Posted by:Arunima Bhattacharya
Various new provisions and amendments have been brought up under the new Companies Act, 2013 and the amendments brought in clarified and concentrated older provisions of the 1956 Act as well as removed restrictions so as to increase the ease of doing business.
As such the term ‘creditor’ has not been defined under the Companies Act, 2013 however, the Supreme Court in Jitendra Nath Singh vs. Official Liquidator and Others (2013) 1 SCC 462 referred to the Insolvency Act for the definitions of ‘creditor’ and ‘secure creditor’ since the Companies Act has not defined a these terms. As per Section 2(1) (a) of the Insolvency Act, the term “creditor” includes a decree-holder, term “debt” includes a judgment-debt, and “debtor” includes a judgment-debtor. Under Section 2(1) (e) of the Act, “secured creditor” is defined as a person who holds a mortgage, charge or lien on the property of the debtor as a security for a debt due to him from the debtor.
By reading of the terms carefully, it was decided by the Court that creditor’s definition is inclusive, whereas the definition of ‘secured creditor’ under Section 2(1)(e) of the Insolvency Act is an exhaustive definition. A conclusion of this observation would be that the expression ‘secured creditor’ in Section 529(1)(c) of the Companies Act, 1956 would mean a person holding a mortgage, charge or lien on the property of the company as a security for a debt due to him from the company, and otherwise he will not be a ‘secured creditor’ according to the section 529 and 529A of the Companies Act.
Now, coming to the provisions regarding the creditors’ rights and duties as per the provisions of the Companies Act, 2013, the Ministry of Corporate Affairs (MCA) vide notifications released on 7th December 2016 wherein it declared certain sections of the Companies Act, 2013 that were to come into force from 15th December 2016 onwards and these sections, among other things, dealt with reduction of capital and variation of shareholders’ right, compromises, arrangements and amalgamations as well as certain winding up sections. The relevant sections have been discussed henceforth.
According to section 66 of The Companies Act (2013) pertaining to the reduction of capital and variation of shareholders’ right, in sub-section 2 states that ‘the Tribunal must give notice of every application made to the Central Government, Registrar, the Securities and Exchange Board (SEBI). Following this application, the company’s creditors have to take into consideration the representations, if any, made to it by that Government, Registrar, SEBI and the creditors within a time period of three months from the date the notice was received.
Section 230 of the Act, which deals with the power of the NCLT to compromise and make arrangements with creditors and members, also brought in a new aspect as per which, the Tribunal can dispense with the calling of meeting of creditors where such creditors having at least ninety per cent value, agree and confirm by submitting an affidavit, to a scheme of compromise or arrangement between a company and its creditors, under sub-section 9.
Section 306 of the Companies Act 2013 deals with ‘meeting of creditors’, when a company is voluntarily winding up. A company has to call a meeting of its members at which the resolution for the voluntary winding up is to be proposed. This section lays down that the company has to cause a notice of meeting of its creditors on the same day or the next day of this meeting and a notice of this meeting is to be sent by registered post to the creditors with the notice of the meeting of the company under section 304. (Section 304 deals with the circumstances in which company may be wound up voluntarily). As per section 306 of the Act, the Board of Directors has to present a full statement of the position of affairs of the company together with a list of creditors of the company (if any exist), a copy of declaration under section 305 (declaration of solvency of proposal to wind up voluntarily) and along with this the estimated amount of the claims before such meeting. Further, the Board has to appoint one of the directors to preside at the meeting.
If two-thirds in value of creditors of the company are of the opinion that the voluntary winding up of the company is in the interest of all parties, then the company is wound up. If the creditors feel that the company will be unable to pay for its debts in full from the proceeds of assets sold, then they may pass a resolution that is in the interest of all parties if the company is wound up by the Tribunal in accordance with the provisions of Part I of the Chapter ‘Winding up by the Tribunal’ of the Act. In this case, the company should thereafter file an application before the tribunal within fourteen days.
If any resolution is passed at the meeting of creditors in pursuance of this section, the notice for this shall be given by the company to the Registrar within ten days of the passing thereof. If any company acts against the provision of this section, it can be punished with fine not less than fifty thousand which may extend to two lakh rupees and the defaulting director of the company is liable to be punished with imprisonment for a term extending to six months or with fine not less than fifty thousand rupees which may extend to two lakh rupees, or even both.