Case BriefsHigh Courts

Himachal Pradesh High Court: The Division Bench of Narayana Swami, CJ and Jyotsna Rewal Dua, J., disposed of an appeal in the proceeding for shutting down/shifting of liquor vend from Gram Panchayat, Beri, to Gram Panchayat, Jangal, District Hamirpur.

The counsel for the petitioner, Ajay Sharma and Anandita Sharma, stated that the liquor vend was just 20-30 meters from ‘Shani dev temple’ and the Gram Sabha had passed a resolution requesting the authorities to shift the vend from Gram Panchayat Beri to Gram Panchayat Jangal.

The counsel for the defendants, Ajay Vaidya and Surinder Saklani, contended that the vend was allotted in accordance with the existing Excise Policy also the liquor vend confirms the distance requirement and the temple was not visited by the public at large thus it would not fall under the category of place of worship by public at large. In addition to that, the temple was built just around six months back whereas the liquor vend existed from a prior period than the temple. The period of operation of liquor vend was from 01-04-2019 to 31-03-2020. The liquor vend was already operational for the past eight months then.

The Court while disposing of the petition explained that only after the allotment of liquor vend in favor of respondent they were running the same w.e.f 1-4-2019 and said allotment was valid only till 31-3-2020, the said liquor vend could run till 31-3-2020. The Court also issued directions to the State Government to make conscious decisions in such matters. [Arun Thakur v. State of Himachal Pradesh, 2019 SCC OnLine HP 1923, decided on 15-11-2019]

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of RF Nariman, Surya Kant and V. Ramasubramanian, JJ has set aside the NCLAT order dated 04.07.2019 in the Essar Steel India insolvency case and has held,

“The NCLAT judgment which substitutes its wisdom for the commercial wisdom of the Committee of Creditors and which also directs the admission of a number of claims which was done by the resolution applicant, without prejudice to its right to appeal against the aforesaid judgment, must therefore be set aside.”

NCLAT had, in the impugned order, held that in a resolution plan there can be no difference between a financial creditor and an operational creditor in the matter of payment of dues, and that therefore, financial creditors and operational creditors deserve equal treatment under a resolution plan. Accordingly, the NCLAT has re-distributed the proceeds payable under the approved resolution plan as per the method of calculation adopted by it so that all financial creditors and operational creditors be paid 60.7% of their admitted claims.

The present appeals and writ petitions were an aftermath of this Court’s judgment dated 04.10.2018 in ArcelorMittal India Private Limited v. Satish Kumar Gupta, (2019) 2 SCC 1.

The Court also answered some important questions which have been elaborated as follows:

Role of Resolution Professional

Resolution professional is a person who is not only to manage the affairs of the corporate debtor as a going concern from the stage of admission of an application under Sections 7, 9 or 10 of the Code till a resolution plan is approved by the Adjudicating Authority, but is also a key person who is to appoint and convene meetings of the Committee of Creditors, so that they may decide upon resolution plans that are submitted in accordance with the detailed information given to resolution applicants by the resolution professional.

“Another very important function of the resolution professional is to collect, collate and finally admit claims of all creditors, which must then be examined for payment, in full or in part or not at all, by the resolution applicant and be finally negotiated and decided by the Committee of Creditors.”

Role of the prospective resolution applicant

The prospective resolution applicant has a right to receive complete information as to the corporate debtor, debts owed by it, and its activities as a going concern, prior to the admission of an application under section 7, 9 or 10 of the Code. For this purpose, it has a right to receive information contained in the information memorandum as well as the evaluation matrix mentioned in Regulation 36-B.

Role of Committee of Creditors

Since it is the commercial wisdom of the Committee of Creditors that is to decide on whether or not to rehabilitate the corporate debtor by means of acceptance of a particular resolution plan, the provisions of the Code and the Regulations outline in detail the importance of setting up of such Committee, and leaving decisions to be made by the requisite majority of the members of the aforesaid Committee in its discretion.

“The Committee of Creditors does not act in any fiduciary capacity to any group of creditors. On the contrary, it is to take a business decision based upon ground realities by a majority, which then binds all stakeholders, including dissentient creditors.”

The decisions relating to management of the corporate debtor cannot be taken without the prior approval of at least 66% of the votes of the Committee of Creditors.

Constitution of a sub-committee by the Committee of Creditors

Sub-committees cannot be constituted for:

  • Exercising of the Committee of Creditors’ powers on questions which have a vital bearing on the running of the business of the corporate debtor.
  • approving a resolution plan.

However, sub-committees can be appointed for the purpose of negotiating with resolution applicants, or for the purpose of performing other ministerial or administrative acts, provided such acts are in the ultimate analysis approved and ratified by the Committee of Creditors.

Jurisdiction of the Adjudicating Authority and the Appellate Tribunal

The Adjudicating Authority generally cannot interfere on merits with the commercial decision taken by the Committee of Creditors. However, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of.

If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal.

Secured and unsecured creditors; the equality principle

Financial creditors are in the business of lending money who are capital providers for companies, who in turn are able to purchase assets and provide a working capital to enable such companies to run their business operation. Whereas operational creditors are beneficiaries of amounts lent by financial creditors which are then used as working capital, and often get paid for goods and services provided by them to the corporate debtor, out of such working capital. Hence,

“If an “equality for all” approach recognising the rights of different classes of creditors as part of an insolvency resolution process is adopted, secured financial creditors will, in many cases, be incentivised to vote for liquidation rather than resolution, as they would have better rights if the corporate debtor was to be liquidated rather than a resolution plan being approved.”

This would defeat the entire objective of the Code which is to first ensure that resolution of distressed assets takes place and only if the same is not possible should liquidation follow.

Constitutional validity of Sections 4 and 6 of the Insolvency and Bankruptcy Code (Amendment) Act, 2019

Section 4

So far as Section 4 is concerned, it is clear that the original timelines under Section 12 of the Code in which a CIRP must be completed have now been extended to 330 days, which is 60 days more than 180 plus 90 days. The proviso to Section 12 reads:

“the corporate insolvency resolution process shall mandatorily be completed within a period of three hundred and thirty days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor.”

The Court, hence, while leaving the provision otherwise intact, struck down the word “mandatorily” as being manifestly arbitrary under Article 14 of the Constitution of India and as being an excessive and unreasonable restriction on the litigant’s right to carry on business under Article 19(1)(g) of the Constitution. The effect of this declaration is that ordinarily the time taken in relation to the corporate resolution process of the corporate debtor must be completed within the outer limit of 330 days from the insolvency commencement date, including extensions and the time taken in legal proceedings.

It was, however, explained that on the facts of a given case, if it can be shown to the Adjudicating Authority and/or Appellate Tribunal under the Code that only a short period is left for completion of the insolvency resolution process beyond 330 days, and that it would be in the interest of all stakeholders that the corporate debtor be put back on its feet instead of being sent into liquidation and that the time taken in legal proceedings is largely due to factors owing to which the fault cannot be ascribed to the litigants before the Adjudicating Authority and/or Appellate Tribunal, the delay or a large part thereof being attributable to the tardy process of the Adjudicating Authority and/or the Appellate Tribunal itself, it may be open in such cases for the Adjudicating Authority and/or Appellate Tribunal to extend time beyond 330 days.

Section 6

Section 30(2)(b) of the Code as substituted by Section 6 of the Amending Act is in fact a beneficial provision in favour of operational creditors and dissentient financial creditors as they are now to be paid a certain minimum amount, the minimum in the case of operational creditors being the higher of the two figures calculated under sub-clauses (i) and (ii) of clause (b), and the minimum in the case of dissentient financial creditor being a minimum amount that was not earlier payable. As a matter of fact, pre-amendment, secured financial creditors may cramdown unsecured financial creditors who are dissentient, the majority vote of 66% voting to give them nothing or next to nothing for their dues. In the earlier regime it may have been possible to have done this but after the amendment such financial creditors are now to be paid the minimum amount mentioned in sub-section (2).

It was also noticed that the discretion given to the Committee of Creditors by the word “may” again makes it clear that this is only a guideline which is set out by this sub-section which may be applied by the Committee of Creditors in arriving at a business decision as to acceptance or rejection of a resolution plan.

[Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, 2019 SCC OnLine SC 1478, decided on 15.11.2019]

Experts CornerGaurav Pingle and Associates

The approval of Board of Directors and modes of obtaining such approval is one of the most critical aspects of corporate compliance management. The Companies Act, 2013 (“the Act”) provides for certain decisions to be taken by the Board of Directors in its meeting. The Act also provides for passing of resolution by circulation by the Board of Directors of the company.

According to Section 179 of the Act, the Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do. However, in exercising such power or doing such act or thing, the Board of Directors shall be subject to the provisions contained in that behalf in the Act, or in the memorandum of association or articles of association, including regulations made by the company in general meeting. Sub-section (3) of Section 179 of the Act provides for certain transactions or resolutions, wherein the Board of Directors of a company shall exercise by means of resolutions passed at Board meetings.

Section 175 of the Act relates to “passing of resolution by circulation”. This article analyses the provisions of Section 175 of the Act and provides for compliance checklist for passing of resolution by circulation. Necessary references are made to the secretarial standards issued by the Institute of Company Secretaries of India (ICSI).

  1. Meaning of “Circular Resolution”.—It is an alternative method of obtaining the approval of the Board of Directors. Section 175 of the Act creates an exception to the general rule that the Board of Directors of the company shall exercise their powers collectively by means of resolution passed at its meeting.
  2. Certain Resolutions that Cannot be Passed by Circulation.—Sub-section (3) of Section 179 of the Act and Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014 provides for certain transactions or resolutions, wherein the Board of Directors shall exercise by means of resolutions passed in its meetings. Such transactions/resolutions are: (a) to make calls on shareholders in respect of money unpaid on their shares; (b) to authorise buy-back of securities; (c) to issue securities, including debentures, whether in or outside India; (d) to borrow monies; (e) to invest the funds of the company; (f) to grant loans or give guarantee or provide security in respect of loans; (g) to approve financial statement and the Board’s report; (h) to diversify the business of the company; (i) to approve amalgamation, merger or reconstruction; (j) to take over a company or acquire a controlling or substantial stake in another company; (k) to make political contributions; (l) to appoint or remove key managerial personnel; and (m) to appoint internal auditors and secretarial auditor. For companies incorporated under Section 8 of the Act, the board of directors may decide the following matters by circular resolution (instead of meeting): (a) to borrow monies; (b) to invest the funds of the company; (c) to grant loans or give guarantee or provide security in respect of loans. [MCA Notiifcation No. GSR 466 (E)] dated June 5, 2015].
  3. Resolutions that can be Passed by Circulation.—Any resolution other than the abovementioned resolutions can be passed by circulation by Board of Directors. The Act has not prescribed for list of transactions that can be approved by passing a circular resolution. However, the Company Secretary or Chairman of the company shall ensure the nature of resolution before proposing before the Board of Directors or Committee.
  4. Applicability.—The Board of Directors or any committee (e.g. Audit Committee, Nomination and Remuneration Committee, Corporate Social Responsibility Committee, etc.) can pass a resolution by circulation.
  5. Decision to Pass a Resolution by Circular or Not.—According to the Secretarial Standard 1, the Chairman of the Board or in his absence, Managing Director or in their absence, any director other than an interested director, shall decide whether the approval of the Board for a particular business shall be obtained by means of a resolution by circulation.
  6. Explanation of Business by Note.—According to the Secretarial Standard 1, each business proposed to be passed by way of resolution by circulation shall be explained by a note setting out the details of the proposal, relevant material facts that enable the directors to understand the meaning, scope and implications of the proposal, nature of concern or interest, if any, of any director in the proposal, which the director had earlier disclosed and the draft of the resolution proposed. The note shall also indicate how a director shall signify assent or dissent to the resolution proposed and the date by which the director shall respond.
  7. Serial Numbering of Circular Resolution.—Secretarial Standard 1 mandates serial numbering of every circular resolution.
  8. Modes of Sending Necessary Documents.—The draft resolution together with necessary papers, if any, to all the directors, or members of the committee, as the case may be, shall be sent at their addresses registered with the company. The said documents can be sent by hand delivery or by post or by courier, or through such electronic means as may be prescribed [Section 175(1) of the Act]. A resolution in draft form may be circulated to the directors together with the necessary papers for seeking their approval, by electronic means which may include e-mail or fax [Rule 5 of the Companies (Meetings of Board and its Powers) Rules, 2014].
  9. Time-Limit for Approval.—The Act has not prescribed the time-limit for providing the approval of directors or committee members. However, according to the secretarial standards, not more than 7 days from the date of circulation of the draft of the resolution shall be given to the directors to respond. Additional 2 days may be provided, where the resolution and documents have been sent by the company by speed post or by registered post or by courier. However, in certain cases, the articles of association of the company may provide for such time-limits.
  10. Approval.—The?circular resolution shall be approved by a majority of the directors or committee members, who are entitled to vote on the resolution. After the time-limit is over, it is desirable that the outcome of resolution is communicated to the directors (i.e. whether the resolution is passed or not).
  11. Voting by Interested Director.— Section 175 of the Act does not provide for any reference to a situation wherein a director is interested in a circular resolution. However, according to the Secretarial Standard 1, an interested director shall not be entitled to vote on such resolutions.
  12. Recording the Resolution in Minutes of Meeting.—Where a resolution is passed by circulation, the same shall be noted in the minutes of the subsequent meeting of the Board of Directors. As a good corporate secretarial practice, it is desirable that following points are included in the minutes of the meeting: (i) date of circulation of draft resolution and papers; (ii) cut-off date for receiving the decision of directors; (iii) names of directors giving assent/dissent or abstain from voting; (iv) names of directors, if interested in the resolution; and (v) decision –whether the resolution is passed or not.
  13. Validity of Resolution by Circulation.—According to the secretarial standards, the passing of resolution by circulation shall be considered valid as if it had been passed at duly convened meeting of the Board of Directors. However, the said compliance shall not dispense with the requirement for the Board to meet at the specified frequency as prescribed under Section 173 of the Act.
  14. Discussion at Meeting, in Exceptional Cases.—In certain cases, where not less than one-third of the total number of directors of the company for the time-being require that any resolution under circulation must be decided at a meeting, the Chairperson shall put the resolution to be decided at a meeting of the Board. As a good corporate secretarial practice, such decision taken by the directors is noted in the minutes of the subsequent board meeting.
  15. Maintenance of Certain Documents.—The Company Secretary or the Chairman may maintain records of communication received from directors of company (i.e. with respect to assent/dissent or abstain from voting).

Generally, important matters are discussed at the meetings of Board of Directors and accordingly resolutions are passed. A resolution by circulation is passed when such approval is urgent in nature and cannot be kept on hold for passing such resolution in the ensuing Board meeting. Sometimes such matters are discussed in the earlier Board meetings but a resolution to that effect is not passed. Such decisions may include extension of lease agreement, opening bank account, changing signatories of the bank account, appointing consultants, etc. The passing of circular resolution and maintenance of corporate secretarial documents in relation to the resolution is important from the perspective of secretarial audit process, statutory audit process, internal audit process and issuance of certificate by practising Company Secretary under Section 92(2) of the Act.


*Gaurav N Pingle, Practising Company Secretary, Pune. He can be reached at gp@csgauravpingle.com.

Hot Off The PressNews

The Security Council called upon Member States to step up efforts to combat and criminalize the financing of terrorists and their activities, adopting a resolution on the issue before holding a day-long open debate that placed the spotlight on international cooperation, capacity-building and respect for international law.

Unanimously adopting resolution 2462 (2019) under Chapter VII of the United Nations Charter, the Council reaffirmed its resolution 1373 (2001) — adopted in the wake of the 11 September 2001 attacks in the United States — which requires all States to prevent and suppress the financing of terrorist acts and to refrain from providing support to those involved in them.

It demands that Member States ensure that their counter-terrorism measures are in compliance with their obligations under international law, including international humanitarian law, international human rights law and international refugee law.  The resolution also calls upon Member States to conduct financial investigations into terrorism-related cases and to more effectively investigate and prosecute cases of terrorist financing, applying criminal sanctions as appropriate.

India’s representative said that, while many Council resolutions call for regular reporting on the implementation of sanctions, a cursory look at publicly available information reveals that implementation reports have not been updated for more than a decade.  No effective action has been taken on reported instances of non-compliance with sanctions measures, he added, emphasizing that the Council must do a better job of overseeing implementation of its resolutions.  Terrorists will be ever more creative in finding ways to violate the rulebook and States that support them will continue to justify their inaction, as was done by a serial offender earlier today, he pointed out.

[For the detailed document of the above stated, please refer the link: Document]

United Nations

Appointments & TransfersNews

Proposal for appointment of following six Additional Judges of the Madras High Court, as Permanent Judges of that High Court:

1. Mrs Justice V. Bhavani Subbaroyan
2. Mr Justice A.D. Jagadish Chandira
3. Mr Justice G.R. Swaminathan
4. Mr Justice Abdul Quddhose
5. Mr Justice M. Dhandapani and
6. Mr Justice P.D. Audikesavalu

The Committee constituted in terms of the Resolution dated 26th October, 2017 of the Supreme Court Collegium to assess the Judgments of the above-named recommendees, has submitted its report.

In view of the above, the Collegium comprising of Ranjan Gogoi, CJ and S.A. Bobde and N.V. Ramana, JJ.,  resolved to recommend that (1) Mrs. Justice V. Bhavani Subbaroyan, Mr. Justices (2) A.D. Jagadish Chandira, (3) G.R. Swaminathan, (4) Abdul Quddhose, (5) M. Dhandapani, and (6) P.D. Audikesavalu, Additional Judges, be appointed as Permanent Judges of the Madras High Court.

Collegium Resolutions

[Dated: 11-03-2019]

Supreme Court of India

Case BriefsHigh Courts

Kerala High Court: A Single Judge Bench comprising of Raja Vijayaraghavan V, J. invoked its extraordinary powers under Section 482 of the Code of Criminal Procedure, 1973 and quashed criminal proceedings pending against the petitioners in view of resolution of dispute between the warring parties.

The petitioners herein were accused of committing offences punishable under Section 420 of the Indian Penal Code, 1860. Since the disputes between parties to the case had been amicably resolved, the instant petition was filed praying for quashing of proceedings pending against petitioners. It was urged on behalf of the petitioners that the dispute was purely personal in nature and would not affect public peace or tranquility; and the respondents stated that they had no subsisting grievance.

The Court took note of Apex Court’s rulings in Gian Singh v. State of Punjab, (2012) 10 SCC 303 and Narinder Singh v. State of Punjab, (2014) 6 SCC 466 where it had been laid down that in appropriate cases, the High Court can take note of amicable resolution of disputes between the victim and wrongdoer to put an end to the criminal proceedings.

It was observed that the offence committed by petitioners was not grave or serious having ingredients of extreme mental depravity. It appeared that the offence would not have a serious impact on society. Persisting with the prosecution would be nothing but a waste of time as the prospects of conviction were bleak; while on the other hand quashing of proceedings on account of compromise would bring about peace and secure the ends of justice. In view thereof, the petition was allowed.[Narayanan Nair v. Station House Officer, 2018 SCC OnLine Ker 5067, Order dated 28-11-2018]

Case BriefsSupreme Court

Supreme Court: Dismissing the petition filed by former Supreme Court judge Markandey Katju against the resolutions passed by Rajya Sabha and Lok Sabha condemning the statements made by him in Facebook posts where he termed Mahatma Gandhi a British Agent and Netaji Subhash Chandra Bose an agent of Japanese fascism, the Court said that for the free functioning of Houses of Parliament or Legislatures of State, the representatives of people must be free to discuss and debate any issues or questions concerning general public interest. It is entirely left to the discretion of the Presiding Officer to permit discussion so long as it is within the confines of Rules of Procedure.

The Court explained that as far as debates or discussion in the Houses of Parliament are concerned, the only substantive restriction found in the Constitution is in Article 121 of the Constitution which specifically mandates that no discussion shall take place in Parliament in respect of the conduct of any Judge of the Supreme Court or of a High Court in the discharge of his duties. Barring such provision under Article 121, the Constitution has placed no restriction on what can be debated or discussed in Parliament. It is completely left to the wisdom or discretion of the individual Houses and the presiding authorities in terms of the Rules of Procedure of each House.

The 3-judge bench of T.S. Thakur, CJ and R. Banumathi and U.U. Lalit, JJ noticed that both the resolutions made reference to the offices held by the petitioner as a Judge of this Court and Chairman of the Press Council and show that both Houses were conscious of the fact that the remarks about Mahatma Gandhi and Netaji Subhash Chandra Bose were made not by an ordinary person but by one who had occupied high public office. Hence, if both Houses thought it fit to pass resolutions in the form of a declaration, it was certainly within their competence to do so as the nature of remarks regarding Mahatma Gandhi and Netaji Subhash Chandra Bose pertain to general public interest. It was further noticed that the resolutions had no civil consequences in so far as the conduct and character of the petitioner is concerned. [Justice (Retd.) Markandey Katju v. The Lok Sabha, 2016 SCC OnLine SC 1484, decided on 15.12.2016]