Scheme Of Compromise Decided In Absence Of Shareholder Who Submitted It, NCLAT Chennai Directs Re-Consideration In Presence Of The Shareholder

A shareholder of the Corporate Debtor had submitted a compromise scheme under Section 230 of the Companies Act, 2013 to the Liquidator. The Liquidator placed the Scheme before the Stakeholders Consultation Committee in absence of the shareholder and the same was rejected. The shareholder submitted that it could not persuade the SCC in respect of the Scheme due to his absence.

Background Facts

Suryajyothi Spinning Mills Ltd. (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT. Subsequently, the NCLT ordered liquidation of Corporate Debtor.

Sanjeev Mitla (“Appellant”) is a shareholder of the Corporate Debtor. The Appellant submitted a compromise scheme under Section 230 of the Companies Act, 2013 to the Liquidator, for restructuring of Corporate Debtor's debt. The Scheme offered payment of Rs. 90 Crores to the Financial Creditors as against an outstanding debt of Rs. 469 Crores besides payment of liquidation costs.

The Stakeholders Consultation Committee (“SCC”) had decided to conduct E-auction of the Corporate Debtor's assets and the reserve price was fixed at Rs. 155 Crores.

The Liquidator placed the Appellant's Scheme before the SCC but in absence of the Appellant. The SCC rejected the Scheme by 97% vote, while holding that selling the assets in e-auction would fetch higher value. The Liquidator conveyed the decision of SCC to the Appellant and also published the E-auction notice.

In the meanwhile, the Appellant filed an application before the NCLT, seeking that a meeting of SCC be convened to consider the Scheme. The NCLT dismissed the application on 08.09.2023.

Thereafter, the Appellant filed an appeal before the NCLAT. The Appellant contended that the Liquidator violated Section 230(1) of the Companies Act, 2013 by not presenting the Scheme before the SCC in his presence. Therefore, the Appellant could not persuade the SCC in respect of the Scheme submitted.

The Liquidator admitted that the Scheme was placed before SCC in absence of the Appellant.

NCLAT Verdict

The Bench took the view that in interest of justice, the Scheme should be placed before the SCC in presence of Appellant.

“In view thereof, we are of the considered opinion that it would be just an expedient if the proposed scheme propounded by the appellant is put before the SCC in his presence on which the SCC may take a decision.”

During the course of hearing, the Liquidator submitted that the proposed Scheme will be put to the SCC on a fixed date and the Appellant agreed to the same.

“As a result, thereof, while disposing of this appeal, we direct, as per the agreement between the parties, that the scheme propounded by the appellant, in terms of the Section 230 of the act, shall be presented before the SCC on 01.12.2023. the meeting shall be convened by the liquidator on 01.12.2023 by giving time, date and place to the parties concerned and in that meeting the scheme shall be considered by the SCC a decision shall be taken in accordance with law.”

The appeal has been disposed of.

Case Title: Sanjeev Mitla v Mr. Madhusudhan Rao Gonugunta & Anr.

Case No.: Company Appeal (AT) (CH) (Ins) No. 387 of 2023

Counsel for Appellant: Mr. S. Rajagopalan, Advocate.

Counsel for Respondent: Mr. Vivek Reddy, Senior Advocate For Ms. Mumaneni Vazra Laxmi, For Caveator.

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