The Tribunal, so as to as certain whether it is possible to revive and rehabilitate of the interim administrator of  the sick company, shall within 7 days from the date of receipt of the application under Section 254 of the 2013 Act-

  • Fix a date of hearing, which shall not be later than 90 days from the date of receipt of the application under section 254 of the 2013 Act. The 2013 Act does not provide for any extension in the date of hearing;
  • Appoints an interim administrator; and
  • Issue directions to the interim administrator as may be necessary for protection and preservation of the assets of the sick company and for its proper management.

Interim administrator and his functions

interim

The interim administrator is appointed by the Tribunal under Section 256(1) of the 2013 Act. Manner of selection of the interim administrator and the terms and conditions of appointment of the interim administrator have been provided under section 259 of the 2013 Act.

Implication of interim

The expression interim implies temporary or in the meantime, The interim administrator is appointed for the interim period after the reference under section 254 of the 2013 Act is filed and before the appointment of company administrator who undertakes the function of formulation of the scheme of revival, getting the same approved and sanctioned and implementation thereof once it is determined that it is possible to revive the sick company.

Mandatory appointment

Use of shall indicates that the appointment of interim administrator is mandatory. The Draft Rules too use similar language thereby mandating appointment of the interim administrator.The order appointing the interim administrator shall be made in form H.

Notice of appointment

The 2013 Act does not require publication of notice of appointment of the interim administrator. However, the Draft Rules stipulate that the Tribunal shall direct the interim administrator to cause publication of the notice in a vernacular newspaper in vernacular language of the district in which the registered office of the company is situate, and in an English newspaper in English language; both newspapers circulating in the district where the registered office of the company is situate. Such notice shall be published in “Form 1” within 7 days from the date of receipt of the certified copy of the order of the Tribunal appointing the interim administrator [as per the draft rules].

Convening meeting of creditors

The purpose of appointment of the interim administrator is to convene a meeting of creditors in accordance with the provisions of section 257 of the 2013 Act. The meeting of creditors is to be held within 45 days of the receipt of the order of the Tribunal appointing the interim administrator. The meeting of creditors is to be convened to consider whether it is possible to revive and rehabilitate the company and other matters as may be required to be considered in the meeting. The interim administrator has to submit his report to the Tribunal within 60 days of the order appointing him.

Consideration of possibility of revival

While considering whether it is possible to revive and rehabilitate the sick company, the creditors, in their meeting convened under section 257 of the 2013 Act, shall have to take into account the particulars and documents submitted with the application for determination of measures, the draft scheme filed (if any), and any other material available.

Submission of report

The interim administrator shall submit his report within 60 days from the date of the order appointing him.Draft Rules specify “Form J” as format of the report of the interim administrator. The contents of “Form J” are broadly in consonance with “Form G”prescribed for draft scheme for revival and rehabilitation. In addition,details of the meetings of the committee or creditors, changes (if any) made in the draft scheme of rival and rehabilitation shall be incorporated in the report, mentioning clearly whether it is possible to revival and rehabilitate the company.

Takeover of management of company

Provision to clause (b) of section 256(1) of the 2013 Act provides that in case the company does not file a draft scheme and instead a declaration is filed to that effect then the Tribunal may direct the interim administrator to take over the management of the company, The intent behind such provision is that where the management and the Board of Directors of the sick company could not come up with a scheme of rival and rehabilitation, it cannot be left to their responsibility to manage the company. The draft rules, however, contain a provision that is seemingly different from what has been provided under the 2013 Act. The Draft Rules provide that the Tribunal may direct the interim administrator to take over the management of the sick company “where the sick company did not submit a draft scheme of rival and rehabilitation within thirty days from the date on which meeting of creditors is held”. This implies the company shall be given time of 30 days from the date of the meeting of creditors for submitting a draft scheme of revival and rehabilitation; and the Tribunal may not order the interim administrator to take over the management of the company before such time lapses. In addition to the order for taking over the management of the company,the Tribunal shall direct the interim administrator to notify the sick company of the fact, and to cause a publication of a notice that the interim administrator has taken over the management of the company, as follows:

  • In a vernacular language in a vernacular newspaper circulating in the district in which the registered office of the company is situate, and in English Language in an English newspaper within 7 days of the receipt of certified copy of the order of the Tribunal.
  • Copy of the notice has to be displayed on the notice board of the registered office on the website of the company, if any,and at such other places where the business of the company is carried out.
  • The notice shall also be given to all the directors, bankers, income-tax authorities, Registrar of Companies having jurisdiction over the registered office of the company and all concerned with the affairs of the sick company.

The Draft Rules do not prescribe any specific format for the notice to be published. The specific insertion of the provision to 5 the clause (b) vesting powers on the Tribunal to direct takeover the management of the company, even before it is decided whether it is possible to revive the company or not, shall not be taken to restrict such power of the Tribunal to cases where the company does not file a draft scheme of revival. The 2013 Act confers general powers on the Tribunal to ensure proper management and protection and preservation of the assets of the sick company.

Powers of interim administrator

The draft rules specify the entitlements of the interim administrator. The interim administrator has been entrusted with wide powers under the 2013 Act, irrespective of the fact whether he has been directed to take over the management of the company. The interim administrator has the following powers:

  • He is entitled to have an office at the registered office of the sick company.
  • He is entitled to access all information and inspect all books and papers, books of account, registers and records of the sick company at all places where the sick company has offices, branches,divisions, factories, godowns, and such other places where the affairs of the sick company are being or have been carried on as ascertained from the records of the sick company.
  • He may apply to executive magistrate of the district for any protection that may be required for safeguarding himself and his assistants and assets and properties, books and records of the sick company.
  • He may seek other necessary directions from the Tribunal.
  • He may apply for extension of time for anything to be done under the Draft Rules within a stipulated time.

As regards application for extension of time, it must be noted that such extension may be sought only in respect of “anything to be done under the rules”. It is opined that the application for extension of time is not permitted to be made in respect of anything that the 2013 Act requires to be done within the time as specified under the 2013 Act.For instance, the meeting of committee of creditors shall be convened within 45 days from the date of receipt of the order appointing the interim administrator as required under section 256 of the 2013 Act also endorsed by the Draft Rules.The interim administrator is not entitled under the Draft Rules to apply for extension of time period of 45 days. On the other hand, there are requirements under the Draft Rules to publish certain notices, say notice of appointment of the interim administrator within 7 days of the receipt of the certified copy of the order. In such cases, the interim administrator is entitled to apply for extension of time under the Draft Rules.

Fee payable to interim administrator

Section 259(2) of the 2013 Act empowers the Tribunal to determine the terms and conditions of appointment of interim administrator. As such, the Draft Rules provide that the fee payable to the interim administrator shall be determined by the Tribunal, but the same shall be borne by the applicant (i.e., the person making application under section 254 (1) of the 2013 Act). In case there are more than two or more applicants,fee payable to the interim administrator shall be borne by all of them in the proportion as may be specified by the Tribunal. In addition to the fee payable,the interim administrator shall be reimbursed for all costs, charges and expenses incurred by him. However, such costs, etc. shall, as is evident, be incurred in his capacity as interim administrator and shall, as provided under the Draft Rules, be subject to sanction of the Tribunal.

Termination of office and replacement

The 2013 Act contains no provision in this respect. However, the Draft Rules provide that the office of the interim administrator may be terminated on the application of any secured creditor,provided the Tribunal is satisfied that the conduct of the interim administrator was not fair and reasonable. The interim administrator, another person is to be appointed by the Tribunal in his place, and in that case, the newly appointed interim administrator shall be given necessary time. Therefore,as stipulated under the Draft Rules, the unsecured creditor has not been entitled to apply for termination of office of the interim administrator.

Directions for preservation of assets and proper management

Clause (c) of section 256(1) of the 2013 Act empowers the Tribunal to issue ‘such other directions’ to the interim administrator, of the Tribunal finds it necessary for the protection of the assets of the sick company and for its proper management. “Such other directions” may also include takeover of management even where the company has filed the draft scheme of revival.

Scope of Section 256 (2) of Companies Act, 2013

Section 256(2) of the 2014 Act obliges the directors and the management of the sick company to extend all possible cooperation to the interim administrator to manage the affairs of the company. The draft rules require the Board of Directors of the sick company to call a meeting within 7 days of appointment of the administrator so that one or more officers of the company may be deputed to provide all assistance that the interim administrator may require.

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