Monday, 10 July 2017

Recent Order under Insolvency and Bankruptcy Code, 2016

1 NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI
Company Appeal (AT) (Insolvency) No. 56 of 2017
IN THE MATTER OF:

P.K. Ores Private Limited …... Appellant 
Vs. 
Tractors India Private Limited ..... Respondent 

Present: For Appellant: - Mr Amit Kumar Muhuri, Advocate.

For Respondent: Mr Rishav Banerjee and Ms Ishita Chakrabarti, Advocates.

O R D E R 1.6.2017 ─

This appeal under Section 61 of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as I&B Code) have been preferred by Appellant - P.K. Ores Private Limited (Corporate Debtor) against order dated 3rd April 2017 passed by Ld. Adjudicating Authority (National Company Law Tribunal, Kolkata Bench, Kolkata) in Company Petition No. 172 of 2017 whereby and where under the application preferred by Respondent – Tractors India Private Limited – (Operational Creditor) under Section 9 of the I&B Code for initiating the Corporate Resolution Process against the Appellant - Corporate Debtor has been admitted and the Operational Creditor has been asked to propose the name of Interim Resolution Professional along with the consent letter for taking immediate possession of the assets of Corporate Debtor, including the bank account (s).

2. Ld. Counsel appearing for the Appellant while assailed the order, submitted that the impugned order dated 3rd April, 2017 has been passed by the Adjudicating Authority in violation of rules of natural justice, without any notice and without giving any opportunity to Corporate Debtor. It is further contended that there is an ‘existence of dispute’ which the Appellant- Corporate Debtor could have brought to the notice of the Adjudicating Authority, if given an opportunity.

3. On the other hand according to Ld. Counsel for RespondentOperational Creditor the Appellant- Corporate Debtor was served with a notice under Section 8 of the I&B Code and the copy of the 2 petition under Section 9 was also forwarded to the Appellant. It is further contended that the Appellant failed to reply to the notice given by the Operational Creditor under Section 8 of I&B Code.

4. We have heard Ld. Counsels for the parties and perused the record.

5. From the Order Sheets enclosed with the appeal, we find that the Adjudicating Authority initially taken up the matter on 17th March 2017 and thereafter on 30th March 2017 but the application was incomplete as the Respondent- Operational Creditor had not filed any affidavit regarding pendency of any litigation with the Corporate Debtor. The Operational Creditor had also not filed Board’s resolution for initiating proceeding against the Corporate Debtor. Therefore, time was allowed for the Operational Creditor. From the aforesaid order sheets it is clear that only Ld. Counsels appearing for the Operational Creditor were present and no notice was given to the Appellant –Corporate Debtor.

6. It appears that the matter was subsequently taken up on 3rd April 2017. On the said date taking into consideration the fact that after service of notice by the Operational Creditor under Section 8 of the I&B Code, the petition had been filed and the Operational Creditor had alleged that the Corporate Debtor has failed to pay Rs. 9,76,095/- (Rupees Nine Lakh seventy-six thousand ninety-five only) in spite of notice dated 17th January 2017 and the petition was otherwise complete, the application was admitted. From the said order it is clear only Ld. Counsels for the Respondent/Operational Creditor were present and no notice was given to the Appellate – Corporate Debtor.

7. It appears that on 10th April 2017 when the matter was taken up the Ld. Counsel for the Respondent submitted that the Operational Creditor will propose the name of Insolvency Resolution Professional along with the consent letter by 12th April, 2017. On the said date for the first time, Ld. Counsel for Corporate Debtor appeared. However, there is nothing on record to suggest that the Ld. Adjudicating Authority issued any notice to the AppellantCorporate Debtor. The Respondent - Operational Creditor has also not brought on record any order to suggest that the Ld. Adjudicating Authority issued any notice to Corporate Debtor before admitting the application. 3

8. Ld. Counsel appearing on behalf of Appellant submits that the Appellant requested the National Company Law Tribunal, Kolkata Bench to allow the Appellant to inspect the records. On inspection of records, the Appellant came to know that no notice was issued by Ld. Adjudicating Authority to the Appellant – Corporate Debtor prior to admission of the case.

9. As per Section 424 of the Companies Act, 2013 the Adjudicating Authority is supposed to follow the rules of natural justice before passing any order. In “Innoventive Industries Limited vs. ICICI Bank” Company Appeal (AT) (Insolvency) No. 1 & 2 of 2017 this Appellate Tribunal by judgment dated 15th May, 2017, also held that a notice required to be given to the Corporate Debtor before admitting any application for initiation of corporate resolution process under Section 7 and 9 of the I&B Code.

10. 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.

 11. Ld. Counsel appearing on behalf of the Appellant – Corporate Debtor brought to our notice, letters communicated between the Corporate Debtor and the Operational Creditor, which are not in dispute.

12. From the record we find that in reply to the letter dated 4th November 2016, written by Operational Creditor, the AppellantCorporate Debtor by reply dated 16th November, 2016 brought the notice of the Operational Creditor that one of the ‘Caterpillar Engine’ (CAT 6.6) which was repaired and installed by Operational Creditor was not functioning properly from the date of installation. It was further informed that since last 8 months several times without rectifying the defects of existing engine it was not possible for the Corporate Debtor to lift the Engine which was lying idle in the work shop of Operational Creditor. It was also alleged that the Operational Creditor failed to supply the spare parts as per agreement due to negligence of the Operational Creditor for that the Appellant - Corporate Debtor had to incur loss to the tune of Rs. 2 crores. The relevant portion of the letter dated 16th November, 2016 reads as follows: - “This has reference to your letter dated November 4 2016 and the content has been noted by us. In this regard, we feel it necessary to bring to your notice the following facts for taking necessary action at your end to avoid legal complications. That one of the Caterpillar Engine (CAT 6.6) which was repaired and installed is not functioning 4 property from the date of installation. This was brought to your notice several times and the same was verified by your Engineers on this spot and assured for its rectification without any fruitful results. You were also informed for taking necessary measures to overcome our huge revenue loss. In this regard, we informed you since last 8 months several times that without rectifying the existing Engine it is not possible on our part to lift the captioned Engine, which is lying repaired at your workshop. Needless to mention here that you have also failed to supply the spares, which were committee by you and due to your negligence we have incurred a lost in the tune of Rs.2 crores and you shall be held responsible for the same. In nutshell, to maintain in long lasting business relation with your organization we request your good self-for taking necessary action for a smooth function of the existing CAT6.6 Engine to proceed further in the matter or else, we will be forced to take shelter under the law and social media to solve the issue which is obviously not desirable. Looking forward to your views for an amicable solution of the same.”

13. In reply to the said letter, the Respondent - Operational Creditor by letter dated 15th December 2016 while shown surprise and shock, intimated the Corporate Debtor that the allegations are baseless. With regard to faulty, non-functional machine it was intimated that the Engine was earlier repaired. The Operational Creditor threatened to initiate legal proceeding, including civil and criminal proceedings against the Corporate Debtor, as apparent from the letter aforesaid, relevant portion of which (letter dated 15th December, 2016) reads as under: - “At the outset, we are surprised and shocked to having received your reply letter dated 16th November, 2016 and the contents therein. We would like to state in this regard that such a baseless allegation with respect to some faulty, non-functional machine which was earlier repaired by us on receipt of our legal notice for legitimate outstanding dues is purely after thought, sham and baseless, only to avoid paying our due debts. You will appreciate that Tractors India is a trusted brand in the industry for last 7 decades and such baseless and false allegation written with malicious intent is only to damage the reputation of our organization and only delay the legitimate dues of ours. In this regard, we would like to further state that such baseless allegations which leave us with no option but to instigate legal proceedings against your organization, both civil and criminal, including but not limited to proceedings for offences committed 5 under Section 193, 195, 196, 199, 200 and Section 420 of the Code of Criminal Procedure, which you are requested to note hereby. We are hereby calling upon you as a final reminder for forthwith payment of our dues to the tune of Rs.9,76,095/- In case we don’t hear from you within 2 weeks from the date of receipt of this letter, we initiate legal proceedings, both civil and criminal and will also dispose off the said machine in parts or as a whole as scrap lying in unclaimed and abandoned state at your cost and consequence.”

14. In “Kirusa Software Private Ltd. Vs Mobilox Innovations Private Ltd” Company Appeal (AT) (Insolvency) No. 6 of 2017, the Appellate Tribunal by judgment dated 24th May 2017 decided the question as to what does a ‘dispute’ and ‘existence of dispute’ means for the purpose of determination of petition under Section 9 of the I&B Code. In the said case, the Appellate Tribunal held: -

 “25. The true meaning of sub-section (2)(a) of Section 8 read with sub-section (6) of Section 5 of the 'I & B Code' clearly brings out the intent of the Code, namely the Corporate Debtor must raise a dispute with sufficient particulars. And in case a dispute is being raised by simply showing a record of dispute in a pending arbitration or suit, the dispute must also be relatable to the three conditions provided under sub-section (6) of Section 5 (a)-(c) only. The words 'and record of the pendency of the suit or arbitration proceedings' under sub-section (2)(a) of 16 Section 8 also make the intent of the Legislature clear that disputes in a pending suit or arbitration proceeding are such disputes which satisfy the test of subsection (6) of Section 5 of the 'I & B Code' and that such disputes are within the ambit of the expression, 'dispute, if any'. The record of suit or arbitration proceeding is required to demonstrate the same, being pending prior to the notice of demand under sub-section 8 of the 'I & B Code'. 

26. It is a fundamental principle of law that multiplicity of proceedings is required to be avoided. Therefore, if disputes under sub-section (2)(a) of Section 8 read with sub-section (6) of Section 5 of the 'I & B Code' are confined to a dispute in a pending suit and arbitration in relation to the three classes under subsection (6) of Section 5 of the 'I & B Code', it would violate the definition of operational debt under sub-section (21) of Section 3 of the 'I & B Code' and would become inconsistent thereto, and would bar Operational Creditor from invoking Sections 8 and 9 of the Code. 6 

27. Sub-section (6) of Section 5 read with sub-section (2)(a) of Section 8 also cannot be confined to pending arbitration or a civil suit. It must include disputes pending before every judicial authority including mediation, conciliation etc. as long there are disputes as to existence of debt or default etc., it would satisfy subsection (2) of Section 8 of the 'I & B Code'. 28. Therefore, as per sub-section (2) of the 'I & B Code', there are two ways in which a demand of an Operational Creditor can be disputed: 

17 i. By bringing to the notice of an operational creditor, 'existence of a dispute'. In this case, the notice of dispute will bring to the notice of the creditor, an 'existence of a dispute' under the Code. This would mean disputes as to existence of debt or default etc. or ii. By simply bringing to the notice of an operational creditor, record of the pendency of a suit or arbitral proceedings in relation to a dispute. In this case, the dispute in the suit/arbitral proceeding should relate to matters (a)-(c) in sub-section (6) of Section 5 and in this case, showing a record of pendency of a suit or arbitral proceedings on a dispute is enough and to intent of the Legislature is clear, i.e. once the dispute (on matters relating to 3 classes in sub-section (6) of Section 5 of the 'I & B Code') is pending adjudication, that in itself would bring it within the ambit of sub-section (6) of Section 5 of the 'I & B Code'. 

31. The dispute under I&B Code, 2016 must relate to specified nature in clause (a), (b) or (c) i.e. existence of amount of debt or quality of goods or service or breach of representation or warranty. However, it is capable of being discerned not only from in a suit or arbitration from any document related to it. For example, the 'operational creditor' has issued notice under Code of Civil Procedure Code, 1908 prior to initiation of the suit against the operational creditor which is disputed by 'corporate debtor. Similarly notice under Section 59 of the Sales and Goods Act if issued by one of the party, a labourer/employee who may claim to be operation creditor for the purpose of Section 9 of I&B Code, 2016 may have raised the dispute with the State Government concerning the subject matter i.e. existence of amount of debit and pending consideration before the competent Government. Similarly, a dispute may be pending in a Labour Court about existence of amount of debt. A party can move before a High Court under writ jurisdictions against Government, corporate debtor (public sector 19 undertaking). There may be cases where one of the party has moved before the High Court under Section 433 of the Companies Act, 1956 for initiation of liquidation proceedings against the corporate debtor and dispute is 7 pending. Similarly, with regard to quality of goods, if the 'corporate debtor' has raised a dispute, and brought to the notice of the 'operational creditor' to take appropriate step, prior to receipt of notice under sub-section (1) of Section 8 of the 'I & B Code', one can say that a dispute is pending about the debt. Mere raising a dispute for the sake of dispute, unrelated or related to clause (a) or (b) or (c) of Sub-section (6) of Section 5, if not raised prior to application and not pending before any competent court of law or authority cannot be relied upon to hold that there is a 'dispute' raised by the corporate debtor. The scope of existence of 'dispute', if any, which includes pending suits and arbitration proceedings cannot be limited and confined to suit and arbitration proceedings only. It includes any other dispute raised prior to Section 8 in this in relation to clause (a) or (b) or (c) of sub-section (6) of Section 5. It must be raised in a court of law or authority and proposed to be moved before the court of law or authority and not any got up or malafide dispute just to stall the insolvency resolution process.” 

15. 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.

 16. In this appeal as admittedly the Adjudicating Authority has passed the impugned order dated 3rd April 2017 without notice to the Appellant, in violation of rules of natural justice and there exists a dispute between the parties, we hold that the as impugned order dated 3rd April 2017 passed by Adjudicating Authority is not only in violation of rules of natural justice, the application under Section 9 was also not maintainable. For the reasons aforesaid, we set aside impugned order dated 3rd April 2017.

17. In effect the order appointing an Interim Resolution Professional, order declaring moratorium, freezing of account and all other order passed by Adjudicating Authority pursuant to impugned order and action, if any, taken by the Interim Resolution Professional, including the advertisement published in the newspaper calling for applications are declared illegal. The Adjudicating Authority is directed to close the proceeding. The appellant company is released from the rigour of law. The appellant 8 company is allowed to function independently through its Board of Directors from immediate effect.

18. The Adjudicating Authority will fix the fee of Interim Resolution Professional and the Financial Creditor will pay the fees to the Interim Resolution Professional, for the period he has worked.

19. The appeal is allowed with aforesaid observation and direction. However, there shall be no order as to cost.

 Sd/- (Justice S.J. Mukhopadhaya) Chairperson Sd/- (Mr. Balvinder Singh) Member (Technical) RC


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Saturday, 10 June 2017

Evolving Jurisprudence under Insolvency and Bankruptcy Code, 2016

Hon’ble High Court of Bombay in the matter of Innoventive Industries Ltd. Vs. Union of India & Ors [WP (LDG.)] No.  143 of 2017

An application under section 7 of the Code to initiate CIRP against Innoventive Industries Limited was admitted by National Company Law Tribunal ("Tribunal") on  17th January, 2017.  The petitioner, aggrieved by the admission, filed a writ petition before the Hon’ble High Court of Bombay challenging the vires of the Code and seeking ad-interim relief of stay. It also filed an appeal before the NCLAT against the admission.

While the Hon’ble High Court  vide its order dated 23rd February, 2017, while dismissing the petition, observed that since the main  order   has   become subject matter of challenge before the statutory  appellate authority i.e National Company Law Appellate Tribunal (NCLAT), challenge to the vires becomes academic.

It also opined that there was no need for stay the operation of the appointment of the Insolvency Resolution Professional ("IRP") as no prejudice would be caused to the petitioner.

NCLAT

I. Sree Metaliks Ltd. Vs. Srei Equipment Finance Ltd. (Company Appeals (AT) (Insolvency) No.3 of 2017 Vide order dated 30th January, 2017, the Tribunal admitted an application filed by Financial Creditor, namely, Srei Equipment Finance Ltd. under section 7 of the IBC, 2016 and appointed the insolvency resolution professional (IRP).

The Appellant, aggrieved by the appointment of the particular IRP, filed an appeal before the NCLAT. On submission of the Respondent that the IRP would step down, the NCLAT, vide its order dated 21st February, 2017, disposed of the appeal.

II. Raipur Power & Steel Ltd. & Ors Vs. Tomorrow Sales Agency Pvt. Ltd. (Company Appeals (AT) (Insolvency) No.4 of 2017

Vide order dated 23rd February, 2017, the Tribunal admitted an application filed by a Financial Creditor, namely, Tomorrow Sales Agency Pvt. Ltd. under section 7 of the Code and appointed the insolvency resolution professional (IRP).

The Appellant filed an appeal before the NCLAT, which disposed it of, vide its order dated 6th March, 2017, with the observation: “… as the Appellant has paid the full and final amount in favour of the respondent-financial creditor (M/s. Tomorrow Sales Agency Pvt. Ltd.), this court is not inclined to decide any issue at this stage nor inclined to pass any further order in view of the assurance given by the appellant that it will clear all dues, if any, payable to any financial creditor or operational creditor”.

It further observed: “If the Tribunal, on the basis of records and the report as may be submitted by the ‘interim Resolution Professional’, comes to a conclusion that the Appellant has paid all the dues to financial creditor(s) and operational creditor(s), will close the proceeding and release the appellant company from the rigors of law and allow the appellant company to function independently through its Board of Directors.”

Orders of the National Company Law Tribunal ("Tribunal")

I. Annapurna Infrastructure Pvt. Ltd. & Ors Vs. Soril Infra Resources Ltd. [C.P. No. (IB).22(PB)/2017]

Application filed by Operational Creditor (OCs): Annapurna Infrastructure Pvt. Ltd. and others filed an application under section 9 of the IBC, 2016 to initiate Corporate Insolvency Resolution Process (CIRP) 

Corporate Debtor CD - Soril Infra Resources Ltd.

Vide order dated 24th March, 2017, the Tribunal/NCLT dismissed the application with the cost of Rs.1,00,000 for the reasons given hereunder. 

Held: An application under section 9 of the Code can be filed only if the OC has delivered a notice to the CD demanding payment of default amount and it has not received in response any notice of existence of dispute and record of the pendency of the suit or arbitration proceedings in relation to such dispute. The issue to be determined was whether there was a pending arbitration proceeding in relation to the dispute before the OC delivered the demand notice.  There was an award dated 09.09.2016 passed by the sole arbitrator in favour of the OC granting certain reliefs. The CD challenged the said award under section 34 of the Arbitration and Conciliation Act, 1996. It was, however, dismissed on 19.12.2016. Thereafter, the OC delivered the demand notice on 13.01.2017. The CD disputed the demand on 27.01.17 stating that it has appealed against the award under section 37 of the Arbitration and Conciliation Act, 1996. The OC submitted before the NCLT that as on the date (16.01.2017) of delivery of the demand notice, the arbitration award had attained finality and there was no pendency of arbitration proceeding.

The NCLT held: “It cannot be said that arbitration proceedings have come to an end merely on the dismissal of application under section 34 of the Arbitration Act …. The proceedings are yet to attain finality as appeal under section 37 of the Arbitration Act is pending.”

Further, it came to the notice of the NCLT that the execution proceedings for enforcement of the award have been initiated and is pending for consideration of the Hon’ble High Court on 12.05.2017. In this context, the NCLT observed: “We are further of the view that already proceedings for execution of the award have been initiated. An effective remedy has been availed by the applicant. We have not been able to accept that a party can invoke more than one remedy simultaneously. It is in fact against the fundamental principles of judicial administration to allow a party to avail more than one remedies.”

II. Nikhil Mehta and Sons (HUF) & Ors Vs. AMR Infrastructures Ltd. [C.P. No. (ISB) -03 (PB)/2017]

Applicants: Nikhil Mehta and Sons (HUF) and others
Corporate Debtor: AMR Infrastructure Ltd.

Nikhil Mehta and Sons (HUF) and others filed an application under section 7 of the IBC to initiate the CIRP of AMR Infrastructure Ltd. The NCLT, vide order dated 23rd January, 2017 dismissed the application.

The Applicants booked properties (office space, shop and flat) in projects of the Respondent.  As per the Memorandum of Understanding (MoU) executed between the parties, the Applicant would be paid a monthly ‘assured returns’ till the possession of the flat.

The Respondent defaulted in payment of such assured returns.

The NCLT observed that the essential element for a debt to qualify as a ‘financial debt’ is that it is ‘disbursed against the consideration of time value of money’.   It would include such financial transactions where a sum is received today to be paid over a period of time in the future in a single or series of installment(s).  The subject case is a pure and simple agreement of sale or purchase of a property.

It observed: “Merely because some ‘assured amount’ of return has been promised and it stands breached, such a transaction would not acquire the status of a ‘financial debt’ as the transaction does not have consideration for the time value of money, which is a substantive ingredient to be satisfied for fulfilling requirements of the expression ‘Financial Debt’”.  

New Corporate Laws Treatise https://www.nclt.in

Saturday, 8 April 2017

MANUAL OF MINISTRY OF CORPORATE AFFAIRS RELEASED

New Corporate Laws Treatise - News Bulletin 

MANUAL OF MINISTRY OF CORPORATE AFFAIRS RELEASED


For the purpose of providing effective service to the stakeholders, the Ministry
of Corporate Affairs has put in place a well- defined Citizens’/Clients’ Charter. The
Ministry has also prescribed a strong decision making procedure in accordance with
the rules and regulations prescribed by the Central Government. Particulars of the
Ministry are publicized in the form of Induction Material and the Mandatory
Disclosures in pursuance of Section 4(1)(b) of the Right to Information Act, 2005.

Nonetheless, with the objective to make available the information about
Ministry of Corporate Affairs at one-stop-shop to the stakeholders, this unified Manual
is presented as per the guidelines issued by the Department of Administrative
Reforms of Public Grievances. The manual, inter-alia, contains vision, mission,
description of the organization; objectives of the Ministry, duties of various
functionaries, channel of submissions and level of disposal, Acts, Rules and
Regulations pertaining to the organization, supervision and control system,
recruitment and training of the officials, monitoring and inspection of field offices in
desired detail.
News update by New Corporate Laws Treatise www.nclt.in All rights reserved.  
Email us:  cs@nclt.in

Sunday, 2 April 2017

Companies (Audit and Auditors) Amendment Rules, 2017

Ministry of Corporate Affairs vide its Notifications No. G.S.R. 307(E) dated 30th March, 2017 has made amendment in Companies (Audit and Auditors) Rules, 2014 to seek disclosure in the Auditors Report relating to the following:

whether the company had provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company.

Rule 11 of the Companies (Audit and Auditors) Rules, 2014 reads as follows:
11. Other Matters to be included in Auditors Report

The auditor’s report shall also include their views and comments on the following matters, namely:-

(a) whether the company has disclosed the impact, if any, of pending litigations on its financial position in its financial statement;

(b) whether the company has made provision, as required under any law or accounting standards, for material foreseeable losses, if any, on long term contracts including derivative contracts;

(c) whether there has been any delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the company.

(d) whether the company had provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company.

As the amendment was notified on March 30, 2017, it seems it will effect all Auditors Report signed post this date more particularly the financial statements for
F.Y. 2016-17.



G.S.R. 307(E) text reads as follows:

G.S.R. 307(E).—In exercise of powers conferred by section 143 read with sub-sections (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Audit and Auditors) Rules, 2014, namely:— 1. (1) These rules may be called the Companies (Audit and Auditors) Amendment Rules, 2017. (2) They shall come into force on the date of their publication in the Official Gazette.

In the Companies (Audit and Auditors) Rules, 2014, in rule 11, after clause (c), the following clause shall be inserted, namely:—

“(d) whether the company had provided requisite disclosures in its financial statements as to holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 and if so, whether these are in accordance with the books of accounts maintained by the company.”.

Note : The principal rules were published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 246(E), dated the 31st March, 2014, subsequently amended vide G.S.R. 722(E), dated the 14th October, 2014 and vide G.S.R. 972(E), dated the 14th December, 2015.

Click here to view Notification No. G.S.R. 307(E) dated 30-03-2017
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Tuesday, 17 January 2017

National Company Law Tribunal holds shareholders meeting mandatory for approval of amalgamation scheme of unlisted company, under the Companies Act, 2013

National Company Law Tribunal holds shareholders meeting mandatory for approval of amalgamation scheme of unlisted company, under the Companies Act, 2013

The provisions of Corporate Restructuring i.e. section 230  except sub-section (11) and (12) of 230; 231-233 and sections 235 - 240 was notified on December 7, 2016 vide notification S.O. 3677(E) and were made effective from December 15, 2016.  However the provisions related to cross border merger involving Indian and foreign companies under section 234 are yet to be made effective under the Companies Act, 2013. 

MCA also notified the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 on December 14, 2016 vide notification no. GSR 1134(E) [F.No.2/31/CAA/2013/-CL-V] effective from 15.12.2016. 

National Company Law Tribunal has the power to entertain the compromise or arrangement petitions based on the territorial jurisdiction over the place of the registered office of the applicant/ petitioner companies to the corporate restructuring exercise. 

It is pertinent to note that the Companies Act, 2013 now facilitates compromise/ arrangement schemes between (a) small companies; or (b) holding company and its wholly owned subsidiary company, without the approval of the Hon’ble National Company Law Tribunal in a bid to save time and costs for the companies generally considered as closely held within the group or in situation where public interest is largely not affected.

In a first of its kind order pronounced by the Hon’ble National Company Law Tribunal, Principal Bench, New Delhi (“Tribunal”) under the newly notified compromise and arrangement provisions under the Companies Act, 2013 the Hon’ble Tribunal disallowed dispensation to the meetings of shareholders of the Companies basis the consents provided by them after duly considering the provisions of the Companies Act, 2013 and related rules.  

·         
  • Filing of joint application is allowed instead of filing separate multiple applications by each of the Companies to the compromise/ arrangement scheme.
  • Change in capital structure from the date of last financials till the date of filing of application to be disclosed.  
  • Share exchange ratio shall also be disclosed in the application along with rationale for merger
  • Application to be inter-alia accompanied with list of shareholders and secured and unsecured creditors of the Companies (including debenture and deposit holders) along with their MOA, AOA, audited balance sheet, latest financial position etc.

While passing an order the Hon’ble Tribunal did not allowed dispensation of the meeting of the Shareholders and Creditors of the Companies and held that although the Tribunal may dispense with calling of the meeting of creditors or class of creditors where such creditors or class of creditors, having at least 90% (ninety percent) value, agree and confirm, by way of affidavit, to the scheme of compromise and arrangement.  However the provisions of section 230(9) does not provide for the dispensation of the meetings of the members. 

The Tribunal also observed that the (Compromise, Arrangements and Amalgamations) Rules, 2016 more specifically Rule 5 which provides for directions to be issued by the Tribunal discloses:
  • ·     For determining the class or classes of creditors or of members meeting or meetings have to be held for considering the proposed compromise or arrangement; or

  • ·     For dispensing with the meeting or meetings for any class of classes of creditors in terms of sub-section (9) of section 230. 


The Tribunal held that keeping in view of the above provisions, dispensation of the meeting of members of the Company cannot be entertained.  Further the Tribunal passed order directing the separate meetings of the all the shareholders, secured creditors and the unsecured creditors of the Transferor Company and the Transferee Company.

Conclusion: 

The aforesaid order passed by the Hon’ble Tribunal, division bench, New Delhi in Re: JVA Trading Private Limited may likely be followed by other benches of the Hon’ble Tribunal and thus affect the timelines for merger involving unlisted companies which were generally allowed dispensations basis the consents from their shareholders under the erstwhile provisions of the Companies Act 1956 administered by the Hon’ble High Courts.  Companies may also appeal the order of the Tribunal before the Hon’ble National Company Law Appellate Tribunal basis the merits of the case.   

For more information contact the author Mr Pankaj Jain at pankaj.jain@vedalegal.in  

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Saturday, 7 January 2017

COMPULSORY LICENSING UNDER INDIAN PATENTS ACT,1970:

COMPULSORY LICENSING UNDER INDIAN PATENTS ACT,1970:
 Compulsory  Licenses are  government authorizations which allow a third party to make, use, or sell a patented product without the consent of the patent owner.
 Provisions regarding compulsory licensing are provided for under both the Indian Patent Act, 1970, as well as the TRIPS (Trade Related aspects of Intellectual Property Rights) Agreement in the international level. Compulsory licenses are granted for a variety of reasons such as prevention of abuse of the patent to form a monopoly, addressing public health concerns, etc. Compulsory licensing has for long been a subject of controversy, and despite the existence of statutory provisions, compulsory licenses have not been issued liberally.
In India, compulsory licenses are dealt with under Chapter XVI of the Indian Patent Act, 1970. The conditions which need to be fulfilled in order for a compulsory license to be granted are laid down under Sections 84 and 92 of the Act.
As per Section 84, any person who is interested or already the holder of the license under the patent can make a request to the Controller for grant of Compulsory License on patent after three years from the date of grant of that patent, on the existence of the following conditions:
·        The reasonable requirements of the public with respect to the patented invention have not been satisfied
·        The patented invention is not available to the public at a reasonably affordable price
·        The patented invention is not worked in the territory of India.
The Controller, while granting compulsory license, is required to take into account factors such as the nature of the invention, measures already taken by the patentees or any licencee to make full use of the invention, ability of the applicant to work the invention to the public advantage, time elapsed since the grant of the patent, and so on.
According to Section 92 of the Act, compulsory licences can also be issued suo motu by the Controller of Patents pursuant to a notification issued by the Central Government if there is either a “national emergency” or “extreme urgency” or in cases of “public non-commercial use”. The mechanism under this provision is set in motion by the Central Government when it notifies in the Official Gazette that extra-ordinary circumstances have dictated the grant of compulsory licences in relation to patents which help to address the exigency. However, Section 92(2) still requires a person interested to apply to the Controller for grant of a compulsory licence.

 

Instances of Compulsory Licensing in India thus Far

India’s first and only compulsory licence till date was granted by the Patent Office on March 9, 2012, to Natco Pharma, an Indian company, for the generic production of Bayer Corporation’s Nexavar, a drug used for the treatment of Liver and Kidney cancer. The three grounds mentioned under Section 84 of the Indian Patent Act were all met, i.e. Bayer’s drug left the reasonable requirements of the public were unsatisfied, it was not available to the public at a reasonably affordable price, and the patented invention was not being worked in the territory of India. While Bayer offered the drug at the cost of Rs. 2.8 lakh for a month’s therapy, Natco Pharma had offered to sell the medicine at merely a fraction of that cost (Rs. 8,800).  The decision of this case indicated that as opposed to maintaining an extremely strict patent protection regime, the interest of public at large would be given more importance by the government. However, the decision also invited harsh criticisms from the large group of multinational companies, who felt that the issue of compulsory licences ought to be exercised in an even more stringent manner.

More recently, Mumbai-based BDR Pharmaceuticals has been seeking the grant of compulsory licence for the generic production of US drug maker Bristol-Myers Squibb’s anticancer drug Dasatinib, sold under the brand name Sprycel. The Patent Office rejected BDR’s application on the grounds that the company did not make enough efforts to obtain a voluntary licence for the drug. While this rejection was lauded by the international community and the multinational companies in particular, it seems that the issue of a compulsory licence for the drug may very well be on the cards, as citing the emergency of a public health crisis under Section 92 of the Patent Act, the Health Ministry has reportedly sought a waiver of patent rights for Dasatinib. Through a letter to the Department of Industrial Policy and Promotion (DIPP), the Health Ministry has allegedly stated that the cost of producing the drug will be met through government schemes, and that around half-a-dozen schemes will be initiated to fund the cost of making the drugs available to patients for public non-commercial use.


MCA allows Exemption to Specified IFSC Public Company u/s 462 of the Companies Act, 2013

MCA carves out special privileges under the Companies Act, 2013 for unlisted public company which is licensed to operate by the Reserve Bank of India or the Securities and Exchange Board of India or the Insurance Regulatory and Development Authority of India from the International Financial Services Centre located in an approved multi services Special Economic Zone set-up under the Special Economic Zones Act, 2005 (28 of 2005) read with the Special Economic Zones Rules, 2006 (herein after referred to as “Specified IFSC Public Company”)


In exercise of the powers conferred by clauses (a) and (b) of sub-section (1) of Section 462 and in pursuance of sub-section (2) of the said section of the Companies Act,2013 (18 of 2013), the Central Government, in the interest of public, hereby directs that certain provisions of the Companies Act, 2013 (18 of 2013), as specified in column (2) of the Table, shall not apply or shall apply with such exceptions, modifications and adaptations as specified in column (3) of the said Table, to an unlisted public company which is licensed to operate by the Reserve Bank of India or the Securities and Exchange Board of India or the Insurance Regulatory and Development Authority of India from the International Financial Services Centre located in an approved multi services Special Economic Zone set-up under the Special Economic Zones Act, 2005 (28 of 2005) read with the Special Economic Zones Rules, 2006 (herein after referred to as “Specified IFSC Public Company”), namely:-

Serial Number
Provisions of the Companies Act, 2013 (18 of 2013)
Exceptions/Modifications/Adaptations
(1)
(2)
(3)
1.
Clause (41) of section 2
In Clause (41), after the second proviso, the following proviso shall be inserted, namely :-
“Provided also that in case of a Specified IFSC public company, which is a subsidiary of a foreign company, the financial year of the subsidiary may be same as the financial year of its holding company and approval of the Tribunal shall not be required.”.
2.
Sub-clause (viii) of clause (76) of section 2
Shall not apply with respect to section 188.
3.
Sub-section (2) of section 3
In sub-section (2), the following proviso shall be inserted, namely:-
“Provided that a Specified IFSC public company shall be formed only as a company limited by shares.”.
4.
Clause (a) of subsection (1) of section 4
In clause (a) of sub-section (1), after the proviso, the following proviso shall be inserted, namely:-
“Provided further that a Specified IFSC public company shall have the suffix “International Financial Service Company” or “IFSC” as part of its name.”.
5.
Clause (c) of subsection (1) of section 4
In clause (c) of sub-section (1) of section 4, the following proviso shall be inserted, namely:-
“Provided that a Specified IFSC public company shall state its objects to do financial services activities, as permitted under the Special Economic Zones Act, 2005 (28 of 2005) read with the Special Economic Zones Rules, 2006 and any matter considered necessary in furtherance thereof, in accordance with license to operate, from International Financial Services Centre located in an approved multi services Special Economic Zone, granted by the Reserve Bank of India or the Securities and Exchange Board of India or the Insurance Regulatory and Development Authority of India.”.
6.
Sub-section (1) of section 12
In sub-section (1), the following proviso shall be inserted, namely:-
“Provided that a Specified IFSC public company shall have its registered office at the International Financial Services Centre located in the approved multi services Special Economic Zone set-up under the Special Economic Zones Act, 2005 read with the Special Economic Zones Rules, 2006, where it is licensed to operate, at all times.”.
7.
Sub-section (2) of section 12
For the words “thirty days” read as “sixty days”.
8.
Sub-section (4) of section 12
For the words “fifteen days” read as “sixty days”.
9.
Sub-section (5) of section 12
For sub-section (5), the following sub-section shall be substituted, namely:-
“(5) Except on the authority of a resolution passed by the Board of Directors, the registered office of the Specified IFSC public company shall not be changed from one place to another within the International Financial Services Centre:
Provided that the Specified IFSC public company shall not change the place of its registered office to any other place outside the said International Financial Services Centre.”.
10.
Section 21
For the words “an officer” read as “an officer or any other person”.
11.
Sub-sections (3) and (7) of section 42
Shall not apply.
12.
Sub-section (6) of section 42
For the words “sixty days” read as “ninety days”.
13.
Section 43
Shall not apply to a Specified IFSC public company, where memorandum of association or articles of association of such company provides for it.
14.
Section 47
Shall not apply to a Specified IFSC public company, where memorandum of association or articles of association of such company provides for it.
15.
Clause (c) of subsection (1) of section 54
Shall not apply.
16.
Sub-section (4) of section 56
In sub-section (4), after the proviso, the following proviso shall be inserted, namely:-
“Provided further that a Specified IFSC public company shall deliver the certificates of all securities to subscribers after incorporation, allotment, transfer or transmission within a period of sixty days.”.
17.
Clause (a) of subsection (1) of section 62
In clause (a) of sub-section (1), the following proviso shall be inserted, namely:-
“Provided that notwithstanding anything contained in sub-clause (i), in case of a Specified IFSC public company, the periods lesser than those specified in the said sub-clause shall apply if ninety per cent. of the members have given their consent in writing or in electronic mode.”.
18.
Clause (b) of subsection (1) of section 62
For the words “special resolution” read as “ordinary resolution”.
19.
Section 67
Shall not apply to a Specified IFSC public company-
(a) in whose share capital no other body corporate has invested any money;
(b) if the borrowings of such company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and
(c) such a company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section.
20.
Clauses (a) to (e) of subsection (2) of section 73
Shall not apply to a Specified IFSC public company which accepts from its members, monies not exceeding one hundred per cent. of aggregate of the paid up share capital and free reserves, and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.
21.
Sub-section (1) of section 82
In sub-section (1), the following proviso shall be inserted, namely:-
“Provided that in case of a Specified IFSC public company, the Registrar may, on an application by the company, allow such registration to be made within a period of three hundred days of such creation on payment of such additional fees as may be prescribed.”.
22.
Sub-section (6) of section 89
For the words “thirty days” read as “sixty days”.
23.
Sub-section (3) of section 92
Shall not apply.
24.
Sub-section (1) of section 100
In sub-section (1), the following proviso shall be inserted, namely:-
“Provided that in case of a Specified IFSC public company, the Board may subject to the consent of all the shareholders, convene its extraordinary general meeting at any place within or outside India.”.
25.
Sections 101 to 107 and section 109
Shall apply in case of a Specified IFSC public company, unless otherwise specified in the articles of the company.
26.
Sub-section (1) of section 117
For the words “thirty days” read as “sixty days”.
27.
Clause (g) of sub-section (3) of section 117
Shall not apply.
28.
Sub-section (1) of section 118
In sub-section (1), the following proviso shall be inserted, namely:-
“Provided that in case of a Specified IFSC public company, the minutes of every meeting of its Board of Directors or of every committee of the Board, to be prepared and signed in the manner as may be prescribed under sub-section (1) at or before the next Board meeting or committee meeting, as the case may be and kept in the books kept for that purpose.”.
29.
Sub-section (10) of section 118
Shall not apply.
30.
Sub-section (3) of section 134
In sub-section (3), following proviso shall be inserted, namely:-
“Provided that in case of a Specified IFSC public company, if any information listed in this sub-section is provided in the financial statement, the company may not include such information in the report of the Board of Directors.”.
31.
Section 135
Shall not apply for a period of five years from the commencement of business of a Specified IFSC public company.
32.
Section 138
Shall apply if the articles of the company provides for the same.
33.
Fourth proviso to sub section (1) of section 139
For the words “ fifteen days” read as “ thirty days”.
34.
All provisos to subsection (2) of section 139
Shall not apply.
35.
Sub-section (1) of section 140
In sub-section (1) after the proviso, the following proviso shall be inserted, namely:-
“Provided further that in case of a Specified IFSC public company, where, within a period of sixty days from the date of submission of the application to the Central Government under this sub-section, no decision is communicated by the Central Government to the company, it would be deemed that the Central Government has approved the application and the company shall appoint new auditor at a general meeting convened within three months from the date of expiry of sixty days period.”.
36.
Second proviso to subsection (1) of section 149
Shall not apply.
37.
Sub- section (3) of section 149
In sub-section (3), the following proviso shall be inserted, namely:-
“Provided that this sub-section shall apply to a Specified IFSC public company in respect of financial years other than the first financial year from the date of its incorporation.”.
38.
Sub- sections (4) to (11), clause (i) of subsection (12) and sub-section (13) of section 149
Shall not apply.
39.
Sub-section (5) of section 152
For the words “thirty days” read as “sixty days”.
40.
Sub-sections (6) and (7) of section 152
Shall not apply.
41.
Section 160
Shall apply as per the articles framed by the company.
42.
Sub-section (3) of section 161
In sub-section (3), the following proviso shall be inserted, namely:-
“Provided that in case of a Specified IFSC public company, the Board may appoint, any person nominated by any institution or company or body corporate as a director in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government company.”.
43.
Section 162
Shall not apply.
44.
Proviso to sub-section (1) of section 168
For the word “shall” read as “may”.
45.
Sub-section (2) of section 170
For the words “thirty days” at both places read as “sixty days”.
46.
Sub-section (1) of section 173
In sub-section (1), after the proviso, the following proviso shall be inserted, namely:-
“Provided further that a Specified IFSC public company shall hold the first meeting of the Board of Directors within sixty days of its incorporation and thereafter hold atleast one meeting of the Board of Directors in each half of a calendar year.”.
47.
Sub-section (3) of section 174
Shall apply with the exception that interested director may participate in such meeting provided the disclosure of his interest is made by the concerned director either prior or at the meeting.
48.
Section 177
Shall not apply.
49.
Section 178
Shall not apply.
50.
Sub-section (3) of section 179
In sub-section (3), after the second proviso, the following proviso shall be inserted, namely:-
“Provided also that in case of a Specified IFSC public company, the Board can exercise powers by means of resolutions passed at the meetings of the Board or through resolutions passed by circulation.”.
51.
Section 180
Shall apply in case of a Specified IFSC public company, unless the articles of the company provides otherwise.
52.
Sub-section (2) of section 184
Shall apply with the exception that interested director may participate in such meeting provided the disclosure of his interest is made by the concerned director either prior or at the meeting.
53.
Sub-section (1) of section 185
In the Explanation, for clause (c), the following clause shall be substituted, namely:-
“(c) any private company of which any such director is a director or member in which director of the lending company do not have direct or indirect shareholding through themselves or through their relatives and a special resolution is passed to this effect;”.
54.
Sub-section (1) of section 186
Shall not apply.
55.
Sub-sections (2) and (3) of section 186
Shall not apply if a company passes a resolution either at meeting of the Board of Directors or by circulation.
56.
Sub-section (5) of section 186
In sub-section (5), after the proviso, the following proviso shall be inserted, namely:-
“Provided further that in case of a Specified IFSC public company, the Board can exercise powers under this sub-section by means of resolutions passed at meetings of the Board of Directors or through resolutions passed by circulation.”.
57.
Second proviso to subsection (1) of section 188
Shall not apply.
58.
Sub-section (4) of section 196
Shall not apply.
59.
Section 197
Shall not apply.

2. A copy of this notification has been laid in draft before both Houses of the Parliament as required by sub-section (2) of section 462 of the Companies Act, 2013 (18 of 2013).


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