TMI Blog2018 (8) TMI 1038X X X X Extracts X X X X X X X X Extracts X X X X ..... he ‘Operational Creditors’, therefore, no interference is called for. - Company Appeal (AT) (Insolvency) No 175 of 2018 With Company Appeal (AT) (Insolvency) No 223 of 2018, Company Appeal (AT)(Insolvency) No. 221 of 2018 With Company Appeal (AT)(Insolvency) No. 233 of 2018 With Company Appeal (AT)(Insolvency) No. 357 o - - - Dated:- 10-8-2018 - Mr. Bansi Lal Bhat, Member (Judicial) And Mr. S.J. Mukhopadhaya, Chairperson For The Appellant : Mr. Amrendra Sharan, Sr. Advocate with Ms. Honey Satpal, Mr. Pulkit Deora and Mr. Anup Kumar, Advocates For The Respondents : Mr. Arun Kathpalia, Sr. Advocate with Mr. Diwakar Maheshwar, Mr. Aditya N Singh and Mr. Samaksh Goyal, Advocates for R-2. Mr. Tushar Mehta, ASG and Mr. Ramji Srinivasan, Sr. Advocate with Mr. Kanu Agrawal, Mr. L. Vishwanathan, Mr. Gaurav Gupte, Mr. Bishwajit Dubey, Ms. Surabhi Khattar, Ms. Srideepa Bhattacharyya, Mr. Tushar Bhardwaj and Mr. Naveen Hegde, Advocates for R-4. Mr. Jayant Mehta, Mr. Sajal Jain and Mr. Ashish Rana, Advocates for (Suspended) Board of Directors. JUDGMENT SUDHANSU JYOTI MUKHOPADHAYA, J. In all the appeals as common question of law is involved and one of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same Appellant challenging the same very order dated 17th April, 2018, prayed for a declaration that Tata Steel Limited is ineligible under Section 29A (d) of the I B Code . 6. In Company Appeal (AT) (Insolvency) No. 221 of 2018, Mr. Neeraj Singal - a Shareholder of Bhushan Steel Ltd. - ( Corporate Debtor ) has challenged the order dated 15th May, 2018 passed by the Adjudicating Authority, Principal Bench, New Delhi and also sought for a declaration that Tata Steel Limited is ineligible under Section 29A (d) of the I B Code . 7. Bhushan Energy Limited in Company Appeal (AT) (Insolvency) No. 267 of 2018 has also challenged the order dated 15th May, 2018, passed by the Adjudicating Authority, Principal Bench, New Delhi, but on different grounds. 8. The same very order dated 15th May, 2018 has been challenged by Larsen Toubro Limited - ( Operational Creditor ) in Company Appeal (AT) (Insolvency) No. 233 of 2018 in so far it relates to allocation made in the Resolution Plan in respect of Operational Creditor s . 9. Mr. Brij Bhushan Singal, a Shareholder along with Others, have also challenged the order dated 15th May, 2018 in Company Appeal (AT) (Insolvency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pollution and harm caused to environment. The Government of Zambia brought a successful criminal prosecution against KCM for pollution and harm caused and charged KCM with four offences relating to the pollution: I. Polluting the environment contrary to Section 91(1) of the Environmental Protection and Pollution Control Act No. 12 of 1990 Cap 204 of the Laws of Zambia; II. Discharging poisonous, toxic, eco-toxic, obnoxious or obstruction matter, radiation or other pollutant into the aquatic environment contrary to Sections 24 and 91(1) of the Environmental Protection and Pollution Control Act No. 12 of 1990 Cap 204 of the Laws of Zambia; III. Wilfully failing to report an act or incident of pollution of the environment contrary to Section 86 sub-sections (1) and (3) of the Environmental Protection and Pollution Control Act No. 12 of 1990 Cap 204 of the Laws of Zambia; and IV. Failure to comply with the requirements for discharge of effluent contrary to Regulation 12(b) of the Environmental Protection and Pollution Control [Water Pollution (Effluent and wastewater)] Regulation Statutory Instrument No. 172 of 1993. 16. Subordinate Court of First Class for the Chin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the environment or contravenes any provision of the Act for which no penalty is provided shall be guilty of an offence and liable upon conviction to a fine or imprisonment for the terms mentioned in Section 91 (1) of the Environmental Protection and Pollution Control Act of Republic of Zambia (hereinafter referred to as Zambia Act ), which reads as follows: 91. (1) A person who pollutes the environment or contravenes any provision of this Act for which no penalty is provided shall be guilty of an offence and liable upon conviction to a fine not exceeding fifteen thousand penalty units or to imprisonment for a term not exceeding three years or to both. ( 2) For a continuing violation, a court may order a daily fine not exceeding seven thousand five hundred penalty units. ( 3) Where an offence under this Act is committed by a body of persons- (a) in the case of a body corporate, every director or similar officer of the body shall be guilty of the offence; or (b) in the case of a partnership, every partner shall be guilty of an offence. ( 4) A person shall not be guilty of an offence under subsection (3), if he proves to the satisfaction of the court tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for two years or more, otherwise, the words used would have been imprisonment upto two years or more and not for two years or more. 25. Referring to Section 91 of the Zambian Act under which the alleged conviction took place, it was submitted that the sentence was for imprisonment not exceeding three years or fine, which will not have the same meaning as contemplated in Section 29A (d). The intent of Section 29A(d) can be gleamed from the Regulations themselves and cannot be made applicable to stale events where the conviction has taken place more than eight years ago, as in the instant case. Therefore, according to learned Senior Counsel, Vedanta Limited cannot be held to be ineligible in terms of Section 29A(d). Stand of the Counsel for the Committee of Creditors 26. Mr. Tushar Mehta, learned Senior Counsel appearing on behalf of the State Bank of India- Committee of Creditors , referring to Section 29A(d) submitted that Literal Interpretation of the term imprisonment would only apply to natural persons and not to juristic persons, but to apply the provision of Section 29A(d) the other conditions will be required to be found in existence. Referring to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h it has been enacted instead of stultifying it and reducing it to a dead letter, which is exactly what the Respondents interpretation does. Stand on behalf of the Tata Steel Limited 32. Dr. A.M. Singhvi, learned Senior Counsel while submitted that the Applicant is responsible for the financial breakdown of the Corporate Debtor . Further submitted that the appeal is not maintainable for its not being an aggrieved person. 33. In so far as Section 29A (d) of the I B Code is concerned, it was submitted that on the language of Section 29A (d) read with explanation (iii) below the same, no such disqualification is contemplated. 34. According to learned Senior Counsel, as per the sentencing guidelines under the U.K Act , the English Court cannot impose a sentence of imprisonment on a Company and thereby the only available penalty is that of a fine which has actually been done. 35. It was further submitted that a Court can impose a fine and/or a custodial sentence on a Director of the Company and if the Director is being prosecuted with punishment of imprisonment in addition to the Company, the matter would have been different but it is not the position in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code; ( h) has executed an enforceable guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code; ( i) has been subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or (j) has a connected person not eligible under clauses (a) to (i) Explanation .- For the purposes of this clause, the expression connected person means- ( i) any person who is the promoter or in the management or control of the resolution applicant; or ( ii) (ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or ( iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii): Provided that nothing in clause (iii) of this Explanation shall app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly or in concert with such person has been subject to any disability, corresponding to clauses (a) to (h) under any law in a jurisdiction outside India is also ineligible. Literal Interpretation 41. If Section 29A is construed literally, the term imprisonment would only apply to natural persons and not to juristic persons . 42. To apply Section 29A(d), the following conditions will be required to be found in existence: - a) There has to be a conviction; b) Conviction should be for an offence which is punishable with imprisonment ; and c) Sentence of imprisonment shall be for two years or more. 43. Since a juristic person can never be imprisoned, Section 29A(d) would never apply to juristic persons that is to say other than natural persons . Section 29A will, thus, read as under: 29A. A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person─ xxx xxx xxx ( d) has been convicted for any offence punishable with imprisonment for two years or more; 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration can also be punished with fine and only mentions imprisonment (which cannot be imposed on a corporation). 49. Section 29A must be interpreted in light of the mischief it sought to curtail. The Statement of Objects and Reasons appended to the Insolvency and Bankruptcy Code (Amendment) Bill, 2017 (Bill No. 280 of 2017) in Lok Sabha (ultimately passed as Act 8 of 2018), seeking the abovesaid amendment stated as under: 2. The provisions for insolvency resolution and liquidation of a corporate person in the Code did not restrict or bar any person from submitting a resolution plan or participating in the acquisition process of the assets of a company at the time of liquidation. Concerns have been raised that persons who, with their misconduct contributed to defaults of companies or are otherwise undesirable , may misuse this situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process, and gain or regain control of the corporate debtor. This may undermine the processes laid down in the Code as the unscrupulous person would be seen to be rewarded at the expense of creditors. In addition, in order to check that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29A. A person shall not be eligible to submit a resolution plan, if such person , or any other person acting jointly or in concert with such person─ xxx xxx xxx ( d) has been convicted for any offence punishable with imprisonment for two years or more; This means that in a case where a person acting jointly or in concert [viz an individual natural person acting on behalf of the corporate person (proposed resolution applicant)] is convicted with imprisonment - while acting on behalf of the company- for two years or more, the corporate/juristic person would get hit by the embargo under Section 29A (d). 53. It is, therefore, for the Resolution Professional while discharging his duty under Section 30(3) and by the Committee of Creditors while discharging its duty under Section 30(4) and thereafter by the Adjudicating Authority under Section 31 that each case will have to be examined whether Section 29A (d) is attracted or not based upon the above referred interpretation depending upon the facts of each case. Therefore, it may not serve the ends of justice and may defeat the object of the I B Code by completely excluding corporate entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saged. The word used in Section 29A (d) is punishable and not punished , therefore, the word punishable is a link between the offence and the penalty prescribed by law depending on the gravity of the offence but in no way is an indicator of the viability or feasibility of the implementation of the punishment of the convicted. The offence so much so that if anyone is convicted of that offence and is punishable for the sentence prescribed by way of imprisonment, the disqualification, debarment and/or ineligibility stemming from such conviction would be attracted, irrespective of the actual punishment awarded by the Court. Eligibility/Ineligibility of Vedanta Limited 56. Vedanta Limited is a subsidiary of Vedanta Resources PLC which holds 50.13% equity in Vedanta Limited as per the Annual Report of Vedanta Resources PLC for the year 2017. 57. Vedanta Resource PLC has another subsidiary, KCM , which was/ is undertaking mining operations in Zambia s Copper belt and Central Provinces. Vedanta Resource PLC holds equity of 79.4% in KCM as per the Annual Report of Vedanta Resources PLC , therefore, it can be safely stated that Vedanta Limited is a conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the court to read the word and as or , or vice versa, whatever the interpretation, it must be uniformly applied to all situations. If the conjunction and is read disjunctively as or , then the intention of Parliament would definitely be defeated as the mandatory term of imprisonment would not be available even in the case of a natural person. We have not been shown any authority for the proposition that it is open to the court to put an interpretation on a statute which could vary with the factual matrix. 64. Secondly, when a statute says the court shall impose a term of imprisonment and a fine , there is no option left in the court to say that under certain circumstances it would not impose the mandatory term of imprisonment . It is trite principle that punishment must follow the conviction. 66. Thirdly, if on the words used by the legislature it is impossible to effectuate the intention of the legislation, namely, to punish a company to imprisonment, it is not possible to read the section in any other manner to impose any other punishment on the offender. [ W]e cannot aid the legislature's defective phrasing of the statute; we cannot add, and mend, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special Court, in accordance with the procedure laid down in that Act for compounding of offences; ( b) any offence which is punishable under this Act with imprisonment only or with imprisonment and also with fine shall not be compoundable. 65. From sub-section (6) of Section 441 of the Companies Act, 2013, it is clear that the offence which is punishable under the said Act, with imprisonment or fine, or with imprisonment or fine or with both, has not been treated to be similar to any offence which is punishable under the said Act with imprisonment only or with imprisonment and fine. While the offence which is punishable with imprisonment or fine, or with imprisonment or fine or with both have been made compoundable by the Tribunal with the permission of the Special Court, the offence which is punishable with imprisonment only or with imprisonment with fine cannot be compounded by the Tribunal, being severe punishment. 66. Severity of punishment is dependent on the gravity of offence. Therefore, to find out the similarity between the punishment, it is required to notice whether severity of one or other punishment is similar or not. 67. The Zambia Act do not use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the offence for which the aforesaid punishment prescribed is not corresponding to clause (d) of Section 29 A, it is to be seen whether connected person , if an individual (natural person) has been punished or not. But no such allegation has been made that any of the Director of Vedanta Resources PLC was convicted for the offence punishable with imprisonment of two years or more. 73. For the said reasons, we hold that Vedanta Resources PLC , who is a connected person of Vedanta Limited is not covered by clause (d) of Section 29A of the I B Code . 74. In view of the aforesaid findings, we hold that Vedanta Limited is eligible and clause (d) of Section 29A of the I B Code is not attracted in its case. Tata Steel Limited / Tata Steel UK 75. Tata Steel UK is the connected person who has been found guilty on two counts under the U.K Act vide an order dated 2nd February, 2018 for failing to discharge its duties under Section 2(1) of the U.K Act convicted under Section 33 (1) (a) of the U.K Act . 76. Schedule 3A of the U.K Act provides mode of trial and maximum penalty, relevant of which reads as follows: The mode of trial and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he U.K Act is not similar nor corresponding to clause (d) of Section 29A of the I B Code . 80. For the said reason, we hold that Tata Steel UK , which is the connected person of Tata Steel Limited , does not attract the disability under Section 29A of the I B Code and for the said reason, we also hold that Tata Steel Limited is eligible to file the Resolution Plan . Claim of Larsen and Toubro Limited - ( Operational Creditor ) 81. The Appellant- Larsen and Toubro Limited - ( Operational Creditor ) (hereinafter referred to as L T ) has also challenged the order dated 15th May, 2018, challenging the cost of ₹ 1,00,000/- (Rupees One Lakh Only) imposed by the Adjudicating Authority on the Appellant- L T . 82. Learned counsel appearing on behalf of the Appellant submitted that the Adjudicating Authority failed to appreciate that the Successful Resolution Applicants ( Tata Steel Limited ) cannot exercise any discretion over allocation of the amounts ₹ 1200 crores to be paid to the Operational Creditors . Reliance has been placed on Section 55(4)(b) of the Transfer of Property Act, 1883 and submitted that the said provision creates a statuto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the extent of ₹ 1,200 Crores within a period of twelve months. 89. It is stated that the Tate Steel Limited verily believes that the aforesaid amount subsequently increased to ₹ 1,422 Crores is the substantial amount offered towards meeting Operational Creditors claims, as long as they meet the requirements of the Resolution Plan . 90. It is informed that ₹ 1,200 crores will be payable to Operational Creditors within 12 months from the closing date i.e. 18th May, 2018 excluding employees and workmen. The said amount will be distributed in the following manner: a) ₹ 200 cores will be paid on a pro rata basis to the Operational Creditors other than employees and workmen and related party Operational Creditors ; and b) ₹ 1,000 crores will be paid to capital and sundry creditors based on the criticality vis- -vis the continued business viability of Bhushan Steel Limited at discretion of the Resolution Applicant , to be exercised based on the criteria specified in the Resolution Plan . 91. It is stated that ₹ 1,000 crores is based on cogent, commercial and intelligible criteria and any Operational Creditor falling wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Resolution Plan . Before the approval of the Resolution Plan is approved by the Adjudicating Authority, the Resolution Plan being mere a proposal, the question of following Section 55 of the Companies Act, 2013 does not arise. 99. For the reasons aforesaid, we are not inclined to interfere with the impugned order dated 15th May, 2018. Application filed by the Divisional Forest Officer, Bokaro Forest Division, Department of Forests Environment, Government of Jharkhand, Bokaro. 100. The Government of Jharkhand has taken plea that part of the land shown in the Resolution Plan do not belong to Bhushan Steel Limited - ( Corporate Debtor ). Forest land, as was notified by the Government of India, 1958, is in illegal possession of the Bhushan Steel Limited , which has also been reflected in the Resolution Plan . 101. It is not in dispute that the Government of Jharkhand and its Officers have already initiated recovery proceedings against the Corporate Debtor for recovering the alleged forest lands alleged to have been encroached by the Corporate Debtor ; litigations are pending in different Courts. In this background, after hearing the counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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