Resolution Profession obligated to include delayed claims of homebuyers included in Memorandum of Information

Resolution Profession obligated to include delayed claims of homebuyers included in Memorandum of Information 

The Hon’ble National Company Law Appellate Tribunal in Puneet Kaur v. KV Developers 2022 SCC OnLine NCLAT 245 adjudicated on the issue whether Resolution Professional should have included the details of Homebuyers as reflected in the records of the Corporate Debtor in the Information Memorandum even though there was a delay in filing of claims before the Resolution Professional by homebuyers

Brief Facts

In pursuance of an ongoing insolvency resolution initiated by a corporate creditor (LIC Housing Finance) against K V Developers, and in subsequence of public notice of the CIRP, belated claims were filed by homebuyers to acquire inclusion within the resolution plan, but at that point in time resolution plan was approved by the CoC, upon dispute the adjudicating authority ordered the claims of the homebuyers being 8 months late, and the resolution plan already being approved by the CoC, though not by the adjudicating authority, as being extinguished. Appeal was preferred by the homebuyers, collectively heard by the tribunal.

Issues

Issue 1 – Whether approval of resolution plan extinguishes late claims of creditors?

Issue 2 – Whether there exists an obligation upon the Resolution Professional to include details of homebuyers in the Information Memorandum, given that no claim is filed by the homebuyers but information of such debt upon debtor by the homebuyers exist with the corporate debtor and consequently the Resolution Professional.

Held

Citing SC in Ghanshyam Mishra & Sons v. Edelweiss Asset Reconstruction, the tribunal held that as long as the resolution plan is not approved by the adjudicating authority, no claims stand extinguished, it is for the Adjudicating Authority to decide, but if the claim is made after the approval of resolution plan by the adjudicating authority, then such claim stands extinguished.

While reiterating the purpose of CIRP, the tribunal remarked that there is no reason for the names of homebuyers to be omitted from the Information Memorandum as creditors given that records of such debt are available with the corporate debtor. Furthermore, regulation 36 of IBBI obligates the resolution professional to include the relevant details of all assets and liabilities of the corporate debtor in the Information Memorandum.

Concluding Remarks of the Tribunal

Non-consideration of such late claims of homebuyers arising out of the fact that they had little chance of knowing about the insolvent debtor at a initial stage would amount to an inequitable and unfair resolution against the spirit of law.

This Article has been Compiled by Ayushi Misra (Senior Associate) and Arun Gupta (Partner). 

  You can direct your queries or comments to the author at info@factumlegal.com

  Disclaimer-

  The contents of this article should not be construed as legal opinion. This article is             intended to provide a general guide to the subject matter. Specialist advice should be     sought about your specific circumstances. We expressly disclaim any financial or other   responsibility arising due to any action taken by any person on the basis of this article.

 

  Scale Based Regulation (SBR): A Revised Regulatory Framework for NBFCs

The Reserve Bank had issued the Scale Based Regulation (SBR): A Revised Regulatory Framework for NBFCs (the framework) vide its Notification No. RBI/2021-22/112 DOR.CRE.REC.No.60/03.10.001/2021-22 on 22nd October, 2021. 

Please find below our full PPT:-

This Article has been Compiled by Ayushi Misra (Senior Associate) and Arun Gupta (Partner). 

  You can direct your queries or comments to the author at info@factumlegal.com

  Disclaimer-

  The contents of this article should not be construed as legal opinion. This article is             intended to provide a general guide to the subject matter. Specialist advice should be     sought about your specific circumstances. We expressly disclaim any financial or other   responsibility arising due to any action taken by any person on the basis of this article.

 

Liability of Company Secretary in case of authentication of documents: Securities Appellate Tribunal

 

Liability of Company Secretary in case of authentication of documents: Securities Appellate Tribunal

The Securities Appellate Tribunal Mumbai in V. Shankar vs. Securities and Exchange Board of India Appeal No. 283 of 2022 analysed the role and liability of a Company Secretary in case of any violation of legal provisions by a Company. 

Facts

SEBI investigated Deccan Chronicle Holdings Ltd., in order to ascertain whether the promoters of the company and its directors had made any fraudulent pledging of the shares of the company and whether the adequate disclosures had been made in accordance with the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SAST Regulations” for convenience) during the period October 2011 to December 2012. The investigation revealed several irregularities committed by the company which led to the issuance of the show cause notice. 

The Adjudicating Authority (“AO”) concluded that the company alongwith its directors and promoters had violated the provisions of Section 68 and 77A of the Companies Act, 1956 read with Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (“PFUTP Regulations” for convenience) and Section 12A of the SEBI Act.

The AO held that since the appellant was responsible as the Company Secretary of the company for signing the public announcement made by the company on May 06, 2011 for the buyback of its equity shares, the appellant is equally liable for violation of Section 68 and 77A of the Companies Act, 1956 read with Regulations 3 and 4 of the PFUTP Regulations and Section 12A of the SEBI Act along with the company and its directors

Issue

Whether the appellant who was the Company Secretary had induced others knowingly or recklessly by signing the public announcement or had committed a default under Section 77A and therefore was liable for the penalty imposed by the AO.

Held

The Tribunal referred to Section 68 and 77A of the Companies Act, 1956 along with Section 215 of the Companies Act, 1956 and held that the finding of AO is perverse. The Tribunal stated that once the offer document and the balance sheet is approved by the Board of Directors the Company Secretary, as part of his duty and responsibility, is only to authenticate the contents indicated in the balance sheet or in the offer document and is not required to go into the veracity of the buyback offer document and its legal compliances before authenticating such document. 

The Tribunal further held that the company is run and managed by its Board of Directors and the appellant as a Company Secretary had no role to play except to comply with the resolution made by the Board of Directors. A specific finding must be given that the Company Secretary was himself responsible for compliances under Section 77A. 

While analysing the Regulation 19 of the SEBI (Buyback of Securities) Regulations, 1998, the Tribunal held that the appellant, being a Company Secretary was also a Compliance Officer and thus the role of the Compliance Officer is only limited to redress the grievance to the investors.

In view of the aforesaid, the impugned order was quashed in so far as the appellant was concerned.

This Article has been Compiled by Ayushi Misra (Senior Associate) and Arun Gupta (Partner). 

  You can direct your queries or comments to the author at info@factumlegal.com

  Disclaimer-

  The contents of this article should not be construed as legal opinion. This article is             intended to provide a general guide to the subject matter. Specialist advice should be     sought about your specific circumstances. We expressly disclaim any financial or other   responsibility arising due to any action taken by any person on the basis of this article.

New ODI Regime-Master Series (Part V)

 

Overseas Investments – New India

In a bid to enhance the ease of doing business, India's finance ministry on 22^nd August, 2022 notified rules and the Reserve Bank of India brought in revamped regulations for overseas investment by Indian entities.

Overseas investments by a person resident in India shall be governed by the Foreign Exchange Management (Overseas Investment) Rules, 2022 and the Foreign Exchange Management (Overseas Investment) Regulations, 2022.

The new mechanism simplifies the existing structure for overseas investment by persons resident in India by widening the umbrella of approved economic activities and significantly reducing specific approvals requirements. The core to these Rules & Regulations are three distinct definitions of Overseas Direct Investment (ODI), Overseas Investment(OI) and Overseas Portfolio Investment(OPI).

We at Factum Legal have endeavored to bring to you a short series on new ODI Rules and Regulations. The series shall be in seven chapters, covering:

i.          Key Points of the Foreign Exchange Management (Overseas Investment) Rules, 2022.

ii.        Key points of the Foreign Exchange Management (Overseas Investment) Regulations, 2022.

iii.        ODI by Indian Entity under new regime.

iv.        OPI by Indian Entity under new regime.

v.         OI by Resident Individual under new regime.

vi.       OI person resident in India other than Indian entity and Resident Individual under new regime.

vii.      OI in IFSC by person resident in India under new regime.

We have previously covered the Rules and Regulations. We now present to you our Fifth chapter:

 

This Article has been Compiled by Divyansh Jaiswal (Senior Associate) and Arun Gupta (Partner). 

  You can direct your queries or comments to the author at info@factumlegal.com

  Disclaimer-

  The contents of this article should not be construed as legal opinion. This article is             intended to provide a general guide to the subject matter. Specialist advice should be     sought about your specific circumstances. We expressly disclaim any financial or other   responsibility arising due to any action taken by any person on the basis of this article.