any current proceedings RP No..../ TA No.... Cross Application Will apply wherein the opposite party Crs. A. No......in prays for some relief in a matter which CP No..../TP is sub-judice before the NCLT. No...../ RP No..../TA No.... For filing a contempt application Cont. A No...in CP Contempt No....../ TP No..../ Application RP No..../TA No..... Any application/petition which does MA No.....in CP Miscellaneous not fall in of the above categories, No...../TP No......../ Application specially filed after disposal of the RP No...../TA No... matter

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S. Name Application Suggested No. Nomenclature 12 Company Appeal For appeal against any order passed by Diary No./ the Registrar(NCLT) or Registrar of Bench/Year Companies or against any authority against which the NCLT may sit in appeal Where there is already an appeal Cross Appeal 13 Cross Appeal preferred against any order/judgment No.....in CP and another party to the case files No....../TP No..../ appeal to the same order RP No..../ TA No....

By order of the National Company Low Tribunal, (Shiv Ram Bairwa) Registrar

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Chapter 23

Jurisdiction and Limitation 23.1

INTRODUCTION

Jurisdiction in this case means the nature and extent of the powers that are vested with the Tribunals and Appellate Tribunals to entertain various petitions and applications. There can be local and pecuniary limits to the jurisdiction of a quasijudicial body.

23.1.1

What is jurisdiction?

In Hriday Nath Roy v Ram Chandra, (A.I.R. 1921 Cal. 34) the term “jurisdiction” was explained as follows: “….jurisdiction may be defined to be the power of Court to hear and determine a cause, to adjudicate and exercise any judicial power in relation to it; in other words, by jurisdiction is meant the authority which a Court has to decide matters that are litigated before it or to take cognizance of matters presented in a formal way for its decision.”

23.1.2

Why is it relevant?

The number of tribunals are more than the number of CLBs but are less than the number of high courts. So, different areas are assigned to different Tribunals. Thus, the relevant tribunal has to be approached by the concerned person. For the purpose of limitation period also, jurisdiction is relevant. If someone files an application/petition in the wrong Tribunal, the registry of that Tribunal may reject the application/petition. Filing before wrong Tribunal will not be considered as filing for the purpose of the Limitation Act and the petition or application may become time barred unless it can be shown that filing was made under a bona fide mistake.

23.1.3

What are the types of jurisdiction?

Jurisdictions are of following types: 1. Jurisdiction over subject matter; 2. Territorial Jurisdiction; 3. Pecuniary Jurisdiction; 4. Appellate Jurisdiction.

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23.1.3.1 Jurisdiction over the subject-matter Under the Companies Act, 2013, certain subject matter have been assigned to the Tribunal, some through the Act and others through the rules1. A chart of the powers that are transferred from various authorities and the new powers are set out in details in the chart provided at the beginning of the book (Powers of NCLT: At a Glance). These are the aspects over which the Tribunal will have exclusive jurisdiction. These subject matters which are within the jurisdiction of the Tribunal are further divided between the principal bench and other benches. The principle bench has retained jurisdictions over certain subject matters like class actions which will be dealt only by that bench. The list of such matters is annexed as Annexure I to this chapter. Similarly, NCLAT has also been empowered to hear appeal from order passed by several authorities like NCLT, Competition Commission. The table setting out the subject matter jurisdiction is given at the start of the book in initial pages.

23.1.3.2 Territorial jurisdiction The territorial jurisdiction of the Tribunal is prescribed state-wise which is set out in Annexure II. The cases arising out of different states will be assigned to the tribunals specified therein. The government has initially constituted 11 tribunals which has increased later on. The territory assigned to each of the Tribunal has been prescribed. Under the Companies Act, 2013, initially certain powers could be exercised only by the principal bench at New Delhi as seen hereinabove. While deciding the jurisdiction one should check the notifications to ensure: (a) The Bench of Tribunal that has territorial jurisdiction (b) Whether that Bench of Tribunal has the jurisdiction over the specific subject matter under which application/petition is sought to be filed. Currently, there are 14 NCLT’s and 2 NCLAT’s. The territorial jurisdiction of each Tribunal is set out in the Table at the start of this book.

23.1.3.3 Pecuniary jurisdiction With respect to matters that fall within the jurisdiction of Delhi benches, a pecuniary limit is set for these benches as there are two benches namely – Principal Bench and New Delhi Bench operating in Delhi. The pecuniary jurisdiction is set out as Annexure III at the end of this chapter. For the rest of the benches, no pecuniary jurisdiction has been prescribed and they can take up any matter within the jurisdiction of their territory and subject matter. Thus, under the Companies Act, 2013, barring New Delhi benches, the Tribunal is empowered to hear any case that falls within its jurisdiction irrespective of the amount involved in the matters. 1

23.2

The power of the Central Government to empower Tribunal to deal with new subjects under the rules is questionable. However, until the constitutionality of such provisions is challenged we will deal with those provisions.

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23.1.3.4 Original or appellate jurisdiction The jurisdiction of any court can either be original or appellate. In the exercise of its original jurisdiction a court entertains original suits, while in the exercise of its appellate jurisdiction it entertains appeals. With respect to the Tribunal, most of the cases are in its original jurisdiction as they come up for the first time before the Tribunal. The appellate jurisdiction is vested with the appellate tribunal. However, in certain cases certain appellate power have been vested with the Tribunal. For instance, they can hear appeals against the orders passed by the registrar of the Tribunal rejecting a petition or appeal against the order of the ROC striking off the company from the register of companies.

23.1.3.5 Division bench & single bench There are two types of benches contemplated in the Act read with the rules, notifications and circulars. The division bench shall consist of judicial and technical members and single bench shall consist of judicial members. The cases to be decided by the division bench and single bench shall be determined by the Tribunal from time to time. The current assignment have been notified vide order dated 6 July 2016 which is annexed to this chapter as Annexure IV.

23.1.4

Bar on civil court jurisdiction

The Act provides two sections that bar the jurisdiction of a civil court: Section 430 provides that: “430. Civil court not to have jurisdiction No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal.” Following provision had been provided under the Chapter XIX dealing with revival and rehabilitation of sick companies(this provision was deleted on 15th November 2016): “268. Bar of jurisdiction: No appeal shall lie in any court or other authority and no civil court shall have any jurisdiction in respect of any matter in respect of which the Tribunal or the Appellate Tribunal is empowered by or under this Chapter and no injunction shall be granted by any court or other authority in respect of any action taken or proposed to be taken in pursuance of any power conferred by or under this Chapter.”

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23.1.4.1 Case laws and their applicability As regards jurisdiction of courts and the provisions of bar on jurisdiction, many judgments have set out the basic principles for interpreting such provisions that restrict the powers of the Court.

Case 1: In Re: Sindhri Iron Foundry (P) Ltd., [l964 (34) C.C.510] In this case, a single judge of the Calcutta High Court held that sections 397 and 398 (of the Companies Act, 1956) should be liberally interpreted to remedy the mischief. At the same time, the learned Judge also indicated that only when the facts justify interference by the Court in exercise of its powers under the two sections and if the conditions prescribed by the sections are fulfilled, the Court ought not to relegate the parties to protracted costly litigation. Applicability: The powers of the Tribunals have widened and after the insertion of class action, the jurisdiction of civil courts in company law matter has further reduced and they have to ensure whether the matters provided before them does not fall under any of the powers given to the Tribunal. It is still to be tested, whether cases that fall under class action but cannot be pursued by the shareholder or depositor under class action, as they do not fulfill the eligibility, can be taken up before the civil court. However, the principles of law provide that where there is a wrong, there should be a remedy. It is thus possible, that where the member is not eligible for filing class action, he can still take recourse of civil courts. However, this aspect has to be tested under the new Act. Case 2: Hungerford Divestment Trust Ltd., Re v Turner Morrison & Co. Ltd. [1972 (I) Cal, 286] In this case, the learned single judge of the Calcutta High Court has observed in paragraph 55 as follows: "Serious and disputed questions of title and controversies, already the subject of pending legal proceedings, should not generally in my view be adjudicated in this summary proceeding under S. 397 (of 1956 Act)of the Companies Act. Section 397 (of 1956 Act)is in the nature of a summary proceeding by way of an application. Serious questions have been raised in the controversies between the parties, for instance, (i) question, whether certain shares are forged or not, (ii) different judgments in pending suits from which appeals are going on and (iii) the 707 shares whether rightly or wrongly withheld which is the subject of criminal proceeding as well as lien suit proceedings." Applicability: The powers of Tribunal are much wider than the powers of the CLB. They have been granted wider powers of taking evidence including appointment of commissioners. The general powers of Tribunals are set out in detail under NCLT Rules read with the Companies Act, 2013. In light of this, such decision will be a test in every case where such defence is taken that there are complicated set of facts. The 23.4

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Tribunals or the Courts will have to see the facts of the cases and asses the complexity and the applicability of Tribunal to deal with it in light of new powers.

Case 3: Thiruvalluvar Velanmai Kazhagam (P) Ltd. v M.K. Seethai Achi [1988 (64) C.C. 304] In this case Justice S.A. Kader, has taken the view that the civil court will have jurisdiction, only in respect of matters falling exclusively within the jurisdiction of the Court (Company Court) having jurisdiction under the Companies Act. Further, the learned Judge has also held on page 307 as follows: "It is well-settled that every presumption should be made in favour of the jurisdiction of the Civil Court. In other words, the exclusion of jurisdiction of the Civil Court is not to be readily inferred. Such exclusion must be either explicitly expressed or clearly implied. A provision of law ousting the jurisdiction of the Civil Court must be strictly construed and the onus lies on the party, seeking to oust the jurisdiction, to establish his right to do so." In this case judge gave an example of the title of shares. While considering the jurisdiction of the Company Law Board, the court found that the decision with reference to title as regards the shares was only incidental, while considering the application for rectification of the register. Hence, it cannot be said that the decision with reference to title is exclusively within the jurisdiction of the Company Law Board. Applicability: The principle is applicable but the specific questions, which are in exclusive jurisdiction of the Tribunal, have to be reviewed and tested in light of the new powers given to the Tribunals in different provisions of the Companies Act, 2013. Case 4: V. Balachandran v Union of India and another [1993 (76) C.C.67] In this case, division bench has upheld the validity of the constitution of the Company Law Board in lieu of the courts on the ground that judicial review is provided. The division bench has also taken note of sec 10F of the Companies Act, 1956, providing for the appeal to the High Court on question of law. From this, the court observed that it is not in a position to hold that Company Law Board has wider powers than the courts. In this judgment, the bench has indicated that unless judicially trained independent persons of proven integrity are appointed to adjudicate such questions, one may get a feeling that there is an attempt to create not a parallel and independent mechanism for the purposes that were noticed by the experts, namely, the Joint Parliamentary Committee and the Sachar Committee, but for, unknown reasons to trammel the adjudicatory mechanism, and the litigants, who hitherto were entitled to move the courts. Thus, may get a feeling that the decision making process might be affected by reason of dependence upon the executive. The bench has also considered the Company Law Board members qualifications, experience and other conditions of Service Rules, 1993 and also observed as follows: "We, however, feel constrained to observe that the Respondents shall be duty-bound to reframe the rules as observed above and such refraining must be completed within a framework of a time schedule. For the exercise 23.5

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in this behalf, a period of nine months from the date of receipt of a copy of this order will be reasonable and proper." Pursuant to this only, we find that the new rules of the year 1993 have been framed. Even after the framing of the Rules in 1993, as indicated above, there is no mandatory provision to include the judicial member in the bench to be constituted by the Company Law Board. Applicability: This case will not be applicable as two supreme courts cases have taken place to determine the competence of the Tribunal. The apex court have gone in depth on the jurisdiction and constitutional of the composition of the Tribunal and the qualification of the members of Tribunal and Appellate Tribunal. Thus, it is unlikely that such questions will be raised in future.

Case 5: Strdiewell Leathers (P) Ltd. v Bhankarpur Simbhaoli Beverages (P) Ltd. [1994 (79) C.C. 139] In this case, it is stated that the original jurisdiction of the High Court in respect of such matters has been transferred to the Company Law Board formed under the newly inserted sec 10E of the Companies Act. From this, it cannot be inferred that the powers of the High Court is vested with the Company Law Board. Applicability: The principle is applicable. The powers which are vested in Tribunal have to be considered. For instance, it cannot be assumed that all the powers that were exercised by High Court in winding up can be exercised by Tribunal. The powers of Tribunal are limited to those provided in the Act read with the rules. High Court is a body formed under the Constitution of India and has wider powers. Thus, permissibility of the Tribunal to do or not do certain things or its competence to pass certain orders have to be seen in the light of the nature and extent of powers conferred by the Companies Act, 2013. Case 6: Vankamamidi Venkata Subba Rao v Chatlapalli Seetharamaratna Ranganayakamma [MANU/SC/0800/1997: [1997]3SCR530] Here, the Apex Court has held that it was equally settled that when jurisdiction was conferred on the Tribunal, the Courts examine whether the essential principles of jurisdiction had been followed and decided by the Tribunals, leaving the decision on merits to the Tribunal. It was also equally settled legal position that where a statute gives finality to the orders of the special Tribunal, the civil court's jurisdiction must be held to be excluded, if there was adequate remedy to do what the civil court would normally do in a suit. Such a provision, however does not exclude those cases where the provisions of the particular Act have not been complied with or the statutory Tribunal had not acted in conformity with the fundamental principles of judicial procedure. Where there was an express bar of jurisdiction of the Court, and examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but was not decisive to sustain the jurisdiction of the civil court. Where there was no express exclusion, the examination of the remedies and the scheme of the particular Act to find out the 23.6

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intendment becomes necessary and the result of the inquiry may be decisive. In the latter case, it was necessary that the statute creates a special right or liability and provides procedure for the determination of the right or liability and further lays down that all questions about the said right or liability shall be determined by the Tribunal so constituted and whether remedies were normally associated with the action in civil courts or prescribed by the statutes or not. Therefore, each case requires examination whether the statute provides right and remedies and whether the scheme of the Act was that the procedure provided would be conclusive and thereby excludes the jurisdiction of the civil court in respect thereof. The Apex Court has left open the question of finality to be decided depending upon the scheme of the Act. As regards the position relating to the title of shares, sec 111(7) of the Act, reads as follows: "On any application under this section, the Company Law Board-(a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from, the register; (b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification." The expression used in the above sub-section is "may". That itself is an indication that the Parliament’s decision of title relating to the shares should be incidental. Further, as regards title, it is well known that the decision by the civil court is always preferable. As indicated by the Supreme Court, there is no implication in sec 10C or in any other sections of the Companies Act to exclude the jurisdiction of the civil court. Applicability: Principles is applicable.

Case 7: K. Radhakrishnan v Thirumani Asphalts and Felts (P) Ltd., [MANU/TN/0129/1998, 1998(1) CTC 682] In the decision, the learned single judge of this court has held that Companies Act does not bar jurisdiction of the civil courts in respect of matters, which are expressly made subject to the jurisdiction of the company court. The learned judge has considered a number of decisions and has held in paragraph 11 as follows: "The enactment of a special statute like the Companies Act does not have the effect of barring the jurisdiction of the Civil Court unless the statute expressly prohibits the jurisdiction of the Civil Court in relation all matters arising under the statute or the scheme of the statute is such that such prohibition is necessarily to be implied. There is no provision in the Act expressly barring the jurisdiction of the Civil Court with respect to all matters arising under the Act. The bar of jurisdiction is implied and is in respect of some matters only." In this case, the learned Judge was concerned with the scope of sec 283 of the Companies Act. The question involved was whether the director of the Company was validly removed or not? The applicant in that case moved the Company Court for 23.7

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declaration that he has not vacated the office. The question was whether the petitioner ought to have moved the Company Law Board or the Company Court? After considering the provisions, the learned Judge took the view that the Company Court had jurisdiction to maintain the company petition. Applicability: The Companies Act, 2013 expressly bars the jurisdiction of civil courts in certain cases. The powers of class action is very wide to include contravention of any provision. Thus, in light of this, the powers of civil courts are curtailed to a great extent. It will however have to be tested which powers remain with the courts. For instance, the question of vacation of director can still go to the court. However, if the director continues to act as a director despite such vacation, it will be a violation of the provisions of the Companies Act, 2013 giving rise to a class action, which is within the exclusive jurisdiction of Tribunals. Thus, there is no straight forward answer and it will depend on the facts of each case.

Case 8: Sulochana Amma v Narayanan Nair [MANU/SC/0047/1994 : 1994 ECR 195 (SC)] and Ashok Kumar Srivastav v National Insurance Co. Ltd. [MANU/SC/0314/1998 : [1998] 2 SCR 1199] The Apex Court has held that a decision rendered by a court or tribunal will operate as res judicata. In paragraph 5, the apex court has clearly stated that the principle of res judicata will apply to all proceedings either civil or criminal. It equally applies to boards and tribunals other than civil courts. In the latter decision cited above, the apex court has reinstated the above said principle. Applicability: This principle is applicable. However, such bar does not apply on the person who is not a party to such proceedings. Case 9: Ganga Bai v Vijay Kumar and Ors. [MANU/SC/0020/1974: (1974) 2 SCC 393] “15..... There is an inherent right in every person to bring suit of a civil nature and unless the suit is barred by statute one may, at ones peril, bring a suit of one's choice. It is no answer to a suit, howsoever frivolous the claim, that the law confers no such right to sue. A suit for its maintainability requires no authority of law and it is enough that no statute bars the suit. But the position in regard to appeals is quite the opposite. The right of appeal inheres in no one and therefore an appeal for its maintainability must have the clear authority of law. That explains why the right of appeal is described as a creature of statute.” Applicability: This principle is applicable. Case 10: 63 Moons Technologies Limited v Union of India & ors (NCLAT order dated 9/3/2017-Company Appeal (AT)-3/2017). NCLAT held that the territorial jurisdiction of Benches of NCLT is based on the basis of where the registered office is situated. It is not based on the place where the cause of action arises. 23.8

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23.2

Jurisdiction and Limitation

LATEST JUDGEMENTS ON JURISDICTION OF NCLT Date/details

Particulars

Jaipur Metals & When a winding up order is not passed by the High Court, Electricals Employees NCLT has the jurisdiction to continue and decide insolvency Organization v Jaipur petition. Metals & Electricals P.S: Even after a winding order is passed, the winding up proceedings can be transferred to NCLT at the discretion of HC Ltd., (2019) 4 SCC and insolvency petitions can continue. For details of case laws 227 on this aspect please see judgements of 2019-2021 in & Chapter 3. Forech India Ltd. v Edelweiss Assets Reconstruction Co. Ltd., 2019 SCCOnLine SC 87 Jotun India P. Ltd. v The High Court held as follows PSL Ltd. “In view of the afore-stated reasoning and the case laws cited, Appeal Lodging No. 68 we are of the considered opinion that the Company Court while of 2018 in CP No. 434 dealing with the winding up petition (saved petitions) shall of 2015 have no jurisdiction to say the proceedings before the NCLT in respect of revival or resolution issue. We may further state that in case the forum under the Insolvency and Bankruptcy Code, 2016 i.e. NCLT fails to revive or successfully implement the resolution plan, then the Company Judge seized with the winding up petitions (saved petitions) would deal with the petition pending before company Court and the NCLT to go ahead with the liquidation proceedings/winding up proceedings simultenously would not serve any purpose. There is likelihood of creation of confusion and complexity. To harmonize this likely situation, we observe that the Company Judge, in saved petitions, would exercise jurisdiction in case revival efforts by NCLT fails”.

23.3

LIMITATION PERIOD

The laws of limitation is enacted to put in place a time frame within which action can be taken. It is essentially considered as “statutes of peace and repose” as they believe that matter that are long dead ought not to be unearthed and litigated. A period is provided for various types of matter and if a party is aggrieved, they have to apply to the courts before the prescribed period. This law ensures that the courts and tribunals lend their aid and assistance only to those who are vigilant and not those who sleep over their rights. Limitation laws suggest that all disputes/claims/remedies should be kept alive only for a legislatively fixed period of time, for otherwise disputes would be immortal. Though arbitrarily fixed limits may seem unfair to some, however they 23.9

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are most pragmatic insofar as there is rarely any justice in stale claims - and evidence also gets destroyed, hence keeping remedy alive serves no useful purpose.

23.3.1

Applicability of Limitation Act

Section 433 of the Companies Act, 2013 provides as follows: “..Limitation Act, 1963 shall, as far as may be, apply to proceedings or appeals before the Tribunal or the Appellate Tribunal, as the case may be.”

23.3.1.1 Scope of applicability The section states that Limitation Act will apply “as far as may be”. This term might have to be interpreted in every case to determine whether the principles as set out under Limitation Act apply. Thus, the Limitation Act will apply in most of the matters that are before the Tribunal and Appellate Tribunal like: (a) Class action; (b) Oppression and mismanagement; (c) Reopening of account; (d) Application for removal of auditors & others. This limitation will mostly apply to matters involving two or more parties for resolving their grievances. However, the Limitation Act has limited applicability to corporate restructuring cases (e.g. mergers, reductions of capital). However, if there are objections raised by creditors, members or others, then in that event the limitation period will be relevant while considering their objections. Under the Companies Act, 1956, the Limitation Act did not apply to the proceedings before Company Law Board. Thus, in many cases of oppression and mismanagements, it was seen that even old oppressive acts were also made a part of grievance that were tried to be raised by the members. From now onwards, the said Act will apply only to such matters. In this context few questions may arise: a)

23.10

Pending CLB cases will be transferred to the Tribunal. How will these cases be decided? Limitation Act is not applicable to CLB but is it applicable to cases before the Tribunal? Section 6 of the General Clauses Act, 1897 provides that commencement of the new Act does not affect any legal remedy and legal proceedings or remedy and such legal proceedings or remedy may be instituted or continued as if the repealing Act or regulation had not been passed. Thus, the legal proceedings instituted and pending in CLB and transferred to NCLT will be dealt with in accordance with the provisions of Sections 397 & 398 of

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Companies Act, 1956 and provisions of Limitation Act will not apply to proceedings instituted before the commencement of the sec 433 of Companies Act, 2013. The view of the author was attested by NCLAT in Pallavi Gems Pvt Ltd & Anr v Haresh N Mataliya & ors (NCLAT order dated 22/3/2017- Company Appeal (AT) No. 73/2017) where it held that sec 433 is applicable only for petition filed after 1/6/2016 and thus petition filed before this date could be dismissed on ground of Limitation. b) What will be the fate of the matter that is transferred from CLB to NCLT? If a case pertains to a matter that is old (under the Companies Act, 1956, there was no time limit provided for approaching the CLB), such matter can be decided by CLB as limitation period was not applicable. Will the same matter be dismissed once it is transferred to NCLT, if it is beyond limitation period? In view of the discussing set out above, the answer to this question is ‘no’. They will continue to be heard and limitation provisions will not apply to matter that are already filed and pending as on 31 May 2016 before CLB. It is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implications made to have retrospective operation2. This rule applies where the statutes affects vested rights or imposes new burdens or impairs existing obligations. Thus, every statute which takes away or impairs vested rights acquired under existing laws or creates a new obligations or imposes new duty or attaches a new disability in respect of transactions already past must be presumed to be intended not to have a retrospective effect3. c) Will the Limitation Act apply with respect to the matters filed after 1 June 2016 if they pertain to acts that have taken place before 1 June 2016? The answer to this will be found in several judgment that deal with Operation of Statues. The following paragraph from 14.Justice G. P Singh, Principles of Statutory Interpretation, Wadhwa & Co. Eighth Edition 2002 provides an answer to the above question and any ancillary questions that may arise in the minds of the readers; Statutes of Limitation are regarded as procedural and the law of limitation which applies to a suit is the law in force at the date of institution of the suit irrespective of the date of accrual of cause of action4. The object of the statute of limitation is not to create any right but to prescribe periods within which 2

3

4

Keshvan v State of Bombay AIR 1951 SC 128; See Chapter on Operation of Statutes in 14. Justice G. P Singh, Principles of Statutory Interpretation, Wadhwa & Co. , Eighth Edition 2002; Chapter on Operation of Statutes in 14.Justice G. P Singh, Principles of Statutory Interpretation, Wadhwa & Co. , Eighth Edition 2002; C. Beepathuma v V Shankar Narayana AIR 1965 SC 241.

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legal proceedings instituted for enforcement of rights which exists under the substantive law. But after expiry of the period of limitation the right of suits comes to an end. Therefore, if a particular right of action has become barred under an earlier Limitation Act, the right is not revived by a later limitation act even if it provides a larger period of limitation that that provided by an earlier Act5. When the later act provides a shorter period of Limitation, than that provided by the earlier act, a right of suit, which is subsisting according to the earlier act on the date when the later act comes into operation, will not be taken to be extinguished. If there is still time on the basis of the later Act within which such a suit can be filed, the right has to be availed of within that period, and the benefit of the earlier act is not available6. Condonation of delay in such cases in filing the suit or claim will be governed by the provisions of the later act and not by the provisions of the earlier act. But if the shorter period provided in the later act has already expired on the date of its enforcement, the suit can be filed within a reasonable time after the commencement of the later Act. Otherwise the effect of the later act would be to extinguish a subsisting right of suit, an inference which cannot be reached except from express enactment or necessary implication7.

Grey Areas Company can go for compounding of any violation (where compounding is permissible) of any year in any year. There is no specific section which excludes limitation act from applying to compounding. It ought to be clarified that it is not applicable for these matters. Otherwise, companies will not be able to compound non-compliance, which are beyond a particular period as the period of limitation that may be applicable. Further, it is unclear, whether the period of limitation will apply to the cases of compounding? In the author’s view, we can say that Limitation Act will not apply. Applicability of Limitation Act is restricted by using the term “as far as may be” in sec 433. If an offence can be prosecuted, then the relief of compounding should be allowed till the time such prosecution can take place. Otherwise the basic intent of this remedy (which is to provide relief against prosecution) will be lost.

23.3.1.2 Interpretation of the term “as far as may be” However, there are instances, where the time period is given and an additional time period is given upto which extension can be given. For instance, in case of an appeal to the Tribunal, the same can be filed within a period of 45 days. However, Appellate Tribunal can extend this time period by another 45 days. In this case, the provision 5 6 7

Appasami Odayar v Subromanya Odiyar ILR 12 Mad 26. Gopaldas v Tribhuvan AIR 1921 Bom 40. New India Insurance Co ltd. v Shanti Misra AIR 1976 SC 237.

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of sec 5 (which allow extension of time to any extent when sufficient cause is shown) cannot be made applicable. We will have to rely on sec 433 which states that Limitation Act will apply “as far as may be”.

23.3.1.3 Calculation of limitation period The limitation period for each types of matter before the Tribunal has to be considered by referred to Schedule I of the Limitation Act. The period will be computed in the manner provided in the Limitation Act, which provides certain guidelines for computing limitation period. Further, sec 5 provides that the time can be expanded if “sufficient cause” is shown. This principle of expansion of time can be allowed even by the Tribunal (in situations similar to those that are explained earlier).

23.3.2

General principles of limitation

The law of limitation is rigid. Courts have no power to free the litigant from its shackles by using its inherent powers. However, by providing the principles of exception & exclusion, the rigidity of the law has been cut down (sections 4 to 24 of the Limitation Act, 1963). These principles make just allowances ex debito justitate and are based on one rational principle or the other.

23.3.2.1 Dismissal of petition/application Section 3 of the Limitation Act, 1963 mandates the court to dismiss a suit even though limitation is not set up as a defense. The Tribunal, if it feels that limitation is a relevant aspect, may frame the question of limitation as a preliminary issue. If on face of it, an application or petition is barred by limitation, the Tribunal have power to summarily dismiss an application/petition. In other cases, it can take a decision after considering the evidences on record.

23.3.2.2 Extension of period Section 4 of the Limitation Act, 1963 is based on the principles that “Act of Court shall prejudice no man”. When the period of limitation of instituting a suit, making an application or filing an appeal expires on a day when the court is closed (completely or during any part of its working hours), the same can be done on the day when court re-opens.

23.3.2.3 Expansion of time on showing sufficient cause Section 5 of the Limitation Act, 1963 allows filing of application or appeals after the expiry of prescribed period, if sufficient cause is shown. The phrase ‘sufficient cause’ has to be interpreted liberally, keeping in mind at all times that a litigant normally does not stand to benefit from delay. On the contrary, there is always a chance of him losing his right altogether. Hence, an interpretation that advances substantial justice has to be accorded. However, in case of the Companies Act, 2013, where the provisions at many places provide to what extent the delay can be condoned, this 23.13

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provision cannot be used. However, for determining whether such additional period should be given (to the extent provided by law), the principles of what constitutes sufficient cause can be considered.

23.3.2.4 Exclusions on account minority etc. Section 6 to 8 of the Limitation Act, 1963 provide the time limit that can be excluded from calculation, which includes period when litigant could not have sued on account of minority/insanity/idiocy.

23.3.2.5 Continuous running of time Section 9 of the Limitation Act, 1963 provides for continuous running of time and provides for instance when such continuous running of time can be suspended

23.3.2.6 Other exclusions Section 10 of the Limitation Act, 1963 envisages the principle of no limitation in matters of trust expressly created for specific purposes. Section 11 of the Limitation Act, 1963 applies only in case of foreign contracts.

23.3.2.7 Manner of computation of time limit Part III comprising of sections 12 to 24, deal with the manner in which time is computed. As they deal with the manner of calculations and do not provide for additional time period, it will be applicable in every instance where limitation is to be determined. (a) Section 12 of the Limitation Act, 1963 excludes the day from the period of limitation, from where the period is to be reckoned, plus the day when a decree/order is appealed against the date of judgment. Further, the time properly required in obtaining a copy of the judgment/decree is also excluded. (b) Section 13 of the Limitation Act, 1963 provides for a situation where leave to sue as a pauper (who is not able to pay for the litigation) is sought. (c) Section 14 of the Limitation Act, 1963 provides that if a person spends time pursuing a remedy in a court which does not have jurisdiction and if the person has done this with due care and caution, then the overall period of limitation will get extended to the extent of time period in which he was pursuing this remedy in the wrong forum. Observation This may prove to be a useful provision, as in the new Act, the jurisdiction of the civil courts and Tribunals are not clearly demarcated. Thus, it is possible that the courts formulate certain tests. But till then, if an incorrect remedy is pursued, the litigant can take advantage of this section.

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(d) Section 15 of the Limitation Act, 1963 excludes certain periods from calculation. For example, the period where filing of a suit or execution application is stayed for instance under Chapter XIX or Chapter XX). (e) Fraud: Section 17 of the Limitation Act, 1963 manifests the policy of law that fraud ought to benefit none and no amount of time can turn an illegality into legality. The legal principle provides that fraud cannot be covered by lapse of time and the party who has been defrauded will not be without a remedy. It excludes the period during which a person was laboring under fraud was unaware of his right and the violation or could not bring a suit as he was forced not to do so. However, if the period when such defrauded person could discover the fraud with reasonable diligence is not excluded and will be considered. Observation This provision is useful for calculating limitation in case of several applications that are filed for seeking remedy against fraudulent practices. Under the Companies Act, 2013, in many instance of fraud, the aggrieved person has to approach the Tribunal. For instance, fraud in keeping accounts, fraudulent operation and management of company etc. (f) Sections 18 to 20 of the Limitation Act, 1963 provides instances where a fresh/renewed period of Limitation can begin. It is a part of principle of admissions. (g) Section 21 of the Limitation Act, 1963 deals with the period of limitations with respect to the parties that have been added to the petition or application or which have been substituted (added in place of another) in a suit. (h) Section 22 of the Limitation Act, 1963 contains the principle of continuing cause of action where the period of limitation is renewed each moment as long as the wrong continues. Observation This will be useful for wrongs done by the company or other persons that have a continuing impact or continuing breaches by a party which is of a continuing nature. (i) Section 23 of the Limitation Act, 1963 provides for commencement of the cause of action for suits for compensation for acts not actionable without special damage. (j) Section 24 of the Limitation Act, 1963 specifies that all the documents shall be considered with reference to the Gregorian Calendar (English Calendar from January to December)

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23.3.2.8 Ownership by prescription Part IV of the Limitation Act deals with acquisition of ownership by possession and has limited use for the purpose of Companies Act, as it deals with instance where ownership is acquired by possession.

23.3.2.9 Miscellaneous provisions Part V deals with miscellaneous provision that will be of limited use.

23.3.2.10 Schedule I: Limitation period The Schedule I is the schedule that provides the period of Limitation in different cases. The Art 137 of this Schedule I is very useful and is used in most of the application and petition for calculating the period of Limitation. It is a default clause that provides a period of three years as the period of limitation, for applications for which no period of imitation is provided.

23.3.2.11 Enlargement of time by Tribunal [NCLT Rule 153] The rules allows the NCLT to extent the time period when any period is fixed under the NCLT rules, or granted by the Tribunal for doing any act, or filing of any document or representation to the Tribunal but from time to time in the interest of justice. The enlargement of time is at the discretion of the Tribunal and this power is given notwithstanding the time periods fixed under the NCLT rules. However, the Limitation Act will prevail over this rule. The Tribunal can grant extension of time to the extent is not barred by the Limitation Act in instances where the Limitation Act is applicable.

23.4

LATEST JUDGEMENTS ON LIMITATION Date/details

B.K. Educational Services Private Limited v Parag Gupta and Associates, 2018 Indlaw SC 991 Civil Appeal No. 23988 of 2017.

23.16

Particulars SC held that the Limitation Act, 1963 will apply to applications that are made under sections 7 and 9 of IBC on and from the commencement of the Code on 01-12-2016. The Supreme Court has through this judgment clarified that IBC proceedings cannot be initiated based on time barred claims. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Art 137 of the Limitation Act, except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application. It held “It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default

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Date/details

Jurisdiction and Limitation

Particulars

occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.” Gaurav The Supreme Court in the above matter held that the proceedings Hargovindbhai Dave under sec 7 of the IBC are “an application” and not “suits”; thus v Asset they would fall within the residuary article 137 of the Limitation Act and the right to apply will arise from the date of default. Reconstruction In this case, the date of default was stated in the application under Company, 2019 section 7 of the Code to be the date of NPA i.e., 21.07.2011. Indlaw SC 994 Thus, the SC held that the limitation began to run from the date of NPA and hence, the application filed under sec 7 of the Code Civil Appeal No. 4952 of 2019 on 03.10.2017 was barred by limitation. Sagar Sharma and The Supreme Court in the above matter held that the date of Anr v Phoenix Arc coming into force of the IBC Code does not and cannot form a trigger point of limitation for applications filed under the Code. Pvt Ltd and Anr., “Applications” are petitions which are filed under the Code, it is Civil Appeal No. Art 137 of the Limitation Act which will apply to such 7673 of 2019 applications and period of limitation is 3 years. Jignesh Shah and The Supreme Court stated that only the date of default will be Anr v Union of relevant for the purpose of winding up proceedings (and, by India, 2019 Indlaw extension, to IBC applications). It is thus clear that since the Limitation Act is applicable to applications filed under Sections SC 939 7 and 9 of the Code from the inception of the Code, Art 137 of the Limitation Act gets attracted. “The right to sue”, therefore, Civil Appeal No. Writ Petition (Civil) accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the No. 455 of 2019 application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, sec 5 of the Limitation Act may be applied to condone the delay in filing such application.” Babulal Vardharji The SC held that period of limitation of 12 years related to Gurjar v Veer mortgage liability cannot be applied for the purpose of Gurjar Aluminium, calculating the period of limitation for sec 7 petition. The date of coming into force of the IB Code does not and cannot form a Civil Appeal No. trigger point of limitation for applications filed under the Code. 6347 of 2019 Equally, since “applications” are petitions which are filed under the Code, it is Art 137 of the Limitation Act which will apply to such applications.

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Date/details

G. Eswara Rao v Stressed Assets Stabilisation Fund, Mumbai and another, 2020 Indlaw NCLAT 44 Case No. Company Appeal (AT) (Insolvency) No. 1097 of 2019

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Particulars The SC further held that where the date of default is mentioned as in the ‘08.07.2011’ in the petition and has been stated for the purpose of maintaining the application under sec 7 of the Code, and not even a foundation is laid in the application for suggesting any acknowledgement exists or that there is any other date of default, then the SC held that later the later this submission cannot be permitted. In the absence of pleading in the petition as regards extension of period of limitation, the petitioner cannot take advantage of sec 18 of the Limitation Act and the same would not apply to the application under consideration in the present case. It further held that application of the rules of limitation to CIRP does not, in any manner, deal with any of the rights of the creditor. It only bars recourse to the particular remedy of initiation of CIRP under the Code. Issue: The questions that arose for consideration were: (i) Whether the application under sec 7 of the I&B Code was barred by limitation? and; (ii) Whether the order of Decree passed by the Debts Recovery Tribunal-I, Hyderabad on 17th August, 2018 can be taken into consideration to hold that application under sec 7 of the I&B Code is within period of three years as prescribed under Art 137 of Limitation Act, 1963? Held: The NCLAT while holding that the application under sec 7 was barred by limitation held as follows: “In “Binani Industries Limited vs. Bank of Baroda & Anr. – Company Appeal (AT) (Insolvency) No.82 of 2018” decided on 14th November, 2018, this Appellate Tribunal has held that ‘Corporate Insolvency Resolution Process’ is not a recovery proceeding. It is not a ‘litigation’ nor it is an auction. 26. By filing an application under Section 7 of the I&B Code, a Decree cannot be executed. In such case, it will be covered by Section 65 of the I&B Code, which stipulates that the insolvency resolution process or liquidation proceedings, if filed, fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, attracts penal action. 27. The Adjudicating Authority (National Company Law Tribunal) has failed to consider the aforesaid fact and wrongly held that the date of default took place when the judgment and

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Particulars

Decree was passed by Debts Recovery Tribunal on 17th August, 2018. 28. As noticed above, in absence of any acknowledgement under Section 18 of the Limitation Act, 1963, the date of default/ NPA was prior to 2004 and does not shift forward, therefore, the period of limitation for moving application under Section 7 of the I&B Code was for three years, if counted, to be completed in the year 2007. As date of passing of Decree is not the date of default, we hold that the application under Section 7 of the I&B Code was barred by limitation, though the claim may not be barred.” Gradient Nirman A suit for recovery is a separate and independent proceeding Private Limited, distinct from the remedy of winding-up. Thus the period spent while pursuing SARFAESI Proceedings cannot extend the represented by G. period of limitation, as the intent of the Court is not to give a new Inna Reddy, Hyderabad and Anr lease of life to the debt which is already time barred. v IFCI Limited, Hyderabad and others, 2020 Indlaw NCLAT 248 Case No: Company Appeal (AT) (Insolvency) No. 1491 of 2019 Vivek Jha v Daimler Financial Services India P. Ltd, Company Appeal (AT) Insolvency No. 756 of 2018

As per the facts of the case, although there was no acknowledgement of the debt in writing by the corporate debtor, the corporate debtor made part payment which amounted to 10% of the total outstanding debt after expiration of one year from the date of loan repayment notice. The NCLAT has held that the period of limitation commences from the date of such payment by the corporate debtor which extends the period of limitation. This being the case, the delay was condoned. Since the Appellant / ‘Corporate Debtor’ had made a payment after the issuance of Loan Recall notice, the NCLAT held that that the claim of the Respondent / Applicant is not barred by the plea of Limitation. Esquire Electronics The question of applicability of sec 433 of the Act, 2013 came Inc. and Anr. v for consideration before the Appellate Tribunal. By its judgment dated 15th February 2017, the Appellate Tribunal held:— Netherlands India “12. We agree with the finding of Tribunal that sec 433 of the Communications Enterprises Ltd. and Companies Act, 2013 (hereinafter referred to as Act of 2013) makes it clear that the provisions of Limitation Act, 1963 (36 of others, 2017 SCC OnLine NCLAT 48 1963) apply to proceedings or appeals before the Tribunal or the

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Date/details

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Particulars

Appellate Tribunal, as the case may be. The Tribunal also rightly Company Appeal held that the petitions under sec 397 and 398 are enforceable like (AT) No. 26 of 2016 decree and for all purpose a suit within the meaning of Code of Civil Procedure. We also agree with the finding of the Tribunal that the suit for which there is no prescribed period is provided as per Article 113 of the Limitation Act, 1963, period of limitation is three years. For the reason aforesaid we agree with the finding of the Tribunal that appellant(s) cannot rake up any issue which is barred by limitation i.e., for a period which is three years prior to the date of filing of the Petition.”

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Annexure I – Subject-wise jurisdiction of NCLT No. 25/2/2016-NCLT Dated 19th July. 2016 National Company Law Tribunal

6th Floor, Block-3, CGO Complex, Lodhi Road, New Delhi-110003 ORDER In continuation of notifications no. S.0.1934 (E) and 1935 (E) dared 1.6.2016 issued by the Central Government. Ministry of Corporate Affairs and order no. 10/03/2016NCLT dated 5.7.2016 & No. 25/2/2016-NCLT dated 6.7.2016. 2 In exercise of the powers conferred on the Hon'ble President. NCLT by first proviso of sub- sec 3 of the sec 419 of the Companies Act. 2013, the matters related to following provisions of the Act are hereby assigned to the Principal Bench. New Delhi: (i) Section 245: Class action (ii) Section 379 to 393: Application of Act to foreign Companies (iii) Section 394: Annual Reports of Government Companies 3. Any matter related to the aforementioned provisions, if filed before other benches shall be transferred to the Principal Bench. New Delhi immediately. ♦♦♦♦

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Annexure II – State-wise jurisdiction of NCLT NOTIFICATION

New Delhi, the 1st June, 2016 S.O. 1935(E).-In exercise of the powers conferred by sub-sec (1) of sec 419 of the Companies Act, 2013 (18 of 2013), the Central Government hereby constitutes the following Benches of the National Company Law Tribunal mentioned in column (2) of the table below, located at the place mentioned in column (3) and to exercise the jurisdiction over the area mentioned in column (4), namely:TABLE Serial Number (1) 1.

2.

3. 4. 5.

8 9

10 11

12 13

Title of the Bench

Location

Territorial Jurisdiction of the Bench

(2) (a) National Company Law Tribunal, Principal Bench. (b) National Company Law Tribunal, New Delhi Bench. National Company Law Tribunal, Ahmedabad Bench.

(3) New Delhi

(4) (1) [***] 8 (2) [***] 9 (3) Union territory of Delhi.

Ahmedabad

National Company Law Tribunal, Allahabad Bench. National Company Law Tribunal, Bengaluru Bench. National Company Law Tribunal, Chandigarh Bench.

Allahabad

(1) State of Gujarat. (2) [***] 10 [(3) Union territory of Dadra and Nagar Haveli and Daman and Diu.] 11 (1) State of Uttar Pradesh. (2) State of Uttarakhand. (1) State of Karnataka.

Bengaluru Chandigarh

(1) State of Himachal Pradesh. [(2a) Union territory of Jammu and Kashmir. (2b) Union territory of Ladakh.] 12 (3) State of Punjab. (4) Union territory of Chandigarh. [(5) State of Haryana] 13

Omit, “(1) State of Haryana”, vide SO 345(E), dt. 3-2-2017. Omit, w.e.f. 1-07-2018, the entry “(2) State of Rajasthan” from S.No.1, Column No. 4, vide S.O 3145(E), dt 28-06-2018. Omit, w.e.f 8-03-2019, entry “(2) State of Madhya Pradesh” vide SO 1216(E), dt. 8-03-2019. Subs. w.e.f. 12-2-2021, vide SO 654(E), dt. 12-2-2021 for the entries “(3) Union territory of Dadra and Nagar Haveli, (4) Union territory of Daman and Diu.”. Subs. w.e.f. 12-2-2021, vide SO 654(E), dt. 12-2-2021 for the entry “(2) State of Jammu and Kashmir.”. Ins. w.e.f. 3-2-2017, vide SO 345(E), dt. 3-2-2017.

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Chapter 23 Serial Number 6.

Jurisdiction and Limitation Title of the Bench

Location

Territorial Jurisdiction of the Bench

National Company Law Tribunal, Chennai Bench.

Chennai

7.

National Company Law Tribunal, Guwahati Bench.

Guwahati

8.

National Company Law Tribunal, Hyderabad Bench. National Company Law Tribunal, Kolkata Bench.

Hyderabad

National Company Law Tribunal, Mumbai Bench.

Mumbai

National Company Law Tribunal, Jaipur Bench. National Company Law Tribunal, Cuttack Bench. National Company Law Tribunal, Kochi Bench. National Company Law Tribunal, Indore Bench. National Company Law Tribunal, Amravati Bench.

Jaipur

(1) [***] 14 (2) State of Tamil Nadu. (3) [***] 15 (4) Union territory of Puducherry. (1) State of Arunachal Pradesh. (2) State of Assam. (3) State of Manipur. (4) State of Mizoram. (5) State of Meghalaya. (6) State of Nagaland. (7) State of Sikkim. (8) State of Tripura. (1) [***] 16. (2) State of Telangana. (1) State of Bihar. (2) State of Jharkhand. (3) [* * *] 17 (4) State of West Bengal. (5) Union territory of Andaman and Nicobar Islands. (1) [* * *]18 (2) State of Goa. (3) State of Maharashtra. (1) State of Rajasthan.]

9.

10. 19[11 20[12 21[13 22[14 23[15

Kolkata

Cuttack

Indore

(1) State of Odisha (2) State of Chhattisgarh] (1) State of Kerala (2) Union Territory of Lakshadweep] (1) State of Madhya Pradesh]

Amaravati

(2) State of Andhra Pradesh.]

Kochi

♦♦♦♦

14 15 16

17 18 19 20 21 22 23

Omit, w.e.f 1-8-2018, “(1) State of Kerala”, vide SO 3683(E), dt. 27-07-2018. Omit, w.e.f 1-8-2018, “(3) Union Territory of Lakshadweep”, vide SO 3683(E), dt. 27-07-2018. Omit, w.e.f 8-03-2019, entry “(2) State of Andhra Pradesh” vide SO 1216(E), dt. 8-03-2019. Omit, w.e.f. 15-07-2018, the entry “(3) State of Odisha” from S.No.9, Column No. 4, vide S.O 3430(E), dt 12-07-2018. Omit, w.e.f. 15-07-2018, the entry “(1) State of Chhattisgarh” from S.No.10, Column No. 4, vide S.O 3430(E), dt 12-07-2018. Ins. w.e.f. 1-07-2018, vide S.O 3145(E), dt 28-06-2018. Ins, w.e.f. 15-07-2018, vide S.O 3430(E), dt 12-07-2018. Ins. w.e.f. 1-8-2018, vide SO 3683(E), dt. 27-07-2018. Ins. w.e.f 8-03-2019, vide SO 1216(E), dt. 8-03-2019. Ins. w.e.f 8-03-2019, vide SO 1216(E), dt. 8-03-2019.

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Annexure III – Pecuniary jurisdiction of NCLT No. 25/1/2016-NCLT Government of India National Company Law Tribunal

6th Floor, Block – 3, CGO Complex, Lodhi Road, New Delhi – 110003 Dated 29th June, 2016 ORDER Consequent to the notification no. S.O. 1935 (E) dated 1.6.2016 issued by the Central Government, Ministry of Corporate Affairs following criteria has been laid down for listing of the matters before the National Company Law Tribunal, Principal Bench and National Company Law Tribunal, New Delhi Bench. S. No.

Bench National Company Law Tribunal, Principal Bench.

Matters pertaining to (1) Companies having paid up capital more than Rs. 50 lakhs and (2) As per special order of the Hon’ble President, NCLT

National Company Law Companies having paid up Tribunal, New Delhi Bench. capital upto Rs.50 lakhs.

2. The existing and new matters w.e.f. 1st July, 2016 will be listed before the abovementioned benches stationed at Block-3, 6th-7th floor, CGO Complex, Lodhi Road, New Delhi-110003, accordingly. By order of the National Company Law Tribunal (Shiv Ram Bairwa) Registrar

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Annexure IV – Divisional and Single Member bench No. 25/2/2016-NCLT Government of India National Company Law Tribunal

6th floor, Block-3, CGO Complex, Lodhi Road, New Delhi – 110003 Dated 6th July, 2016

ORDER In continuation of notification no. S.O.1934 (E) and 1935 (E) dated 1.6.2016 issued by the Central Government, Ministry of Corporate Affairs and order no. 10/03/2016NCLT dated 5.7.2016 of this Tribunal. 2. The Division bench is entitled to function as a bench and exercise powers of the Tribunal irrespective of any class except those specified by an order of the President. 3. The single Judicial Member posted at various benches of the Tribunal are also authorized in addition to the Division Bench wherever applicable, to function as bench and exercise powers of the Tribunal in the following class of cases: (a) All cases which have been transferred from erstwhile Company Law Board. However, in terms of second proviso to sec 419 (3) of the Act, the Member Judicial shall be entitle to refer the matter to President with the opinion that the matter ought to be heard by two Members for the reasons to be recorded in writing. (b) All new petitions where the Company involves has paid-up share capital of Rs. 50 Lakhs or less where the Division Bench is available. However, where the Division Bench is not available the pecuniary limit of Rs. 50 Lakhs shall not apply. (c)

Any other matter which the President may authorize by passing a specific or general order. By order of the National Company Law Tribunal. (Shiv Ram Bairwa) Registrar ♦♦♦♦

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A

ANNEXURE 1

1.

NATIONAL COMPANY LAW TRIBUNAL RULES, 2016

Short title and Commencement .............................................................................. A1-7

PART – I—Definitions and forms etc. ............................................................................ A1-7 2. Definitions. ........................................................................................................... A1-7 3. Computation of time period. .................................................................................. A1-9 4. Forms.................................................................................................................. A1-10 5. Format of order or direction or rule. ..................................................................... A1-10 6. Official seal of the Tribunal. ................................................................................ A1-10 7. Custody of the records. ........................................................................................ A1-10 8. Sitting of the Tribunal.......................................................................................... A1-10 9. Sitting hours. ....................................................................................................... A1-10 10. Working hours..................................................................................................... A1-10 11. Inherent Powers................................................................................................... A1-10 12. Calendar.............................................................................................................. A1-11 13. Listing of cases.................................................................................................... A1-11 14. Power to exempt. ................................................................................................. A1-11 15. Power to extend time. .......................................................................................... A1-11 PART – II—Power and functions of President, Registrar and Secretary .......................... A1-11 16. Functions of the President. ................................................................................... A1-11 17. Functions of the Registrar. ................................................................................... A1-11 18. Functions of the Secretary. ................................................................................... A1-12 19. Delegation of powers by the President. ................................................................. A1-13 PART – III—Institution of proceedings, petition, appeals etc. ..................................... A1-13 20. Procedure. ........................................................................................................... A1-13 21. Particulars to be set out in the address for service.................................................. A1-14 22. Initialling alteration. ............................................................................................ A1-14 23. Presentation of petition or appeal. ........................................................................ A1-14 23A. Presentation of joint petition. ............................................................................... A1-14 24. Number of copies to be filed. ............................................................................... A1-15 25. Lodging of caveat. ............................................................................................... A1-15 26. Endorsement and Verification. ............................................................................. A1-15 27. Translation of document. ..................................................................................... A1-15 28. Endorsement and scrutiny of petition or appeal or document. ................................ A1-15 29. Registration of proceedings admitted.................................................................... A1-16

A1-1

NCLT and NCLAT Law Practice and Procedure, 7e 30. 31. 32. 33.

Annexure 1

Calling for records. .............................................................................................. A1-16 Production of authorisation for and on behalf of an association. ............................ A1-16 Interlocutory applications. ................................................................................... A1-16 Procedure on production of defaced, torn or damaged documents. ......................... A1-17

PART – IV—General procedure................................................................................... A1-17 34. General Procedure. .............................................................................................. A1-17 35. Advertisement detailing petition........................................................................... A1-17 36. Maintenance of Cash Register. ............................................................................. A1-18 37. Notice to Opposite Party. ..................................................................................... A1-18 38. Service of Notices and processes. ......................................................................... A1-19 38A. Multiple remedies................................................................................................ A1-19 39. Production of Evidence by Affidavit. ................................................................... A1-20 40. Production of additional evidence before the Bench. ............................................. A1-20 41. Filing of Reply and other Documents by the Respondents. .................................... A1-20 42. Filing of Rejoinder. ............................................................................................. A1-21 43. Power of the Bench to call for further information or evidence. ............................. A1-21 44. Hearing of petition or applications. ...................................................................... A1-21 45. Rights of a party to appear before the Tribunal. .................................................... A1-22 46. Registration of authorised representative’s interns. ............................................... A1-22 47. Oath to the witness. ............................................................................................. A1-22 48. Consequence of non-appearance of applicant........................................................ A1-22 49. Ex-parte Hearing and disposal.............................................................................. A1-23 50. Registry to send certified copy. ............................................................................ A1-23 51. Power to regulate the procedure. .......................................................................... A1-23 52. Summoning of witnesses and recording Evidence. ................................................ A1-23 53. Substitution of legal representatives. .................................................................... A1-24 54. Assessors or valuers. ........................................................................................... A1-24 55. Pleadings before the Tribunal............................................................................... A1-24 56. Application for execution..................................................................................... A1-24 57. Issue of process of execution................................................................................ A1-24 58. Effect of non-compliance. .................................................................................... A1-25 59. Procedure for imposition of penalty under the Act. ............................................... A1-25 PART – V—Issuance of Orders and Disposal of Cases................................................. A1-25 60. Matters relating to the Judgments or Orders of the Tribunal. ................................. A1-25 61. Amicus Curiae..................................................................................................... A1-25 62. Recusal. .................................................................................................................... A1-26 PART – VI—Other Procedures .................................................................................... A1-26 63. Presentation and scrutiny of petitions or applications. ........................................... A1-26

A1-2

Annexure 1

National Company Law Tribunal Rules, 2016

PART –VII—Procedures in respect of matters earlier dealt by other quasijudicial bodies, courts and tribunals............................................................ A1-26 64. Matter earlier dealt by Company Law Board. ....................................................... A1-26 65.

Petition or Application under sub-section (2) of section 45QA of the Reserve Bank of India Act, 1934 (2 of 1934). ....................................................... A1-28

PART –VIII—Special Procedure .................................................................................. A1-28 66. Application under sub- section (7) of section 7. .................................................... A1-28 67. Petition under sub-section (41) of section 2. ......................................................... A1-28 68. Petition under section 14. ..................................................................................... A1-28 68A. Application to cancel variation of rights under sub-section (2) of section 48. ........................................................................................................... A1-30 69. Petition under sub-section (3) of section 55. ......................................................... A1-31 70. Appeal under sections 58 and 59. ......................................................................... A1-32 71. Application under proviso to clause (b) of sub-section (1) of section 61................. A1-33 72. Appeal against the order of the Government under Section 62(4)................................ A1-33 73. Application under sections 71(9), 71(10), section 73(4) or section 74(2) and 76(2)............................................................................................................. A1-34 74. Application for calling or obtaining a direction to call annual general meeting. .............................................................................................................. A1-35 75. Application for obtaining an order for calling of general meeting (other than Annual General Meeting). ............................................................................ A1-35 76. Inspection of minute-books of general meeting. .................................................... A1-35 76A. Application under section 130. ............................................................................. A1-35 77. Application under section 131. ............................................................................. A1-36 78. Application under Section 140. ............................................................................ A1-37 79. Application under section 169. ............................................................................. A1-37 80. Application under section 213 for investigation. ................................................... A1-37 80A. Application under section 230. ............................................................................. A1-37 81. Application under section 241. ............................................................................. A1-37 82. Withdrawal of Application filed under section 241. .............................................. A1-38 83. Application under section 243. ............................................................................. A1-38 83A. Application under sub-section (1) of section 244. ................................................. A1-38 84. Right to apply under section 245. ......................................................................... A1-38 85. Conducting a class action suit. ............................................................................. A1-39 86. Rule of opt-out. ................................................................................................... A1-39 87. Publication of notice. ........................................................................................... A1-40 87A. Appeal or application under sub-section (1) and sub-section (3) of section 252. ......................................................................................................... A1-41 88. Reference to the Tribunal..................................................................................... A1-41

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PART – IX—Cause List ................................................................................................ A1-42 89. Preparation and publication of daily cause list. ..................................................... A1-42 90.

Carry forward of cause list and adjournment of cases on account of nonsitting of a Bench................................................................................................. A1-42

PART–X—Record of Proceedings ................................................................................ A1-43 91. Diaries. ............................................................................................................... A1-43 92. Order sheet. ......................................................................................................... A1-43 93. Maintenance of court diary. ................................................................................. A1-43 94. Statutes or citations for reference. ........................................................................ A1-43 95. Calling of cases in court....................................................................................... A1-43 96. Regulation of court work. .................................................................................... A1-43 PART – XI—Maintenance of Registers ........................................................................ A1-44 97. Registers to be maintained. .................................................................................. A1-44 98. Arrangement of records in pending matters. ......................................................... A1-44 99. Contents of main file. .......................................................................................... A1-44 100. Contents of process file........................................................................................ A1-45 101. Execution file. ..................................................................................................... A1-45 102. File for miscellaneous applications. ...................................................................... A1-45 103. Preservation of Record......................................................................................... A1-45 104. Retention, Preservation and Destruction of Records. ............................................. A1-45

105. 106. 107. 108. 109. 110. 111.

PART–XII—Service of Process / Appearance of Respondents And Objections .................................................................................................... A1-46 Issue of notice. .................................................................................................... A1-46 Summons. ........................................................................................................... A1-46 Steps for issue of fresh notice............................................................................... A1-46 Consequence of failure to take steps for issue of fresh notice................................. A1-46 Entries regarding service of notice or process. ...................................................... A1-47 Default of appearance of respondent and consequences......................................... A1-47 Filing of objections by respondent, form and consequences................................... A1-47

PART–XIII—Fee on Petition or Appeal, Process Fee And Award of Costs ................. A1-47 112. Fees. ................................................................................................................... A1-47 113. Award of costs in the proceedings. ....................................................................... A1-48 PART–XIV—Inspection of Record ............................................................................... A1-48 114. Inspection of the records. ..................................................................................... A1-48 115. Grant of inspection. ............................................................................................. A1-48 116. Application for grant of inspection. ...................................................................... A1-48 117. Mode of inspection. ............................................................................................. A1-48 118. Maintenance of register of inspection. .................................................................. A1-49 A1-4

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PART–XV—Appearance of authorised representative ................................................ A1-49 119. Appearance of authorised representative............................................................... A1-49 120. Consent for engaging another legal practitioner. ................................................... A1-49 121. Restrictions on appearance. .................................................................................. A1-49 122. Restriction on party’s right to be heard. ................................................................ A1-50 123. Empanelment of special authorised representatives by the Tribunal. ...................... A1-50 124. Professional dress for the authorised representatives. ............................................ A1-50 PART–XVI—Affidavits ................................................................................................ A1-50 125. Title of affidavits. ................................................................................................ A1-50 126. Form and contents of the affidavit. ....................................................................... A1-50 127. Persons authorised to attest. ................................................................................. A1-50 128. Affidavits of illiterate, visually challenged persons. .............................................. A1-50 129. Identification of deponent. ................................................................................... A1-50 130. Annexures to the affidavit. ................................................................................... A1-51 PART–XVII—Discovery, Production and Return of Documents ................................. A1-51 131. Application for production of documents, form of summons. ................................ A1-51 132. Suo motu summoning of documents. .................................................................... A1-51 133. Marking of documents. ........................................................................................ A1-51 134. Return and transmission of documents. ................................................................ A1-52 PART–XVIII—Examination of Witnesses and Issue of Commissions ......................... A1-52 135. Procedure for examination of witnesses, issue of Commissions. ............................ A1-52 136. Examination in camera. ....................................................................................... A1-52 137. Form of oath or affirmation to witness.................................................................. A1-52 138. Form of oath or affirmation to interpreter. ............................................................ A1-52 139. Officer to administer oath. ................................................................................... A1-52 140. Form recording of deposition. .............................................................................. A1-52 141. Numbering of witnesses....................................................................................... A1-52 142. Grant of discharge certificate. .............................................................................. A1-53 143. Witness allowance payable. ................................................................................. A1-53 144. Records to be furnished to the Commissioner. ...................................................... A1-53 145. Taking of specimen handwriting, signature etc. .................................................... A1-53 PART–XIX—Disposal of Cases and Pronouncement of Orders................................... A1-53 146. Disposal of Cases. ............................................................................................... A1-53 147. Operative portion of the order. ............................................................................. A1-54 148. Corrections.......................................................................................................... A1-54 149. Power to impose Costs......................................................................................... A1-54 150. Pronouncement of Order. ..................................................................................... A1-54 151. Pronouncement of order by any one member of the Bench. ................................... A1-54 A1-5

NCLT and NCLAT Law Practice and Procedure, 7e 152. 153. 154. 155. 156. 157. 158. 159. 160. 161. 162.

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Authorising any member to pronounce order ........................................................ A1-54 Enlargement of time. ........................................................................................... A1-55 Rectification of Order. ......................................................................................... A1-55 General power to amend. ..................................................................................... A1-55 Making of entries by Court Master. ...................................................................... A1-55 Transmission of order by the Court Master. .......................................................... A1-55 Format of order. .................................................................................................. A1-56 Indexing of case files after disposal. ..................................................................... A1-56 Transmission of files or records or orders. ............................................................ A1-56 Filing of Order of the Tribunal with the Registrar of Companies. .......................... A1-56 Copies of orders in library.................................................................................... A1-56

PART–XX—National Company Law Tribunal Orders................................................ A1-56 163. Register of Appeals, Petitions, etc. ....................................................................... A1-56 164. Placing of National Company Law Appellate Tribunal orders before Tribunal. ............................................................................................................. A1-57 165. Registrar to ensure compliance of National Company Law Appellate Tribunal orders. ................................................................................................... A1-57 SCHEDULE OF FEES.................................................................................................. A1-57 Annexure A : List of Forms .............................................................................................. A1-60 Annexure B : Documents to be attached to with a petition or application .......................... A1-61

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National Company Law Tribunal Rules, 20161 G.S.R. 716(E).-In exercise of the powers conferred by section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules, namely;1. Short title and Commencement (1) These rules may be called the National Company Law Tribunal Rules, 2016. (2) They shall come into force on the date of their publication in the Official Gazette. PART – I—DEFINITIONS AND FORMS ETC.

2. Definitions. In these rules, unless the context otherwise requires, (1) “Act” means the Companies Act, 2013 (18 of 2013); (2) “address for service” shall mean the address furnished by a party or his authorised representative at which service of summons, notices or other processes may be effected under these rules; (3) “advocate” means a person who is entitled to practise as such under the Advocates Act, 1961 (25 of 1961); (4) “applicant” means a petitioner or an appellant or any other person or entity capable of making an application including an interlocutory application or a petition or an appeal under the Act; (5) “application” means any application, or proceedings filed under the provisions of the Act, including any transferred application or transferred petition as defined under sub-rule (29) ; (6) “authorised representative” means a person authorised in writing by a party to present his case before the Tribunal as the representative of such party as provided under section 432 of the Act; (7) “Bench” means a Bench of the Tribunal constituted under section 419 of the Act and includes Circuit Benches constituted by the President with prior approval of the Central Government to sit at such other geographical locations as may be necessary having regard to requirements; (8) “Central Registry” means the registry in which all the applications or petitions and documents are received by the Registrar for allocation to the concerned Bench of the Tribunal for disposal; (9) “certified” means in relation to a copy of a document as hereunder;-

1

w.e.f. 22-07-2016, vide GSR 716(E), dt. 21-07-2016

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(10)

(11) (12)

(13) (14) (15) (16)

(17) (18)

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(a) certified as provided in section 76 of the Indian Evidence Act, 1872; or (b) certified as provided in section 6 of Information Technology Act, 2000; or (c) certified copy issued by the Registrar of Companies under the Act; (d) copy of document as may be a downloaded from any online portal prescribed under section 398 of the Act or a photo copy of the original pertaining to any company registered with the Office of the Registrar of Companies of the concerned State duly certified by a legal practitioner or a chartered accountant in practice or a cost accountant in practice or a company secretary in practice; “certified by Tribunal” means in relation to a copy of a document, certified to be a true copy issued by the Registry or of a Bench of the Tribunal under its hand and seal and as provided in section 76 of the Indian Evidence Act, 1872 (1 of 1872); “creditor” means any person to whom a debt is owed; “fee” means the amount payable in pursuance of the provisions of the Act and these rules for any petition or application or interlocutory application or a document or for certified copy of document or order of the Tribunal or such other paper as may be specified in Schedule of Fees to these rules and includes any modifications as may be made thereto or any fee as prescribed for filing of documents to the Tribunal by these rules; “filer” means an authorised representative of that person or any party to the proceedings who files any document with the Tribunal in relation to a case filed under the Act, or any rules thereunder; “filed” means filed in the office of the Registry of the Tribunal; “interlocutory application” means an application in any appeal or original petition on proceeding already instituted in the Tribunal, but not being a proceeding for execution of the order or direction of Tribunal; “party” mean a person who prefers an appeal or application or petition before the Tribunal and includes respondent or any person interested in the said appeal or application or petition including the Registrar of Companies or the Regional Director or Central Government or State Government or official liquidator and any person who has a right under the Act, or the Reserve Bank of India Act 1934 (2 of 1934) to make suggestions or submissions or objections or reply; “petition” means a petition or an application or an appeal or a complaint in pursuance of which any proceeding is commenced before the Tribunal; “person interested” means a shareholder, creditor, employee, transferee company and other company concerned in relation to the term or context referred to in the relevant provisions of the Act or any person aggrieved by any order or action of any company or its directors;

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(19) “pleadings” means and includes application including interlocutory application, petition, appeal, revision, reply, rejoinder, statement, counter claim, additional statement supplementing the original application and reply statement under these rules and as may be permitted by the Tribunal; (20) “reference” means a reference within the meaning of rule 88 of these rules; (21) “Registrar” means Registrar of the Tribunal and includes such other officer of the Tribunal or Bench to whom the powers and functions of the Registrar is delegated; (22) “Registry” means the Registry of the Tribunal or any of its Benches, as the case may be, which keeps records of the applications and documents relating thereto; (23) “Reserve Bank” means the Reserve Bank of India and includes its branches and agencies as defined in the Reserve Bank of India Act, 1934 (2 of 1934); (24) “Sealed” means sealed with the seal of the Tribunal; (25) “Secretary” means Secretary of the Tribunal and in the absence of Secretary, such other officer of the Tribunal to whom the powers and functions of the Secretary are delegated. (26) “secured creditor” means a creditor in whose favour a security interest is created; (27) “security interest” means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee. (28) “section” means a section of the Act; (29) “transferred application” or “transferred petition” means any proceeding which has been transferred to the Tribunal from the Company Law Board, the High Court, District Court, Board for Industrial and Financial Reconstruction as provided in clause (a), (c) and (d) of sub-section(1) of section 434 of the Act; (30) words and expressions used herein and not defined but defined in the Act shall have the respective meanings assigned to them in the Act. 3. Computation of time period. Where a period is prescribed by the Act and these rules or under any other law or is fixed by the Tribunal for doing any act, in computing the time, the day from which the said period is to be reckoned shall be excluded, and if the last day expires on a day when the office of the Tribunal is closed, that day and any succeeding days on which the Tribunal remains closed shall also be excluded.

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4. Forms. The forms annexed as Annexure ‘A’ to these rules with such modifications or variations as the circumstances of each case may require shall be used for the purpose mentioned therein and where no form is prescribed to cover a contingency, a form as may be approved by the Registrar, shall be used. 5. Format of order or direction or rule. Every rule, direction, order, summons, warrant or other mandatory process shall be issued in the name of the President and shall be signed by the Registrar or any other officer specifically authorised in that behalf by the President, with the day, month and year of signing and shall be sealed with the seal of the Tribunal. 6. Official seal of the Tribunal. The official seal and emblem of the Tribunal shall be such, as the Central Government may from time to time specify and shall be in the custody of the Registrar. 7. Custody of the records. The Registrar shall have the custody of the records of the Tribunal and no record or document filed in any cause or matter shall be allowed to be taken out of the custody of the Tribunal without the leave of the Tribunal: Provided that the Registrar may allow any other officer of the Tribunal to remove any official paper or record for administrative purposes from the Tribunal. 8. Sitting of the Tribunal. The Tribunal shall hold its sittings either at its headquarter or at such other place falling within its territorial jurisdiction as it may consider convenient. 9. Sitting hours. The sitting hours of the Tribunal shall ordinarily be from 10:30 AM to 1:00 PM and 2:00 P.M. to 4:30 PM, subject to any order made by the President. 10. Working hours. (1) Except on Saturdays, Sundays and other National Holiday, the office of the Tribunal shall remain open on all working days from 09.30 A.M. to 6.00 P.M. (2) The Filing Counter of the Registry shall be open on all working days from 10.30 AM to 5.00 P.M. 11. Inherent Powers. Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.

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12. Calendar. The calendar of days of working of Tribunal in a year shall be as decided by the President of the Tribunal. 13. Listing of cases. An urgent matter filed before 12 noon shall be listed before the Tribunal on the following working day, if it is complete in all respects as provided in these rules and in exceptional cases, it may be received after 12 noon but before 3.00 P.M. for listing on the following day, with the specific permission of the Bench. 14. Power to exempt. The Tribunal may on sufficient cause being shown, exempt the parties from compliance with any requirement of these rules and may give such directions in matters of practice and procedure, as it may consider just and expedient on the application moved in this behalf to render substantial justice. 15. Power to extend time. The Tribunal may extend the time appointed by these rules or fixed by any order, for doing any act or taking any proceeding, upon such terms, if any, as the justice of the case may require, and any enlargement may be ordered, although the application therefore is not made until after the expiration of the time appointed or allowed. PART – II—POWER AND FUNCTIONS OF PRESIDENT, REGISTRAR AND SECRETARY

16. Functions of the President. In addition to the general powers provided in the Act and in these rules the President shall exercise the following powers, namely:(a) preside over the consideration of cases by the Tribunal; (b) direct the Registry in the performance of its functions; (c) prepare an annual report on the activities of the Tribunal; (d) transfer any case from one Bench to other Bench when the circumstances so warrant; (e) to withdraw the work or case from the court of a member. (f) perform the functions entrusted to the President under these rules and such other powers as my be relevant to carry out his duties as head of the Tribunal while exercising the general superintendence and control over the administrative functions of the Members, Registrar, Secretary and other staff of the Tribunal. 17. Functions of the Registrar. (1) The Registrar shall have the following functions, namely:(a) registration of appeals, petitions and applications;

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(b) receive applications for amendment of appeal or the petition or application or subsequent proceedings. (c) receive applications for fresh summons or notices and regarding services thereof; (d) receive applications for fresh summons or notices and for short date summons and notices; (e) receive applications for substituted service of summons or notices; (f) receive applications for seeking orders concerning the admission and inspection of documents; (g) transmission of a direction or order to the civil court as directed by Tribunal with the prescribed certificates for execution etc., and (h) such other incidental or matters as the President may direct from time to time. (2) All adjournments shall normally be sought before the concerned Bench in court and in extraordinary circumstances, the Registrar may, if so directed by the Tribunal in chambers, at any time adjourn any matter and lay the same before the Tribunal in chambers. 18. Functions of the Secretary. (1) There shall be a Secretary at the Principal Bench of the Tribunal, New Delhi. (2) The Secretary shall, under the general superintendence and control of the President, discharge such duties, functions and exercise such powers as are prescribed under these rules and as assigned by the President from time to time. (3) Secretary shall (a) be in charge of the long term projects and initiatives of the Tribunal; (b) supervise the divisions and sections of the Human Resources; (c) prepare, monitor and manage budgetary allocations and financial managements of the Tribunal and the Benches; (d) provide all necessary support in the day to day operations of the Tribunal; (e) manage and supervise the facilities and administrative services of the Tribunal; (f) manage and administer the public grievances mechanism of the Tribunal; (g) coordinate with authorised representatives and other professionals in the smooth functioning of the Tribunal; (h) oversee information and communication technology and other technological facilities in the Tribunal; (i) manage and facilitate communication and services of the Tribunal;

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(j)

manage, monitor and administer the public affairs and public safety provisions within the premises of the Tribunal; and (k) supervise library and research wings of the Tribunal.

19. Delegation of powers by the President. The President may assign or delegate to any suitable officer all or some of the functions required by these rules to be exercised by the Registrar. PART – III—INSTITUTION OF PROCEEDINGS, PETITION, APPEALS ETC.

20. Procedure. (1) Every appeal or petition or application or caveat petition or objection or counter presented to the Tribunal shall be in English and in case it is in some other Indian language, it shall be accompanied by a copy translated in English and shall be fairly and legibly type written, lithographed or printed in double spacing on one side of standard petition paper with an inner margin of about four centimeter width on top and with a right margin of 2.5. cm, and left margin of 5 cm, duly paginated, indexed and stitched together in paper book form; (2) The cause title shall state “Before the National Company Law Tribunal” and shall specify the Bench to which it is presented and also set out the proceedings or order of the authority against which it is preferred. (3) Appeal or petition or application or counter or objections shall be divided into paragraphs and shall be numbered consecutively and each paragraph shall contain as nearly as may be, a separate fact or allegation or point. (4) Where Saka or other dates are used, corresponding dates of Gregorian Calendar shall also be given. (5) Full name, parentage, age, description of each party and address and in case a party sues or being sued in a representative character, shall also be set out at the beginning of the appeal or petition or application and need not be repeated in the subsequent proceedings in the same appeal or petition or application. (6) The names of parties shall be numbered consecutively and a separate line should be allotted to the name and description of each party. (7) These numbers shall not be changed and in the event of the death of a party during the pendency of the appeal or petition or matter, his legal heirs or representative, as the case may be, if more than one shall be shown by subnumbers. (8) Where fresh parties are brought in, they may be numbered consecutively in the particular category, in which they are brought in. (9) Every proceeding shall state immediately after the cause title the provision of law under which it is preferred.

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21. Particulars to be set out in the address for service. The address for service of summons shall be filed with every appeal or petition or application or caveat on behalf of a party and shall as far as possible contain the following items namely:(a) the name of the road, street, lane and Municipal Division or Ward, Municipal Door and other number of the house; (b) the name of the town or village; (c) the post office, postal district and PIN Code, and (d) any other particulars necessary to locate and identify the addressee such as fax number, mobile number, valid e-mail address, if any. 22. Initialling alteration. Every interlineations, eraser or correction or deletion in any appeal or petition or application or document shall be initialled by the party or his authorised representative presenting it. 23. Presentation of petition or appeal. (1) Every petition, application, caveat, interlocutory application, documents and appeal shall be presented in triplicate by the appellant or applicant or petitioner or respondent, as the case may be, in person or by his duly authorised representative or by an advocate duly appointed in this behalf in the prescribed form with stipulated fee at the filing counter and noncompliance of this may constitute a valid ground to refuse to entertain the same. (2) Every petition or application or appeal may be accompanied by documents duly certified by the authorised representative or advocate filing the petition or application or appeal duly verified from the originals. (3) All the documents filed in the Tribunal shall be accompanied by an index in triplicate containing their details and the amount of fee paid thereon. (4) Sufficient number of copies of the appeal or petition or application shall also be filed for service on the opposite party as prescribed under these rules. (5) In the pending matters, all applications shall be presented after serving copies thereof in advance on the opposite side or his authorised representative. (6) The processing fee prescribed by these rules, with required number of envelopes of sufficient size and notice forms shall be filled alongwith memorandum of appeal. 23A. Presentation of joint petition. (1) The Bench may permit more than one person to join together and present a single petition if it is satisfied, having regard to the cause of action and the nature of relief prayed for, that they have a common interest in the matter. (2) Such permission shall be granted where the joining of the petitioners by a single petition is specifically permitted by the Act. A1-14

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24. Number of copies to be filed. The appellant or petitioner or applicant or respondent shall file three authenticated copies of appeal or petition or application or counter or objections, as the case may be, and shall deliver one copy to each of the opposite party. 25. Lodging of caveat. (1) Any person may lodge a caveat in triplicate in any appeal or petition or application that may be instituted before this Tribunal by paying the prescribed fee after forwarding a copy by registered post or serving the same on the expected petitioner or appellant and the caveat shall be in the Form No. NCLT-3C and contain such details and particulars or orders or directions, details of authority against whose orders or directions the appeal or petition or application is being instituted by the expected appellant or petitioner or applicant which full address for service on other side, so that the appeal or petition or application could be served before the appeal or petition or interim application is taken up: Provided, that the Tribunal may pass interim orders in case of urgency. (2) The caveat shall remain valid for a period of ninety days from the date of its filing. 26. Endorsement and Verification. (1) At the foot of every petition or appeal or pleading there shall appear the name and signature of the authorised representative. (2) Every petition or appeal shall be signed and verified by the party concerned in the manner provided by these rules. 27. Translation of document. (1) A document other than English language intended to be used in any proceeding before the Tribunal shall be received by the Registry accompanied by a copy in English, which is agreed to by both the parties or certified to be a true translated copy by authorised representative engaged on behalf of parties in the case or if the authorised representative engaged in the case authenticates such certificate or prepared by a translator approved for the purpose by the Registrar on payment of such charges as he may order. (2) Appeal or petition or other proceeding shall not be set down for hearing until and unless all parties confirm that all the documents filed on which they intend to rely are in English or have been translated into English and required number of copies are filed into Tribunal. 28. Endorsement and scrutiny of petition or appeal or document. (1) The person in charge of the filing- counter shall immediately on receipt of petition or appeal or application or document affix the date stamp of Tribunal thereon and also on the additional copies of the index and return the acknowledgement to the party and he shall also affix his initials on the stamp A1-15

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affixed on the first page of the copies and enter the particulars of all such documents in the register after daily filing and assign a diary number which shall be entered below the date stamp and thereafter cause it to be sent for scrutiny. (2) If, on scrutiny, the appeal or petition or application or document is found to be defective, such document shall, after notice to the party, be returned for compliance and if there is a failure to comply within seven days from the date of return, the same shall be placed before the Registrar who may pass appropriate orders. (3) The Registrar may for sufficient cause return the said document for rectification or amendment to the party filing the same, and for this purpose may allow to the party concerned such reasonable time as he may consider necessary or extend the time for compliance. (4) Where the party fails to take any step for the removal of the defect within the time fixed for the same, the Registrar may, for reasons to be recorded in writing, decline to register the pleading or document. 29. Registration of proceedings admitted. On admission of appeal or petition or caveat or application, the same shall be numbered and registered in the appropriate register maintained in this behalf and its number shall be entered therein. 30. Calling for records. On the admission of appeal or petition or application the Registrar shall, if so directed by the Tribunal, call for the records relating to the proceedings from any adjudicating authority and retransmit the same. 31. Production of authorisation for and on behalf of an association. Where an appeal or application or petition or other proceeding purported to be instituted by or on behalf of an association, the person or persons who sign(s) or verify(ies) the same shall produce along with such application, for verification by the Registry, a true copy of the resolution of the association empowering such person(s) to do so: Provided that the Registrar may at any time call upon the party to produce such further materials as he deems fit for satisfying himself about due authorization: Provided further that it shall set out the list of members for whose benefit the proceedings are instituted. 32. Interlocutory applications. Every Interlocutory application for stay, direction, condonation of delay, exemption from production of copy of order appealed against or extension of time prayed for in pending matters shall be in prescribed form and the requirements prescribed in that behalf shall be complied with by the applicant, besides filing an affidavit supporting the application. A1-16

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33. Procedure on production of defaced, torn or damaged documents. When a document produced along with any pleading appears to be defaced, torn, or in any way damaged or otherwise its condition or appearance requires special notice, a mention regarding its condition and appearance shall be made by the party producing the same in the Index of such a pleading and the same shall be verified and initialled by the officer authorized to receive the same. PART – IV—GENERAL PROCEDURE

34. General Procedure. (1) In a situation not provided for in these rules, the Tribunal may, for reasons to be recorded in writing, determine the procedure in a particular case in accordance with the principles of natural justice. (2) The general heading in all proceedings before the Tribunal, in all advertisements and notices shall be in Form No. NCLT-4. (3) Every petition or application or reference shall be filed in form as provided in Form No. NCLT-1 with attachments thereto accompanied by Form No. NCLT-2 and in case of an interlocutory application, the same shall be filed in Form No. NCLT-1 accompanied by such attachments thereto along with Form No. NCLT-3. (4) Every petition or application including interlocutory application shall be verified by an affidavit in Form No. NCLT-6. Notice to be issued by the Tribunal to the opposite party shall be in Form NCLT-5. 35. Advertisement detailing petition. (1) Where any application, petition or reference is required to be advertised, it shall, unless the Tribunal otherwise orders, or these rules otherwise provide, be advertised in Form NCLT-3A, not less than fourteen days before the date fixed for hearing, at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situate, and at least once in English language in an English newspaper circulating in that district. (2) Every such advertisement shall state;(a) the date on which the application, petition or reference was presented; (b) the name and address of the applicant, petitioner and his authorised representative, if any; (c) the nature and substance of application, petition or reference; (d) the date fixed for hearing; (e) a statement to the effect that any person whose interest is likely to be affected by the proposed petition or who intends either to oppose or support the petition or reference at the hearing shall send a notice of his intention to the concerned Bench and the petitioner or his authorised representative, if any, indicating the nature of interest and grounds of A1-17

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(3) (4)

(5)

(6)

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opposition so as to reach him not later than two days previous to the day fixed for hearing. Where the advertisement is being given by the company, then the same may also be placed on the website of the company, if any. An affidavit shall be filed to the Tribunal, not less than three days before the date fixed for hearing, stating whether the petition has been advertised in accordance with this rule and whether the notices, if any, have been duly served upon the persons required to be served: Provided that the affidavit shall be accompanied with such proof of advertisement or of the service, as may be available. Where the requirements of this rule or the direction of the Tribunal, as regards the advertisement and service of petition, are not complied with, the Tribunal may either dismiss the petition or give such further directions as it thinks fit. The Tribunal may, if it thinks fit, and upon an application being made by the party, may dispense with any advertisement required to be published under this rule.

36. Maintenance of Cash Register. (1) If any payment has been received by way of Indian postal orders or demand drafts or in cash by the Registry, the transaction shall be entered immediately by the Registration Clerk on their receipt side in a Cash Register kept for the purpose. (2) On every next working day or the last working day of the week, the payments received during such day or week by way of Indian postal orders or demand drafts shall be transmitted by the Registration Clerk to the concerned official vested with the work pertaining to the Cashier who after scrutiny and verification shall acknowledge the receipt of all moneys in the Cash Register. (3) The official referred to in sub-rule (2) shall deposit all payments received by way of Indian postal order or demand draft or cash in the Bank account of the Tribunal. 37. Notice to Opposite Party. (1) The Tribunal shall issue notice to the respondent to show cause against the application or petition on a date of hearing to be specified in the Notice. Such notice in Form No. NCLT-5 shall be accompanied by a copy of the application with supporting documents. (2) If the respondent does not appear on the date specified in the notice in Form No. NCLT-5, the Tribunal, after according reasonable opportunity to the respondent, shall forthwith proceed ex-parte to dispose of the application. (3) If the respondent contests to the notice received under sub-rule (1), it may, either in person or through an authorised representative, file a reply A1-18

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accompanied with an affidavit and along with copies of such documents on which it relies, with an advance service to the petitioner or applicant, to the Registry before the date of hearing and such reply and copies of documents shall form part of the record. 38. Service of Notices and processes. (1) Any notice or process to be issued by the Tribunal may be served by post or by courier or at the e-mail address as provided in the petition or application or in the reply; (2) The notice or process if to be served physically may be served in any one of the following modes as may be directed by the Tribunal; (a) by hand delivery through a process server or respective authorised representative; (b) by registered post or speed post with acknowledgment due or by courier; or (c) service by the party himself. Explanation.-For the purposes of sub-rules (1) and (2), the term ‘‘courier’’ means a person or agency which delivers the document and provides proof of its delivery. (3) Where a notice issued by the Tribunal is served by the party himself by hand delivery, he shall file with the Registrar or such other person duly authorised by the Registrar in this behalf, the acknowledgment together with an affidavit of service and in case of service by registered post or by speed post, file with the Registrar, or such other person duly authorised by the Registrar in this behalf, an affidavit of service of notice alongwith the proof of delivery. (4) Notwithstanding anything contained in sub-rules (1) and (2), the Tribunal may after taking into account the number of respondents and their place of residence or work or service could not be effected in any manner and other circumstances, direct that notice of the petition or application shall be served upon the respondents in any other manner, including any manner of substituted service, as it appears to the Tribunal just and convenient. (5) A notice or process may also be served on an authorised representative of the applicant or the respondent, as the case may be, in any proceeding or on any person authorised to accept a notice or a process, and such service on the authorised representative shall be deemed to be a proper service. (6) Where the Tribunal directs a service under sub-rule (4), such amount of charges, as may be determined by the Tribunal from time to time, but not exceeding the actual charges incurred in effecting the service, shall be deposited with the registry of the Tribunal by the petitioner or applicant. 38A. Multiple remedies A petition shall be based upon a single cause of action and may seek one or more reliefs provided that the reliefs are consequential to one another. A1-19

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39. Production of Evidence by Affidavit. (1) The Tribunal may direct the parties to give evidence, if any, by affidavit. (2) Notwithstanding anything contained in sub-rule (1), where the Tribunal considers it necessary in the interest of natural justice, it may order crossexamination of any deponent on the points of conflict either through information and communication technology facilities such as video conferencing or otherwise as may be decided by the Tribunal, on an application moved by any party. (3) Every affidavit to be filed before the Tribunal shall be in Form No. NCLT7. 40. Production of additional evidence before the Bench. (1) Notwithstanding anything contained in rule 39, the parties to the proceedings shall not be entitled to produce before the Bench additional evidence, either oral or documentary, which was in the possession or knowledge but was not produced before the Inspector, appointed by the Central Government for the purpose of investigating the affairs of the concerned company, during investigation under Chapter XIV of the Act, but if the Bench requires any additional evidence or document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or if the Inspector so appointed for the said purpose has not given sufficient opportunity to the party to adduce evidence, the Bench, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be produced. (2) Such document may be produced or such witness examined or such evidence adduced either before the Bench or before such authority as the Bench may direct. (3) If the document is directed to be produced or witness examined or evidence adduced before any authority, the party shall comply with the direction of the Bench and after compliance, send the document, the record of the deposition of the witness or the record of the evidence adduced, to the Bench. (4) Additional evidence or document shall be made available by the Bench to the parties to the proceedings other than the party adducing the evidence and they shall be afforded an opportunity to rebut the contents of the said additional evidence. 41. Filing of Reply and other Documents by the Respondents. (1) Each respondent may file his reply to the petition or the application and copies of the documents, either in person or through an authorised representative, with the registry as specified by the Tribunal. (2) A copy of the reply or the application and the copies of other documents shall be forthwith served on the applicant by the respondent. A1-20

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(3) To the reply or documents filed under sub-rule (1), the respondent shall specifically admit, deny or rebut the facts stated by the applicant in his petition or application and state such additional facts as may be found necessary in his reply. 42. Filing of Rejoinder. Where the respondent states such additional facts as may be necessary for the just decision of the case, the Bench may allow the petitioner to file a rejoinder to the reply filed by the respondent, with an advance copy to be served upon the respondent. 43. Power of the Bench to call for further information or evidence. (1) The Bench may, before passing orders on the petition or application, require the parties or any one or more of them, to produce such further documentary or other evidence as it may consider necessary:(a) for the purpose of satisfying itself as to the truth of the allegations made in the petition or application; or (b) for ascertaining any information which, in the opinion of the Bench, is necessary for the purpose of enabling it to pass orders in the petition or application. (2) Without prejudice to sub-rule (1), the Bench may, for the purpose of inquiry or investigation, as the case may be, admit such documentary and other mode of recordings in electronic form including e-mails, books of accounts, book or paper, written communications, statements, contracts, electronic certificates and such other similar mode of transactions as may legally be permitted to take into account of those as admissible as evidence under the relevant laws. (3) Where any party preferring or contesting a petition of oppression and mismanagement raises the issue of forgery or fabrication of any statutory records, then it shall be at liberty to move an appropriate application for forensic examination and the Bench hearing the matter may, for reasons to be recorded, either allow the application and send the disputed records for opinion of Central Forensic Science Laboratory at the cost of the party alleging fabrication of records, or dismiss such application. 44. Hearing of petition or applications. (1) The Tribunal shall notify to the parties the date and place of hearing of the petition or application in such manner as the President or a Member may, by general or special order, direct. (2) Where at any stage prior to the hearing of the petition or application, the applicant desires to withdraw his petition or application, he shall make an application to that effect to the Tribunal, and the Tribunal on hearing the applicant and if necessary, such other party arrayed as opposite parties in the A1-21

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petition or the application or otherwise, may permit such withdrawal upon imposing such costs as it may deem fit and proper for the Tribunal in the interests of the justice. 45. Rights of a party to appear before the Tribunal. (1) Every party may appear before a Tribunal in person or through an authorised representative, duly authorised in writing in this behalf. (2) The authorised representative shall make an appearance through the filing of Vakalatnama or Memorandum of Appearance in Form No. NCLT-12 representing the respective parties to the proceedings. (3) The Central Government, the Regional Director or the Registrar of Companies or Official Liquidator may authorise an officer or an Advocate to represent in the proceedings before the Tribunal. (4) The officer authorised by the Central Government or the Regional Director or the Registrar of Companies or the Official Liquidator shall be an officer not below the rank of Junior Time Scale or company prosecutor. (5) During any proceedings before the Tribunal, it may for the purpose of its knowledge, call upon the Registrar of Companies to submit information on the affairs of the company on the basis of information available in the MCA21 portal. Reasons for such directions shall be recorded in writing. (6) There shall be no audio or video recording of the Bench proceedings by the parties or their authorised representatives. 46. Registration of authorised representative’s interns. (1) No intern employed by an authorised representative shall act as such before the Tribunal or be permitted to have access to the records and obtain copies of the orders of a Bench of the Tribunal in which the authorised representative ordinarily appears, unless his name is entered in the register of interns maintained by the Bench. (2) An authorised representative desirous of registering his intern shall make a petition or an application to the Registrar in Form NCLT-10 and on such application being allowed by the Registrar, his name shall be entered in the register of interns. 47. Oath to the witness. The Bench Officer or the Court Officer, as the case may be, shall administer the following oath to a witness:“I do swear in the name of God I solemnly affirm that what I shall state shall be the truth and nothing but the truth.” 48. Consequence of non-appearance of applicant. (1) Where on the date fixed for hearing of the petition or application or on any other date to which such hearing may be adjourned, the applicant does not appear when the petition or the application is called for hearing, the Tribunal A1-22

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may, in its discretion, either dismiss the application for default or hear and decide it on merit. (2) Where the petition or application has been dismissed for default and the applicant files an application within thirty days from the date of dismissal and satisfies the Tribunal that there was sufficient cause for his nonappearance when the petition or the application was called for hearing, the Tribunal shall make an order restoring the same: Provided that where the case was disposed of on merits the decision shall not be re-opened. 49. Ex-parte Hearing and disposal. (1) Where on the date fixed for hearing the petition or application or on any other date to which such hearing may be adjourned, the applicant appears and the respondent does not appear when the petition or the application is called for hearing, the Tribunal may adjourn the hearing or hear and decide the petition or the application ex-parte. (2) Where a petition or an application has been heard ex-parte against a respondent or respondents, such respondent or respondents may apply to the Tribunal for an order to set it aside and if such respondent or respondents satisfies the Tribunal that the notice was not duly served, or that he or they were prevented by any sufficient cause from appearing (when the petition or the application was called) for hearing, the Tribunal may make an order setting aside the ex-parte hearing as against him or them upon such terms as it thinks fit. Provided that where the ex-parte hearing of the petition or application is of such nature that it cannot be set aside as against one respondent only, it may be set aside as against all or any of the other respondents also. 50. Registry to send certified copy. The Registry shall send a certified copy of final order passed to the parties concerned free of cost and the certified copies may be made available with cost as per Schedule of fees, in all other cases. 51. Power to regulate the procedure. The Tribunal may regulate its own procedure in accordance with the rules of natural justice and equity, for the purpose of discharging its functions under the Act. 52. Summoning of witnesses and recording Evidence. (1) If a petition or an application is presented by any party to the proceedings for summoning of witnesses, the Tribunal shall issue summons for the appearance of such witnesses unless it considers that their appearance is not necessary for the just decision of the case.

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(2) Where summons are issued by the Tribunal under sub-rule (1) to any witness to give evidence or to produce any document, the person so summoned shall be entitled to such travelling and daily allowance sufficient to defray the travelling and other expenses as may be determined by the Registrar which shall be deposited by the party as decided by the Registrar. 53. Substitution of legal representatives. (1) Where a party to a proceeding pending before a Bench dies or is adjudged insolvent or, in the case of a company, being wound up, the proceeding shall not abate and may be continued by or against the executor, administrator or other legal representative of the parties or by or against the assignee, receiver or liquidator, as the case may be. (2) In the case of death of a party during the pendency of the proceedings before the Tribunal, the legal representative of the deceased party may apply within ninety days of the date of such death for being brought on record. (3) Where no petition or application is received from the legal representatives within the period specified in sub-rule (2), the proceedings shall abate: Provided that for good and sufficient reasons shown, the Tribunal may allow substitution of the legal representatives of the deceased at any time before disposing the petition on merits. 54. Assessors or valuers. (1) In any enquiry into a claim, the Tribunal may call in the aid of assessor or valuer, not exceeding two in number, who possess any technical or special knowledge with respect to any matter before the Tribunal for the purpose of assisting the Tribunal. (2) An assessor or valuer shall perform such functions as the Tribunal may direct. (3) The remuneration, if any, to be paid to an assessor or valuer shall in every case be determined by the Tribunal and be paid by it in the manner as may be specified by the Tribunal. 55. Pleadings before the Tribunal. No pleadings, subsequent to the reply, shall be presented except by the leave of the Tribunal upon such terms as the Tribunal may think fit. 56. Application for execution. For execution of order passed by the Tribunal, the holder of an order shall make an application to the Tribunal in Form NCLT-8. 57. Issue of process of execution. (1) On receipt of an application under rule 56 the Tribunal shall issue a process for execution of its order in such Form as provided in the Code of Civil Procedure, 1908 (5 of 1908).

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(2) The Tribunal shall consider objection, if any, raised by the respondent and make such order as it may deem fit and shall issue attachment or recovery warrant in such form as provided in the Code of Civil Procedure, 1908 (5 of 1908), as the case may be. 58. Effect of non-compliance. Failure to comply with any requirement of these rules shall not invalidate any proceeding, merely by reason of such failure, unless the Tribunal is of the view that such failure has resulted in miscarriage of justice. 59. Procedure for imposition of penalty under the Act. (1) Notwithstanding anything to the contrary contained in any rules or regulations framed under the Act, no order or direction imposing a penalty under the Act shall be made unless the person or the company or a party to the proceeding, during proceedings of the Bench, has been given a show cause notice and reasonable opportunity to represent his or her or its case before the Bench or any officer authorised in this behalf. (2) In case the Bench decides to issue show cause notice to any person or company or a party to the proceedings, as the case may be, under subrule (1), the Registrar shall issue a show cause notice giving not less than fifteen days asking for submission of the explanation in writing within the period stipulated in the notice. (3) The Bench shall, on receipt of the explanation, and after oral hearing if granted, proceed to decide the matter of imposition of penalty on the facts and circumstances of the case. PART – V—ISSUANCE OF ORDERS AND DISPOSAL OF CASES

60. Matters relating to the Judgments or Orders of the Tribunal. (1) Once the final text of the judgment has been approved and adopted, the judgment shall be signed and dated by the President or the concerned Members or Member and the Registrar, and shall contain the names of the Members who have taken part in the decision. (2) Any Member differing as to the grounds upon which the judgment was based or some of its conclusions, or dissenting from the judgment, may append a separate or dissenting opinion. (3) In case the members who have heard the case are equally divided in passing the order or judgment, then the President shall constitute a Bench as referred in sub-section (5) of section 419 of the Act. 61. Amicus Curiae. (1) The Tribunal may, as its discretion, permit any person or persons, including the professionals and professional bodies to render or to communicate views to the Tribunal as amicus curiae on any point or points or legal issues as the case may be as assigned to such amicus curiae. A1-25

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(2) The Tribunal may permit amicus curiae to have access to the pleadings of the parties and the Tribunal shall enable the parties to submit timely observations on brief provided by the amicus curiae. (3) The Tribunal shall be at liberty to direct either of the parties or both the parties to the proceedings involving a point on which the opinion of the amicus curiae has been sought, to bear such expenses or fee as may be ordered by the Tribunal. (4) The judgment and any appended opinions shall be transmitted to the parties and to amicus curiae. 62. Recusal. (1) For the purpose of maintaining the high standards and integrity of the Tribunal, the President or a Member of the Tribunal shall recuse himself:(a) in any cases involving persons with whom the President or the Member has or had a personal, familial or professional relationship; (b) in any cases concerning which the President or the Member has previously been called upon in another capacity, including as advisor, representative, expert or witness; or (c) if there exists other circumstances such as to make the President or the Member’s participation seem inappropriate (2) The President or any Member recusing himself may record reasons for recusal: Provided that no party to the proceedings or any other person shall have a right to know the reasons for recusal by the President or the Member in the case. PART – VI—OTHER PROCEDURES

63. Presentation and scrutiny of petitions or applications. In case of the scrutiny of the petitions or applications as provided in Part III and elsewhere in these rules, if any person is aggrieved of the decision of the Registrar or such other officer officiating as the Registrar of the Benches, an appeal against the order of the Registrar shall be made within fifteen days of the making of such order to the President of the Principal Bench and at other places to any Member of the Bench designated by the President, and whose decision thereon shall be final. PART –VII—PROCEDURES IN RESPECT OF MATTERS EARLIER DEALT BY OTHER QUASI-JUDICIAL BODIES, COURTS AND TRIBUNALS

64. Matter earlier dealt by Company Law Board. (1) Notwithstanding anything contained in any other law for the time being in force, an original civil action or case arising out of the Act, or any other corresponding provision of the Companies Act, 1956 or Reserve Bank of India Act, 1934 is filed or pending before the Company Law Board on the date on which the Tribunal is constituted, and the relevant provisions of the A1-26

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(2)

(3)

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Act dealing with the Tribunal have been given effect, or the Company Law Board has been dissolved in pursuance of the provisions of the Act, then all the cases on such date pending with the Company Law Board or such Benches shall stand transferred to the respective Benches of the Tribunal exercising corresponding territorial jurisdiction as if the case had been originally filed in the Tribunal or its Bench to which it is transferred on the date upon which it was actually filed in the Company Law Board or its Bench from which it was transferred: Provided that the Tribunal shall consider any action taken under the regulations of the Company Law Board as deemed to have been taken or done under the corresponding provisions of these rules and the provisions of the Act, and shall thereupon continue the proceedings, except in a case where the order is reserved by the Company Law Board or its Bench and in such a case, the Tribunal shall reopen the matter and rehear the case as if the hearing had not taken place: Provided further that the Tribunal is at liberty to call upon the parties in a case to produce further evidence or such other information or document or paper or adduce or record further depositions or evidence as may deem fit and proper in the interest of justice. It shall be lawful for the President or such Member to whom the powers are so delegated, to provide that matters falling under all other sections of the Act, shall be dealt with by such Benches consisting of one or more members as may be constituted in exercising of such power as enshrined in the Act: Provided that matters pending before the Principal Bench of the Company Law Board as on the date of constitution of Tribunal shall continue and be disposed of by a bench consisting of not less than two Members of the Tribunal having territorial jurisdiction. It shall be lawful for the Tribunal to dispose of any case transferred to it wherever the Tribunal decides that further continuance of such application or petition transferred before the Tribunal shall be an unnecessary proceeding on account of changes which have taken place in the Act either upon an application filed by either of the parties to the proceedings or suo motu. A fresh petition or an application may also be filed in Form NCLT-1 corresponding to those provisions of the Act, if both the parties thereto so consent with the approval of the Tribunal while withdrawing the proceedings as already continued before the Company Law Board and serve a copy of the petition on the parties thereto including the Central Government, Regional Director, Registrar of Companies, Official Liquidator or Serious Fraud Investigation Office, as the case may be, as provided in the Act, in the manner as provided under Part III. Upon an application to the Tribunal if the permission is granted to file a petition or an application in physical form, then the same shall be filed

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accompanied with the documents or papers to be attached thereto as required to prove the case subject to the provisions of the Act, and rules hereto. (6) The same procedure shall also apply to other parties to application or petition for filing reply or counter thereto. (7) Notwithstanding the above and subject to section 434 of the Act, the Tribunal may prescribe the rules relating to numbering of cases and other procedures to be followed in the case of transfer of such matters, proceedings or cases. 65. Petition or Application under sub-section (2) of section 45QA of the Reserve Bank of India Act, 1934 (2 of 1934). Provisions of these rules shall apply, mutatis mutandis, to the application or petition made under sub-section (2) of section 45QA of the Reserve Bank of India Act, 1934 (2 of 1934) or under such other analogous provision of the other Act(s). PART –VIII—SPECIAL PROCEDURE

66. Application under sub- section (7) of section 7. (1) An application under sub-section (7) of section 7 of the Act shall be filed to the Tribunal in Form NCLT-1 and shall be accompanied by such documents as are mentioned in Annexure -B. (2) Every application filed under sub rule (1) shall also set out the following particulars, namely:(a) Name of the company and other details including date of incorporation, name and address of the subscribers, promoters and first directors; and (b) details of false or incorrect information or representation or material facts or information suppressed. (c) details of such documents in or declaration filed or made for incorporating such company, (d). involvement of promoters, subscribers and first directors in committing fraud during the course of incorporation; (3) Subject to the provisions contained in Proviso to sub-section (7) of Section 7, the Tribunal may pass such orders, as it may think fit in accordance with clauses (a) to (e) of said sub-section (7). 67. Petition under sub-section (41) of section 2. The Petition under the sub-section (41) of Section 2 be filed to the Tribunal in Form NCLT-1 and shall be accompanied by such documents as are mentioned in Annexure -B. 68. Petition under section 14. (1) A petition under the second provision to sub-section (1) of section 14 of the Act for the conversion of a public company into a private company, shall, not less than three months from the date of passing of special resolution, be filed A1-28

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to the Tribunal in Form No. NCLT-1 and shall be accompanied by such documents as are mentioned in Annexure B. (2) Every petition filed under sub-rule (1) shall set out the following particulars: (a) the date of the Board meeting at which the proposal for alteration of Articles was approved; (b) the date of the general meeting at which the proposed alteration was approved; (c) State at which the registered office of the company was situated; (d) number of members in the company, number of members attended the meeting and number of members of voted for and against; (e) reason for conversion into a private company, effect of such conversion on shareholders, creditors, debenture holders and other related parties. (f) listed or unlisted public company; (g) the nature of the company, that is, a company limited by shares, a company limited by guarantee (having share capital or not having share capital) and unlimited company; (h) details as to whether a company registered under section 8 of the Act. (3) There shall be attached to the application, a list of creditors and debenture holders, drawn up to the latest practicable date preceding the date of filing of petition by not more than two months, setting forth the following details, namely:(a) the names and address of every creditor and debenture holder of the company; (b) the nature and respective amounts due to them in respect of debts, claims or liabilities; (c) in respect of any contingent or unascertained debt or any such claim admissible to proof in winding up of the company, the value, so far as can be justly estimated of such debt or claim: Provided that the petitioner company shall file an affidavit, signed by the company secretary of the company, if any, and not less than two directors of the company, one of whom shall be a managing director, where there is one, to the effect that they have made a full enquiry into the affairs of the company and, having done so, have formed an opinion that the list of creditors is correct, and that the estimated value as given in the list of the debts or claims payable on a contingency or not ascertained are proper estimates of the values of such debts and claims and that there are no other debts of , or claims against, the company to their knowledge. (4) A duly authenticated copy of the list of creditors shall be kept at the registered office of the company and any person desirous of inspecting the same may, at any time during the ordinary hours of business, inspect and A1-29

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take extracts from the same on payment of the sum of rupees ten per page to the company. (5) The company shall at least fourteen days before the date of hearing; (a) advertise the petition in accordance with rule 35; (b) serve, by registered post with acknowledgement due, individual notice in Form NCLT-3B to the effect set out in sub-rule (a) on each debenture-holder and creditor of the company; and (c) serve, by registered post with acknowledgement due, a notice together with the copy of the petition to the Central Government, Registrar of Companies and to the Securities and Exchange Board of India, in the case of listed companies and to the regulatory body, if the company is regulated under any other Act. (6) Where any objection of any person whose interest is likely to be affected by the proposed petition has been received by the petitioner, it shall serve a copy thereof to the Registrar on or before the date of hearing. (7) While passing an order, the Tribunal may, if it is satisfied, having regard to all the circumstances of the case, that the conversion would not be in the interest of the company or is being made with a view to contravene or to avoid complying with the provisions of the Act, disallow the conversion with reasons to be recorded in writing. 68A.

Application to cancel variation of rights under sub-section (2) of section 48. (1) Where an application to cancel a variation of the rights attached to the shares of any class is made on behalf of the shareholders of that class entitled to apply for cancellation under sub-section (2) of section 48 by the letter of authority signed by the shareholders so entitled, authorising the applicant or applicants to present the application on their behalf, such letter of authority shall be annexed to the application, and the names and addresses of all the shareholders, the number of shares held by each of them, aggregate number of such shares held and percentage of the issued shares of that class shall be set out in the Schedule to the application. (2) The application in Form No. NCLT-1 shall be accompanied by documents required for the purposes of the case and shall set out (a) the particulars of registration; (b) the capital structure, the different classes of shares into which the share capital of the company is divided and the rights attached to each class of shares; (c) the provisions of the memorandum or articles authorising the variation of the rights attached to the various classes of shares; (d) the total number of shares of the class whose rights have been varied;

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(e)

the nature of the variation made, and so far as may have been ascertained by the applicants, the number of shareholders of the class who gave their consent to the variation or voted in favour of the resolution for variation and the number of shares held by them; (f) the number of shareholders who did not consent to the variation or who voted against the resolution, and the number of shares held by them; (g) the date on which the consent was given or the resolution was passed; and (h) the reasons for opposing the variation. (3) The applicant shall at least fourteen days before the date of the filing of the petition advertise the application in accordance with rule 35. (4) Where any objection of any person whose interest is likely to be affected by the proposed application is received by the applicant, a copy thereof shall be served to the Registrar of Companies and Regional Director on or before the date of hearing. (5) On any application, the Tribunal, after hearing the applicant and any other person, as appears to it, to be interested in the application, may, if it is satisfied, having regard to all the circumstances of the case that the variation would unfairly prejudice to the shareholders of the class represented by the applicant, cancel the variation and shall, if not so satisfied, confirm the variation for reasons to be recorded: Provided that the Tribunal may, at its discretion, make such orders as to cost as it thinks fit. 69. Petition under sub-section (3) of section 55. (1) The petition under sub-section (3) of section 55 of the Act shall be in Form No. NCLT-1 and shall be accompanied by documents mentioned in Annexure B and setting out: (a) particulars of registration (b) capital structure, the different classes of shares into which the share capital of the company is divided; (c) the provisions of the memorandum or articles authorizing the issue of preference shares; (d) total number of preference shares issued; (e) details of such preference shares that are not redeemed or unable to pay dividend; (f) terms and conditions of issue of such existing preference shares; (g) total number of such preference shares (unredeemed) and number of holders consented for with value of such preference shares and percentage of holders who have consented for; and

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(h) date or dates on which the consent was given or the resolution was passed. (2) On petition under sub-section (1), the Tribunal, after hearing the petitioner and any other person as appears to it to be interested in the petition, may, if it is satisfied, having regard to all the circumstances of the case, approve for issue of further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of unredeemable preference shares: Provided that the Tribunal shall, while giving approval, order the redemption forthwith of preference shares held by such persons who have not consented to the issue of further redeemable preference shares: Provided further that the Tribunal may, at its discretion, make such orders as to costs as it thinks fit. (3) [Omitted] 70. Appeal under sections 58 and 59. (1) The appeals against the refusal for registration of transfer or transmission of securities under section 58 or for rectification of register of members under section 59 shall be made to the Tribunal by way of a petition in Form No. NCLT-1 and shall be accompanied by such documents as are mentioned in Annexure B: Provided that a copy of the appeal shall be served on the concerned company at its registered office immediately after filing of the petition with the Tribunal. (2) The petitioner shall at least fourteen days before the date of hearing advertise the petition in accordance with rule 35. (3) Where any objection of any person whose interest is likely to be affected by the proposed petition has been received by the petitioner, it shall serve a copy thereof to the Registrar on or before the date of hearing: (4) The Tribunal may, while dealing with a petition under section 58 or 59, at its discretion, make(a) order or any interim order, including any orders as to injunction or stay, as it may deem fit and just; (b) such orders as to costs as it thinks fit; and (c) incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares. (5) On any petition under section 59, the Tribunal may(a) decide any question relating to the title of any person who is a party to the petition to have his name entered in, or omitted from, the register; (b) generally decide any question which is necessary or expedient to decide in connection with the application for rectification. (6) [Omitted]

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71. Application under proviso to clause (b) of sub-section (1) of section 61. (1) An application for obtaining the approval of the Tribunal for the consolidation and division of all or any of the share capital into shares of a larger amount than its existing shares which results in changes in the voting percentage of shareholders shall be filed in Form No. NCLT-1 and shall be accompanied by such documents as are mentioned in Annexure B. (2) The application shall, inter alia, set forth the following:(a) provision of articles authorising such consolidation or division; (b) existing capital structure of the company; (c) new capital structure of the company after the consolidation or division; (d) class of shares being consolidated or divided; (e) face value of shares pre and post consolidation or division; (f) justification for such consolidation or division; (3) The company shall at least fourteen days before the date of hearing (a) advertise the petition in accordance with rule 35; and (b) serve, by registered post with acknowledgement due, a notice together with the copy of the application to the Regional Director, Registrar of Companies and to the Securities and Exchange Board of India, in the case of listed companies and to the regulatory body, if the company is regulated under any other Act. (4) Where any objection of any person whose interest is likely to be affected by the proposed application has been received by the applicant, it shall serve a copy thereof to the Regional Director, Registrar of Companies and the Securities Exchange Board of India, in the case of listed companies and to any regulator, if the company is regulated under any other Act on or before the date of hearing. (5) Upon hearing the application or any adjourned hearing thereof, the Tribunal may pass such order, subject to such terms and conditions, as it thinks fit. 72. Appeal against the order of the Government under Section 62(4). (1) Where any Government by virtue of provisions of sub-section (4) of section 62, in public interest, converts the debentures or loan or any part thereof into shares in the company on such terms and conditions as appear to the Government to be reasonable in the circumstances of the case even in terms of the issue of such debentures or the raising of such loans do not include a term for providing for an option for such conversion. (2) If such terms and conditions of conversion are not acceptable to the company, it may, within sixty days from the date of communication of such order, appeal to the Tribunal, in Form NCLT-9, which shall after hearing the company and the Government, pass such order as it deems fit.

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73. Application under sections 71(9), 71(10), section 73(4) or section 74(2) and 76(2). (1) Where a company fails to redeem the debentures or repay the deposits or any part thereof or any interest thereon, an application under sub-section (10) of section 71 or under sub-section (4) of section 73 of the Act or section 45QA of the Reserve Bank of India Act, 1934 (2 of 1934), shall be filed to the Tribunal, in Form No. NCLT-11 in duplicate and shall be accompanied by such documents as are mentioned in Annexure B, by(a) in case of debentures, all or any of the debenture holders concerned, or debenture trustee; or (b) in case of deposits, all or any of the depositors concerned, or where the deposits are secured, by the deposit trustee. (2) There shall be attached to the application, a list of depositors or debenture holders, as the case may be, setting forth the following details in respect of every such depositor or debenture holder:(a) full name, age, father’s/ mother’s/ spouse’s name, occupation and full residential address; (b) fixed deposit receipt number or debenture certificate number, as the case may be; (c) date of maturity; (d) amount due to the person by the company; (e) amount already paid by the company, if any; (f) total amount due as on the date on the application: Provided that where the company is the applicant, it shall file an affidavit stating that the list of depositors or debenture holders, as the case may be, is correct, and that the estimated values as given in the list of the amount payable to such depositors or debenture holders are proper estimates of the values of such debts and claims. (3) The Tribunal shall pass an appropriate order within a period of sixty days from the date of receipt of application under sub-rule (1): Provided that the Tribunal shall, before making any order under this rule, give a reasonable opportunity of being heard to the company and any other person interested in the matter. (4) The Tribunal may, if it is satisfied, on the application filed under subrule (1), that it is necessary so to do, to safeguard the interests of the company, the debenture holders or the depositors, as the case may be, or in the public interest, direct, by order, the company to make repayment of such deposit or debenture or part thereof forthwith or within such time and subject to such conditions as may be specified in the order:

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Provided that while passing the order, the Tribunal shall consider the financial condition of the company, the amount or deposit or debenture or part thereof and the interest payable thereon. (5) The application under sub-section (2) of section 74 and sub-section (2) of section 76 read with section 74(2) shall be in Form NCLT-1 and shall accompanied with the documents as per Annexure B. (6) A copy of application under sub-section (2) of section 76 and under subsection (2) of section 74 shall be served on the Regional Director and the Registrar of Companies before the date of hearing. (7) The Registrar of Companies in consultation with Regional Director shall submit before the Tribunal, the report on the affairs of the company within thirty days from the date of the receipt of the application and Tribunal may consider any observation made by the Registrar of Companies before passing an order. 74. Application for calling or obtaining a direction to call annual general meeting. (1) An application under section 97 for calling or obtaining a direction to call the annual general meeting of the company shall be made by any member of the company in Form No. NCLT-1 and shall be accompanied by the documents specified in Annexure B. (2) A copy of the application shall be served on the Registrar of Companies on or before the date of hearing. 75. Application for obtaining an order for calling of general meeting (other than Annual General Meeting). (1) An application under section 98 for obtaining an order for calling of a general meeting (other than Annual General Meeting) shall be made by any director or member of the company in Form No. NCLT-1 and shall be accompanied by the documents specified in Annexure B. (2) A copy of the application shall be served on the Registrar of Companies on or before the date of hearing. 76. Inspection of minute-books of general meeting. Where any member has requested the company for inspection of minute-book of general meeting on payment of requisite fee and the company refused to give such inspection, he may apply to the Tribunal in Form No NCLT-9 for direction to the company for inspection of minute-book of general meeting. 76A. Application under section 130. The Central Government, the Income-tax authorities, the Securities and Exchange Board of India, any other statutory regulatory body or authority or any person concerned may file an application in Form No. NCLT-9 for re-opening of books of accounts and for re-casting of financial statement of a company under section 130 A1-35

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of the Act and such application shall be accompanied by such documents as mentioned in Annexure-B. 77. Application under section 131. (1) Where it appears to the directors of a company that the financial statement of the company or the report of the Board do not comply with the provisions of section 129 or section 134, the application shall be filed in Form No. NCLT-1 within fourteen days of the decision taken by the Board. (2) In case the majority of the directors of company or the auditor of the company has been changed immediately before the decision is taken to apply under section 131, the company shall disclose such facts in the application. (3) The application shall, inter alia, set forth the following particulars, namely’(a) financial year or period to which such accounts relates; (b) the name and contact details of the Managing Director, Chief Financial Officer, directors, Company Secretary and officer of the company responsible for making and maintaining such books of accounts and financial statement; (c) where such accounts are audited, the name and contact details of the auditor or any former auditor who audited such accounts; (d) copy of the Board resolution passed by the Board of Directors; (e) grounds for seeking revision of financial statement or Board’s Report. (4) The company shall at least fourteen days before the date of hearing advertise the application in accordance with rule 35. (5) The Tribunal shall issue notice and hear the auditor of the original financial statement, if present auditor is different and after considering the application and hearing the auditor and any other person as the Tribunal may deem fit, may pass appropriate order in the matter. (6) A certified copy of the order of the Tribunal shall be filed with the Registrar of Companies within thirty days of the date of receipt of the certified copy.. (7) On receipt of approval from Tribunal a general meeting may be called and notice of such general meeting along with reasons for change in financial statements may be published in newspaper in English and in vernacular language. (8) In the general meeting, the revised financial statements, statement of directors and the statement of auditors may be put up for consideration before a decision is taken on adoption of the revised financial statements. (9) On approval of the general meeting, the revised financial statements along with the statement of auditors or revised report of the Board, as the case may be, shall be filed with the Registrar of Companies within thirty days of the date of approval by the general meeting.

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78. Application under Section 140. (1) An application may be filed by the director on behalf of the company or the aggrieved auditor to the Tribunal in Form NCLT-1 and shall be accompanied by such documents as are mentioned in Annexure “B”. (2) Where the Tribunal is satisfied on an application of the company or the aggrieved person that the rights conferred by the provisions of section 140 are being abused by the auditor, then, the copy of the representation need not be sent and the representation need not be read out at the meeting. (3) If the application is made by the Central Government and the Tribunal is satisfied that any change of the auditor is required, it shall within fifteen days of receipt of such application make an order that the auditor shall not function as an auditor and the Central Government may appoint another auditor in his place. 79. Application under section 169. The Company or any other person who claims to be aggrieved may make an application to the Tribunal in Form NCLT-1 and shall be accompanied with such documents as are mentioned in Annexure B. 80. Application under section 213 for investigation. An application under section 213 may be made in Form NCLT-1 and shall be accompanied with such documents as are mentioned in Annexure B. 80A. Application under section 230. An application under sub-section (12) of section 230 may be made in Form NCLT-1 and shall be accompanied with such documents as are mentioned in Annexure B. 81. Application under section 241. (1) An Application under clause (a) or clause (b) of sub-section (1) of section 241 of the Act, shall be filed in the Form NCLT-1 and shall be accompanied with such documents as are mentioned in Annexure B. (2) Where an application is presented under section 241 on behalf of any members of a company entitled to apply under sub-section (1) of the said section, by any one or more of them, the letter of consent signed by the rest of the members so entitled authorising the applicant or the applicants to present the petition on their behalf, shall be annexed to the application, and the names and addresses of all the members on whose behalf the application is presented shall be set out in a schedule to the application, and where the company has a share capital, the application shall state whether the applicants have paid all calls and other sums due on their respective shares. (3) A copy of every application made under this rule shall be served on the company, other respondents and all such persons as the Tribunal may direct.

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82. Withdrawal of Application filed under section 241. (1) An application under clause (a) or clause (b) of sub-section (1) of section 241 of the Act, shall not be withdrawn without the leave of the Tribunal. (2) An Application for withdrawal under sub-rule (1) shall be filed in the Form NCLT-9. 83. Application under section 243. (1) An application under clause (b) of sub-section (1) of section 243 of the Act for leave to any of the persons mentioned therein to be appointed or to act as the managing director or other director or manager of the company, shall be filed as per the appropriate Form NCLT-1 and shall be accompanied with such documents as are mentioned in Annexure B. (2) An application under sub - rule (1) shall state whether a notice of intention to apply for such leave, as required under the proviso to sub-section (1) of section 243 of the Act, has been given to the Central Government and such application shall also be accompanied by a copy of such notice. (3) The notice of the date of hearing of the application together with a copy of the application shall be served on the Central Government not less than fifteen days before the date fixed for the hearing. 83A. Application under sub-section (1) of section 244. An application in Form No. NCLT-9 may be filed before the Tribunal for waiver of requirement of clause (a) or (b) of Section 244 of the Act which shall be accompanied by such documents as mentioned in Annexure-B. 84. Right to apply under section 245. (1) An application under sub-section (1) of section 245, read with sub-section (3) of section 245 of the Act, shall be filled in Form NCLT-9. (2) A copy of every application under sub-rule (1) shall be served on the company, other respondents and all such persons as the Tribunal may direct. (3) In case of a company having a share capital, the requisite number of member or members to file an application under sub-section (1) of section 245 shall be — (i) (a) at least five per cent. of the total number of members of the company; or (b) one hundred members of the company, whichever is less; or (ii) (a) member or members holding not less than five per cent. of the issued share capital of the company, in case of an unlisted company; (b) member or members holding not less than two per cent. of the issued share capital of the company, in case of a listed company.

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(4) The requisite number of depositor or depositors to file an application under sub-section (1) of section 245 shall be — (i) (a) at least five per cent. of the total number of depositors of the company; or (b) one hundred depositors of the company, whichever is less; or; (ii) depositor or depositors to whom the company owes five per cent. of total deposits of the company. 85. Conducting a class action suit. (1) Without prejudice to the generality of the provisions of sub-section (4) of section 245 of the Act, the Tribunal may, while considering the admissibility of an application under the said section, in addition to the grounds specified therein, take into account the following: (a) whether the class has so many members that joining them individually would be impractical, making a class action desirable; (b) whether there are questions of law or fact common to the class; (c) whether the claims or defences of the representative parties are typical of the claims or defences of the class; (d) whether the representative parties will fairly and adequately protect the interests of the class. (2) For the purposes of clause (c) of sub-section (4) of section 245, while considering the desirability of an individual or separate action as opposed to a class action, the Tribunal may take into account, in particular, whether admitting separate actions by member or members or depositor or depositors would create a risk of:(a) inconsistent or varying adjudications in such separate actions; or (b) adjudications that, as a practical matter, would be dispositive of the interests of the other members; (c) adjudications which would substantially impair or impede the ability of other members of the class to protect their interests. 86. Rule of opt-out. (1) A member of a class action under section 245 of the Act is entitled to opt-out of the proceedings at any time after the institution of the class action, with the permission of the Tribunal, as per Form No. NCLT-1. (2) For the purposes of this rule, a class member who receives a notice under clause (a) of sub section (5) of section 245 of the Act shall be deemed to be the member of a class, unless he expressly opts out of the proceedings, as per the requirements of the notice issued by the Tribunal in accordance with rule 38.

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(3) A class member opting out shall not be precluded from pursuing a claim against the company on an individual basis under any other law, where a remedy may be available, subject to any conditions imposed by the Tribunal. 87. Publication of notice. (1) For the purposes of clause (a) of sub section (5) of section 245 of the Act, on the admission of an application filed under sub-section (1) of section 245 of the Act, a public notice shall be issued by the Tribunal as per Form No. NCLT-13 to all the members of the class by(a) publishing the same within seven days of admission of the Application by the Tribunal at least once in a vernacular newspaper in the principal vernacular language of the State in which the registered office of the company is situated and at least once in English in an English newspaper that is in circulation in that State; (b) requiring the company to place the public notice on the website of such company, if any, in addition to publication of such public notice in newspaper under sub-clause (a): Provided that such notice shall also be placed on the websites of the Tribunal and the Ministry of Corporate Affairs, the concerned Registrar of Companies and in respect of a listed company on the website of the concerned stock exchange where the company has any of its securities listed, until the application is disposed of by the Tribunal. (2) The date of issue of the newspaper in which such notice appears shall be considered as the date of serving the public notice to all the members of the class. (3) The public notice shall, inter alia, contain the following(a) name of the lead applicant; (b) brief particulars of the grounds of application; (c) relief sought by such application; (d) statement to the effect that application has been made by the requisite number of members/depositors; (e) statement to the effect that the application has been admitted by the Tribunal after considering the matters stated under sub-section (4) of section 245 and these rules and it is satisfied that the application may be admitted; (f) date and time of the hearing of the said application; (g) time within which any representation may be filed with the Tribunal on the application; (h) the details of the admission of the application and the date by which the form of opt out has to be completed and sent as per Form NCLT-1 and shall be accompanied with such documents as are mentioned in Annexure “B”, and such other particulars as the Tribunal thinks fit. A1-40

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(4) The cost or expenses connected with the publication of the public notice under this rule shall be borne by the applicant and shall be defrayed by the company or any other person responsible for any oppressive act in case order is passed in favour of the applicant. 87A. (1) (2)

(3) (4)

(5)

Appeal or application under sub-section (1) and sub-section (3) of section 252. An appeal under sub- section (1) or an application under sub-section (3) of section 252, may be filed before the Tribunal in Form No. NCLT. 9, with such modifications as may be necessary. A copy of the appeal or application, shall be served on the Registrar and on such other persons as the Tribunal may direct, not less than fourteen days before the date fixed for hearing of the appeal or application, as the case may be. Upon hearing the appeal or the application or any adjourned hearing thereof, the Tribunal may pass appropriate order, as it deems fit. Where the Tribunal makes an order restoring the name of a company in the register of companies, the order shall direct that(a) the appellant or applicant shall deliver a certified copy to the Registrar of Companies within thirty days from the date of the order; (b) on such delivery, the Registrar of Companies do, in his official name and seal, publish the order in the Official Gazette; (c) the appellant or applicant do pay to the Registrar of Companies his costs of, and occasioned by, the appeal or application, unless the Tribunal directs otherwise; and (d) the company shall file pending financial statements and annual returns with the Registrar and comply with the requirements of the Companies Act, 2013 and rules made thereunder within such time as may be directed by the Tribunal. An application filed by the Registrar of Companies for restoration of name of a company in the register of companies under second proviso to subsection (1) of section 252 shall be in Form No. NCLT 9 and upon hearing the application or any adjourned hearing thereof, the Tribunal may pass an appropriate order, as it deems fit.

88. Reference to the Tribunal. Any reference to the Tribunal by the Registrar of Companies under section 441 of the Act, or any reference to the Tribunal by the Central Government under proviso to sub-section (5) of section 140, 221, sub-section (2) of section 224, subsection (5) of section 224, sub-section (2) of section 241 of the Act, or reference under sub-section (2) of section 75 or any complaint by any person under subsection (1) of section 222, or any reference by a company under clause (c) of subsection (4) of section 22A of the Securities Contracts (Regulations) Act, 1956 A1-41

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shall be made by way of a petition or application in Form No. NCLT-9 in Annexure A and shall be accompanied by documents mentioned in Annexure-B. PART – IX—CAUSE LIST

89. Preparation and publication of daily cause list. (1) The Registry shall prepare and publish on the notice board of the Registry before the closing of working hours on each working day the cause list for the next working day and subject to the directions of the President, listing of cases in the daily cause list shall be in the following order of priority, unless otherwise ordered by the concerned Bench; namely;(a) cases for pronouncement of orders; (b) cases for clarification; (c) cases for admission; (d) cases for orders or directions; (e) part-heard cases, latest part-heard having precedence; and (f) cases posted as per numerical order or as directed by the Bench; (2) The title of the daily cause list shall consist of the number of the appeal or petition, the day, date and time of the court sitting, court hall number and the coram indicating the names of the President, Judicial Member and Technical Member constituting the Bench. (3) Against the number of each case listed in the daily cause list, the following shall be shown, namely;(a) names of the legal practitioners appearing for both sides and setting out in brackets the rank of the parties whom they represent; (b) names of the parties, if unrepresented, with their ranks in brackets. (4) The objections and special directions, if any, of the Registry shall be briefly indicated in the daily cause list in remarks column, whenever compliance is required. 90. Carry forward of cause list and adjournment of cases on account of nonsitting of a Bench. (1) If by reason of declaration of holiday or for any other unforeseen reason, the Bench does not function for the day, the daily cause list for that day shall, unless otherwise directed, be treated as the daily cause list for the next working day in addition to the cases already posted for that day. (2) When the sitting of a particular Bench is cancelled for the reason of inability of a Member of the Bench, the Registrar shall, unless otherwise directed, adjourn the cases posted before that Bench to a convenient date and the adjournment or posting or directions shall be notified on the notice board of the Registry.

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PART–X—RECORD OF PROCEEDINGS

91. Diaries. (1) Diaries shall be kept by the clerk-in-charge in such form as may be specified in each appeal or petition or application and they shall be written legibly. (2) The diary in the main file shall contain a concise history of the appeal or petition or application, the substance of the order passed thereon and in execution proceedings, it shall contain a complete record of all proceedings in execution of order or direction or rule and shall be checked by the Deputy Registrar and initialled once in a fortnight. 92. Order sheet. (1) The Court Master of the Bench shall maintain order sheet in every proceedings and shall contain all orders passed by the Tribunal from time to time . (2) All orders passed by the Tribunal shall be in English and the same shall be signed by the Members of the Tribunal constituting the Bench: Provided that the routine orders, such as call for of the records, put up with records, adjourned and any other order as may be directed by the Member of the Tribunal shall be signed by the Court Master of the Bench. (3) The order sheet shall also contain the reference number of the appeal or petition or application, date of order and all incidental details including short cause title thereof. 93. Maintenance of court diary. (1) The Court Master of the Bench shall maintain legibly a Court Diary, wherein he shall record the proceedings of the court for each sitting with respect to the applications or petitions or appeals listed in the daily cause list. (2) The matters to be recorded in the court Diary shall include details as to whether the case is adjourned, or part-heard or heard and disposed of or heard and orders reserved, as the case may be, along with dates of next sitting wherever applicable. 94. Statutes or citations for reference. The parties or legal practitioners shall, before the commencement of the proceedings for the day, furnish to the Court Master a list of law journals, reports, statutes and other citations, which may be needed for reference or photocopy of full text thereof. 95. Calling of cases in court. Subject to the orders of the Bench, the Court Master shall call the cases listed in the cause list in the serial order. 96. Regulation of court work. (1) When the Tribunal is holding a sitting, the Deputy Registrar shall ensure A1-43

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(a)

that no inconvenience or wastage of time is caused to the Bench in making available the services of Court Master or stenographer or peon or attender; (b) the Court Master shall ensure that perfect silence is maintained in and around the Court Hall and no disturbance whatsoever is caused to the functioning of the Bench and that proper care is taken to maintain dignity and decorum of the court. (2) When the Bench passes order or issues directions, the Court Master shall ensure that the records of the case along with proceedings or orders of the Bench are transmitted immediately to the Registry and the Registry shall verify the case records received from the Court Master with reference to the cause list and take immediate steps to communicate the directions or orders of the Bench. PART – XI—MAINTENANCE OF REGISTERS

97. Registers to be maintained. The following Registers shall be maintained and posted on a day to day basis by the Registry of the Tribunal by such ministerial officer or officers as the Registrar may, subject to any order of the President, direct (a) register of petitions; (b) register of unnumbered petitions or appeals; (c) register of caveats lodged; and (d) register of interlocutory applications; 98. Arrangement of records in pending matters. The record of appeal or petition shall be divided into the following four parts and shall be collated and maintained (a) main file : (Petition being kept separately); (b) miscellaneous application file; (c) process file; and (d) execution file 99. Contents of main file. The main file shall be kept in the following order and it shall be maintained as permanent record till ordered to be destroyed under the rules (a) index; (b) order sheet; (c) final order or judgment; (d) memo of appeal or petition, as the case may be, together with any schedule annexed thereto; (e) counter or reply or objection, if any; (f) (i) oral evidence or proof of affidavit; A1-44

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(ii) evidence taken on commission; and (iii) documentary evidence; (g) written arguments. 100. Contents of process file. The process file shall contain the following items; namely (a) index; (b) power of attorney or vakalatnama; (c) summons and other processes and affidavits relating thereof; (d) applications for summoning witness; (e) letters calling records; and (f) all other miscellaneous papers such as postal acknowledgements. 101. Execution file. The execution file shall contain the following items, namely(a) index; (b) the order sheet; (c) the execution application; (d) all processes and other papers connected with such execution proceedings; (e) transmission of order to civil court, if ordered; and (f) result of execution; 102. File for miscellaneous applications. For all miscellaneous applications there may be only one file with a title page prefixed to it and immediately after the title page, the diary, the miscellaneous applications, supporting affidavit, the order sheet and all other documents shall be filed. 103. Preservation of Record. (1) All necessary documents and records relating to petitions or applications dealt with by the Tribunal shall be stored or maintained as provided in these rules and other physical records kept in a record room shall be preserved for a period of five years after the passing of the final order. (2) Notwithstanding anything contained in sub-rule (1) the record of the petitions or applications dealt with by the Tribunal including the orders and directions passed by the Tribunal, shall be maintained by the Registry of the Tribunal for a period of fifteen years after the passing of the final order. 104. Retention, Preservation and Destruction of Records. (1) The Record Keeper or any other officer so designated shall be responsible for the records consigned to the Record Room. He shall scrutinize the records received by him within three days and prepare an index. A1-45

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(2) On the expiry of the period for preservation of the records specified under rule 103, the Registrar shall weed out the record. PART–XII—SERVICE OF PROCESS / APPEARANCE OF RESPONDENTS AND OBJECTIONS

105. Issue of notice. (1) Where notice of an appeal or petition for caveat or interlocutory application is issued by the Tribunal, copies of the same, the affidavit in support thereof and if so ordered by the Tribunal, the copy of other documents filed therewith, if any, shall be served along with the notice on the other side. (2) The aforesaid copies shall show the date of presentation of the appeal or petition for caveat or interlocutory application and the name of the authorised representative, if any, of such party with his full address for service and the interim order, if any, made thereon. (3) The Tribunal may order for issuing notice in appropriate cases and also permit the party concerned for service of the said notice on the other side by Dasti and in such case, deliver the notice to such party and it is for such party to file affidavit of service with proof. (4) Acknowledgement under sub-rule (3) shall be filed by the party with the Registry before the date fixed for return of notice. 106. Summons. Whenever summons or notice is ordered by private service, the appellant or applicant or petitioner, as the case may be, unless already served on the other side in advance, shall arrange to serve the copy of all appeals or petition or application by registered post or courier service and file affidavit of service with its proof of acknowledgement before the date fixed for hearing. 107. Steps for issue of fresh notice. (1) If any notice issued under rule 105 is returned unserved, that fact and the reason thereof shall be notified immediately on the notice board of the Registry. (2) The applicant or petitioner or his authorised representative shall within seven days from the date of the notification, take steps to serve the notice afresh. 108. Consequence of failure to take steps for issue of fresh notice. Where, after a summon has been issued to the other side, and returned unserved, and the applicant or petitioner or appellant, as the case may be, fails to take necessary steps within a period as ordered by the Tribunal from the date of return of the notice on the respondent, the Registrar shall post the case before the Bench for further directions or for dismissal for non-prosecution.

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109. Entries regarding service of notice or process. The judicial branch of the Registry shall record in the column in the order sheet ‘Notes of the Registry’, the details regarding completion of service of notice on the respondents, such as date of issue of notice, date of service, date of return of notice, if unserved, steps taken for issuing fresh notice and date of completion of services, etc. 110. Default of appearance of respondent and consequences. Where the respondent, despite effective service of summons or notice on him does not appear before the date fixed for hearing, the Tribunal may proceed to hear the appeal or application or petition ex-parte and pass final order on merits: Provided that it is open to the Tribunal to seek the assistance of any counsel as it deems fit in case the matter involves intricate and substantial questions of law having wide ramifications. 111. Filing of objections by respondent, form and consequences. (1) The respondent, if so directed, shall file objections or counter within the time allowed by the Tribunal. (2) The objections or counter shall be verified as an appeal or petition and wherever new facts are sought to be introduced with the leave of the Tribunal for the first time, the same shall be affirmed by a supporting affidavit. (3) The respondent, if permitted to file objections or counter in any proceeding shall also file three copies thereof after serving copies of the same on the appellant or petitioner or their Counsel on record or authorised representative, as the case may be. PART–XIII—FEE ON PETITION OR APPEAL, PROCESS FEE AND AWARD OF COSTS

112. Fees. (1) In respect of the several matters mentioned in the Annexures, there shall be paid fees as prescribed in the Schedule of Fees appended to these rules; Provided that no fee shall be payable or shall be liable to be collected on a petition or application filed or reference made by the Registrar of Companies, Regional Director or by any officer on behalf of the Central Government. (2) In respect of every interlocutory application, there shall be paid fees as prescribed in Schedule of Fees of these rules: Provided that no fee shall be payable or shall be liable to be collected on an application filed by the, Registrar of Companies, Regional Director or by an officer on behalf of the Central Government. (3) In respect of a petition or appeal or application filed or references made before the Principal Bench or the Bench of the Tribunal, fees referred to in this Part shall be paid by means of an Indian Postal Order or by a bank draft A1-47

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drawn in favour of the Pay and Accounts Officer, Ministry of Corporate Affairs, New Delhi/Kolkata/Chennai /Mumbai, as the case may be or as decided by the President. 113. Award of costs in the proceedings. (1) Whenever the Tribunal deems fit, it may award cost for meeting the legal expenses of the respondent of defaulting party. (2) The Tribunal may in suitable cases direct appellant or respondent to bear the cost of litigation of the other side, and in case of abuse of process of court, impose exemplary costs on defaulting party. PART–XIV—INSPECTION OF RECORD

114. Inspection of the records. (1) The parties to any case or their authorised representative may be allowed to inspect the record of the case by making an application in writing to the Registrar and by paying the fee prescribed thereof. (2) Subject to such terms and conditions as may be directed by the President by a general or special order, a person who is not a party to the proceeding, may also be allowed to inspect the proceedings after obtaining the permission of the Registrar in writing. 115. Grant of inspection. Inspection of records of a pending or decided case before the Tribunal shall be allowed only on the order of the Registrar. 116. Application for grant of inspection. (1) Application for inspection of record under sub-rule (1) and (2) of rule 114, shall be presented at Registry between 10.30 AM and 3.00 PM on any working day and two days before the date on which inspection is sought, unless otherwise permitted by the Registrar. (2) The Registry shall submit the application with its remarks before the Registrar, who shall, on consideration of the same, pass appropriate orders. (3) Inspection of records of a pending case shall not ordinarily be permitted on the date fixed for hearing of the case or on the preceding day. 117. Mode of inspection. (1) On grant of permission for inspection of the records, the Deputy Registrar shall arrange to procure the records of the case and allow inspection of such records on the date and time fixed by the Registrar between 10.30 AM and 12.30 PM and between 2.30 PM and 4.30 PM in the immediate presence of an officer authorised in that behalf by the Registrar. (2) The person inspecting the records shall not in any manner cause dislocation, mutilation, tampering or damage to the records in the course of inspection.

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(3) The person inspecting the records shall not make any marking on any record or paper so inspected and taking notes, if any, of the documents or records inspected may be done only in pencil. (4) The person supervising the inspection, may at any time prohibit further inspection, if in his opinion, any of the records are likely to be damaged in the process of inspection or the person inspecting the records has violated or attempted to violate the provisions of these rules and shall immediately make a report about the matter to the Registrar and seek further orders from the Registrar and such notes shall be made in the Inspection Register. 118. Maintenance of register of inspection. The Deputy Registrar shall cause to maintain a Register for the purpose of inspection of documents or records and shall obtain therein the signature of the person making such inspection on the Register as well as on the application on the conclusion of inspection. PART–XV—APPEARANCE OF AUTHORISED REPRESENTATIVE

119. Appearance of authorised representative. Subject to as hereinafter provided, no legal practitioner or authorised representative shall be entitled to appear and act, in any proceeding before the Tribunal unless he files into Tribunal vakalatnama or Memorandum of Appearance as the case may, duly executed by or on behalf of the party for whom he appears. 120. Consent for engaging another legal practitioner. A legal practitioner proposing to file a Vakalatnama or Memorandum of Appearance as the case may be, in any pending case or proceeding before the Tribunal in which there is already a legal practitioner or authorised representative on record, shall do so only with the written consent of the legal practitioner or the authorised representative on record or when such consent is refused, with the permission of the Tribunal after revocation of Vakalatnama or Memorandum of Appearance as the case may be, on an application filed in this behalf, which shall receive consideration only after service of such application on the counsel already on record. 121. Restrictions on appearance. A legal practitioner or the authorised representative as the case may be, who has tendered advice in connection with the institution of any case or other proceeding before the Tribunal or has drawn pleadings in connection with any such matter or has during the progress of any such matter acted for a party, shall not, appear in such case or proceeding or other matter arising therefrom or in any matter connected therewith for any person whose interest is opposed to that of his former client, except with the prior permission of the Tribunal.

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122. Restriction on party’s right to be heard. The party who has engaged a legal practitioner or authorised representative to appear for him before the Tribunal may be restricted by the Tribunal in making presentation before it. 123. Empanelment of special authorised representatives by the Tribunal. (1) The Tribunal may draw up a panel of authorised representatives or valuers or such other experts as may be required by the Tribunal to assist in proceedings before the Tribunal. (2) The President may call upon any of the persons from panel under subrule (1) for assistance in the proceedings before the Bench, if so required. (3) The remuneration payable and other allowances and compensation admissible to such persons shall be specified in consultation with the Tribunal. 124. Professional dress for the authorised representatives. While appearing before the Tribunal, the authorised representatives shall wear the same professional dress as prescribed in their Code of Conduct. PART–XVI—AFFIDAVITS

125. Title of affidavits. Every affidavit shall be titled as ‘Before the National Company Law Tribunal.’ followed by the cause title of the appeal or application or other proceeding in which the affidavit is sought to be used. 126. Form and contents of the affidavit. The affidavit shall conform to the requirements of order XIX, rule 3 of Civil Procedure Code, 1908 (5 of 1908). 127. Persons authorised to attest. Affidavits shall be sworn or affirmed before an advocate or notary, who shall affix his official seal. 128. Affidavits of illiterate, visually challenged persons. Where an affidavit is sworn or affirmed by any person who appears to be illiterate, visually challenged or unacquainted with the language in which the affidavit is written, the attester shall certify that the affidavit was read, explained or translated by him or in his presence to the deponent and that he seemed to understand it, and made his signature or mark in the presence of the attester in Form NCLT-14. 129. Identification of deponent. If the deponent is not known to the attester, his identity shall be testified by a person known to him and the person identifying shall affix his signature in token thereof.

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130. Annexures to the affidavit. (1) Document accompanying an affidavit shall be referred to therein as Annexure number and the attester shall make the endorsement thereon that this is the document marked putting the Annexure number in the affidavit. (2) The attester shall sign therein and shall mention the name and his designation. PART–XVII—DISCOVERY, PRODUCTION AND RETURN OF DOCUMENTS

131. Application for production of documents, form of summons. (1) Except otherwise provided hereunder, discovery or production and return of documents shall be regulated by the provisions of the Code of Civil Procedure, 1908 (5 of 1908). (2) An application for summons to produce documents shall be on plain paper setting out the document the production of which is sought, the relevancy of the document and in case where the production of a certified copy would serve the purpose, whether application was made to the proper officer and the result thereof. (3) A summons for production of documents in the custody of a public officer other than a court shall be in Form NCLT-15 and shall be addressed to the concerned Head of the Department or such other authority as may be specified by the Tribunal. 132. Suo motu summoning of documents. Notwithstanding anything contained in these rules, the Tribunal may, suo motu, issue summons for production of public document or other documents in the custody of a public officer. 133. Marking of documents. (1) The documents when produced shall be marked as follows : (a) If relied upon by the appellant’s or petitioner’s side, they shall be numbered as ‘A’ series. (b) If relied upon by the respondent’s side, they shall be marked as ‘B’ series. (c) The Tribunal exhibits shall be marked as ‘C’ series. (2) The Tribunal may direct the applicant to deposit with the Tribunal by way of Demand Draft or Indian Postal Order drawn in favour of the Pay and Accounts Officer, Ministry of Corporate Affairs, New Delhi, a sum sufficient to defray the expenses for transmission of the records before the summons is issued.

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134. Return and transmission of documents. (1) An application for return of the documents produced shall be numbered and no such application shall be entertained after the destruction of the records. (2) The Tribunal may, at any time, direct return of documents produced subject to such conditions as it deems fit. PART–XVIII—EXAMINATION OF WITNESSES AND ISSUE OF COMMISSIONS

135. Procedure for examination of witnesses, issue of Commissions. The provisions of the Orders XVI and XXVI of the Code of Civil Procedure, 1908 (5 of 1908), shall mutatis mutandis apply in the matter of summoning and enforcing attendance of any person and examining him on oath and issuing commission for the examination of witnesses or for production of documents. 136. Examination in camera. The Tribunal may in its discretion examine any witness in camera. 137. Form of oath or affirmation to witness. Oath shall be administered to a witness in the following form : “I do swear in the name of God/solemnly affirm that what I shall state shall be truth, the whole truth and nothing but the truth”. 138. Form of oath or affirmation to interpreter. Oath or solemn affirmation shall be administered to the interpreter in the following form before the Bench Officer or the Court Officer as the case may be, as taken for examining a witness: “I do swear in the name of God/solemnly affirm that I will faithfully and truly interpret and explain all questions put to and evidence given by witness and translate correctly and accurately all documents given to me for translation.” 139. Officer to administer oath. The oath or affirmation shall be administered by the Court Master. 140. Form recording of deposition. (1) The Deposition of a witness shall be recorded in Form NCLT-16. (2) Each page of the deposition shall be initialed by the Members constituting the Bench. (3) Corrections, if any, pointed out by the witness may, if the Bench is satisfied, be carried out and duly initialled. If not satisfied, a note to the effect be appended at the bottom of the deposition. 141. Numbering of witnesses. The witnesses called by the applicant or petitioner shall be numbered consecutively as PWs and those by the respondents as RWs.

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142. Grant of discharge certificate. Witness discharged by the Tribunal may be granted a certificate in Form NCLT17 by the Registrar. 143. Witness allowance payable. (1) Where the Tribunal issues summons to a Government servant to give evidence or to produce documents, the person so summoned may draw from the Government travelling and daily allowances admissible to him as per rules. (2) Where there is no provision for payment of Travelling Allowances and Daily Allowance by the employer to the person summoned to give evidence or to produce documents, he shall be entitled to be paid as allowance, (a sum in the opinion of the Registrar sufficient to defray the travelling and other expenses), having regard to the status and position of the witness. (3) The party applying for the summons shall deposit with the Registrar the amount of allowance as estimated by the Registrar well before the summons is issued. (4) If the witness is summoned as a court witness, the amount estimated by the Registrar shall be paid as per the directions of the Tribunal. (5) The aforesaid provisions would govern the payment of batta to the interpreter as well. 144. Records to be furnished to the Commissioner. (1) The Commissioner shall be furnished by the Tribunal with such of the records of the case as the Tribunal considers necessary for executing the Commission. (2) Original documents shall be furnished only if a copy does not serve the purpose or cannot be obtained without unreasonable expense or delay and delivery and return of records shall be made under proper acknowledgement. 145. Taking of specimen handwriting, signature etc. The Commissioner may, if necessary, take specimen of the handwriting, signature or fingerprint of any witness examined before him. PART–XIX—DISPOSAL OF CASES AND PRONOUNCEMENT OF ORDERS

146. Disposal of Cases. On receipt of an application, petition, appeal etc., the Tribunal, after giving the parties a reasonable opportunity of being heard, pass such orders thereon as it thinks fit: Provided that the Tribunal, after considering an appeal, may summarily dismiss the same, for reasons to be recorded, if the Tribunal is of opinion that there are no sufficient grounds for proceedings therewith.

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147. Operative portion of the order. All orders or directions of the Bench shall be stated in clear and precise terms in the last paragraph of the order. 148. Corrections. Every Member of the Bench who has prepared the order shall initial all corrections and affix his initials at the bottom of each page. 149. Power to impose Costs. The Tribunal may, in its discretion, pass such order in respect of imposing costs on the defaulting party as it may deem fit. 150. Pronouncement of Order. (1) The Tribunal, after hearing the applicant and respondent, shall make and pronounce an order either at once or, as soon as thereafter as may be practicable but not later than thirty days from the final hearing. (2) Every order of the Tribunal shall be in writing and shall be signed and dated by the President or Member or Members constituting the Bench which heard the case and pronounced the order. (3) A certified copy of every order passed by the Tribunal shall be given to the parties. (4) The Tribunal, may transmit order made by it to any court for enforcement, on application made by either of the parties to the order or suo motu. (5) Every order or judgment or notice shall bear the seal of the Tribunal. 151. Pronouncement of order by any one member of the Bench. (1) Any Member of the Bench may pronounce the order for and on behalf of the Bench. (2) When an order is pronounced under this rule, the Court Master shall make a note in the order sheet, that the order of the Bench consisting of President and Members was pronounced in open court on behalf of the Bench. 152. Authorising any member to pronounce order (1) If the Members of the Bench who heard the case are not readily available or have ceased to be Members of the Tribunal, the President may authorise any other Member to pronounce the order on his behalf after being satisfied that the order has been duly prepared and signed by all the Members who heard the case. (2) The order pronounced by the Member so authorised shall be deemed to be duly pronounced. (3) The Member so authorised for pronouncement of the order shall affix his signature in the order sheet of the case stating that he has pronounced the order as provided in this rule.

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(4) If the order cannot be signed by reason of death, retirement or resignation or for any other reason by any one of the Members of the Bench who heard the case, it shall be deemed to have been released from part- heard and listed afresh for hearing. 153. Enlargement of time. Where any period is fixed by or under these rules, or granted by Tribunal for the doing of any act, or filing of any document or representation, the Tribunal may, in its discretion from time to time in the interest of justice and for reasons to be recorded, enlarge such period, even though the period fixed by or under these rules or granted by the Tribunal may have expired. 154. Rectification of Order. (1) Any clerical or arithmetical mistakes in any order of the Tribunal or error therein arising from any accidental slip or omission may, at any time, be corrected by the Tribunal on its own motion or on application of any party by way of rectification. (2) An application under sub-Rule (1) may be made in Form No. NCLT. 9 within two years from the date of the final order for rectification of the final order not being an interlocutory order. 155. General power to amend. The Tribunal may, within a period of thirty days from the date of completion of pleadings, and on such terms as to costs or otherwise, as it may think fit, amend any defect or error in any proceeding before it; and all necessary amendments shall be made for the purpose of determining the real question or issue raised by or depending on such proceeding. 156. Making of entries by Court Master. Immediately on pronouncement of an order by the Bench, the Court Master shall make necessary endorsement on the case file regarding the date of such pronouncement, the nature of disposal and the constitution of the Bench pronouncing the order and he shall also make necessary entries in the court diary maintained by him. 157. Transmission of order by the Court Master. (1) The Court Master shall immediately on pronouncement of order, transmit the order with the case file to the Deputy Registrar. (2) On receipt of the order from the Court Master, the Deputy Registrar shall after due scrutiny, satisfy himself that the provisions of these rules have been duly compiled with and in token thereof affix his initials with date on the outer cover of the order. (3) The Deputy Registrar shall thereafter cause to transmit the case file and the order to the Registry for taking steps to prepare copies and their communication to the parties. A1-55

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158. Format of order. (1) All orders shall be neatly and fairly typewritten in double space on one side only on durable foolscap folio paper of metric A-4 size (30.5 cm long and 21.5 cm wide) with left side margin of 5 cm and right side margin of 2.5 cm. Corrections, if any, in the order shall be carried out neatly and sufficient space may be left both at the bottom and at the top of each page of the order to make its appearance elegant. (2) Members constituting the Bench shall affix their signatures in the order of their seniority from right to left. 159. Indexing of case files after disposal. After communication of the order to the parties or legal practitioners, the official concerned shall arrange the records with pagination and prepare in the Index Sheet in Form no. to be prescribed by the Tribunal. He shall affix initials and then transmit the records with the Index initials to the records room. 160. Transmission of files or records or orders. Transmission of files or records of the cases or orders shall be made only after obtaining acknowledgement in the movement register maintained at different sections or levels as per the directions of the Registrar. 161. Filing of Order of the Tribunal with the Registrar of Companies. The certified copy of the order passed by the Tribunal shall be filed by the company in form INC-28 alongwith fee of Rupees five hundred with the Registrar of Companies within the time specified in the Act or specified by the Tribunal. Where no time limit is prescribed by the Tribunal, such order shall be filed within thirty days from the date of receipt of certified copy of the order. 162. Copies of orders in library. (1) The officer in charge of the Registry shall send copies of every final order to the library of the Tribunal. (2) Copies of all orders received in each month shall be kept at the library in a separate folder, arranged in the order of date of pronouncement, duly indexed and stitched. (3) At the end of every year, a consolidated index shall also be prepared and kept in a separate file in the library. (4) The order folders and the indices may be made available for reference in the library to the legal practitioners. PART–XX—NATIONAL COMPANY LAW TRIBUNAL ORDERS

163. Register of Appeals, Petitions, etc. (1) A Register in Form NCLT-18 shall be maintained in regard to appeals, petitions, etc., against the orders of the Tribunal to the National Company

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Law Appellate Tribunal and necessary entries therein be promptly made by the judicial branch. (2) The register shall be placed for scrutiny by the President in the first week of every month. 164. Placing of National Company Law Appellate Tribunal orders before Tribunal. Whenever an interim or final order passed by the National Company Law Appellate Tribunal in an appeal or other proceeding preferred against a decision of the Tribunal is received, the same shall forthwith be placed before the President and Members for information and kept in the relevant case file and immediate attention of the Registrar shall be drawn to the directions requiring compliance. 165. Registrar to ensure compliance of National Company Law Appellate Tribunal orders. It shall be the duty of the Registrar to take expeditious steps to comply with the directions of the National Company Law Appellate Tribunal. SCHEDULE OF FEES SCHEDULE OF FEES S. No. Section of the Nature of application / petition Companies Act, 2013

Fees

1.

Sec. 2(41)

Application for change in financial year

5,000/-

2.

Sec. 7(7)

Application to Tribunal where company has been incorporated by furnishing false or incorrect info or by any fraudulent action.

5,000/-

3.

Sec. 14(1)

Conversion of public company into a private company.

5,000/-

4.

Sec. 55(3)

Application for issue further redeemable preference shares.

5,000/-

5.

Sec. 58(3)

Appeal against refusal of registration of shares.

1,000/-

6.

Sec. 59

Appeal for rectification of register of member.

1,000/-

7.

Sec. 62(4)

Appeal against order of Govt. fixing terms and conditions for conversion of debentures and shares.

5,000/-

8.

Sec. 71(9)

Petition by Debenture-trustees.

2,000/-

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SCHEDULE OF FEES S. No. Section of the Nature of application / petition Companies Act, 2013

Fees

9.

Sec. 71(10)

Application in the event of failure of redeeming of debentures.

1,000/-

10.

Sec. 73(4)

Application by depositor for repayment of deposit or interest.

500/-

11.

Sec. 74(2)

Application to allow further time as considered reasonable to the company to repay deposits.

5,000/-

12.

Sec. 97(1)

Application for calling of Annual General meeting.

1,000/-

13.

Sec. 98(1)

Application for calling of general meeting of company other than annual general meeting

1,000/-

14.

Sec. 119(4)

Petition to pass an order directing immediate inspection of minute’s books or directing a copy thereof be sent forthwith to person requiring it.

500/-

15.

Sec. 130(1)

Application for re-opening of books of account, if made by any person other than Central Government, Income Tax authorities, SEBI or any other statutory regulatory body or authority.

5,000/-

16.

Sec. 131(1)

Application by company for voluntary revision of financial statement on Board’s report.

5,000/-

17.

Sec. 140(4)

Application for not sending the copy of representation of auditor to the members.

1,000/-

18.

Sec. 140(5)

Application by any other person concerned for change of auditors.

2,000/-

19.

Sec. 169(4)

Application for representation

of

1,000/-

20.

Sec. 213

Application to Tribunal for investigation into company affairs.

5,000/-

21.

Sec. 218(1)

Application for approval for action proposed against employee.

1,000/-

22.

Sec. 222(1)

Application for imposition of restrictions on securities.

2,500/-

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SCHEDULE OF FEES S. No. Section of the Nature of application / petition Companies Act, 2013

Fees

22A.

Sec 230(12)

Application in cases of takeover offer of Rs. 5,000 companies which are not listed.

23.

Sec. 241(1)

Application in cases of oppression and 10,000/mismanagement.

24.

Sec. 242(4)

Application for regulating the conduct of company.

2,500/-

25.

Sec. 243(1)(b) Application for appointment as Managing Director

5,000/-

26.

Sec. 244(1)

Application for waiver of requirement specified in clause (a) or (b) of Sec. 244(1)

2,500/-

27.

Sec 245

Class action suits

5000/-

***

***

***

29.

Section 421

Appeals to NCLAT

30.

Application under any other provisions specifically not mentioned herein above

1,000/-

31.

Fee for obtaining certified true copy of final order passed to parties other than the concerned parties under Rule 50

5/- per page.

*** 5,000/-

[Forms related to these Rules are listed below] Form

Description

Section of CA, 2013

Provision of this Rule

Form No. NCLT-1

Form for filing every petition or application or reference, with attachments thereto accompanied by Form No. NCLT 2/ Form No. NCLT 3 in case of interlocutory application

407 to 434 [See the Schedule of Fees & List of Sections in the Rule]

34, 64, 66, 67, 68, 69, 70, 71, 73, 74, 75, 77, 78, 79, 80, 81, 83, 86 & 87

Form No. NCLT-2

Notice of Admission

34

Form No. NCLT-3

Notice of Motion

34

Annexure A (See rule 4)

Form No. NCLT-3A Advertisement detailing petition

35

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Form

Description

Annexure 1

Section of CA, 2013

Provision of this Rule

Form No. NCLT-3B Individual Notice of petition/ application to creditor, members, etc.

68

Form NCLT-3C

Memorandum of Caveat

25

Form No. NCLT-4

General Heading for Proceedings

34

Form No. NCLT-5

Notice to be issued by Tribunal to opposite party

34 & 37

Form No. NCLT-6

General Affidavit Verifying Petition/Application

Form No. NCLT-7

Affidavit by way evidence for every affidavit to be filed before the Tribunal

39

Form No. NCLT-8

Application for Execution of Order under clause (3) of section 434 of the Act with reference to a Decree.

56

Form No. NCLT-9

Appeal related to conversion/inspection of minutes of meeting/reopening of accounts/withdrawal of application u/s 243/application u/s 245/reference to Tribunal ROC or govt. or person or company

62(4), 75(2), 119(4), 130, 140(5), 221, 222(1), 224(2), (5) 241, 244, 245, 441

Form No. NCLT-10 Application for the registration of 432 an intern of authorised representative under the Rules

72, 76, 82, 83A, 84, 88 & 154

46

Form No. NCLT-11 Application by depositor u/s 71(10), 73(1) 73(4) or 76(2) or by company u/s 73(4), 74(2) or by debenture holder or 74(2), 76(2) debenture trustee u/s 71(10) of the Act or s 45QA of the Reserve Bank of India Act, 1934 Form No. NCLT-12 Memorandum of appearance

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45

Annexure 1

Form

National Company Law Tribunal Rules, 2016

Description

Section of CA, 2013

Provision of this Rule

Form No. NCLT-13 Public Notice of petition under section 245

245

37

Form No. NCLT-14 Certification when deponent is unacquainted with the language of the affidavit or is blind or illiterate

407 to 434

128

Form No. NCLT-15 Summons for production of documents in custody of public officer other than a court

424

131

Form No. NCLT-16 form to record deposition of witness

407 to 434

140

Form No. NCLT-17 Certificate of discharge of witness by Tribunal

407 to 434

142

Form No. NCLT-18 Register of appeals, petitions, etc. 407 to 434 to NCLAT against orders of NCLT.

163

Annexure B List of documents to be attached with a petition or applications

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ANNEXURE 2 NATIONAL COMPANY LAW APPELLATE TRIBUNAL RULES, 2016 1.

Short title and commencement. ...............................................................A2-5

Chapter – I—Definitions, Forms etc. .............................................................A2-5 2. Definitions. ..............................................................................................A2-5 3. Computation of time period. ...................................................................A2-5 4. Forms.......................................................................................................A2-6 5. Format of order or direction or rule. ........................................................A2-6 6. Official seal of the Appellate Tribunal. ...................................................A2-6 7. Custody of the records. ............................................................................A2-6 8. Sitting of Appellate Tribunal. ..................................................................A2-6 9. Sitting hours of the Appellate Tribunal. ..................................................A2-6 10. Working hours of office. .........................................................................A2-6 11. Inherent powers. ......................................................................................A2-7 12. Calendar. .................................................................................................A2-7 13. Listing of cases. .......................................................................................A2-7 14. Power to exempt. .....................................................................................A2-7 15. Power to extend time. ..............................................................................A2-7 Part – II—Powers of the Registrar .................................................................A2-7 16. Powers and functions of the Registrar. ....................................................A2-7 17. Power of adjournment. ............................................................................A2-8 18. Delegation powers of the Chairperson. ...................................................A2-8 Part – III—Institution of Appeals - Procedure. ............................................A2-8 19. Procedure for proceedings. ......................................................................A2-8 20. Particulars to be set out in the address for service. ..................................A2-9 21. Initialling alteration. ................................................................................A2-9 22. Presentation of appeal. ............................................................................A2-9 23. Number of copies to be filed. ..................................................................A2-9 24. Endorsement and verification. ...............................................................A2-10 25. Translation of document. .......................................................................A2-10 26. Endorsement and scrutiny of petition or appeal or document. ..............A2-10 27. Registration of proceedings admitted. ...................................................A2-10 A2-1

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28. 29. 30. 31. 32.

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Ex-parte amendments. ...........................................................................A2-11 Calling for records. ................................................................................A2-11 Production of authorisation for and on behalf of an association. ............................................................................................A2-11 Interlocutory applications. .....................................................................A2-11 Procedure on production of defaced, torn or damaged documents..............................................................................................A2-11

Part – IV—Cause List....................................................................................A2-11 33. Preparation and publication of daily cause list. .....................................A2-11 34. Carry forward of cause list and adjournment of cases on account of non-sitting of an Appellate Tribunal. ...................................A2-12 Part – V—Record of Proceedings .................................................................A2-12 35. Diaries. ..................................................................................................A2-12 36. Order sheet. ...........................................................................................A2-12 37. Maintenance of diary. ............................................................................A2-13 38. Statutes or citations for reference. .........................................................A2-13 39. Calling of cases in Bench. .....................................................................A2-13 40. Regulation of Bench work. ....................................................................A2-13 Part – VI—Maintenance of Registers...........................................................A2-14 41. Registers to be maintained. .....................................................................A2-14 42. Arrangement of records in pending matters. ............................................A2-14 43. Contents of main file:- ............................................................................A2-14 44. Contents of process file. ..........................................................................A2-14 45. Execution file. ........................................................................................A2-15 46. File for miscellaneous applications. ......................................................A2-15 47. Destruction of record. ............................................................................A2-15 Part – VII—Service of Process/Appearance of Respondents and Objections................................................................................A2-15 48. Issue of notice. .......................................................................................A2-15 49. Summons. ..............................................................................................A2-15 50. Steps for issue of fresh notice. ................................................................A2-16 51. Consequence of failure to take steps for issue of fresh notice. ................A2-16 52. Entries regarding service of notice or process. .......................................A2-16 53. Non-appearance of respondent and consequences. .................................A2-16

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54.

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Filing of objections by respondent, form and consequences. ..................A2-16

Part – VIII—Fee for Appeal, Process Fee and Award of Costs .................A2-17 55. Fee. ........................................................................................................A2-17 56. Award of costs in the proceedings.........................................................A2-17 Part – IX—Inspection of Record ..................................................................A2-17 57. Inspection of the records. ......................................................................A2-17 58. Grant of inspection. ...............................................................................A2-17 59. Application for grant of inspection........................................................A2-17 60. Fee payable for inspection. ....................................................................A2-18 61. Mode of inspection. ...............................................................................A2-18 62. Maintenance of register of inspection. ..................................................A2-18 Part – X—Appearance of Authorised Representative ................................A2-18 [63. Appearance of authorised representative...............................................A2-18 64. Proof of engagement. ............................................................................A2-19 65. Restriction on party’s right to be heard. ................................................A2-19 66. Professional dress for the authorised representative..................................A2-19 Part – XI—Affidavits .....................................................................................A2-19 67. Title of affidavits. ...................................................................................A2-19 68. Form and contents of the affidavit. ..........................................................A2-19 69. Persons authorised to attest. ....................................................................A2-19 70. Affidavits of illiterate, visually challenged persons. .................................A2-19 71. Identification of deponent. ......................................................................A2-19 72. Annexures to the affidavit. ...........................................................................A2-19 Part – XII—Discovery, Production and Return of Documents .................A2-20 73. Application for production of documents, form of summons....................A2-20 74. Suo motu summoning of documents. ....................................................A2-20 75. Marking of documents...........................................................................A2-20 76. Return and transmission of documents..................................................A2-20 Part 77. 78.

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XIII—Examination of Witnesses and Issue of Commissions ...................................................................................A2-21 Procedure for examination of witnesses, issue of Commissions. ........................................................................................A2-21 Examination in camera. .........................................................................A2-21 A2-3

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79. 80. 81. 82. 83. 84. 85. 86. 87.

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Form of oath or affirmation to witness. .................................................A2-21 Form of oath or affirmation to interpreter. ............................................A2-21 Officer to administer oath......................................................................A2-21 Recording of deposition. .......................................................................A2-21 Numbering of witnesses. .......................................................................A2-21 Grant of discharge certificate. ...............................................................A2-21 Witness allowance payable. ..................................................................A2-22 Records to be furnished to the Commissioner. .........................................A2-22 Taking of specimen handwriting, signature etc. .......................................A2-22

Part – XIV—Pronouncement of Orders ......................................................A2-22 88. Order. .....................................................................................................A2-22 89. Operative portion of the order. ................................................................A2-22 90. Corrections. ............................................................................................A2-22 91. Pronouncement of order. .........................................................................A2-23 92. Pronouncement of order by any one member of the Bench. .....................A2-23 93. Authorizing any Member to pronounce order. .........................................A2-23 94. Making of entries by Court Master. .........................................................A2-23 95. Transmission of order by the Court Master. .............................................A2-23 96. Format of order. ......................................................................................A2-24 97. Indexing of case files after disposal. ........................................................A2-24 98. Transmission of files or records or orders. ...............................................A2-24 99. Copies of Orders in library. .....................................................................A2-24 Part – XV—Supreme Court Orders.............................................................A2-24 100. Register of Special Leave Petitions/Appeal. ............................................A2-24 101. Placing of Supreme Court orders before Appellate Tribunal. ...................A2-25 102. Registrar to ensure compliance of Supreme Court orders. ........................A2-25 Part – XVI—Miscellaneous ...........................................................................A2-25 103. Filling through electronic media. .............................................................A2-25 104. Removal of difficulties and issue of directions. ........................................A2-25 Schedule of Fees...............................................................................................A2-25 Forms A2-25

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National Company Law Appellate Tribunal Rules, 2016

National Company Law Appellate Tribunal Rules, 20161

G.S.R. 717(E).In exercise of the powers conferred by section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules, namely:1. Short title and commencement. (1) These rules may be called the National Company Law Appellate Tribunal Rules, 2016. (2) They shall come into force on the date of their publication in the Official Gazette. CHAPTER – I—DEFINITIONS, FORMS ETC.

2. Definitions. In these rules, unless the context otherwise requires,(a) “Act” means the Companies Act, 2013 (18 of 2013); (b) “advocate” means a person who is entitled to practise the profession of law under the Advocates Act, 1961 (25 of 1961); (c) “Appeal” means an appeal preferred under sub-section (1) of section 421 of the Act; (d) “authorised representative” means a person authorised in writing by a party to present his case before the Appellate Tribunal as provided under section 432 of the Act; (e) “form” means a form set forth in Annexure ‘A’ to these rules. (f) “interlocutory application” means an application in any appeal already instituted in the Appellate Tribunal, but not being a proceeding for execution of the order or direction of the Appellate Tribunal; (g) “party” means a person who prefers an appeal before the Appellate Tribunal and includes respondent of any person interested in the appeal; (h) “Registrar” means the Registrar of the Appellate Tribunal; (i) “section” means a section of the Act; (j) All other words and expressions used in these rules but not defined herein and defined in the Act and National Company Law Tribunal Rules, 2016 shall have the meanings respectively assigned to them in the Act and in the said rules. 3. Computation of time period. Where a period is prescribed by the Act and these rules or under any other law or is fixed by the Appellate Tribunal for doing any act, in computing the time, the day from which the said period is to be reckoned shall be excluded, and if the last 1

w.e.f. 22-07-2016, vide GSR 717(E), dt. 21-07-2016

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day expires on a day when the office of the Appellate Tribunal is closed, that day and any succeeding day on which the Appellate Tribunal remains closed shall also be excluded. 4. Forms. The forms prescribed by these rules with such modifications or variations as the circumstances of each case may require shall be used for the purpose mentioned therein. 5. Format of order or direction or rule. every rule, direction, order, summons, warrant or other mandatory process shall be issued in the name of the Chairperson and shall be signed by the Registrar or any other officer specifically authorised in that behalf by the Chairperson, with the day, month and year of signing and shall be sealed with the official seal of the Appellate Tribunal. 6. Official seal of the Appellate Tribunal. The official seal and emblem of the Appellate Tribunal shall be such, as the Central Government may from time to time specify and shall be in the custody of the Registrar. 7. Custody of the records. The Registrar shall have the custody of the records of the Appellate Tribunal and no record or document filed in any cause or matter shall be allowed to be taken out of the custody of the Appellate Tribunal without the leave of the Appellate Tribunal. Provided that the Registrar may allow any other officer of the Appellate Tribunal to remove any official paper or record for administrative purposes from the Appellate Tribunal. 8. Sitting of Appellate Tribunal. The Appellate Tribunal shall hold its sitting at its headquarters in New Delhi. 9. Sitting hours of the Appellate Tribunal. The sitting hours of the Appellate Tribunal shall ordinarily be from 09.30 AM. to 01.00 P.M. and from 2.15 P.M. to 5.00 P.M. subject to any order made by the Chairperson and this shall not prevent the Appellate Tribunal to extend its sitting as it deems fit. 10. Working hours of office. (1) The office of the Appellate Tribunal shall remain open on all working days from 09:30 A.M. to 6.00 P.M. (2) The filing counter of the Registry shall be open on all working days from 10.30 AM to 5.00 P.M.

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11. Inherent powers. Noting in these rules shall be deemed to limit or otherwise affect the inherent powers of the Appellate Tribunal to make such orders or give such directions as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Appellate Tribunal. 12. Calendar. The Calendar of days of working of Appellate Tribunal in a year shall be as decided by the Chairperson and Members of the Appellate Tribunal. 13. Listing of cases. All urgent matters filed before 12 noon shall be listed before the Appellate Tribunal on the following working day, if it is complete in all respects as provided in these rules and in exceptional cases, it may be received after 12 noon but before 3.00 P.M. for listing on the following day, with the specific permission of the Appellate Tribunal or Chairperson. 14. Power to exempt. The Appellate Tribunal may on sufficient cause being shown, exempt the parties from compliance with any requirement of these rules and may give such directions in matters of practice and procedure, as it may consider just and expedient on the application moved in this behalf to render substantial justice. 15. Power to extend time. The Appellate Tribunal may extend the time appointed by these rules or fixed by any order, for doing any act or taking any proceeding, upon such terms, if any, as the justice of the case may require, and any enlargement may be ordered, although the application therefore is not made until after the expiration of the time appointed or allowed. PART – II—POWERS OF THE REGISTRAR

16. Powers and functions of the Registrar. The Registrar shall have the following powers and functions, namely:(a) registration of appeals, petitions and applications; (b) receive applications for amendment of appeal or the petition or application or subsequent proceedings. (c) receive applications for fresh summons or notices and regarding services thereof; (d) receive applications for fresh summons or notice and for short date summons and notices; (e) receive applications for substituted service of summons or notices; (f) receive applications for seeking orders concerning the admission and inspection of documents;

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(g) (h)

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transmission of a direction or order to the civil court as directed by Appellate Tribunal with the prescribed certificate for execution etc.; and such other incidental or matters as the Chairperson may direct from time to time.

17. Power of adjournment. All adjournments shall normally be sought before the concerned Bench in court and in extraordinary circumstances, the Registrar may, if so directed by the Tribunal in chambers, at any time adjourn any matter and lay the same before the Tribunal in chambers. 18. Delegation powers of the Chairperson. The Chairperson may assign or delegate to a Deputy Registrar or to any other suitable officer all or some of the functions required by these rules to be exercised by the Registrar. PART – III—INSTITUTION OF APPEALS - PROCEDURE.

19. Procedure for proceedings. (1) Every appeal to the Appellate Tribunal shall be in English and in case it is in some other Indian language, it shall be accompanied by a copy translated in English and shall be fairly and legibly type-written or printed in double spacing on one side of standard paper with an inner margin of about four centimeters width on top and with a right margin of 2.5 cm, and left margin of 5 cm, duly paginated, indexed and stitched together in paper book form. (2) The cause title shall state “In the National Company Law Appellate Tribunal” and also set out the proceedings or order of the authority against which it is preferred. (3) Appeal shall be divided into paragraphs and shall be numbered consecutively and each paragraph shall contain as nearly as may be, a separate fact or allegation or point. (4) Where Saka or other dates are used, corresponding dates of Gregorian calendar shall also be given. (5) Full name, parentage, description of each party and address and in case a party sue or being sued in a representative character, shall also be set out at the beginning of the appeal and need not be repeated in the subsequent proceedings in the same appeal. (6) The names of parties shall be numbered consecutively and a separate line should be allotted to the name and description of each party and these numbers shall not be changed and in the event of the death of a party during the pendency of the appeal, his legal heirs or representative, as the case may be, if more than one shall be shown by sub- numbers. (7) Where fresh parties are brought in, they may be numbered consecutively in the particular category, in which they are brought in. A2-8

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(8) Every proceeding shall state immediately after the cause title and the provision of law under which it is preferred. 20. Particulars to be set out in the address for service. The address for service of summons shall be filed with every appeal on behalf of a party and shall as far as possible contain the following items namely:(a) the name of the road, street, lane and Municipal Division or Ward, Municipal Door and other number of the house; (b) the name of the town or village; (c) the post office, postal district and PIN Code; and (d) any other particular necessary to identify the addressee such as fax number, mobile number and e-mail address, if any. 21. Initialling alteration. Every interlineation, eraser or correction or deletion in any appeal shall be initialled by the party or his authorised representative. 22. Presentation of appeal. (1) Every appeal shall be presented in Form NCLAT-1 in triplicate by the appellant or petitioner or applicant or respondent, as the case may be, in person or by his duly authorised representative duly appointed in this behalf in the prescribed form with stipulated fee at the filing counter and noncompliance of this may constitute a valid ground to refuse to entertain the same. (2) Every appeal shall be accompanied by a certified copy of the impugned order. (3) All documents filed in the Appellate Tribunal shall be accompanied by an index in triplicate containing their details and the amount of fee paid thereon. (4) Sufficient number of copies of the appeal or petition or application shall also be filed for service on the opposite party as prescribed. (5) In the pending matters, all other applications shall be presented after serving copies thereof in advance on the opposite side or his advocate or authorised representative. (6) The processing fee prescribed by the rules, with required number of envelopes of sufficient size and notice forms as prescribed shall be filled along with memorandum of appeal. 23. Number of copies to be filed. The appellant or petitioner or applicant or respondent shall file three authenticated copies of appeal or counter or objections, as the case may be, and shall deliver one copy to each of the opposite party.

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24. Endorsement and verification. At the foot of every appeal or pleading there shall appear the name and signature of the authorised representative and every appeal or pleadings shall be signed and verified by the party concerned in the manner provided by these rules. 25. Translation of document. (1) A document other than English language intended to be used in any proceeding before the Appellate Tribunal shall be received by the Registry accompanied by a copy in English, which is agreed to by both the parties or certified to be a true translated copy by the authorised representative engaged on behalf of parties in the case. (2) The Registrar may order translation, certification and authentication by a person approved by him for the purpose on payment of such fee to the person, as specified by the Chairperson. (3) Appeal or other proceeding shall not be set down for hearing until and unless all parties confirm that all the documents filed on which they intend to rely are in English or have been translated into English and required number of copies are filed with the Appellate Tribunal. 26. Endorsement and scrutiny of petition or appeal or document. (1) The person in charge of the filing-counter shall immediately on receipt of appeal or document affix the date and stamp of the Appellate Tribunal thereon and also on the additional copies of the index and return the acknowledgement to the party and he shall also affix his initials on the stamp affixed on the first page of the copies and enter the particulars of all such documents in the register after daily filing and assign a diary number which shall be entered below the date stamp and thereafter cause it to be sent for scrutiny. (2) If, on scrutiny, the appeal or document is found to be defective, such document shall, after notice to the party, be returned for compliance and if there is a failure to comply within seven days from the date of return, the same shall be placed before the Registrar who may pass appropriate orders. (3) The Registrar may for sufficient cause return the said document for rectification or amendment to the party filing the same, and for this purpose may allow to the party concerned such reasonable time as he may consider necessary or extend the time for compliance. (4) Where the party fails to take any step for the removal of the defect within the time fixed for the same, the Registrar may, for reasons to be recorded in writing, decline to register the appeal or pleading or document. 27. Registration of proceedings admitted. On admission of appeal, the same shall be numbered and registered in the appropriate register maintained in this behalf and its number shall be entered therein. A2-10

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28. Ex-parte amendments. In every appeal or application, arithmetical, grammatical, clerical and such other errors may be rectified on the orders of the Registrar without notice to Parties. 29. Calling for records. On the admission of appeal, the Registrar shall, if so directed by the Appellate Tribunal, call for the records relating to the proceedings from the respective Bench of Tribunal or adjudicating authority and retransmit the same at the conclusion of the proceedings or at any time. 30. Production of authorisation for and on behalf of an association. Where an appeal purported to be instituted by or on behalf of an association, the person who signs or verifies the same shall produce along with such appeal, for verification by the Registry, a true copy of the resolution of the association empowering such person to do so: Provided that the Registrar may at any time call upon the party to produce such further materials as he deems fit for satisfying himself about due authorization: Provided further that it shall set out the list of members for whose benefit the proceedings are instituted. 31. Interlocutory applications. Every interlocutory application for stay, direction, condonation of delay, exemption from production of copy of order appealed against or extension of time prayed for in pending matters shall be in Form NCLAT-2 and the requirements prescribed in that behalf shall be complied with by the applicant, besides filing a affidavit supporting the application. 32. Procedure on production of defaced, torn or damaged documents. When a document produced along with any pleading appears to be defaced, torn, or in any way damaged or otherwise its condition or appearance requires special notice, a mention regarding its condition and appearance shall be made by the party producing the same in the Index of such a pleading and the same shall be verified and initialed by the officer authorized to receive the same. PART – IV—CAUSE LIST

33. Preparation and publication of daily cause list. (1) The Registry shall prepare and publish on the notice board of the Registry before the closing of working hours on each working day the cause list for the next working day and subject to the directions of the Chairperson, listing of cases in the daily cause list shall be in the following order of priority, unless otherwise ordered by the concerned Bench; namely;(a) cases for pronouncement of orders; (b) cases for clarification; (c) cases for admission; A2-11

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(d) cases for orders or directions; (e) part-heard cases, latest part-heard having precedence; and (f) cases posted as per numerical order or as directed by the Bench; (2) The title of the daily cause list shall consist of the number of the appeal, the day, date and time of the sitting Bench hall number and the coram indicating the names of the Chairperson, Judicial member and Technical members constituting the Bench. (3) Against the number of each case listed in the daily cause list, the following shall be shown, namely;(a) names of the legal practitioners or authorised representative appearing for both sides and setting out in brackets the designation of the parties whom they represent; (b) names of the parties, if unrepresented, with their ranks in brackets. (4) the objections and special directions, if any, of the Registry shall be briefly indicated in the daily cause list in remarks’ column, whenever compliance is required. 34. Carry forward of cause list and adjournment of cases on account of nonsitting of an Appellate Tribunal. (1) If by reason of declaration of holiday or for any other unforeseen reason, the Appellate Tribunal does not function for the day, the daily cause list for that day shall, unless otherwise directed, be treated as the daily cause list for the next working day in addition to the cases already posted for that day. (2) When the sitting of a particular Bench is cancelled for the reason of inability of any Member of the Bench, the Registrar shall, unless otherwise directed, adjourn the cases posted before that Bench to a convenient date. (3) The adjournment or posting or directions shall be notified on the notice board. PART – V—RECORD OF PROCEEDINGS

35. Diaries. (1) Diaries shall be kept by the clerk-in-charge in such form as may be specified by the Registrar in each appeal and they shall be written legibly. (2) The diary in the main file shall contain a concise history of the appeal, the substance of the order passed thereon and in execution proceedings it shall contain a complete record of all proceedings in execution of order or direction or rule and shall be checked by the Deputy Registrar and initialed once in a fortnight. 36. Order sheet. (1) Order sheet shall be maintained in every proceedings by the Court Master and shall contain all orders passed by the Appellate Tribunal from time to time . A2-12

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(2) All orders passed by the Appellate Tribunal shall be in English and the same shall be signed by the Members of the Appellate Tribunal constituting the Bench: Provided that the routine orders, such as call for of the records, put up with records, adjourned and any other order as may be directed by the Member of the Appellate Tribunal shall be signed by the Court Master. (3) The order sheet shall also contain the reference number of the appeal or petition or application, date of order and all incidental details including short cause title thereof. 37. Maintenance of diary. (1) The Court Master of the Bench concerned shall maintain legibly a Diary, wherein he shall record the proceedings of the Bench for each sitting with respect to the applications or petitions or appeals listed in the daily cause list. (2) The matters to be recorded in the Diary shall include details as to whether the case is adjourned, or part-heard or heard and disposed of or heard and orders reserved, as the case may be, along with dates of next sitting wherever applicable. 38. Statutes or citations for reference. The parties or authorised representatives shall, before the commencement of the proceedings for the day, furnish to the Court Master a list of law journals, reports, statutes and other citations, which may be needed for reference or photo copy of full text thereof. 39. Calling of cases in Bench. Subject to the orders of the Bench, the Court Master shall call the cases listed in the cause list in the serial order. 40. Regulation of Bench work. (1) When a Bench is holding a sitting, the Deputy Registrar shall ensure :(a) that no inconvenience or wastage of time is caused to the Bench in making available the services of Court Master or Stenographer or Peon or Attender; (b) the Court Master shall ensure that perfect silence is maintained in and around the Bench hall and no disturbance whatsoever is caused to the functioning of the Appellate Tribunal and that proper care is taken to maintain dignity and decorum of the Appellate Tribunal. (2) When the Appellate Tribunal passes order or issues directions, the Court Master shall ensure that the records of the case along with proceedings or orders of the Court are transmitted immediately to the Registry and the Registry shall verify the case records received from the Court Master with reference to the cause list and take immediate steps to communicate the directions or orders of the Court. A2-13

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PART – VI—MAINTENANCE OF REGISTERS

41. Registers to be maintained. The following Registers shall be maintained and posted on a day to day basis by the Registry of the Appellate Tribunal by such ministerial officer or officers as the Registrar may, subject to any order of the Chairperson, direct:(a) register of appeals; (b) register of unnumbered appeals; and (c) register of Interlocutory applications; 42. Arrangement of records in pending matters. The record of appeal shall be divided into the following four parts and shall be collated and maintained. (a) Main file: (Appeal being kept separately); (b) miscellaneous application file; (c) process file; and (d) execution file 43. Contents of main file:The main file shall be kept in the following order and it shall be maintained as permanent record till ordered to be destroyed under the rules:(a) Index; (b) order Sheet; (c) Final order or judgment; (d) memo of appeal or petition as the case may be together with any schedule annexed thereto; (e) counter or reply or objection, if any; (f) (i) oral evidence or proof of affidavit (ii) evidence taken on commission; and (iii) documentary evidence. (g) written arguments. 44. Contents of process file. The process file shall contain the following items; namely,(a) index; (b) powers of attorney or vakalatnama or memo of appearance; (c) summons and other processes and affidavits relating thereof; (d) applications for summoning witness; (e) letters calling records; and (f) all other miscellaneous papers such as postal acknowledgements

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45. Execution file. The execution file shall contain the following items, namely,(a) index; (b) the order sheet; (c) the execution application; (d) all processes and other papers connected with such execution proceedings; (e) transmission of order to civil court, if ordered; and (f) result of execution; 46. File for miscellaneous applications. For all miscellaneous applications there may be only one file with a title page prefixed to it and immediately after the title page, the diary, the miscellaneous applications, supporting affidavit, the order sheet and all other documents shall be filed. 47. Destruction of record. Record of Appellate Tribunal, except permanent record, shall be ordered to be destroyed by the Registrar or Deputy Registrar after six years from the final conclusion of the proceedings after obtaining prior order of the Chairperson. Explanation: For the purpose of this rule, permanent record shall include order; appeal register, petition register and such other record as may be ordered to be included by the Chairperson. PART – VII—SERVICE OF PROCESS/APPEARANCE OF RESPONDENTS AND OBJECTIONS

48. Issue of notice. (1) Where notice of an appeal or petition or interlocutory application is issued by the Appellate Tribunal, copies of the same, the affidavit in support thereof and if so ordered by the Appellate Tribunal the copy of other documents filed therewith, if any, shall be served along with the notice on the other side. (2) The copies of the documents referred to sub-rule (1) shall show the date of presentation of the appeal or interlocutory application and the name of the authorised representative, if any, of such party with his full address for service and the interim order, if any, made thereon. (3) The Appellate Tribunal may order for issuing notice in appropriate cases and also permit the party concerned for service of said notice on the other side by Dasti and in such case, deliver the notice to such party and it is for such party to file affidavit of service with proof. 49. Summons. Whenever summons or notice is ordered by private service, the appellant or applicant or petitioner as the case may be, unless already served on the other side in A2-15

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advance, shall arrange to serve the copy of all appeals or petitions or applications by registered post or courier service and file affidavit of service with its proof of acknowledgement before the date fixed for hearing. 50. Steps for issue of fresh notice. (1) If any notice issued under rule 46 is returned unserved, that fact and the reason thereof shall be notified immediately on the notice board of the Registry. (2) The applicant or petitioner or his authorised representative shall within seven days from the date of the notification, take steps to serve the notice afresh. 51. Consequence of failure to take steps for issue of fresh notice. Where, after a summon has been issued to the other side, and returned unserved, and the applicant or petitioner or appellant, as the case may be, fails to take necessary steps within the period as ordered by the Appellate Tribunal from the date of return of the notice on the respondent(s), the Registrar shall post the case before the Appellate Tribunal for further directions or for dismissal for non-prosecution. 52. Entries regarding service of notice or process. The Judicial Section of the Registry shall record in the column in the order sheet ‘Notes of the Registry’, the details regarding completion of service of notice on the respondents, such as date of issue of notice, date of service, date of return of notice, if unserved, steps taken for issuing fresh notice and date of completion of services etc. 53. Non-appearance of respondent and consequences. Where the respondent, despite effective service of summons or notice on him does not appear before the date fixed for hearing, the Appellate Tribunal may proceed to hear the appeal ex-parte and pass final order on merits. Provided that it is open to the Appellate Tribunal to seek the assistance of any authorised representative as it deems fit in case the matter involves intricate and substantial questions of law having wide ramifications. 54. Filing of objections by respondent, form and consequences. (1) The respondent, if so directed, shall file objections or counter within the time allowed by the Appellate Tribunal. (2) The objections or counter shall be verified as an appeal and wherever new facts are sought to be introduced with the leave of the Appellate Tribunal for the first time, the same shall be affirmed by a supporting affidavit. (3) The respondent, if permitted to file objections or counter in any proceeding shall also file three copies thereof after serving copies of the same on the appellant or petitioner or their authorised representatives, as the case may be.

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National Company Law Appellate Tribunal Rules, 2016

PART – VIII—FEE FOR APPEAL, PROCESS FEE AND AWARD OF COSTS

55. Fee. (1) Fee for filing appeal or interlocutory application, and process fee shall be, as prescribed in the Schedule of fee to these rules. (2) The fee and process fee shall be deposited by separate demand draft or Indian Postal Order favouring the Pay and Accounts Officer, Ministry of Corporate Affairs, payable at New Delhi. (3) The Appellate Tribunal may, to advance the cause of justice and in suitable cases, waive payment of such fee or portion thereof, taking into consideration the economic condition or indigent circumstances of the petitioner or appellant or applicant or such other reason, as the case may be. 56. Award of costs in the proceedings. (1) Whenever the Appellate Tribunal deems fit, it may award cost for meeting the legal expenses of the respondent or defaulting party. (2) The Appellate Tribunal may in suitable cases direct appellant or respondent to bear the cost of litigation of the other side, and in case of abuse of process of court, impose exemplary costs on defaulting party. PART – IX—INSPECTION OF RECORD

57. Inspection of the records. (1) The parties to any case or authorised representative may be allowed to inspect the record of the case by making an application in writing to the Registrar and fee prescribed therein. (2) Subject to such terms and conditions as may be prescribed by the Chairperson by a general or special order, a person who is not a party to the proceeding, may also be allowed to inspect the proceedings after obtaining the permission of the Registrar in writing. 58. Grant of inspection. Inspection of records of a pending or decided case before the Appellate Tribunal shall be allowed only on the order of the Registrar. 59. Application for grant of inspection. (1) Application for inspection of record under rule 58 shall be in the Form NCLAT-3 and presented at the filing counter of the Registry between 10.30 AM and 3.00 PM on any working day and two days before the date on which inspection is sought, unless otherwise permitted by the Registrar. (2) The Registry shall submit the application with its remarks before the Registrar, who shall on consideration of the same, pass appropriate orders. (3) Inspection of records of a pending case shall not ordinarily be permitted on the date fixed for hearing of the case or on the preceding day.

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60. Fee payable for inspection. Fee as given in the Schedule of the fees appended to these rules shall be payable by way of Demand Draft or Indian Postal Order to be drawn in favour of the Pay and Accounts Officer, Ministry of Corporate Affairs, New Delhi on any application for inspection of records of a pending or decided case. 61. Mode of inspection. (1) On grant of permission for inspection of the records, the Deputy Registrar shall arrange to procure the records of the case and allow inspection of such records on the date and time fixed by the Registrar between 10.30 AM and 12.30 PM and between 2.30 PM and 4.30 PM in the immediate presence of an officer authorized in that behalf. (2) The person inspecting the records shall not in any manner cause dislocation, mutilation, tampering or damage to the records in the course of inspection. (3) The person inspecting the records shall not make any marking on any record or paper so inspected and taking notes, if any, of the documents or records inspected may be done only in pencil. (4) The person supervising the inspection, may at any time prohibit further inspection, if in his opinion, any of the records are likely to be damaged in the process of inspection or the person inspecting the records has violated or attempted to violate the provisions of these rules and shall immediately make a report about the matter to the Registrar and seek further orders from the Registrar and such notes shall be made in the Inspection Register. 62. Maintenance of register of inspection. The Deputy Registrar shall cause to maintain a Register for the purpose of inspection of documents or records and shall obtain therein the signature of the person making such inspection on the Register as well as on the application on the conclusion of inspection. PART – X—APPEARANCE OF AUTHORISED REPRESENTATIVE

[63. Appearance of authorised representative. (1) Subject to provisions of section 432 of the Act, a party to any proceedings or appeal before the Appellate Tribunal may either appear in person or authorise one or more chartered accountants or company secretaries or cost accountants or legal practitioners or any other person to present his case before the Appellate Tribunal. (2) The Central Government, the Regional Director or the Registrar of Companies or Official Liquidator may authorise an officer or an Advocate to represent in the proceedings before the Appellate Tribunal. (3) The officer authorised by the Central Government or the Regional Director or the Registrar of Companies or the Official Liquidator shall be an officer not below the rank of Junior Time Scale or company prosecutor.] A2-18

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64. Proof of engagement. (1) Where an advocate is engaged to appear for and on behalf of the parties, he shall submit Vakalatnama. (2) The professionals like chartered accountants or company secretaries or cost accountants shall submit Memorandum of Appearance. 65. Restriction on party’s right to be heard. The party who has engaged a authorised representative to appear for him before the Appellate Tribunal shall not be entitled to be heard in person unless permitted by the Appellate Tribunal. 66. Professional dress for the authorised representative. While appearing before the Appellate Tribunal, the authorised representative shall wear the same professional dress as prescribed in their Code of Conduct. PART – XI—AFFIDAVITS

67. Title of affidavits. Every affidavit shall be titled as “Before the National Company Law Appellate Tribunal.” followed by the cause title of the application or other proceeding in which the affidavit is sought to be used. 68. Form and contents of the affidavit. The affidavit as per Form NCLAT-4 shall conform to the requirements of order XIX, rule 3 of Civil Procedure Code, 1908 (5 of 1908). 69. Persons authorised to attest. Affidavits shall be sworn or affirmed before an Advocate or Notary, who shall affix his official seal. 70. Affidavits of illiterate, visually challenged persons. Where an affidavit is sworn or affirmed by any person who appears to be illiterate, visually challenged or unacquainted with the language in which the affidavit is written shall be in Form NCLAT-5, the attestor shall certify that the affidavit was read, explained or translated by him or in his presence to the deponent and that he seemed to understand it, and made his signature or mark in the presence of the attestor. 71. Identification of deponent. If the deponent is not known to the attestor, his identity shall be testified by a person known to him and the person identifying shall affix his signature in token thereof. 72. Annexures to the affidavit. (1) Document accompanying an affidavit shall be referred to therein as Annexure number and the attestor shall make the endorsement thereon that this is the document marked putting the Annexure number in the affidavit.

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(2) The attestor shall sign therein and shall mention the name and his designation. PART – XII—DISCOVERY, PRODUCTION AND RETURN OF DOCUMENTS

73. Application for production of documents, form of summons. (1) Except otherwise provided hereunder, discovery or production and return of documents shall be regulated by the provisions of the Code of Civil Procedure, 1908 (5 of 1908). (2) An application for summons to produce documents shall be on plain paper setting out the documents the production of which is sought, the relevancy of the documents and in case where the production of a certified copy would serve the purpose, whether application was made to the proper officer and the result thereof. (3) A summons for production of documents in the custody of a public officer other than a court shall be addressed to the concerned Head of the Department or such other authority as may be specified by the Appellate Tribunal. 74. Suo motu summoning of documents. Notwithstanding anything contained in these rules, the Appellate Tribunal may, suo motu, issue summons for production of public document or other documents in the custody of a public officer in Form NCLAT-6. 75. Marking of documents. (1) The documents when produced shall be marked as follows: (a) if relied upon by the appellant’s or petitioner’s side, they shall be numbered as ‘A’ series. (b) if relied upon by the respondent’s side, they shall be marked as ‘B’ series. (c) The Appellate Tribunal exhibits shall be marked as ‘C’ series. (2) The Appellate Tribunal may direct the applicant to deposit with Appellate Tribunal by way of Demand Draft or Indian Postal Order drawn in favour of the Pay and Accounts Officer, Ministry of Corporate Affairs, New Delhi, a sum sufficient to defray the expenses for transmission of the records before the summons is issued. 76. Return and transmission of documents. (1) An application for return of the documents produced shall be numbered and such application shall be entertained after the destruction of the records. (2) The Appellate Tribunal may, at any time, direct return of documents produced subject to such conditions as it deems fit.

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PART – XIII—EXAMINATION OF WITNESSES AND ISSUE OF COMMISSIONS

77. Procedure for examination of witnesses, issue of Commissions. The provisions of section 424 of the Act and relevant provisions of the Orders XVI and XXVI of the Code of Civil Procedure, 1908 (5 of 1908), shall apply in the matter of summoning and enforcing attendance of any person and examining him on oath and issuing commission for the examination of witnesses or for production of documents. 78. Examination in camera. The Appellate Tribunal may in its discretion examine any witness in camera. 79. Form of oath or affirmation to witness. Oath shall be administered to a witness in the following form : “ I do swear in the name of God/solemnly affirm that what I shall state shall be truth, the whole truth and nothing but the truth”. 80. Form of oath or affirmation to interpreter. Oath or solemn affirmation shall be administered to the Interpreter in the following form before his assistance as taken for examining a witness: “I do swear in the name of God/solemnly affirm that I will faithfully and truly interpret and explain all questions put to and evidence given by witness and translate correctly and accurately all documents given to me for translation.” 81. Officer to administer oath. The oath or affirmation shall be administered by the Branch Officer or Court Master. 82. Recording of deposition. (1) The deposition of a witness shall be recorded in Form NCLAT-7. (2) Each page of the deposition shall be initialed by the Members constituting the Bench. (3) Corrections, if any, pointed out by the witness may, if the Bench is satisfied, be carried out and duly initialled, and if not satisfied, a note to the effect be appended at the bottom of the deposition. 83. Numbering of witnesses. The witnesses called by the applicant or petitioner shall be numbered consecutively as, ‘PWs’ and those by the respondents as ‘RWs’. 84. Grant of discharge certificate. Witness discharged by the Appellate Tribunal may be granted a certificate in Form NCLAT-8 by the Registrar.

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85. Witness allowance payable. (1) Where the Appellate Tribunal issues summons to a Government servant to give evidence or to produce documents, the person so summoned may draw from the Government travelling and daily allowances admissible to him as per rules. (2) Where there is no provision for payment of Travelling Allowance and Daily Allowance by the employer to the person summoned to give evidence or to produce documents, he shall be entitled to be paid as allowance, (a sum found by the Registrar sufficient to defray the traveling and other expenses), having regard to the status and position of the witness. (3) The party applying for the summons shall deposit with the Registrar the amount of allowance as estimated by the Registrar well before the summons is issued. (4) If the witness is summoned as a court witness, the amount estimated by the Registrar shall be paid as per the directions of the Appellate Tribunal. (5) The aforesaid provisions shall govern the payment of allowance to the interpreter as well. 86. Records to be furnished to the Commissioner. (1) The Commissioner shall be furnished by the Appellate Tribunal with such of the records of the case as the Appellate Tribunal considers necessary for executing the Commission. (2) Original documents shall be furnished only if a copy does not serve the purpose or cannot be obtained without unreasonable expense or delay. (3) Delivery and return of records shall be made under proper acknowledgement. 87. Taking of specimen handwriting, signature etc. The Commissioner may, if necessary, take specimen of the handwriting, signature or fingerprint of any witness examined before him. PART – XIV—PRONOUNCEMENT OF ORDERS

88. Order. The final decision of the Appellate Tribunal on an appeal or proceedings before the Appellate Tribunal shall be delivered by way of Judgment. 89. Operative portion of the order. All orders or directions of the Bench shall be stated in clear and precise terms in the last paragraph of the order. 90. Corrections. The Member of the Bench who has prepared the order shall initial all corrections and affix his initials at the bottom of each page.

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91. Pronouncement of order. (1) The Appellate Tribunal shall as far as possible pronounce the order immediately after the hearing is concluded. (2) When the orders are reserved, the date for pronouncement of order shall be notified in the cause list which shall be a valid notice of intimation of pronouncement. (3) Reading of the operative portion of the order in the open court shall be deemed to be pronouncement of the order. 92. Pronouncement of order by any one member of the Bench. (1) Any Member of the Appellate Tribunal may pronounce the order for and on behalf of the Bench. (2) When an order is pronounced under this rule, the Court Master shall make a note in the order sheet, that the order of the Bench consisting of Chairperson and Members was pronounced in open court on behalf of the Bench . 93. Authorizing any Member to pronounce order. (1) If the Members of the Bench who heard the case are not readily available or have ceased to be Members of the Appellate Tribunal, the Chairperson may authorise any other Member to pronounce the order on his behalf after being satisfied that the order has been duly prepared and signed by all the Members who heard the case and the order pronounced by the Member so authorised shall be deemed to be duly pronounced. (2) The Member so authorised for pronouncement of the Order shall affix his signature in the Order sheet of the case stating that he has pronounced the order as provided in this rule. (3) If the Order cannot be signed by reason of death, retirement or resignation or for any other reason by any one of the Members of the Appellate Tribunal who heard the case, it shall be deemed to have been released from part-heard and listed afresh for hearing. 94. Making of entries by Court Master. Immediately on pronouncement of an order by the Appellate Tribunal, the Court Master shall make necessary endorsement on the case file regarding the date of such pronouncement, the nature of disposal and the constitution of the Bench pronouncing the order and he shall also make necessary entries in the court diary maintained by him. 95. Transmission of order by the Court Master. (1) The Court Master shall immediately on pronouncement of order, transmit the order with the case file to the Deputy Registrar. (2) On receipt of the order from the Court Master, the Deputy Registrar shall after due scrutiny, satisfy himself that the provisions of these rules have been

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duly compiled with and in token thereof affix his initials with date on the outer cover of the order. (3) The Deputy Registrar shall thereafter cause to transmit the case file and the order to the Registry for taking steps to prepare copies and their communication to the parties. 96. Format of order. (1) All orders shall be neatly and fairly typewritten in double space on one side only on durable foolscap folio paper of metric A-4 size (30.5 cm long and 21.5 cm wide) with left side margin of 5 cm and right side margin of 2.5 cm and corrections, if any, in the order shall be carried out neatly and sufficient space may be left both at the bottom and at the top of each page of the order to make its appearance elegant. (2) Members constituting the Bench shall affix their signatures in the order of their seniority from right to left. 97. Indexing of case files after disposal. After communication of the order to the parties or legal representative, the official concerned shall arrange the records with pagination and prepare in the Index Sheet in Form no. to be prescribed by the Appellate Tribunal and he shall affix initials and then transmit the records with the Index initials to the records room. 98. Transmission of files or records or orders. Transmission of files or records of the cases or orders shall be made only after obtaining acknowledgement in the movement register maintained at different sections or levels as per the directions of the Registrar. 99. Copies of Orders in library. (1) The officer in charge of the Registry shall send copies of every final order to the library. (2) Copies of all Orders received in each month shall be kept at the library in a separate folder, arranged in the order of date of pronouncement, duly indexed and stitched. (3) At the end of every year, a consolidated index shall also be prepared and kept in a separate file in the library. (4) The Order folders and the indices may be made available for reference in the library to the legal practitioners. PART – XV—SUPREME COURT ORDERS

100. Register of Special Leave Petitions/Appeal. (1) A Register in Form NCLAT-9 shall be maintained in regard to Special Leave Petitions or Appeals against the orders of the Appellate Tribunal to the Supreme Court and necessary entries therein be promptly made by the Judicial Branch. A2-24

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(2) The register shall be placed for scrutiny by the Chairperson in the first week of every month. 101. Placing of Supreme Court orders before Appellate Tribunal. Whenever an interim or final order passed by the Supreme Court of India in an appeal or other proceeding preferred against a decision of the Appellate Tribunal is received, the same shall forthwith be placed before the Chairperson or Members for information and kept in the relevant case file and immediate attention of the Registrar shall be drawn to the directions requiring compliance. 102. Registrar to ensure compliance of Supreme Court orders. It shall be the duty of the Registrar to take expeditious steps to comply with the directions of the Supreme Court. PART – XVI—MISCELLANEOUS

103. Filling through electronic media. The Appellate Tribunal may allow filing of appeal or proceedings through electronic mode such as online filing and provide for rectification of defects by e-mail or internet and in such filing, these rules shall be adopted as nearly as possible on and form a date to be notified separately and the Central Government may issue instructions in this behalf from time to time. 104. Removal of difficulties and issue of directions. Notwithstanding anything contained in the rules, wherever the rules are silent or not provisions is made, the Chairperson may issue appropriate directions to remove difficulties and issue such orders or circulars to govern the situation or contingency that may arise in the working of the Appellate Tribunal. SCHEDULE OF FEES S. No.

Section of the Companies Act, 2013/ Rule

Nature of Appeal etc.

Fees (in Rupees)

1.

Section 218(3)

Protection of employee during investigation

1,000/-

2.

Section 421(1)

Appeals to National Appellate Tribunal

5,000/-

Company

Law

[Forms related to these Rules are listed below] Form Form NCLAT-1

Description

Section of Provision of CA, 2013 this Rule Memorandum of Appeal preferred 421 22, under section 421 of the Sch. of Fees Companies Act, 2013 A2-25

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Form Form NCLAT-2 Form NCLAT-3 Form NCLAT-4 Form NCLAT-5 Form NCLAT-6 Form NCLAT-7 Form NCLAT-8 Form NCLAT-9

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Description

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Section of CA, 2013

Interlocutory Application Application for inspection of documents/records under rule 60 Affidavit Certification when deponent is unacquainted with the language of the affidavit or is blind or illiterate Suo motu summoning of 424 documents in the custody of a public officer Recording of deposition of witness Certificate of discharge Register of SLPs/Appeals to Supreme Court

Provision of this Rule 31 59 68

74

84 100

ANNEXURE 3 COMPANIES (COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS) RULES, 20161

G.S.R. 1134(E).-In exercise of the powers conferred by sub-sections (1) and (2) of section 469 read with sections 230 to 233 and sections 235 to 240 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules, namely:1. Short Title and Commencement. (1) These rules may be called the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. (2) They shall come into force with effect from 15th December, 2016. 2. Definitions. (1) In these rules, unless the context otherwise requires.(a) “Act” means the Companies Act, 2013 (18 of 2013); (b) “Annexure” means the annexure to these rules; (c) “Form” means a form set forth in annexure “A” to these rules which shall be used for the matter to which it relates, and includes an electronic version thereof; (d) “Liquidator” means the Liquidator appointed under the Act or under the Insolvency and Bankruptcy Code, 2016 (31 of 2016); (e) “corporate action” means any action taken by the company relating to transfer of shares and all the benefits accruing on such shares namely, bonus shares, split, consolidation, fraction shares and right issue to the acquirer. (2) All other words and expressions used in these rules but not defined herein, and defined in the Act or in the Companies (Specification of Definitions Details) Rules, 2014 or in the National Company Law Tribunal Rules, 2016, shall have the same meanings respectively assigned to them in the Act or in the said rules. 3. Application for order of a meeting. (1) An application under sub-section (1) of section 230 of the Act may be submitted in Form No. NCLT-1 (appended in the National Company Law Tribunal Rules, 2016) along with:-

1

w.e.f. 15-12-2016, vide G.S.R. 1134(E), dt. 14-12-2016.

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(i)

(2) (3)

(4) (5)

(6)

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a notice of admission in Form No. NCLT-2 (appended in the National Company Law Tribunal Rules, 2016); (ii) an affidavit in Form No. NCLT-6 (appended in the National Company Law Tribunal Rules, 2016); (iii) a copy of scheme of compromise or arrangement, which should include disclosures as per sub-section (2) of section 230 of the Act; and (iv) fee as prescribed in the Schedule of Fees. Where more than one company is involved in a scheme in relation to which an application under sub-rule (1) is being filed, such application may, at the discretion of such companies, be filed as a joint-application. Where the company is not the applicant, a copy of the notice of admission and of the affidavit shall be served on the company, or, where the company is being wound up, on its liquidator, not less than fourteen days before the date fixed for the hearing of the notice of admission. The applicant shall also disclose to the Tribunal in the application under subrule (1), the basis on which each class of members or creditors has been identified for the purposes of approval of the scheme. A member of the company shall make an application for arrangement, for the purpose of takeover offer in terms of sub-section (11) of section 230, when such member along with any other member holds not less than three-fourths of the shares in the company, and such application has been filed for acquiring any part of the remaining shares of the company. Explanation I.—“shares” means the equity shares of the company carrying voting rights, and includes any securities, such as depository receipts, which entitles the holder thereof to exercise voting rights. Explanation II.—Nothing in this sub-rule shall apply to any transfer or transmission of shares through a contract, arrangement or succession, as the case may be, or any transfer made in pursuance of any statutory or regulatory requirement. An application of arrangement for takeover offer shall contain:(a) the report of a registered valuer disclosing the details of the valuation of the shares proposed to be acquired by the member after taking into account the following factors:— (i) the highest price paid by any person or group of persons for acquisition of shares during last twelve months; (ii) the fair price of shares of the company to be determined by the registered valuer after taking into account valuation parameters including return on net worth, book value of shares, earning per share, price earning multiple vis-à-vis the industry average, and such other parameters as are customary for valuation of shares of such companies.

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Companies (Compromises, Arrangements and Amalgamations) Rules, 2016

(b) details of a bank account, to be opened separately, by the member wherein a sum of amount not less than one-half of total consideration of the takeover offer is deposited. 4.

Disclosures in application made to the Tribunal for compromise or arrangement.-Creditors Responsibility Statement. For the purposes of sub-clause (i) of clause (c) of sub-section (2) of section 230 of the Act, the creditor’s responsibility statement in Form No. CAA. 1 shall be included in the scheme of corporate debt restructuring. Explanation:- For the purpose of this rule, it is clarified that a scheme of corporate debt restructuring as referred to in clause (c) of sub-section (2) of section 230 of the Act shall mean a scheme that restructures or varies the debt obligations of a company towards its creditors. 5. Directions at hearing of the application. Upon hearing the application under sub-section (1) of section 230 of the Act, the Tribunal shall, unless it thinks fit for any reason to dismiss the application, give such directions as it may think necessary in respect of the following matters:(a) determining the class or classes of creditors or of members whose meeting or meetings have to be held for considering the proposed compromise or arrangement; or dispensing with the meeting or meetings for any class or classes of creditors in terms of sub-section (9) of section 230; (b) fixing the time and place of the meeting or meetings; (c) appointing a Chairperson and scrutinizer for the meeting or meetings to be held, as the case may be and fixing the terms of his appointment including remuneration; (d) fixing the quorum and the procedure to be followed at the meeting or meetings, including voting in person or by proxy or by postal ballot or by voting through electronic means; Explanation.-For the purposes of these rules, “voting through electronic means “shall take place, mutatis mutandis, in accordance with the procedure as specified in rule 20 of Companies (Management and Administration) Rules, 2014. (e) determining the values of the creditors or the members, or the creditors or members of any class, as the case may be, whose meetings have to be held; (f) notice to be given of the meeting or meetings and the advertisement of such notice; (g) notice to be given to sectoral regulators or authorities as required under sub-section (5) of section 230; (h) the time within which the chairperson of the meeting is required to report the result of the meeting to the Tribunal; A3-3

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(i)

Annexure 3

and such other matters as the Tribunal may deem necessary.

6. Notice of meeting. (1) Where a meeting of any class or classes of creditors or members has been directed to be convened, the notice of the meeting pursuant to the order of the Tribunal to be given in the manner provided in sub- section (3) of section 230 of the Act shall be in Form No. CAA.2 and shall be sent individually to each of the creditors or members. (2) The notice shall be sent by the Chairperson appointed for the meeting, or, if the Tribunal so directs, by the company (or its liquidator), or any other person as the Tribunal may direct, by registered post or speed post or by courier or by e- mail or by hand delivery or any other mode as directed by the Tribunal to their last known address at least one month before the date fixed for the meeting. Explanation: - It is hereby clarified that the service of notice of meeting shall be deemed to have been effected in case of delivery by post, at the expiration of forty eight hours after the letter containing the same is posted. (3) The notice of the meeting to the creditors and members shall be accompanied by a copy of the scheme of compromise or arrangement and a statement disclosing the following details of the compromise or arrangement, if such details are not already included in the said scheme:(i) details of the order of the Tribunal directing the calling, convening and conducting of the meeting:(a) date of the Order; (b) date, time and venue of the meeting. (ii) details of the company including: (a) Corporate Identification Number (CIN) or Global Location Number (GLN) of the company; (b) Permanent Account Number (PAN); (c) name of the company; (d) date of incorporation; (e) type of the company (whether public or private or one-person company); (f) registered office address and e-mail address; (g) summary of main object as per the memorandum of association; and main business carried on by the company; (h) details of change of name, registered office and objects of the company during the last five years; (i) name of the stock exchange (s) where securities of the company are listed, if applicable; A3-4

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(j)

(iii)

(iv)

(v)

(vi)

(vii)

details of the capital structure of the company including authorised, issued, subscribed and paid up share capital; and (k) names of the promoters and directors along with their addresses. if the scheme of compromise or arrangement relates to more than one company, the fact and details of any relationship subsisting between such companies who are parties to such scheme of compromise or arrangement, including holding, subsidiary or of associate companies; the date of the board meeting at which the scheme was approved by the board of directors including the name of the directors who voted in favour of the resolution, who voted against the resolution and who did not vote or participate on such resolution; explanatory statement disclosing details of the scheme of compromise or arrangement including:(a) parties involved in such compromise or arrangement; (b) in case of amalgamation or merger, appointed date, effective date, share exchange ratio (if applicable) and other considerations, if any; (c) summary of valuation report (if applicable) including basis of valuation and fairness opinion of the registered valuer, if any, and the declaration that the valuation report is available for inspection at the registered office of the company; (d) details of capital or debt restructuring, if any; (e) rationale for the compromise or arrangement; (f) benefits of the compromise or arrangement as perceived by the Board of directors to the company, members, creditors and others (as applicable); (g) amount due to unsecured creditors. disclosure about the effect of the compromise or arrangement on: (a) key managerial personnel; (b) directors; (c) promoters; (d) non-promoter members; (e) depositors; (f) creditors; (g) debenture holders; (h) deposit trustee and debenture trustee; (i) employees of the company: Disclosure about effect of compromise or arrangement on material interests of directors, Key Managerial Personnel (KMP) and debenture trustee. A3-5

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Explanation - For the purposes of these rules it is clarified that(a) the term ‘interest’ extends beyond an interest in the shares of the company, and is with reference to the proposed scheme of compromise or arrangement. (b) the valuation report shall be made by a registered valuer, and till the registration of persons as valuers is prescribed under section 247 of the Act, the valuation report shall be made by an independent merchant banker who is registered with the Securities and Exchange Board Or an independent chartered accountant in practice having a minimum experience of ten years. (viii) investigation or proceedings, if any, pending against the company under the Act. (ix) details of the availability of the following documents for obtaining extract from or for making or obtaining copies of or for inspection by the members and creditors, namely: (a) latest audited financial statements of the company including consolidated financial statements; (b) copy of the order of Tribunal in pursuance of which the meeting is to be convened or has been dispensed with; (c) copy of scheme of compromise or arrangement; (d) contracts or agreements material to the compromise or arrangement; (e) the certificate issued by Auditor of the company to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the Accounting Standards prescribed under Section 133 of the Companies Act, 2013; and (f) such other information or documents as the Board or Management believes necessary and relevant for making decision for or against the scheme; (x) details of approvals, sanctions or no-objection(s), if any, from regulatory or any other governmental authorities required, received or pending for the proposed scheme of compromise or arrangement. (xi) a statement to the effect that the persons to whom the notice is sent may vote in the meeting either in person or by proxies, or where applicable, by voting through electronic means. Explanation- For the purposes of this rule, disclosure required to be made by a company shall be made in respect of all the companies, which are part of the compromise or arrangement.

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Companies (Compromises, Arrangements and Amalgamations) Rules, 2016

7. Advertisement of the notice of the meeting. The notice of the meeting under sub-section (3) of Section 230 of the Act shall be advertised in Form No. CAA.2 in at least one English newspaper and in at least one vernacular newspaper having wide circulation in the State in which the registered office of the company is situated, or such newspapers as may be directed by the Tribunal and shall also be placed, not less than thirty days before the date fixed for the meeting, on the website of the company (if any) and in case of listed companies also on the website of the SEBI and the recognized stock exchange where the securities of the company are listed: Provided that where separate meetings of classes of creditors or members are to be held, a joint advertisement for such meetings may be given. 8. Notice to statutory authorities. (1) For the purposes of sub-section (5) of section 230 of the Act, the notice shall be in Form No. CAA.3, and shall be accompanied with a copy of the scheme of compromise or arrangement, the explanatory statement and the disclosures mentioned under rule 6, and shall be sent to.(i) the Central Government, the Registrar of Companies, the Income-tax authorities, in all cases; (ii) the Reserve Bank of India, the Securities and Exchange Board of India, the Competition Commission of India, and the stock exchanges, as may be applicable ; (iii) other sectoral regulators or authorities, as required by Tribunal. (2) The notice to the authorities mentioned in sub-rule (1) shall be sent forthwith, after the notice is sent to the members or creditors of the company, by registered post or by speed post or by courier or by hand delivery at the office of the authority. (3) If the authorities referred to under sub-rule (1) desire to make any representation under sub-section (5) of section 230, the same shall be sent to the Tribunal within a period of thirty days from the date of receipt of such notice and copy of such representation shall simultaneously be sent to the concerned companies and in case no representation is received within the stated period of thirty days by the Tribunal, it shall be presumed that the authorities have no representation to make on the proposed scheme of compromise or arrangement. 9. Voting. The person who receives the notice may within one month from the date of receipt of the notice vote in the meeting either in person or through proxy or through postal ballot or through electronic means to the adoption of the scheme of compromise and arrangement. Explanation. For the purposes of voting by persons who receive the notice as shareholder or creditor under this ruleA3-7

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(a)

“shareholding” shall mean the shareholding of the members of the class who are entitled to vote on the proposal; and (b) “outstanding debt” shall mean all debt owed by the company to the respective class or classes of creditors that remains outstanding as per the latest audited financial statement, or if such statement is more than six months old, as per provisional financial statement not preceding the date of application by more than six months. 10. Proxies. (1) Voting by proxy shall be permitted, provided a proxy in the prescribed form duly signed by the person entitled to attend and vote at the meeting is filed with the company at its registered office not later than 48 hours before the meeting. (2) Where a body corporate which is a member or creditor (including holder of debentures) of a company authorises any person to act as its representative at the meeting, of the members or creditors of the company, or of any class of them, as the case may be, a copy of the resolution of the Board of Directors or other governing body of such body corporate authorising such person to act as its representative at the meeting, and certified to be a true copy by a director, the manager, the secretary, or other authorised officer of such body corporate shall be lodged with the company at its registered office not later than 48 hours before the meeting. (3) No person shall be appointed as a proxy who is a minor. (4) The proxy of a member or creditor blind or incapable of writing may be accepted if such member or creditor has attached his signature or mark thereto in the presence of a witness who shall add to his signature his description and address : Provided that all insertions in the proxy are in the handwriting of the witness and such witness shall have certified at the foot of the proxy that all such insertions have been made by him at the request and in the presence of the member or creditor before he attached his signature or mark. (5) The proxy of a member or creditor who does not know English may be accepted if it is executed in the manner prescribed in the preceding sub-rule and the witness certifies that it was explained to the member or creditor in the language known to him, and gives the member’s or creditor’s name in English below the signature. 11. Copy of compromise or arrangement to be furnished by the company. Every creditor or member entitled to attend the meeting shall be furnished by the company, free of charge, within one day on a requisition being made for the same, with a copy of the scheme of the proposed compromise or arrangement together with a copy of the statement required to be furnished under section 230 of Act.

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Companies (Compromises, Arrangements and Amalgamations) Rules, 2016

12. Affidavit of service. (1) The Chairperson appointed for the meeting of the company or other person directed to issue the advertisement and the notices of the meeting shall file an affidavit before the Tribunal not less than seven days before the date fixed for the meeting or the date of the first of the meetings, as the case may be, stating that the directions regarding the issue of notices and the advertisement have been duly complied with. (2) In case of default under sub-rule (1), the application along with copy of the last order issued shall be posted before the Tribunal for such orders as it may think fit to make. 13. Result of the meeting to be decided by voting. (1) The voting at the meeting or meetings held in pursuance of the directions of the Tribunal under Rule 5 on all resolutions shall take place by poll or by voting through electronic means. (2) The report of the result of the meeting under sub - rule (1) shall be in Form No. CAA. 4 and shall state accurately the number of creditors or class of creditors or the number of members or class of members, as the case may be, who were present and who voted at the meeting either in person or by proxy, and where applicable, who voted through electronic means, their individual values and the way they voted. 14. Report of the result of the meeting by Chairperson. The Chairperson of the meeting (or where there are separate meetings, the Chairperson of each meeting) shall, within the time fixed by the Tribunal, or where no time has been fixed, within three days after the conclusion of the meeting, submit a report to the Tribunal on the result of the meeting in Form No. CAA.4. 15. Petition for confirming compromise or arrangement. (1) Where the proposed compromise or arrangement is agreed to by the members or creditors or both as the case may be, with or without modification, the company (or its liquidator), shall, within seven days of the filing of the report by the Chairperson, present a petition to the Tribunal in Form No. CAA.5 for sanction of the scheme of compromise or arrangement. (2) Where a compromise or arrangement is proposed for the purposes of or in connection with scheme for the reconstruction of any company or companies, or for the amalgamation of any two or more companies, the petition shall pray for appropriate orders and directions under section 230 read with section 232 of the Act. (3) Where the company fails to present the petition for confirmation of the compromise or arrangement as aforesaid, it shall be open to any creditor or member as the case may be, with the leave of the Tribunal, to present the petition and the company shall be liable for the cost thereof. A3-9

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16. Date and notice of hearing. (1) The Tribunal shall fix a date for the hearing of the petition, and notice of the hearing shall be advertised in the same newspaper in which the notice of the meeting was advertised, or in such other newspaper as the Tribunal may direct, not less than ten days before the date fixed for the hearing. (2) The notice of the hearing of the petition shall also be served by the Tribunal to the objectors or to their representatives under sub-section (4) of section 230 of the Act and to the Central Government and other authorities who have made representation under rule 8 and have desired to be heard in their representation. 17. Order on petition. (1) Where the Tribunal sanctions the compromise or arrangement, the order shall include such directions in regard to any matter or such modifications in the compromise or arrangement as the Tribunal may think fit to make for the proper working of the compromise or arrangement. (2) The order shall direct that a certified copy of the same shall be filed with the Registrar of Companies within thirty days from the date of the receipt of copy of the order, or such other time as may be fixed by the Tribunal. (3) The order shall be in Form No. CAA. 6, with such variations as may be necessary. 18. Application for directions under section 232 of the Act. (1) Where the compromise or arrangement has been proposed for the purposes of or in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies, and the matters involved cannot be dealt with or dealt with adequately on the petition for sanction of the compromise or arrangement, an application shall be made to the Tribunal under section 232 of the Act, by a notice of admission supported by an affidavit for directions of the Tribunal as to the proceedings to be taken. (2) Notice of admission in such cases shall be given in such manner and to such persons as the Tribunal may direct. 19. Directions at hearing of application. Upon the hearing of the notice of admission given under rule 18 or upon any adjourned hearing thereof, the Tribunal may make such order or give such directions as it may think fit, as to the proceedings to be taken for the purpose of reconstruction or amalgamation, as the case may be, including, where necessary, an inquiry as to the creditors of the transferor company and the securing of the debts and claims of any of the dissenting creditors in such manner as the Tribunal may think just and appropriate.

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Companies (Compromises, Arrangements and Amalgamations) Rules, 2016

20. Order under section 232 of the Act. An order made under section 232 read with section 230 of the Act shall be in Form No.CAA.7 with such variation as the circumstances may require 21. Statement of compliance in mergers and amalgamations. For the purpose of sub-section (7) of section 232 of the Act, every company in relation to which an order is made under sub-section (3) of section 232 of the Act shall until the scheme is fully implemented, file with the Registrar of Companies, the statement in Form No. CAA.8 along with such fee as specified in the Companies (Registration Offices and Fees) Rules, 2014 within two hundred and ten days from the end of each financial year. 22. Report on working of compromise or arrangement. At any time after issuing an order sanctioning the compromise or arrangement, the Tribunal may, either on its own motion or on the application of any interested person, make an order directing the company or where the company is being wound-up, its liquidator, to submit to the Tribunal within such time as the Tribunal may fix, a report on the working of the said compromise or arrangement and on consideration of the report, the Tribunal may pass such orders or give such directions as it may think fit. 23. Liberty to apply. (1) The company, or any creditor or member thereof, or in case of a company which is being wound-up, its liquidator, may, at any time after the passing of the order sanctioning the compromise or arrangement, apply to the Tribunal for the determination of any question relating to the working of the compromise or arrangement. (2) The application shall in the first instance be posted before the Tribunal for directions as to the notices and the advertisement, if any, to be issued, as the Tribunal may direct. (3) The Tribunal may, on such application, pass such orders and give such directions as it may think fit in regard to the matter, and may make such modifications in the compromise or arrangement as it may consider necessary for the proper working thereof, or pass such orders as it may think fit in the circumstances of the case. 24. Liberty of the Tribunal. (1) At any time during the proceedings, if the Tribunal hearing a petition or application under these Rules is of the opinion that the petition or application or evidence or information or statement is required to be filed in the form of affidavit, the same may be ordered by the Tribunal in the manner as the Tribunal may think fit. (2) The Tribunal may pass any direction(s) or order or dispense with any procedure prescribed by these rules in pursuance of the object of the A3-11

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provisions for implementation of the scheme of arrangement or compromise or restructuring or otherwise practicable except on those matters specifically provided in the Act. 25. Merger or Amalgamation of certain companies. (1) The notice of the proposed scheme, under clause (a) of sub- section (1) of section 233 of the Act, to invite objections or suggestions from the Registrar and Official Liquidator or persons affected by the scheme shall be in Form No. CAA.9. (1A) A scheme of merger or amalgamation under section 233 of the Act may be entered into between any of the following class of companies, namely:(i) two or more start-up companies; or (ii) one or more start-up company with one or more small company. Explanation- For the purposes of this sub-rule, “start-up company” means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 127 (E), dated the 19th February, 2019 issued by the Department for Promotion of Industry and Internal Trade. (2) For the purposes of clause (c) of sub-section (1) of section 233 of the Act the declaration of solvency shall be filed by each of the companies involved in the scheme of merger or amalgamation in Form No. CAA.10 along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014, before convening the meeting of members and creditors for approval of the scheme. (3) For the purposes of clause (b) and (d) of sub-section (1) of section 233 of the Act, the notice of the meeting to the members and creditors shall be accompanied by (a) a statement, as far as applicable, referred to in sub-section (3) of section 230 of the Act read with sub-rule (3) of rule 6 hereof; (b) the declaration of solvency made in pursuance of clause (c) of subsection (1) of section 233 of the Act in Form No. CAA.10; (c) a copy of the scheme. (4) (a) For the purposes of sub-section (2) of section 233 of the Act, the transferee company shall, within seven days after the conclusion of the meeting of members or class of members or creditors or class of creditors, file a copy of the scheme as agreed to by the members and creditors, along with a report of the result of each of the meetings in Form No. CAA.11 with the Central Government, along with the fees as provided under the Companies (Registration Offices and Fees) Rules, 2014.

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(5)

(6)

(7)

(8)

Companies (Compromises, Arrangements and Amalgamations) Rules, 2016

(b) Copy of the scheme shall also be filed, along with Form No. CAA.11 with (i) the Registrar of Companies in Form No. GNL-1 along with fees provided under the Companies (Registration Offices and Fees) Rules, 2014; and (ii) the Official Liquidator through hand delivery or by registered post or speed post. Where no objection or suggestion is received to the scheme from the Registrar of Companies and Official Liquidator or where the objection or suggestion of Registrar and Official Liquidator is deemed to be not sustainable and the Central Government is of the opinion that the scheme is in the public interest or in the interest of creditors, the Central Government shall issue a confirmation order of such scheme of merger or amalgamation in Form No. CAA.12. Where objections or suggestions are received from the Registrar of Companies or Official Liquidator and the Central Government is of the opinion, whether on the basis of such objections or otherwise, that the scheme is not in the public interest or in the interest of creditors, it may file an application before the Tribunal in Form No. CAA.13 within sixty days of the receipt of the scheme stating its objections or opinion and requesting that Tribunal may consider the scheme under section 232 of the Act. The confirmation order of the scheme issued by the Central Government or Tribunal under sub-section (7) of section 233 of the Act, shall be filed, within thirty days of the receipt of the order of confirmation, in Form INC-28 along with the fees as provided under Companies (Registration Offices and Fees) Rules, 2014 with the Registrar of Companies having jurisdiction over the transferee and transferor companies respectively. For the purpose of this rule, it is clarified that with respect to schemes of arrangement or compromise falling within the purview of section 233 of the Act, the concerned companies may, at their discretion, opt to undertake such schemes under sections 230 to 232 of the Act, including where the condition prescribed in clause (d) of sub-section (1) of section 233 of the Act has not been met.

25A. Merger or amalgamation of a foreign company with a Company and vice versa. (1) A foreign company incorporated outside India may merge with an Indian company after obtaining prior approval of Reserve Bank of India and after complying with the provisions of sections 230 to 232 of the Act and these rules. (2) (a) A company may merge with a foreign company incorporated in any of the jurisdictions specified in Annexure B after obtaining prior approval

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of the Reserve Bank of India and after complying with provisions of sections 230 to 232 of the Act and these rules. (b) The transferee company shall ensure that valuation is conducted by valuers who are members of a recognised professional body in the jurisdiction of the transferee company and further that such valuation is in accordance with internationally accepted principles on accounting and valuation. A declaration to this effect shall be attached with the application made to Reserve Bank of India for obtaining its approval under clause (a) of this sub-rule. (3) The concerned company shall file an application before the Tribunal as per provisions of section 230 to section 232 of the Act and these rules after obtaining approvals specified in sub-rule (1) and sub-rule (2), as the case may be. Explanation 1.—For the purposes of this rule the term “company” means a company as defined in clause (20) of section 2 of the Act and the term “foreign company” means a company or body corporate incorporated outside India whether having a place of business in India or not: Explanation 2.— For the purposes of this rule, it is clarified that no amendment shall be made in this rule without consultation of the Reserve Bank of India. 26. Notice to dissenting shareholders for acquiring the shares. For the purposes of sub-section (1) of section 235 of the Act, the transferee company shall send a notice to the dissenting shareholder(s) of the transferor company, in Form No. CAA.14 at the last intimated address of such shareholder, for acquiring the shares of such dissenting shareholders. 26A. Purchase of minority shareholding held in demat form. (1) The company shall within two weeks from the date of receipt of the amount equal to the price of shares to be acquired by the acquirer, under section 236 of the Act, verify the details of the minority shareholders holding shares in dematerialised form. (2) After verification under sub-rule (1), the company shall send notice to such minority shareholders by registered post or by speed post or by courier or by email about a cut-off date, which shall not be earlier than one month after the date of sending of the notice, on which the shares of minority shareholders shall be debited from their account and credited to the designated DEMAT account of the company, unless the shares are credited in the account of the acquirer, as specified in such notice, before the cut-off date. (3) A copy of the notice served to the minority shareholders under sub-rule (2), shall also be published simultaneously in two widely circulated newspapers (one in English and one in vernacular language) in the district in which the registered office of the company is situated and also be uploaded on the website of the company, if any. A3-14

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Companies (Compromises, Arrangements and Amalgamations) Rules, 2016

(4) The company shall inform the depository immediately after publication of the notice under sub-rule (3) regarding the cut-off date and submit the following declarations stating that:(a) the corporate action is being effected in pursuance of the provisions of section 236 of the Act; (b) the minority shareholders whose shares are held in dematerialised form have been informed about the corporate action a copy of the notice served to such shareholders and published in the newspapers to be attached; (c) the minority shareholders shall be paid by the company immediately after completion of corporate action; (d) any dispute or complaints arising out of such corporate action shall be the sole responsibility of the company. (5) For the purposes of effecting transfer of shares through corporate action, the Board shall authorise the Company Secretary, or in his absence any other person, to inform the depository under sub-rule (4), and to submit the documents as may be required under the said sub-rule. (6) Upon receipt of information under sub-rule (4), the depository shall make the transfer of shares of the minority shareholders, who have not, on their own, transferred their shares in favour of the acquirer, into the designated DEMAT account of the company on the cut-off date and intimate the company. (7) After receiving the intimation of successful transfer of shares from the depository under sub-rule (6), the company shall immediately disburse the price of the shares so transferred, to each of the minority shareholders after deducting the applicable stamp duty, which shall be paid by the company, on behalf of the minority shareholders, in accordance with the provisions of the Indian Stamp Act, 1899 (2 of 1899). (8) Upon successful payment to the minority shareholders under sub-rule (7), the company shall inform the depository to transfer the shares of such shareholders, kept in the designated DEMAT account of the company, to the DEMAT account of the acquirer. Explanation. - The company shall continue to disburse payment to the entitled shareholders, where disbursement could not be made within the specified time, and transfer the shares to the DEMAT account of acquirer after such disbursement. (9) In case, where there is a specific order of Court or Tribunal, or statutory authority restraining any transfer of such shares and payment of dividend, or where such shares are pledged or hypothecated under the provisions of the Depositories Act, 1996 (22 of 1996), the depository shall not transfer the shares of the minority shareholders to the designated DEMAT account of the company under sub-rule (6).

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Explanation. - For the purposes of this rule, if ―cut-off date‖ falls on a holiday, the next working day shall be deemed to be the ―cut-off date. 27. Determination of price for purchase of minority shareholding. For the purposes of sub-section (2) of section 236 of the Act, the registered valuer shall determine the price (hereinafter called as offer price) to be paid by the acquirer, person or group of persons referred to in sub-section (1) of section 236 of the Act for purchase of equity shares of the minority shareholders of the company, in accordance with the following rules:(1) In the case of a listed company,(i) the offer price shall be determined in the manner as may be specified by the Securities and Exchange Board of India under the relevant regulations framed by it, as may be applicable; and (ii) the registered valuer shall also provide a valuation report on the basis of valuation addressed to the Board of directors of the company giving justification for such valuation. (2) In the case of an unlisted company and a private company, (i) the offer price shall be determined after taking into account the following factors:(a) the highest price paid by the acquirer, person or group of persons for acquisition during last twelve months; (b) the fair price of shares of the company to be determined by the registered valuer after taking into account valuation parameters including return on net worth, book value of shares, earning per share, price earning multiple vis-a-vis the industry average, and such other parameters as are customary for valuation of shares of such companies; and (ii) the registered valuer shall also provide a valuation report on the basis of valuation addressed to the board of directors of the company giving justification for such valuation. 28. Circular containing scheme of amalgamation or merger. (1) For the purposes of clause (a) of sub-section (1) of section 238 of the Act, every circular containing the offer of scheme or contract involving transfer of shares or any class of shares and recommendation to the members of the transferor company by its directors to accept such offer, shall be accompanied by such information as set out in Form No. CAA.15. (2) The circular shall be presented to the Registrar for registration. 29. Appeal under sub-section (2) of section 238 of the Act. Any aggrieved party may file an appeal against the order of the Registrar of Companies refusing to register any circular under sub-section (2) of section 238 of the Act and the said appeal shall be in the Form No. NCLT.9 (appended in the A3-16

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Companies (Compromises, Arrangements and Amalgamations) Rules, 2016

National Company Law Tribunal Rules, 2016) supported with an affidavit in the Form No. NCLT.6 (appended in the National Company Law Tribunal Rules, 2016). SCHEDULE OF FEES SCHEDULE OF FEES S. Sections of the No. Companies Act, 2013 1.

Sub-section (1) of section 230

2.

Sub-section (2) of section 235

3.

Sub-section (2) of section 238

Rule Number 3

29

Nature of application or petition

Fees

Application for compromise arrangement and amalgamation.

Rs. 5,000/-

Application by dissenting shareholders.

Rs. 1,000/-

Appeal against order of Rs. 2,000/Registrar refusing to register any circular.

[Forms related to these Rules are listed below] Annexure A Form

Description

Section of CA, 2013

Provision of this Rule

Annexure A Form CAA-1

Creditor’s Responsibility Statement

230(2)(c)(i)

4

Form No. CAA 2 Notice and Advertisement of notice of the meeting of creditors or members

230(3)

6 & 7.

Form CAA-3

Notice to Central Government, Regulatory Authorities

230(5)

8

Form CAA-4

Result of the meeting to be decided by voting and Chairperson

13(2) & 14

Form CAA-5

Petition to sanction compromise 230 or arrangement

15(1)

Form CAA-6

Order on petition

230(7)

17(3)

Form CAA-7

Order under section 232

232

20

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Form

Description

Annexure 3

Section of CA, 2013

Provision of this Rule

Form CAA-8

Statement to be filed with Registrar of Companies (In the Matter of compromise and/or arrangement of .............)

232(7)

21

Form CAA-9

Notice of the scheme inviting objections or suggestions

233(1)(a)

25(1)

Form CAA-10

Declaration of solvency

233(1)(c)

25(2)

Form CAA-11

Notice of approval of the scheme of merger

233(2)

25(4)

Form CAA-12

Confirmation order of scheme of merger or amalgamation

233

25(5)

Form CAA-13

Application by the Central Government to the Tribunal

233(5)

25(6)

Form CAA-14

Notice to dissenting shareholders

235(1)

26

Form CAA-15

Information to be furnished 238(1)(a) along with circular in relation to any scheme or contract involving the transfer of shares or any class of shares in the transferor company to the transferee company

28

Merger or amalgamation with a Foreign Company incorporated in any of the jurisdictions specified in Annexure B

25A(2) (a)

Annexure B Jurisdictions

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234

ANNEXURE 4 NATIONAL COMPANY LAW TRIBUNAL (PROCEDURE FOR REDUCTION OF SHARE CAPITAL OF COMPANY) RULES, 20161 G.S.R. 1147(E).-In exercise of the powers conferred by sub-section (1) and (2) of section 469 read with section 66 of the Companies Act, 2013 (18 of 2013) the Central Government hereby makes the following rules namely:1. Short title and Commencement. (1) These rules may be called the National Company Law Tribunal (Procedure for reduction of share capital of Company) Rules, 2016. (2) They shall come into force on the date of their publication in the Official Gazette. (3) The words and expressions used in these rules but not defined and defined in the Companies Act, 2013 (hereinafter referred to as the Act) or in the Companies (Specification of Definitions Details) Rules, 2014 or the National Company Law Tribunal Rules, 2016 shall have the meanings respectively assigned to them in the Act or the said rules. 2.

Form of application or petition for Reduction of share capital under section 66. (1) An application to the Tribunal to confirm a reduction of share capital of a company shall be in Form No. RSC-1 and fee shall be, as prescribed in the Schedule of fee to these rules. (2) An application to confirm a reduction of share capital of a company shall be accompanied with (a) the list of creditors duly certified by the Managing Director, or in his absence, by two directors, as true and correct, which is made as on a date not earlier than fifteen days prior to the date of filing of an application showing the details of the creditors of the company, classwise, indicating their names, addresses and amounts owed to them; (b) a certificate from the auditor of the company to the effect that the list of creditors referred to in clause (a) is correct as per the records of the company verified by the auditor; (c) a certificate by the auditor and declaration by a director of the company that the company is not, as on the date of filing of the application, in arrears in the repayment of the deposits or the interest thereon; and 1

w.e.f 16-12-2016, vide GSR 1147(E ), dt. 15-12-2016.

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(d) a certificate by the company’s auditor to the effect that the accounting treatment proposed by the company for the reduction of share capital is in conformity with the accounting standards specified in section 133 or any other provisions of Act. (3) Copies of the list of creditors shall be kept at the registered office of the company and any person desirous of inspecting the same may, at any time during the ordinary hours of business, inspect and take extracts from the same on payment of the sum of rupees fifty for inspection and for taking extracts on payment of the sum of rupees ten per page to the company. 3. Issue of notice and directions by the National Company Law Tribunal. (1) The Tribunal shall, within fifteen days of submission of the application under rule 2, give notice, or direct that notice be given to (i) the Central Government, Registrar of Companies, in all cases, in Form No. RSC-2; (ii) the Securities and Exchange Board of India, in the case of listed companies in Form No. RSC-2; (iii) the creditors of the company, in all cases in Form No. RSC-3; seeking their representations and objections, if any. (2) The notice under clause (iii) of sub-rule (1) shall be sent, within seven days of the direction given under that sub-rule or such other period as may be directed by the Tribunal, to each creditor whose name is entered in the list of creditors submitted by the company about the presentation of the application and of the said list, stating the amount of the proposed reduction of share capital and the amount or estimated value of the debt or the contingent debt or claim or both for which such creditor’s name is entered in the said list, and the time within which the creditor may send his representations and objections. (3) The Tribunal shall along with directions under sub-rule (1) give directions for the notice to be published, in Form No. RSC-4 within seven days from the date on which the directions are given, in English language in a leading English newspaper and in a leading vernacular language newspaper, both having wide circulation in the State in which the registered office of the company is situated, or such newspapers as may be directed by the Tribunal and for uploading on the website of the company (if any) seeking objections from the creditors and intimating about the date of hearing. (4) The notice under sub-rule (3) shall state the amount of the proposed reduction of share capital, and the places, where the aforesaid list of creditors may be inspected, and the time as fixed by the Tribunal within which creditors of the company may send their objections:

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National Company Law Tribunal (Procedure for Reduction of…

Provided that the objections, if any, shall be filed in the Tribunal within three months from the date of publication of the notice with a copy served on the company. (5) The company or the person who was directed to issue notices and the publication in the newspaper under this rule shall, as soon as may be, but not later than seven days from the date of issue of such notices, file an affidavit in Form No. RSC- 5 confirming the despatch and publication of the notice. (6) Where the Tribunal is satisfied that the debt or claim of every creditor has been discharged or determined or has been secured or his consent is obtained, it may dispense with the requirement of giving of notice to creditors or publication of notice under this rule or both. 4.

Representation by Central Government, Registrar etc. under subsection (2) of section 66. If the authorities or the creditors of the company referred to in clause (i), clause (ii) and clause (iii) of sub-rule (1) of rule 3 desire to make any representation under sub-section (2) of section 66, the same shall be sent to the Tribunal within a period of three months from the date of receipt of notice and copy of such representation shall simultaneously be sent to the company and in case no representation has been received within the said period by the Tribunal it shall be presumed that they have no objection to the reduction. 5. Procedure with regard to representations and objections received. (1) The company shall submit to the Tribunal, within seven days of expiry of period upto which representations or objections were sought, the representations or objections so received along with the responses of the company thereto. (2) The Tribunal may give such directions as it may think fit with respect to holding of any enquiry or adjudication of claims or for hearing the objection or otherwise. (3) At the hearing of the application, the Tribunal may, if it thinks fit, give such directions as may deem proper with reference to securing the debts or claims of creditors who do not consent to the proposed reduction, and the further hearing of the petition may be adjourned to enable the company to comply with such directions. 6. Order on application and Minute thereof. (1) Where the Tribunal makes an order confirming a reduction, the order confirming the reduction and approving the minute may include such directions or terms and conditions as the Tribunal deems fit. (2) The order confirming the reduction of share capital and approving the minute shall be in Form No. RSC - 6 on such terms and conditions as may be deemed fit.

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(3) The Certificate issued by the Registrar under sub-section (5) of section 66 shall be in Form No. RSC -7. SCHEDULE OF FEES

SCHEDULE OF FEES Sl. No.

Section of the Companies Act, 2013

Nature of application/petition

Fees in Rs.

1.

Sub-Section (1) of Section 66.

Application for reduction of share capital.

5,000/-

[Forms related to these Rules are listed below] Form Form No. RSC-1 Form No. RSC-2

Form No. RSC - 3 Form No. RSC - 4 Form No. RSC - 5 Form No. RSC - 6 Form No. RSC -7

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Description Application under section 66 for confirming the reduction of share capital Notice to Central Government, Registrar etc. in respect of application for reduction of share capital Notice to Creditors Publication of Notice Affidavit on dispatch and publication of notice Order confirming Reduction of Share Capital and Approving Minute Certificate of Registration of Order and Minute

Section of CA, 2013 66

Provision of this Rule 2(1) 3(1)(i) & (ii)

3(1)(iii) 3(3) 3(5) 6(2) 6(3)]

ANNEXURE 5 COMPANIES (TRANSFER OF PENDING PROCEEDINGS) RULES, 20161 Companies (Transfer of Pending Proceedings) Rules, 2016

In exercise of the powers conferred under sub-sections (1) and (2) of section 434 of the Companies Act, 2013 (18 of 2013) read with sub-section (1) of section 239 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) (hereinafter referred to as the Code), the Central Government hereby makes the following rules, namely:— 1.

Short title and commencement

These rules may be called the Companies (Transfer of Pending Proceedings) Rules, 2016. th

(2)

They shall come into force with effect from the 15 December, 2016, except rule st 4, which shall come into force from 1 April, 2017.

2.

Definitions

(1)

In these rules, unless the context otherwise requires(a)

“Code” means the Insolvency and Bankruptcy Code, 2016 (31 of 2016);

(b)

“Tribunal” means the National Company Law Tribunal constituted under section 408 of the Companies Act, 2013.

(2)

Words and expressions used in these rules and not defined, but defined in the Companies Act, 1956 (1 of 1956) (herein referred to as the Act), the Companies Act, 2013 (18 of 2013) or the Companies (Court) Rules, 1959 or the Code shall have the meanings respectively assigned to them in the respective Act or rules or the Code, as the case may be.

3.

Transfer of pending proceedings relating to cases other than Winding up

All proceedings under the Act, including proceedings relating to arbitration, compromise, arrangements and reconstruction, other than proceedings relating to winding up on the date of coming into force of these rules shall stand transferred to the Benches of the Tribunal exercising respective territorial jurisdiction: Provided that all those proceedings which are reserved for orders for allowing or otherwise of such proceedings shall not be transferred. 4.

Pending proceeding relating to voluntary winding up

All proceedings relating to voluntary winding up of a company where notice of the resolution by advertisement has been given under sub-section (1) of section 485 of the Act 1

w.e.f. 15-12-2016 vide GSR 1119(E) dt. 7-12-2016.

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but the company has not been dissolved before the 1st day of April, 2017 shall continue to be dealt with in accordance with provisions of the Act. 5.

Transfer of pending proceedings of Winding up on the ground of inability to pay debts

(1)

All petitions relating to winding up of a company under clause (e) of section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and, where the petition has not been served on the respondent under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub-section (4) of section 419 of the Companies Act, 2013 exercising territorial jurisdiction to be dealt with in accordance with Part II of the Code: Provided that the petitioner shall submit all information, other than information forming part of the records transferred in accordance with rule 7, required for admission of the petition under sections 7, 8 or 9 of the Code, as the case may be, including details of the proposed insolvency professional to the Tribunal upto 15th day of July, 2017, failing which the petition shall stand abated: Provided further that any party or parties to the petitions shall, after the 15th day of July, 2017, be eligible to file fresh applications under sections 7 or 8 or 9 of the Code, as the case may be, in accordance with the provisions of the Code: Provided also that where a petition relating to winding up of a company is not transferred to the Tribunal under this rule and remains in the High Court and where there is another petition under clause (e) of section 433 of the Act for winding up against the same company pending as on 15th December, 2016, such other petition shall not be transferred to the Tribunal, even if the petition has not been served on the respondent.

6.

Transfer of pending proceedings of Winding up matters on the grounds other than inability to pay debts

All petitions filed under clauses (a) and (f) of section 433 of the Companies Act, 1956 pending before a High Court and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal exercising territorial jurisdiction and such petitions shall be treated as petitions under the provisions of the Companies Act, 2013 (18 of 2013). 7.

Transfer of Records

Pursuant to the transfer of cases as per these rules the relevant records shall also be transferred by the respective High Courts to the National Company Law Tribunal Benches having jurisdiction forthwith over the cases so transferred. 8.

Fees not to be paid

Notwithstanding anything contained in the National Company Law Tribunal Rules, 2016, no fee shall be payable in respect of any proceedings transferred to the Tribunal in accordance with these rules.

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ANNEXURE 5.1 COMPANIES (REMOVAL OF DIFFICULTIES) FOURTH ORDER, 20161 S.O. 3676(E).—Whereas clause (c) of sub-section (1) of section 434 of the Companies Act, 2013 (hereinafter referred to as the 2013 Act) provides that on a date which may be notified by the Central Government for the purpose of transfer of pending proceedings, all proceedings under the Companies Act, 1956 (hereinafter referred to as the 1956 Act) including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending immediately before such date before any District Court or High Court, shall stand transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before their transfer; And, whereas, the proviso thereof further provides that only such proceedings relating to the winding up of companies shall be transferred to the Tribunal that are at a stage as may be prescribed by the Central Government; And, whereas, clause (c) of sub-section (1) of section 434 of the 2013 Act shall come into force from the 15th December, 2016; And, whereas, provisions of sections 6 to 32, 60 to 67 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the Code) have been brought into force on 1st December, 2016 and sections 33 to 54 of the Code and the provisions of Chapter XV and Chapter XX of the 2013 Act shall be notified to come into force from 15th December, 2016; And, whereas, it has been decided that (i) proceedings under the 1956 Act with High Courts on all cases other than winding-up as on 15th December, 2016 shall stand transferred to the Benches of the Tribunals exercising respective territorial jurisdiction and (ii) all cases of winding up under the 1956 Act which are pending before the High Courts as on 15th December, 2016 and wherein petitions have not been served to the respondents as per rule 26 of Companies (Court) Rules, 1959 shall be transferred to Tribunal, and all remaining cases of winding up pending on that date would continue with the respective High Courts; And, whereas, difficulties have arisen regarding continuation of provisions of the 1956 Act for (i) those proceedings relating to cases other than winding-up that are reserved for orders for allowing or otherwise and (ii) those winding up cases which would not be transferred to Tribunal and be proceeded with by High Courts

1

w.e.f 7-12-2016.

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on account of commencement of the corresponding provisions under the 2013 Act or under the Code; And, whereas, difficulties have also arisen regarding transfer of proceedings relating to cases other than winding-up where hearings have been completed and only pronouncement of order is pending or is reserved since their transfer to Tribunal may result into delay and rights of parties to the proceedings are likely to be affected prejudicially; Now, therefore, in exercise of the powers conferred by sub-section (1) of section 470 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following Order to remove the above said difficulties, namely:1. Short title and commencement.(1) This Order may be called the Companies (Removal of Difficulties) Fourth Order, 2016. (2) It shall come into force with effect from the 15th December, 2016. 2. In the Companies Act, 2013, in Section 434, in sub-section (1), in clause (c), after the proviso, the following provisos shall be inserted, namely: “Provided further that only such proceedings relating to cases other than windingup, for which orders for allowing or otherwise of the proceedings are not reserved by the High Courts shall be transferred to the Tribunal: Provided further that – (i)

all proceedings under the Companies Act, 1956 other than the cases relating to winding up of companies that are reserved for orders for allowing or otherwise such proceedings; or

(ii)

the proceedings relating to winding up of companies which have not been transferred from the High Courts;

shall be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959

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ANNEXURE 5.2 COMPANIES (REMOVAL OF DIFFICULTIES) ORDER, 20171 S.O. 2042(E).—Whereas clause (c) of sub-section (1) of section 434 of the Companies Act, 2013 (hereinafter referred to as the 2013 Act) provides that on a date which may be notified by the Central Government for the purpose of transfer of pending proceedings, all proceedings under the Companies Act, 1956 (hereinafter referred to as the 1956 Act) including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending immediately before such date before any District Court or High Court, shall stand transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before their transfer; And, whereas, the proviso to the said clause (c) provides that only such proceedings relating to the winding up of companies shall be transferred to the Tribunal that are at a stage as may be prescribed by the Central Government; And, whereas, the said clause (c) of sub-section (1) of section 434 of the 2013 Act has come into force from the 15th December, 2016; And, whereas, in pursuance of the third proviso to the said clause (c), as inserted by S.O. 3676 (E) dated 7th December, 2016, the proceedings relating to winding up of companies which have not been transferred from the High Courts shall be dealt with in accordance with provisions of the 1956 Act and the Companies (Court) Rules, 1959; And, whereas, in accordance with the said third proviso read with rule 4 of Companies (Transfer of Pending Proceedings) Rules, 2016, all applications and petitions relating to voluntary winding up of companies pending before a High Court as on 1st April, 2017 shall continue with and dealt with by the High Court in accordance with provisions of the 1956 Act; And, whereas, provisions of section 59 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the Code) which provide for voluntary winding up have been brought into force on 1st April, 2017; And, whereas, provisions of sections 304 to 323 of the 2013 Act, which sought to replace the corresponding provisions of the 1956 Act, were omitted by the Code; 1

w.e.f 29-06-2017.

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And, whereas, difficulties have arisen regarding transfer of proceedings relating to those cases of voluntary winding-up of a company where notice of the resolution by advertisement has been given under sub-section (1) of section 485 of the 1956 Act but the company has not been dissolved before the 1st April, 2017, since the Code provides for a substantially different framework for persons who may be appointed as liquidators and for making of an application for dissolution by the liquidator. While under the 1956 Act, any person could be appointed as a liquidator, only an insolvency professional registered with the Insolvency and Bankruptcy Board of India can be appointed as a liquidator subject to certain conditions. Further, under the 1956 Act, liquidator is required to make a report to the Official Liquidator who, in turn, makes a report to the High Court for dissolution of the company, whereas under the Code, the liquidator is required to make an application for dissolution directly to the Tribunal; And, whereas, re-appointment of liquidators by companies which had passed resolutions for voluntary winding up under the 1956 Act before 1st April, 2017 and making of report by the Official Liquidators to the High Court (wherein reports have been made by liquidators to the Official Liquidators) would create difficulties; Now, therefore, in exercise of the powers conferred by sub-section (1) of section 470 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following Order to remove the above said difficulties, namely:1. Short title and commencement.(1) (2)

This Order may be called the Companies (Removal of Difficulties) Order, 2017. It shall come into force with effect from the 29th day of June, 2017.

2. In the Companies Act, 2013, in section 434, in sub-section (1), in clause (c),(a) in the third proviso, for “Provided further that-”, the following shall be substituted, namely:“Provided also that-”; (b)

A5.2-2

after the third proviso, the following proviso shall be inserted, namely:“Provided also that proceedings relating to cases of voluntary winding up of a company where notice of the resolution by advertisement has been given under sub-section (1) of section 485 of the Companies Act, 1956 but the company has not been dissolved before the 1st April, 2017 shall continue to be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959.”.

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19. U N Mitra’s Law of Limitation & Prescription, Thirteenth Edition 2011, LexisNexis Butterworths Wadhwa; 20. Odgers, Principles of Pleadings and Practice, Twentieth Edition, Third India Reprint 2010, Universal Law Publishing Co.; 21. S P Sathe, Administrative Law, Seventh Edition, Third Reprint 2008, LexisNexis Butterworths Wadhwa; 22. Taxmann’s Guide to Competition Law, 2009, Taxmann Publication (P). Ltd.; 23. Ratanlal & Dhirajlal, The Law of Evidence, Twenty-first Edition, Reprint 2005, Wadhwa & Company Nagpur; 24. M.R. Umarji, Law & Practice relating to The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, Fifth Edition 2010 Taxmann Publications; 25. Justice R.S. Bachawat’s, Law of Arbitration & Conciliation, Fifth Edition Reprint 2012, LexisNexis Butterworths Wadhwa; 26. Durga Das Basu, Shorter Constitution of India, Fourteenth Edition Reprint 2010, LexisNexis Butterworths Wadhwa; 27. R.V. Kelkar, Criminal Procedure, Fifth Edition 2008, Eastern Book Company; 28. P Ramanatha Aiyer, The Law Lexicon Dictionary, Second Edition, reprint, 2002, Wadhwa & Company; 29. A Ramaiya, Guide to the Companies Act, Sixteenth Edition, Wadhwa & Company. 30. Jyoti Singh and Vishnu Shriram, Insolvency and Bankruptcy Code, Concepts and Procedures, First Edition, 2017, Bloomsbury Professional

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