Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2023
- The Ministry of Corporate Affairs (MCA) vide Notification dated May 15, 2023 revised the procedure governing the issuance of notice of a scheme of merger or amalgamation calling for objections or suggestions from the Registrar of Companies (RoC) or Official Liquidator and the subsequent confirmation or otherwise of the scheme.
- The said Notification substitutes sub-Rules (5) & (6) of Rule 25 from the earlier Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 issued on December 14, 2016 vide which the procedure for issuing the notice as required under Section 233 (1)(a) of the Companies Act, 2013 was prescribed.
- Sub-Rule (5), which provides the procedure in cases where no objection or suggestion is received from the RoC or the Official Liquidator, has now been amended to stipulate the maximum time limit of 30 days for receiving the suggestions. After this period of 30 days lapses, the Central Government can, within 15 days from the lapse of 30 days, issue a confirmation order for the scheme if it is of the opinion that the scheme is in public interest.
- Sub-Rule (6), which provides the procedure in cases where objections or suggestions are received within the now stipulated timeline of 30 days has been amended to include, in addition to the case where the Central Government is of the opinion that the scheme is not in public interests or in the interest of creditors, the possibility that the Central Government concludes that the objections or suggestions are not sustainable and the scheme is in public interests or in the interest of creditors.
- The Amended sub-Rule (6) provides that in the former case, the Central Government may file an application before the National Company Law Tribunal (NCLT) stating the objections and requesting that the NCLT consider the scheme under Section 232 of The Companies Act, 2013. In the latter case, however, the Central Government is empowered to issue a confirmation order of the scheme within 30 days from the lapse of the abovementioned 30 days period.
- The Amendment further provides that in cases of both the sub-Rules, if the Central Government fails to act within the 60 days period, it shall be deemed that it has no objection to the scheme and a confirmation order is issued accordingly.
M Suresh Kumar Reddy v. Canara Bank
Supreme Court of India | Judgment dated May 11, 2023 | Civil Appeal No. 7121 of 2022
- A Petition was filed by Canara Bank (Respondent or Financial Creditor) against Kranthi Edifice Pvt Ltd (Corporate Debtor) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal (NCLT) for initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.
- On June 27, 2022 the NCLT admitted the Petition and initiated CIRP proceedings against the Corporate Debtor. M Suresh Kumar Reddy, the suspended director of the Corporate Debtor, appealed against the said order before the National Company Law Appellate Tribunal (NCLAT), which was dismissed on August 05, 2022.
- Subsequently, the Appellant filed an Appeal before the Supreme Court contending that based on the decision of the Supreme Court in Vidarbha Industries Power Ltd v. Axis Bank Ltd1 , the NCLT was under no obligation to admit the Petition under Section 7 of the IBC even if financial debt and default on the part of the Corporate Debtor were established.
Issue at hand?
- Whether the NCLT has the jurisdiction to refuse to admit an application under Section 7 of IBC despite the establishment of financial debt and default?
Decision of the Court
- The Supreme Court, relying on Innoventive Industries Ltd v. ICICI Bank & Anr2 , held that the CIRP proceedings under Section 7 of IBC are triggered where the existence of default is established in respect of the financial debt owed to any Financial Creditor, and not just the applicant Financial Creditor. The NCLT must admit the Petition the moment it is satisfied that a default in payment of financial debt has occurred. The Apex Court clarified that a Section 7 Petition can be rejected only if the debt has not become due and payable.
- Further, while placing reliance on ES Krishnamurthy & Ors v Bharath HiTecch Builders Pvt Ltd3 which followed Innoventive Industries, the Court held that once the NCLT is satisfied that a default has occurred, it is hardly left with any discretion to refuse the admission of the application under Section 7 of IBC. Thus, even the non-payment of a part of debt when it becomes due and payable will amount to default. The only available ground for rejection of an application under Section 7 of the IBC is when the NCLT finds that there is debt but the same has not become due and payable.
- The Supreme Court further pointed out that it was clarified in the order in review that the decision in Vidarbha Industries Power Ltd v. Axis Bank Ltd was in the facts of that particular case and the same cannot be read as a taking a contrary view to Innoventive Industries and ES Krishnamurthy.
- In view of the above, the Supreme Court dismissed the Appeal to hold that the Corporate Debtor had committed default due to non-payment of dues to the Respondent Bank.
1. Civil Appeal No. 4633 of 2021
2. Civil Appeal Nos. 8337-8338 of 2017
3. Civil Appeal No. 3325 of 2020
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