TMI Blog2018 (10) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... itors, so that all dues could be cleared as soon as possible. Acceding to this request, in order to do complete justice under Article 142 of the Constitution of India, and also for the reason that the law on Section 29A has been laid down for the first time by this judgment, we give one more opportunity to both resolution applicants to pay off the NPAs of their related corporate debtors within a period of two weeks from the date of receipt of this judgment, in accordance with the proviso to Section 29A(c). If such payments are made within the aforesaid period, both resolution applicants can resubmit their resolution plans dated 2.4.2018 to the Committee of Creditors, who are then given a period of 8 weeks from this date, to accept, by the requisite majority, the best amongst the plans submitted, including the resolution plan submitted by Vedanta. We make it clear that in the event that no plan is found worthy of acceptance by the requisite majority of the Committee of Creditors, the corporate debtor, i.e. ESIL, shall go into liquidation. The appeals are disposed of, accordingly. - CIVIL APPEAL NOs.9402-9405 OF 2018, 9582 OF 2018, CIVIL APPEAL NO._______ OF 2018, DIARY NO.35253 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion applicant. On 23.3.2018, however, the Resolution Professional found both AMIPL and Numetal to be ineligible under Section 29A. Insofar as AMIPL is concerned, the Resolution Professional found thus: 2. Please note that during the course of the evaluation of the Resolution Plan, I became aware of the fact that ArcelorMittal Netherlands B.V. (AM Netherlands) (which is mentioned as a connected person of AM India in the Resolution Plan) has been disclosed as the promoter of Uttam Galva Steels Limited (Uttam Galva) pursuant to which my Advisor had requested certain clarifications from AM India on 26 February 2018 (Request for Clarification 1) and on 14 March 2018 (Request for Clarification 2). Further to the responses received from AM India on 28 February 2018 and 17 March 2018 (collectively the AM India Responses) on the aforementioned requests for clarifications, I understand that: 2.1. AM Netherlands had acquired 29.05% of the shareholding in Uttam Galva in 2009 and has since been classified as a promoter of Uttam Galva; 2.2. AM Netherlands had entered into a co-promoter agreement dated 4 September 2009 with the other promoters of Uttam Galva (Co-Promoter Agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Numetal as joint venture partners to be acting jointly for the purposes of submission of the Resolution Plan. Whilst considering the eligibility of the shareholders of Numetal, since Aurora Enterprises Limited (AEL) is held completely by Rewant Ruia (through various companies and a trust), I have considered Rewant Ruia, Crinium Bay, Indo International Limited and Tyazhpromexport for scrutiny under Section 29A of the IBC. 4. Further, pursuant to Regulation 2(q) of the Securitiesand Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations), a person is deemed to acting in concert with amongst others, his (or her) immediate relatives , which term (as defined under Regulation 2(1) of the SAST Regulations) includes the father of such person. Therefore, in relation to the Resolution Plan in respect of ESIL (which contemplates the acquisition of ESIL by Numetal by way of a merger of ESIL with a wholly owned subsidiary of Numetal), Rewant Ruia is deemed to be acting in concert with his father Ravi Ruia. 5. Further, as on the Plan Submission Date: (a) * Ravi Ruia (who Rewant Ruia is deemed tobe acting in concert with) was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as eligible for filing a valid resolution plan as on 12.2.2018 thus, it has opposed the application alleging disability/ineligibility on the part of M/s. Numetal Ltd., to file a valid and proper resolution plan as on date of 12.2.2018. Since we have not decided the Impleadment Application in favour of ArcelorMittal by formally impleading it as party in the present I.A. No. 98 of 2018 and only audience were given to its learned counsel in support of its resolution plan, therefore, we find it appropriate to confine the issue of determination of eligibility mainly on the reason which formed a basis for the RP and CoC for not founding eligible for submission of resolution plan by the resolution applicant, M/s. Numetal Ltd., and not on additional ground as put forth by the ArcelorMittal. However, the oral submissions advanced by learned counsel for parties including the ArcelorMittal duly supported by their Written Submissions are being taken into consideration for deciding the issue involved in the present application. For arriving at such findings/conclusion of the RP has obtained legal opinion and its such findings is based on such opinion which were explained to the CoC for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, for the aforesaid reason in our prima facie view we do not find any patent illegality in the decision of the RP for declaring ineligible to applicants which is a prudent decision where there is possibility of more than one legal view then this court at this stage is not expected to substitute its view and to interfere with the conclusion of the RP. 7. It then went on to hold: 19. Thus, the date on which a person stands disqualified would be the date of commencement of the Corporate Insolvency Resolution Process of the Corporate Debtor, i.e., ESIL. This date is 02.08.2017 on which date, ArcelorMittal India Pvt. Ltd., is disqualified in view of the fact that its connected persons of AM Netherland and L.N. Mittal are disqualified as they have an account or an account of the corporate debtor under their management and control or of whom they are a promoter classified as NPA under the guidelines of the Reserve Bank of India and at least a period of one year has lapsed from the date of such classification till the date of commencement of corporate insolvency resolution process of the corporate debtor. The said disqualification starts from 02.08.2017 can only be remedied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der its management, control or of whom such connected person, namely, AM Netherlands is a promoter is classified as NPA for more than one year before 02.082017. Consequently, AM India shall not be eligible to submit a resolution plan as on 12.02.2018. 24. It is an admitted position that Laxminarayan Mittalis controlling AM India being an indirect subsidiary of AMSA. Accordingly, LN Mittal/AMSA is promoter in management and in control of AM India, the resolution applicant, and LN Mittal is also in management and control of KSS Global BV in view of what is stated above and KSS Petron which is a 100% subsidiary of KSS Global BV is also under management and control of LN Mittal. KSS Petron has a NPA for more than one year and consequently, LN Mittal being a promoter/in control of KSS Global BV/KSS Petron Pvt. Ltd., is a connected person whose account is classified nonperforming. Consequently, AM India shall not be eligible to submit a resolution plan. 25. From a bare reading of section 29A(c) it is veryclear that 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; has an account, or an acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth AMIPL and Numetal, disqualified AMIPL by an order dated 8.5.2018 as follows: 48. In wrapping up this post-decisional hearing, we reiterate that AMIL is an ineligible resolution applicant under Section 29A(c) of the IBC, who acting in concert with AMBV (the promoter of Uttam Galva on insolvency commencement date and connected person of AMIL) and Arcelor Mittal Group in attempting to avoid their obligations to make payment as provided under Section 29A(c) of mc (sic) with reference to Uttam Galva and KSS Petron. Their unwillingness to make payment in the Uttam Galva matter or the KSS Petron matter by their actions of 7th of February, 2018 and 9th of February, 2018 as stated above is an avoidance device. 49. In case of Uttam Galva, AMBV arranged the sale ofits shareholding at a nominal value just days prior to the date of submission of the Resolution Plan is evidence of the fact that AMIL is in concert with AMBV such action is a manifestation of the passage of Section 29A under IBC. As promoter of Uttam Galva and as member of the Arcelor Mittal Group referred above, they should have made payment of the Overdue Amounts to the lenders of Uttam Galva. 50. The same conduct o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jointly and in concert with AEL. This in turn means Numetal is acting in concert with Mr. Rewant Ruia and hence with Mr. Ravi Ruia, the promoter and guarantor of ESIL (a non-performing asset since 2016). This inflicts a disability and ineligibility upon Numetal / its consortium and constituent shareholders. xxx xxx xxx 57. Thus in wrapping up the post decisional hearing,we reiterate that Numetal is an ineligible resolution applicant acting in concert with Rewant Ruia and his connected person namely his relative / father Ravi Ruia, who is a promoter of a corporate debtor ESIL, which has a non-performing asset account. 58. Since the CoC have not by themselves filed anappeal over the Ld. Adjudicating Authority s Order dated 19th April, 2018, the concession granted by the Ld. Adjudicating Authority to give an opportunity to cure the ineligibility, we are indicating to the resolution applicant, i.e. Numetal and the consortium of Crinium Bay, Indo, TPE and AEL as persons acting in concert with Numetal, that they would be eligible only if they make payment of (i) the Overdue Amounts constituting NPA in ESIL as on 30th April, 2018 aggregating to ₹ 37,558.65 crores in princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruary, 2018, when the 1st Resolution Plan was submitted by Numetal Ltd. , it had four shareholders. (i) Crinium Bay : 40% (ii) Indo : 25.1% (iii) TPE : 9.9% (iv) AEL : 25% 61. Admittedly, Mr. Rewant is 100% shareholder of AEL and AEL held 25% in Numetal Ltd. even as on 12th February, 2018, Mr. Rewant being son of Mr. Ravi, who is the promoter of the Corporate Debtor , we hold that AEL is a related party and comes within the meaning of person in concert in terms of Regulation 2(1)(q). 62. In view of the aforesaid findings, we hold that at thetime of submission of 1st Resolution Plan by Numetal Ltd. , one of the shareholders being AEL , Numetal Ltd. was not eligible to submit Resolution Plan in terms of Section 29A. Position of Numetal Ltd. as on 29 th March, 2018 when the subsequent Resolution Plan was submitted by Numetal Ltd. . 63. The Committee of Creditors had extended theperiod for submitted a fresh Resolution Plan by 2nd April, 2018. Numetal Ltd. filed fresh Resolution Plan on 29th March, 2018. On the said date the Numetal Ltd. consisted of the three shareholders: - (a) Crinium Bay ( VTB ) : 40% (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be deemed to be 11th October, 2017/12th February, 2018 and 20th October, 2017/12th February, 2018 respectively. 110. If the aforesaid proposition is not accepted, it willdeprive the Resolution Applicants from deriving advantage of second proviso to sub-section (4) of Section 30 inserted on 23rd November, 2017, even though they acted to submit the Resolution Plan by submitting the Expression of Interest of Resolution Plan . 111. In view of the aforesaid finding, we hold that theAdjudicating Authority rightly held that the Appellant AM India Ltd. should have been given the opportunity by the Committee of Creditors in terms of second proviso to sub-section (4) of Section 30. 112. The question arises for consideration is whetherthe AM Netherlands is eligible, having transferred its entire shareholding of Uttam Galva on 7th February, 2018 and by transferring of its entire shareholding of Fraseli in KSS Global on 9th February, 2018 i.e. two to four days prior to the submission of Expression of Interest (first phase of Resolution Plan ). 113. Proviso to clause (c) of Section 29A reads asfollows: Provided that the person shall be eligible to submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... classification of the accountas NPA has been labelled on the promoter of the Uttam Galva , even after sale of shares by AM Netherlands it may ceased to be a member or promoter of the Uttam Galva , but stigma as was attached with it will continue for the purpose of ineligibility under clause (c) of Section 29A, till payment of all overdue amount with interest and charges relating to NPA account of the Uttam Galva is paid. 119. AM Netherlands is 100% subsidiary of AMSA which is a listed company incorporated in Luxemburg. AM India Ltd. is also a subsidiary of AMSA having 99.99% shareholding in it. Accordingly, AMSA is also a promoter, in the management and in control of AM India Ltd. . Fraseli is a company owned and controlled by a company called by Mittal Investments acquired about one third of the share capital of KSS Global BV . Pursuant to such acquisition, Fraseli acquired control over KSS Global BV which in turn controls KSS Petron and Petron Engineering . Mittal Investments is owned and controlled by LN Mittal Group, the promoters of the AM India Pvt. Ltd . 120. AM India Ltd. divested its shareholding in KSSGlobal BV which is 100% owne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onally. 124. Dr. Abhishek Manu Singhvi, learned SeniorCounsel appearing on behalf of AM India Ltd. when asked, on instruction, submitted that if this Appellate Tribunal accept the Resolution Plan submitted by the AM India Ltd. , it may deposit the non-performing assets amount with interest in the respective accounts which were declared as NPA in accordance with the guidelines of the Reserve Bank of India. 125. As we hold that AM India Ltd. is also entitled tothe benefit of second proviso to sub-section (4) of Section 30, we give one opportunity to the Resolution Applicant - AM India Ltd. to make payment of all overdue amount with interest thereon and charges relating to Non Performing Accounts of both the Uttam Galva and the KSS Petron in their respective accounts within three days i.e. by 11th September, 2018. If such amount is deposited in the accounts of both Non-Performing Accounts of Uttam Galva and KSS Petron within time aforesaid and is informed, the Committee of Creditors will consider the Resolution Plan submitted by AM India Ltd. along with other Resolution Plans , including the Resolution Plan submitted by the Numetal Ltd. on 29th March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant time is the time of submission of a resolution plan. He further argued that the amendment made to Section 29A in June, 2018, expressly stating that the relevant time was the time of submission of a resolution plan, is clarificatory in nature. Once this becomes clear, everything on facts falls into place. According to the learned Senior Advocate, AMIPL is an indirect subsidiary of one ArcelorMittal Societe Anonyme (hereinafter referred to as AMSA ), which is a listed company in Luxemburg. AMSA holds 100% shares in one ArcelorMittal Belvel Differdange Societe Anonyme (hereinafter referred to as AMBD ), a company incorporated in Luxemburg, which in turn holds 100% in one Oakey Holding BV , a company incorporated in the Netherlands, which in turn holds 99.99% shares in AMIPL. ArcelorMittal Netherlands BV (hereinafter referred to as AMNLBV ), which is a member of the L.N. Mittal Group incorporated in the Netherlands, is 100% held by AMSA (the Chairman and CEO of AMSA being Shri L.N. Mittal). AMNLBV held 29.05% in one Uttam Galva Steels Limited (hereinafter referred to as Uttam Galva ) which is an Indian company, listed in India. Uttam Galva was declared as a non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Group, the promoters of AMIPL. Fraseli held 32.22% in one KazStroy Service Global BV (hereinafter referred to as KSS Global ), a company incorporated in the Netherlands which in turn held 100% of KSS Petron, an Indian company. The shareholders agreement entered into between Fraseli and KSS Global permitted Fraseli to appoint two out of six nominee directors in KSS Global, and provided for an affirmative vote of shareholders with respect to certain matters. According to the learned Senior Advocate, if the definition of control in Section 2(27) of the Companies Act, 2013 is applied, the relationship of KSS Global with KSS Petron would not constitute control over the wholly owned subsidiary in India. In any case, the entire shareholding of Fraseli in KSS Global was transferred back to the promoters of KSS Global on 9.2.2018, i.e., 3 days before submission of the resolution plan. KSS Petron has been classified as a non-performing asset by multiple banks, and the corporate insolvency resolution process was initiated against it on 1.8.2017 before the NCLT. It may be added that KSS Petron was declared a non-performing asset on 30.9.2015 with a debt of around ₹ 1000 crores. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y divested on 29.3.2018, so that Crinium Bay held 40%, TPE held 25.9% and Indo held 34.1% in Numetal, with AEL s holding becoming Nil . Shri Salve has argued that Numetal is hit by Section 29A(i) of the Code, as VTB Bank, the parent of Crinium Bay, stands prohibited from accessing the securities markets in the European Union pursuant to an order dated 31.7.2004, and in the United States by two orders. This being the case, Numetal is directly hit by sub-section (f) read with sub-section (i) of Section 29A. It is also hit by Section 29A(j) as Crinium Bay, being a subsidiary of VTB Bank, becomes a connected person as defined under sub-clauses (i) and (iii) of Explanation 1 to Section 29A(j). One very important fact that was stressed by him was that an amount of ₹ 500 crores was given by AEL to Numetal so that it could deposit the requisite earnest money that had to be made along with the resolution plan furnished by Numetal. This amount, that was admittedly furnished by AEL, continues to remain with the Resolution Professional, and has till date not been withdrawn by AEL, showing that Shri Rewant Ruia continues to be vitally interested and linked with the resolution plan of N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution plan, AEL had walked out completely, leaving behind two Russian companies holding 40% and 25.9% respectively of Numetal, and Indo, a Dubai Company, holding 34.1%. According to the learned Senior Advocate, Numetal cannot possibly be described as a joint venture of its shareholders, and for this purpose he cited some of our judgments. According to him, a joint venture is a contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control, which is missing in the present case as a shareholder in a company is distinct from the company itself. He added that Section 29A(c) requires that Numetal as a person, together with any other person acting jointly or in concert, has to have an account of a corporate debtor under its management or control, or of whom such person is a promoter (which is classified as a nonperforming asset for a period of at least one year before the date of commencement of the corporate insolvency resolution process of the corporate debtor). According to the learned Senior Advocate, Shri Rewant Ruia would not fall within any of these categories, on a reading of Section 2(27) of the Companies Act, 2013, which def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes it would be the Securities Exchange Commission, neither of whom has issued any sanctions which would interdict VTB Bank from accessing or trading in the securities market. He also countered Shri Salve s submission that the ₹ 500 crores that was advanced by AEL and given as earnest money for the resolution plan was not yet withdrawn, contending that this was so because the validity of the first bid by Numetal continues to be sub judice. 18. Shri Rohatgi then attacked AMIPL by stating that even a literal reading of Section 29A(c) would make it clear that in the case of Uttam Galva, AMNLBV, which is admittedly an L.N. Mittal Group Company, was directly covered by sub-clause (c) as it had been shown as a promoter in the annual reports of Uttam Galva, and would therefore fit the definition of promoter contained in Section 2(69) of the Companies Act, 2013. What is of great importance, and what is in fact not disclosed, is that a NonDisposal Undertaking was issued to the State Bank of India, the secured creditor of Uttam Galva, on 12.7.2011 by AMNLBV, agreeing that it would not sell, transfer or dispose of any shares held by it without the consent of the lenders of Utta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of one Ispat Profiles India Limited . This company was ordered to be wound up by the BIFR, appeals from which have been dismissed by the AAIFR. Consequently, Shri L.N. Mittal, as a related party of Shri Pramod Mittal, would render AMIPL ineligible under sub-clause (c) read with sub-clause (j) of Section 29A of the Code. 19. Shri Gopal Subramanium, learned Senior Advocate appearing on behalf of the Committee of Creditors, has placed before us the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, introducing Section 29A, and commented on the difference between the opening lines of the said Ordinance as compared with those of the Amendment Act of 2017. The Amendment Act of 2017 brings in persons acting in concert . According to the learned senior counsel, persons acting in concert has been dealt with by the Justice P.N. Bhagwati Committee Report on Takeovers, 1997, which he read out to us in copious detail. He also referred to some of our judgments on tearing the corporate veil, and on persons acting in concert. According to him, there should be no interference by the appropriate authority at the behest of a resolution applicant at the stage of a Resolution Profess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do a due diligence on each resolution plan submitted before it. It is only after such due diligence is done that this plan is to be forwarded to the Committee of Creditors. According to him, even if it is found that the resolution plan in question contravenes any law, such finding would only be a tentative opinion formed by the Resolution Professional, who has to submit the plan to the Committee of Creditors once it is complete in all respects. According to him, a conjoint reading of Section 25(2)(i) of the Code, read with Section 30(3) and the second proviso to Section 30(4), would necessarily lead to this conclusion. Also, according to the learned Senior Advocate, the expression control contained in Section 29A(c) should be construed noscitur a sociis with the word management , and so construed, would only mean positive, de facto, control of such person. 21. At this point, it is necessary to first set out Section 29A in its various forms: as first introduced by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 and the Insolvency and Bankruptcy Code (Amendment) Act, 2017, together with the amendment made by the Insolvency and Bankruptcy Code (Second Amendment) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. 22. The Insolvency and Bankruptcy Code (Amendment) Act, 2017, received the assent of the President on 28.1.2018, but came into force with retrospective effect from 23.11.2017. Section 29A, as contained therein, reads as follows: 29A. Persons not eligible to be resolution applicant. - 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- (a) is an undischarged insolvent; (b) is a wilful defaulter in accordance with theguidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949); (c) has an account, or an account of a corporate debtorunder the management or control of such person or of whom such person is a promoter, classified as nonperforming asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor: Provided that the person shall be eligible to submit a resolution plan if such perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be resolution applicant.- 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- (a) is an undischarged insolvent; (b) is a wilful defaulter in accordance with theguidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949); (c) at the time of submission of the resolution plan hasan account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as nonperforming asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) or the guidelines of a financial sector regulator issued under any other law for the time being in force, and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor: Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply if a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the corporate debtor by the resolution applicant pursuant to a resolution plan approved under this Code or pursuant to a scheme or plan approved by a financial sector regulator or a court, and such resolution applicant has not otherwise contributed to the preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction; (h) has executed a 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 and such guarantee has been invoked by the creditor and remains unpaid in full or part; (i) is 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 I.-For the purposes of this clause, the expression connected person means- (i) any person who is the promoter or in themanagement or control of the resolution applicant; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Affairs, Shri Arun Jaitley, while moving the Insolvency and Bankruptcy Code (Amendment) Bill, 2017, stated on 29.12.2017: The core and soul of this new Ordinance is really Clause 5, which is Section 29A of the original Bill. I may just explain that once a company goes into the resolution process, then applications would be invited with regard to the potential resolution proposals as far as the company is concerned or the enterprise is concerned. Now a number of ineligibility clauses were not there in the original Act and, therefore, Clause 29A introduces those who are not eligible to apply. For instance there is a clause with regard to an undischarged insolvent who is not eligible to apply; a person who has been disqualifies under the Companies Act as a director cannot apply and a person who is prohibited under the SEBI Act cannot apply. So these are statutory disqualifications. And there is also a disqualification in Clause (c) with regard to those who are corporate debtors and who as on the date of the application making a bid do not operationalise the account by paying the interest itself i.e. you cannot say that I have an NPA. I am not making the account operational. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concurring judgment of Beg, J. The learned Judge put it rather well when he said: (SCC p. 287, para 28) 28. It is, however, becoming increasingly fashionable to start with some theory of what is basic to a provision or a chapter or in a statute or even to our Constitution in order to interpret and determine the meaning of a particular provision or rule made to subserve an assumed basic requirement. I think that this novel method of construction puts, if I may say so, the cart before the horse. It is apt to seriously mislead us unless the tendency to use such a mode of construction is checked or corrected by this Court. What is basic for a section or a chapter in a statute is provided: firstly, by the words used in the statute itself; secondly, by the context in which a provision occurs, or, in other words, by reading the statute as a whole; thirdly, by the Preamble which could supply the key to the meaning of the statute in cases of uncertainty or doubt; and, fourthly, where some further aid to construction may still be needed to resolve an uncertainty, by the legislative history which discloses the wider context or perspective in which a provision was made to meet a partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion , so that one is able to arrive at persons who are actually in control , whether jointly, or in concert, with other persons. A wooden, literal, interpretation would obviously not permit a tearing of the corporate veil when it comes to the person whose eligibility is to be gone into. However, a purposeful and contextual interpretation, such as is the felt necessity of interpretation of such a provision as Section 29A, alone governs. For example, it is well settled that a shareholder is a separate legal entity from the company in which he holds shares. This may be true generally speaking, but when it comes to a corporate vehicle that is set up for the purpose of submission of a resolution plan, it is not only permissible but imperative for the competent authority to find out as to who are the constituent elements that make up such a company. In such cases, the principle laid down in Salomon v. A Salomon and Co. Ltd. [1897] AC 22 will not apply. For it is important to discover in such cases as to who are the real individuals or entities who are acting jointly or in concert, and who have set up such a corporate vehicle for the purpose of submission of a resolution plan. 30. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n tax, income tax, capital gains tax and capital transfer tax. The other inroads on the principle of separate corporate personality have been made by two sections of the Companies Act, 1948, by judicial disregard of the principle where the protection of public interest is of paramount importance, or where the company has been formed to evade obligations imposed by the law, and by the courts implying in certain cases that a company is an agent or trustee for its members. In Palmer's Company Law (23rd Edn.), the present position in England is stated and the occasions when the corporate veil may be lifted have been enumerated and classified into fourteen categories. Similarly in Gower's Company Law (4th Edn.), a chapter is devoted to lifting the veil and the various occasions when that may be done are discussed. In Tata Engineering and Locomotive Co. Ltd. [(1964) 6 SCR 885] the company wanted the corporate veil to be lifted so as to sustain the maintainability of the petition, filed by the company under Article 32 of the Constitution, by treating it as one filed by the shareholders of the company. The request of the company was turned down on the ground that it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected, etc. In Escorts case [(1986) 1 SCC 264], this Court held as follows: (SCC pp. 335-36, para 90) 90. Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. 32. Similarly in Balwant Rai Saluja Anr. etc. etc. v. Air India Ltd. Ors., (2014) 9 SCC 407, this Court in following Escorts Ltd. (supra.), held: 70. The doctrine of piercing the corporate veil stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders with its own legal rights and obligations. It seeks to disregard the separate personality of the company and attribute the acts of the company to those who are allegedly in direct control of its operation. The starting point of this doctrine was discussed in the celebrated case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil. 73. The position of law regarding this principle in India has been enumerated in various decisions. A Constitution Bench of this Court in LIC v. Escorts Ltd. [(1986) 1 SCC 264], while discussing the doctrine of corporate veil, held that: (SCC pp. 335-36, para 90) 90. Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12, another American Professor L. Maurice Wormser examined the American decisions on the subject in a brilliantly written article Piercing the veil of corporate entity [published in (1912) XII Columbia Law Review 496] and summarised their central holding in the following words: The various classes of cases where the concept of corporate entity should be ignored and the veil drawn aside have now been briefly reviewed. What general rule, if any, can be laid down? The nearest approximation to generalisation which the present state of the authorities would warrant is this: When the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and-doing, men and women shareholders, and will do justice between real persons. 25. In Palmer's Company Law, this topic is discussed in Part II of Vol. I. Several situations where the court will disregard the corporate veil are set out. It would be sufficient for our purposes to quote the eighth exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people. (emphasis supplied) 34. It is thus clear that, where a statute itself lifts the corporate veil, or where protection of public interest is of paramount importance, or where a company has been formed to evade obligations imposed by the law, the court will disregard the corporate veil. Further, this principle is applied even to group companies, so that one is able to look at the economic entity of the group as a whole. 35. The expression acting jointly in the opening sentence of Section 29A cannot be confused with joint venture agreements , as was sought to be argued by Shri Rohatgi. He cited various judgments including Faqir Chand Gulati v. Uppal Agencies Pvt. Ltd. Anr., (2008) 10 SCC 345, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N. Bhagwati Committee Report on Takeovers, 1997, pursuant to which the Regulations of 1997 were framed, stated as follows: 2.22 Definition of Persons acting in concert Persons acting in concert have particular relevance to public offers, for often an acquirer can acquire shares or voting rights in a company in concert with any other person in a manner that the acquisitions made by him remain below the threshold limit, though taken together with the voting rights of persons in concert, the threshold may well be exceeded. It is therefore, important to define persons acting in concert . To be acting in concert with an acquirer, persons must fulfil certain bright line tests. They must have commonality of objectives and a community of interests which could be acquisition of shares or voting rights beyond the threshold limit, or gaining control over the company and their act of acquiring the shares or voting rights in a company must serve this common objective. Implicit in the concerted action of these persons must be an element of cooperation. And as has been observed, this cooperation could be extended in several ways, directly or indirectly, or through an agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, for this very reason, has divided the persons acting in concert into groups in such a manner that these persons would in the natural course of affairs be presumed to be acting in concert only with another person in the same group. This served to set the pattern for raising rebuttable presumptions. The Committee recommends that .In the definition of persons acting in concert, the persons be grouped in such a manner in the same group or category that they bear such relationship amongst themselves as could justify raising of a presumption in the normal course of affairs that they are acting in concert. For example, a sponsor of a mutual fund could be presumed to be acting in concert with the trustee company or asset management company of the same mutual fund; similarly a merchant banker may be presumed to be acting in concert with his client as acquirer. But no presumption may be made that persons in one group are acting in concert with persons in another group. It has to be proved by evidence that they are acting in concert. (Reference: Part II of the Report sub-clause (e) of sub-regulation (1) of regulation 2) . The definition of the persons acting in concert as defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt company or fund and anyperson who has an interest in such investment company or fund as a shareholder or unitholder having not less than 10 per cent of the paid-up capital of the investment company or unit capital of the fund, and any other investment company or fund in which such person or his associate holds not less than 10 per cent of the paid-up capital of that investment company or unit capital of that fund: Provided that nothing contained in this subclause shall apply to holding of units of mutual funds registered with the Board; Explanation.-For the purposes of this clause ― associate of a person means,- (a) any immediate relative of such person; (b) trusts of which such person or his immediaterelative is a trustee; (c) partnership firm in which such person or hisimmediate relative is a partner; and (d) members of Hindu undivided families of whichsuch person is a coparcener; 39. It will be seen from the wide language used, that any understanding, even if it is informal, and even if it is to indirectly cooperate to exercise control over a target company, is included. Under sub-clause (2) of clause (q), a deeming fiction is enacted, by which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of this provision may shrink the pool of resolution applicants. Accordingly, the Committee felt that the words, , if such person, or any other person acting jointly or in concert with such person in the first line of section 29A must be deleted. This would clarify that section 29A is applicable to the resolution applicant and its connected person only. Further, in order to ensure that anyone who acts with a common objective along with the resolution applicant to acquire shares, voting rights or control of the corporate debtor is required to pass the test laid down in section 29A, the Committee felt that the following clause must be added as clause (iv) to the definition of connected person in the explanation to clause (j), (iv) any persons who along with the resolution applicant, with a common objective or purpose of acquisition of shares or voting rights in, or exercising control over a corporate debtor, pursuant to an agreement or understanding, formal or informal, directly or indirectly co-operate for acquisition of shares or voting rights in, or exercise of control over the corporate debtor. This part of the report has not been accepted by the legislature, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sense to determine whether those involved in any dealings have some form of understanding and are acting in cooperation with each other. [Guinness PLC and Distillers Company PLC (Panel hearing on 25-8-1987 and 2-9-1987 at p. 10052 - Reasons for decisions of the Panel.)] (emphasis supplied) 41. In M/s. Daiichi Sankyo Company Ltd. v. Jayaram Chigurupati Ors., (2010) 7 SCC 449, this Court referred to the concept of persons acting in concert and held that there must be a shared common objective for substantial acquisition of shares of a target company under the SEBI regulations. A fortuitous relationship coming into existence by accident or chance obviously cannot amount to persons acting in concert . This Court held:- 49. The other limb of the concept requires two or more persons joining together with the shared common objective and purpose of substantial acquisition of shares, etc. of a certain target company. There can be no persons acting in concert unless there is a shared common objective or purpose between two or more persons of substantial acquisition of shares, etc. of the target company. For, dehors the element of the shared common objective or purpose the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly incorrect, as the date of commencement of the corporate insolvency resolution process is only relevant for the purpose of calculating whether one year has lapsed from the date of classification of a person as a nonperforming asset. Further, the expression used is has , which as Dr. Singhvi has correctly argued, is in praesenti. This is to be contrasted with the expression has been , which is used in subclauses (d) and (g), which refers to an anterior point of time. Consequently, the amendment of 2018 introducing the words at the time of submission of the resolution plan is clarificatory, as this was always the correct interpretation as to the point of time at which the disqualification in sub-clause (c) of Section 29A will attach. In fact, the amendment was made pursuant to the Insolvency Law Committee Report of March, 2018. That report clearly stated: In relation to applicability of section 29A(c), the Committee also discussed that it must be clarified that the disqualification pursuant to section 29A(c) shall be applicable if such NPA accounts are held by the resolution applicant or its connected persons at the time of submission of the resolution plan to the RP. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions can be, or are in fact, taken by virtue of shareholding, management rights, shareholders agreements, voting agreements or otherwise, control can be said to exist. 48. Thus, the expression control , in Section 29A(c), denotes only positive control, which means that the mere power to block special resolutions of a company cannot amount to control. Control here, as contrasted with management , means de facto control of actual management or policy decisions that can be or are in fact taken. A judgment of the Securities Appellate Tribunal in M/s Subhkam Ventures (I) Private Limited v. The Securities and Exchange Board of India (Appeal No. 8 of 2009 decided on 15.1.2010), made the following observations qua control under the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, wherein control is defined in Regulation 2(1) (e) in similar terms as in Section 2(27) of the Companies Act, 2013. The Securities Appellate Tribunal held: 6. The term control has been defined in Regulation 2(1)(c) of the takeover code to include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be whether the acquirer is the driving force behind the company and whether he is the one providing motion to the organization. If yes, he is in control but not otherwise. In short control means effective control. 49. We think that these observations are apposite, and apply to the expression control in Section 29A(c). 50. Section 29A(c) speaks of a corporate debtor under the management or control of such person . The expression under would seem to suggest positive or proactive control, as opposed to mere negative or reactive control. This becomes even clearer when sub-clause (g) of Section 29A is read, wherein the expression used is in the management or control of a corporate debtor . Under sub-clause (g), only a person who is in proactive or positive control of a corporate debtor can take the proactive decisions mentioned in sub-clause (g), such as, entering into preferential, undervalued, extortionate credit, or fraudulent transactions. It is thus clear that in the expression management or control , the two words take colour from each other, in which case the principle of noscitur a sociis must also be held to apply. Thus viewed, what is referred to in sub-claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53. Here again, sub-clause (a) refers to a de jure position, namely, where a person is expressly named in a prospectus or identified by the company in an annual return as a promoter. Subclauses (b) and (c) speak of a de facto position. Under sub-clause (b), so long as a person has control over the affairs of a company, directly or indirectly, in any manner, he could be said to be a promoter of such company. Under sub-clause (c), such person need not be a member of the Board of Directors of a company, but can be a person who in fact advises, directs or instructs the Board to act. Under the proviso, only a person who acts in a professional capacity is excluded from the talons of subclause (c). 54. The interpretation of Section 29A(c) now becomes clear. Any person who wishes to submit a resolution plan, if he or it does so acting jointly, or in concert with other persons, which person or other persons happen to either manage or control or be promoters of a corporate debtor, who is classified as a non-performing asset and whose debts have not been paid off for a period of at least one year before commencement of the corporate insolvency resolution process, becomes ineligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debt of another related corporate debtor, classified as an NPA, without being certain that his resolution plan would be accepted, as this would narrow the pool of resolution applicants to nil, and therefore stultify the object sought to be achieved by the proviso to Section 29A(c). First, it is clear that there may be persons who may submit resolution plans, either by themselves, or in concert, or jointly with other persons who do not have debts which are declared as NPAs. Also, it is very difficult to say that in no circumstance whatsoever would a person submitting a resolution plan pay off the NPA dues of another person, with whom it is acting in concert or jointly. The dues may be such that it may be worth the while of the person, together with the persons with whom he is acting in concert or jointly, to first pay off the dues of the concerned corporate debtor whose account has been declared to be an NPA, as such dues may be negligible when compared with the gaining of control of the corporate debtor that is sought to be run as a going concern as per a resolution plan submitted. It is, therefore, impossible to say that the plain, literal, meaning of the language used by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate point of time before the submission of the resolution plan, the affairs of the persons referred to in Section 29A are so arranged, as to avoid paying off the debts of the non-performing asset concerned, such persons must be held to be ineligible to submit a resolution plan, or otherwise both the purpose of the first proviso to sub-section (c) of Section 29A, as well as the larger objective sought to be achieved by the said sub-clause in public interest, will be defeated. 58. When we come to sub-clause (f), it is clear that, if any of the persons mentioned in Section 29A is prohibited by SEBI from either trading in securities or accessing the securities market again, ineligibility of the person submitting the resolution plan attaches. Under sub-clause (i), if a person situate abroad is subject to any disability which corresponds to sub-clause (f), such person also gets interdicted. In E.V. Mathai v. Subordinate Judge, Kottayam Ors., (1969) 2 SCC 194, the expression corresponding to was explained as follows:- It was argued by Mr Daphtary that Section 4 was not applicable because a different intention appeared from Section 34(1) of the Act of 1965. We find ourselves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sub-clause (iii), holding companies, subsidiary companies and associate companies as defined under the Companies Act, 2013, or related parties of persons referred to in clauses (1) and (2) also become connected persons 1 . 61. We now come to the equally important question as to the timelines within which the insolvency process is to be completed. 62. Previous legislation, namely, the Sick Industrial Companies (Special Provisions) Act, 1985, and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, which made provision for rehabilitation of sick companies and repayment of loans availed by them, were found to have completely failed. This was taken note of by our judgment in Madras Petrochem Ltd. and Anr. v. Board for Industrial and Financial Reconstruction and Ors., (2016) 4 SCC 1: 40. An interesting pointer to the direction Parliament has taken after enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is also of some relevance in this context. The Eradi Committee Report relating to insolvency and winding up of companies dated 31-72000, observed that out of 3068 cases referred to BIFR f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsequent to some of its provisions being telescoped into the Companies Act. Thus, the Companies Amendment Act, 2002 and the SICA Repeal Act formed part of one legislative scheme, and neither has yet been brought into force. In fact, even the Companies Act, 2013, which repeals the Companies Act, 1956, contains Chapter 19 consisting of Sections 253 to 269 dealing with revival and rehabilitation of sick companies along the lines of Sections 424-A to 424-H of the amended Companies Act, 1956. Conspicuous by its absence is a provision akin to Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 in the 2013 Act. However, this Chapter is also yet to be brought into force. These statutory provisions, though not yet brought into force, are also an important pointer to the fact that Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 has been statutorily sought to be excluded, Parliament veering around from wanting to protect sick industrial companies and rehabilitate them to giving credence to the public interest contained in the recovery of public monies owing to banks and financial institutions. These provisions also show that the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Statement of Objects and Reasons, which is reproduced in the said paragraph, makes it clear that the existing framework for insolvency and bankruptcy was not only inadequate and ineffective, but resulted in undue delays in resolution. One of the primary objects of the Code, therefore, is to resolve such matters in a time bound manner . This would not only support the development of credit markets and encourage entrepreneurship, but would also improve ease of doing business and facilitate more investment, leading to higher economic growth and development. 65. Paragraph 16 of the said judgment refers to the report of November, 2015 of the Bankruptcy Law Reforms Committee and refers to speed being of essence as follows: Speed is of essence Speed is of essence for the working of the bankruptcy code, for two reasons. First, while the calm period can help keep an organisation afloat, without the full clarity of ownership and control, significant decisions cannot be made. Without effective leadership, the firm will tend to atrophy and fail. The longer the delay, the more likely it is that liquidation will be the only answer. Second, the liquidation value tends to go dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the resolution plan, the moratorium order passed by the authority under Section 14 shall cease to have effect. The scheme of the Code, therefore, is to make an attempt, by divesting the erstwhile management of its powers and vesting it in a professional agency, to continue the business of the corporate body as a going concern until a resolution plan is drawn up, in which event the management is handed over under the plan so that the corporate body is able to pay back its debts and get back on its feet. All this is to be done within a period of 6 months with a maximum extension of another 90 days or else the chopper comes down and the liquidation process begins. 68. It is in this backdrop that we must consider the provisions of the Code, insofar as the Code requires either that the corporate debtor be taken over by another management and run as a going concern or, if that fails, go into liquidation. Some of the relevant provisions of the Code, insofar as this case is concerned, are set out hereinbelow: 5. (12) insolvency commencement date means the date of admission of an application for initiating corporate insolvency resolution process by the Adjudicating Authority unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Authority shall, within fourteendays of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under subsection (3). (5) Where the Adjudicating Authority is satisfied that- (a) a default has occurred and the application undersub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or (b) default has not occurred or the application undersub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application: Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of subsection (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority. (6) The corporate insolvency resolution process shallcommence from the date of admission of the application under sub-section (5). (7) The Adjudicating Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of thelaw for the time being in force; (f) conforms to such other requirements as may bespecified by the Board. Explanation.-For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of 2013) or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law. (3) The resolution professional shall present to thecommittee of creditors for its approval such resolution plans which confirm the conditions referred to in subsection (2). (4) The committee of creditors may approve aresolution plan by a vote of not less than sixty-six per cent of voting share of the financial creditors, after considering its feasibility and viability, and such other requirements as may be specified by the Board: Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section (1),- (a) the moratorium order passed by the AdjudicatingAuthority under Section 14 shall cease to have effect; and (b) the resolution professional shall forward all recordsrelating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. (4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later: Provided that where the resolution plan contains a provision for combination, as referred to in Section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority. (6) The provisions of sub-section (5) shall not apply tolegal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (7) The order for liquidation under this section shall bedeemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator. xxx xxx xxx 60. Adjudicating Authority for corporate persons.- (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. (2) Without prejudice to sub-section (1) andnotwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od of thirty days if it is satisfied that there was sufficient cause for not filing the appeal but such period shall not exceed fifteen days. (3) An appeal against an order approving a resolutionplan under Section 31 may be filed on the following grounds, namely- (i) the approved resolution plan is in contravention ofthe provisions of any law for the time being in force; (ii) there has been material irregularity in exercise ofthe powers by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of thecorporate debtor have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have notbeen provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any othercriteria specified by the Board. (4) An appeal against a liquidation order passed under Section 33 may be filed on grounds of material irregularity or fraud committed in relation to such a liquidation order. 62. Appeal to Supreme Court.-( 1) Any person aggrieved by an order of the National Company Law Appellate Tribunal may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the date of admission of the application vide Section 7(6). Section 7(7) makes it incumbent upon the Adjudicating Authority to communicate the order accepting or rejecting the application to the financial creditor and the corporate debtor within a period of 7 days of such admission or rejection. 70. The time limit for completion of the insolvency resolution process is laid down in Section 12. A period of 180 days from the date of admission of the application is given by Section 12(1). This is extendable by a maximum period of 90 days only if the Committee of Creditors, by a vote of 66% 2 , votes to extend the said period, and only if the Adjudicating Authority is satisfied that such process cannot be completed within 180 days. The authority may then, by order, extend the duration of such process by a maximum period of 90 days (see Sections 12(2) and 12(3)). What is also of importance is the proviso to Section 12(3) which states that any extension of the period under Section 12 cannot be granted more than once. This has to be read with the third proviso to Section 30(4), which states that the maximum period of 30 days mentioned in the second proviso is allowable as the only exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate debtor and, most importantly, to constitute a Committee of Creditors. That this has to be done at the very earliest, is clear from the scheme of the corporate insolvency resolution process which, as has been stated earlier, cannot exceed the maximum period of 270 days from the date of admission of the financial creditors application. (iv) Under Section 21, the Interim Resolution Professional is to constitute this Committee of Creditors after collating all claims received against the corporate debtor and after determination of the financial position of the corporate debtor, both of which need to be done at the very earliest. This Committee of Creditors is to comprise of financial creditors of the corporate debtor. All decisions of this Committee of Creditors are to be taken by a majority vote of not less than 51% of the voting share of each financial creditor. (v) Under Section 22, the first meeting of the Committee of Creditors is to be held within 7 days of its constitution in order to appoint a Resolution Professional. The Committee of Creditors either continues the Interim Resolution Professional or replaces the Interim Resolution Professional by a majority vote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is stage that a judicial mind is applied by the Adjudicating Authority to the resolution plan so submitted, who then, after being satisfied that the plan meets (or does not meet) the requirements mentioned in Section 30, may either approve or reject such plan. . (ix) An appeal from an order approving such plan is only on the limited grounds laid down in Section 61(3). However, an appeal from an order rejecting a resolution plan would also lie under Section 61. . (x) As has been stated hereinbefore, the liquidation process gets initiated under Section 33 if, (1) either no resolution plan is submitted within the time specified under Section 12, or a resolution plan has been rejected by the Adjudicating Authority; (2) where the Resolution Professional, before confirmation of the resolution plan, intimates the Adjudicating Authority of the decision of the Committee of Creditors to liquidate the corporate debtor; or (3) where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor. Any person other than the corporate debtor whose interests are prejudicially affected by such contravention may apply to the Adjudicating Authority, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On approval by the AA .. Regulation 17(3) IRP performs the functions of RP till the RP is appointed. If RP is not appointed by 40th day of commencement T+40 Regulation 27 Appointment of valuer Within 7 days of appointment of RP, but not later than 40th day of commencement T+47 Section 12A/Regulation 30A Submission of application for withdrawal of application admitted. Before issue of EoI W CoC to dispose of the application Within 7 days of its receipt or 7 days of constitution of CoC, whichever is later. W+7 Filing application of withdrawal, if approved by CoC with 90 % majority voting, by RP to AA Within 3 days of approval by CoC W+10 Regulation 35A RP to form an opinion on preferential and other transactions Within 75 days of the commencement T+75 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insolvency resolution process. Suppose a resolution plan is turned down at the threshold by a Resolution Professional under Section 30(2). At this stage is it open to the concerned resolution applicant to challenge the Resolution Professional s rejection? It is settled law that a statute is designed to be workable, and the interpretation thereof should be designed to make it so workable. In Commissioner of Income Tax, Delhi v. S. Teja Singh, [1959] Supp. 1 S.C.R. 394, this Court said, at page 403: We must now refer to an aspect of the question, which strongly reinforces the conclusion stated above. On the construction contended for by the respondent, S.18A(9)(b) would become wholly nugatory, as ss.22(1) and 22(2) can have no application to advance estimates to be furnished under s.18-A(3), and if we accede to this contention, we must hold that though the legislature enacted s.18-A(9)(b) with the very object of bringing the failure to send estimates under s.18-A(3) within the operation of s.28, it signally failed to achieve its object. A construction which leads to such a result must, if that is possible, be avoided, on the principle expressed in the maxim, ut res magis vale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts in accordance with the proviso to Section 29A(c). A conspectus of all these provisions would show that the Resolution Professional is required to examine that the resolution plan submitted by various applicants is complete in all respects, before submitting it to the Committee of Creditors. The Resolution Professional is not required to take any decision, but merely to ensure that the resolution plans submitted are complete in all respects before they are placed before the Committee of Creditors, who may or may not approve it. The fact that the Resolution Professional is also to confirm that a resolution plan does not contravene any of the provisions of law for the time-being in force, including Section 29A of the Code, only means that his prima facie opinion is to be given to the Committee of Creditors that a law has or has not been contravened. Section 30(2)(e) does not empower the Resolution Professional to decide whether the resolution plan does or does not contravene the provisions of law. Regulation 36A of the CIRP Regulations specifically provides as follows:- (8) The resolution professional shall conduct due diligence based on the material on record in order t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofessional to invite a fresh resolution plan within the time limits specified where no other resolution plan is available with him. It is clear that at this stage again no application before the Adjudicating Authority could be entertained as there is no vested right or fundamental right in the resolution applicant to have its resolution plan approved, and as no adjudication has yet taken place. 80. It is the Committee of Creditors which will approve or disapprove a resolution plan, given the statutory parameters of Section 30. Under Regulation 39 of the CIRP Regulations, subclause (3) thereof provides:- (3) The committee shall evaluate the resolution plans received under sub-regulation (1) strictly as per the evaluation matrix to identify the best resolution plan and may approve it with such modifications as it deems fit: Provided that the committee shall record the reasons for approving or rejecting a resolution plan. This regulation shows that the disapproval of the Committee of Creditors on the ground that the resolution plan violates the provisions of any law, including the ground that a resolution plan is ineligible under Section 29A, is not final. The Adjudicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated in Lachmeshwar Prasad Shukul Ors. v. Keshwar Lal Chaudhuri Ors. AIR 1941 FC 5 and followed in a number of our judgments, an appeal is a continuation of the original proceedings. 83. Given the fact that both the NCLT and NCLAT are to decidematters arising under the Code as soon as possible, we cannot shut our eyes to the fact that a large volume of litigation has now to be handled by both the aforesaid Tribunals. What happens in a case where the NCLT or the NCLAT decide a matter arising out of Section 31 of the Code beyond the time limit of 180 days or the extended time limit of 270 days? Actus curiae neminem gravabit - the act of the Court shall harm no man - is a maxim firmly rooted in our jurisprudence (see Jang Singh v. Brijlal Ors. [1964] 2 S.C.R. 146 at page 149, and A.S. Antulay v. R.S. Nayak Ors. [1988] Supp. 1 S.C.R. 1 at page 71). It is also true that the time taken by a Tribunal should not set at naught the time limits within which the corporate insolvency resolution process must take place. However, we cannot forget that the consequence of the chopper falling is corporate death. The only reasonable construction of the Code is the balance to be mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g ECL, as stated in the relevant extract from Numetal s expression of interest is as follows: The Company satisfies the minimum tangible net worth requirement of INR 30 Billion considering ECL, as a group company that holds 26.1% (Twenty Six point one Percent) shares in the Company, has net worth of USD 2,974 million (US Dollars Two Thousand Nine Hundred Seventy Four million) or INR 192.8 Billion (Rupees One Hundred Ninety Two Point Eight Billion) as on 31st March 201 (immediately preceding completed financial year). Please refer Annexure I for the certificate of Chartered Accountant of the Company certifying satisfaction of the minimum tangible net worth requirement in terms of the Eligibility Criteria which includes A, a certificate of Chartered Accountant certifying ECL s tangible net worth. It is pertinent to note that in case the company is considered as a consortium potential resolution applicant, it continues to satisfy the minimum tangible net worth requirement since the total tangible net worth of the Company, computed on the basis of the weighted average of AEI s and ECL s net worth proportionate to their respective shareholding in the Company, is INR 50.33 Billion, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 89. Curiouser and Curiouser was the expression of Alice, in Lewis Carroll s Alice in Wonderland. In this wonderland of Shri Rewant Ruia, one day later on 22.11.2017, the trustees of the Prisma Trust now acquired 100% of the shareholding of AHL for a par value of approximately USD 10,000 from the trustees of the Crescent Trust. On this very date, merely one day before the Ordinance bringing into force Section 29A was promulgated, ECL transferred its shareholding of 26.1% of the share capital of Numetal to Crinium Bay, an indirect wholly owned subsidiary of VTB Bank, whose shares in turn are held by the Russian Government. AEL also transferred shares representing 13.9% of the share capital of Numetal to Crinium Bay, thus making Crinium Bay s total holding in Numetal 40%. On the same date, AEL also transferred shares representing 25.1% of the share capital of Numetal to Indo, and also transferred shares representing 9.9% of the share capital of Numetal to TPE. These transfers are likely to have taken place between 10.2.2018 and 12.2.2018. At the time of submission of its first Resolution Plan dated 12.2.2018, the shareholding of Numetal was as follows: Crinium Bay : 40% I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rging market groups listed on Moscow Exchange ( MOEX ) and London Stock Exchange ( LSE ) with current market capitalization of approximately US$ 12.3bn (approximately INR 79,000 Crores) and total assets in excess of approximately US$ 220bn (approximately INR 14,08,000). xxx xxx xxx VTB Banks support to provide financing, credit assistance to the Resolution Applicant is set out in Annexure 2 and is subject to the terms of the letter provided therein. The other shareholders in Numetal also have material businesses with international operations focused on the steel, materials and resources sector- (a) Tyazhpromexport JSC ( TPE ) a leadingengineering agency in Russia in ferrous and non ferrous metallurgy project operations and construction with experience with over 60 years and wholly owned by Russian State corporation, Rostec; (b) Indo International Trading FZCO ( Indo or IITF ), aleading commodity trading company; and (c) Aurora Enterprise Trading (sic) Limited ( AEL or Aurora ) a financial investor with regional expertise. Numetals (sic) shareholders bring together a wealth of experience in technical and operational capabilities, banking and finance, commodit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not submitted or relied upon its stand-alone financials to satisfy the eligibility criteria. It is submitted that having taken advantage of this provision it is not open to Numetal to contend that this Respondent cannot look at its constituents/ shareholders when determining the issue of eligibility under Section 29A of the Code. Further, it is submitted that even though the RFP document does not allow a resolution applicant to look at its constituents/ shareholders for the purposes of demonstrating its experience, it is clear from the foregoing that Numetal has extensively relied on the experience of its constituents/shareholders to demonstrate its experience. It is submitted that having relied on the experience of its constituents/shareholders it is not open to Numetal to contend that this Respondent cannot look at its constituents/shareholders when determining the issue of eligibility under Section 29A of the Code. 93. The excerpted portions of Numetal s resolution plan make it clear that, since Numetal itself was a newly incorporated entity, with no financial or experience credentials of its own, it therefore relied entirely on the credentials of each of its constituent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the second resolution plan is to be seen, Shri Rewant Ruia appears to have disappeared from the scene altogether, as the three entities left are stated to be independent entities in the form of two Russian entities and one UAE entity. Viewed on 2.4.2018, therefore, could it be said that Shri Rewant Ruia had disappeared from the scene altogether, so as to obviate the application of Section 29A(c)? The obvious answer is no. This is for two reasons. First, as has been stated earlier, the ₹ 500 crores that has been deposited towards submission of earnest money continues to remain deposited by AEL even post 2.4.2018, showing thereby that Shri Rewant Ruia continues to be present, insofar as Numetal s second resolution plan is concerned. Further, having regard to the reasonably proximate state of affairs before submission of the resolution plan on 2.4.2018, beginning with Numetal s initial corporate structure, and continuing with the changes made till date, it is evident that, the object of all the transactions that have taken place after Section 29A came into force on 23.11.2017 is undoubtedly to avoid the application of Section 29A(c), including its proviso. We therefore hold tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in specified sectors of the Russian Federation economy. Finally, E.O. 13685 also prohibits the importation or exportation of goods, services, or technology to or from the Crimea region of Ukraine, as well as new investment in the Crimea region of Ukraine by a United States person, wherever located. 98. The Office of Foreign Assets Control thereafter issued Directive Number 1 under Executive Order 13662, stating:- DIRECTIVE 1 (AS AMENDED ON SEPTEMBER 29, 2017) UNDER EXECUTIVE ORDER 13662 Pursuant to sections 1(a)(i), 1(b), and 8 of Executive Order 13662 of March 20, 2014, Blocking Property of Additional Persons Contributing to the Situation in Ukraine (the Order) and 31 C.F.R. 589.802, taking appropriate account of the Countering Russian Influence in Europe and Eurasia Act of 2017, and following the Secretary of the Treasury s determination under section 1(a)(i) of the Order with respect to the financial services sector of the Russian Federation economy, the Director of the Office of Foreign Assets Control has determined, in consultation with the Department of State, that the following activities by a U.S. person or within the United States are prohibited After t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation in Ukraine were taken against certain Russian entities, of which VTB Bank was one. These measures included: (5) It is also appropriate to apply restrictions on access to the capital market for certain financial institutions, excluding Russia-based institutions with international status established by intergovernmental agreements with Russia as one of the shareholders. Other financial services such as deposit business, payment services and loans to or from the institutions covered by this Regulation, other than those referred to in Article 5, are not covered by this Regulation. Under Article I of this regulation, transferable securities was defined as : (f) transferable securities means those classes of securities which are negotiable on the capital market, with the exception of instruments of payment, such as: (i) shares in companies and other securities equivalent to shares in companies, partnerships or other entities, and depositary receipts in respect of shares, (ii) bonds or other forms of securitised debt,including depositary receipts in respect of such securities, (iii) any other securities giving the right to acquireor sell any such transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of the view that Shri Rohatgi is right, inasmuch as VTB Bank cannot be said to have been prohibited by an authority outside India from trading in securities or accessing the securities markets, due to any fraudulent and/or unfair trade practices relating to the securities market generally. A prohibitory sanction by an authority situate outside India for political reasons would thus not be covered by sub-clause (i). However, Shri Salve pointed to an order dated 19.9.2017 of the US Commodity Futures Trading Commission, which held: A. Respondents Violated Section 4c(a)(1) and (2) of the Act Respondents' RUB/USD block trades constituted unlawful fictitious sales and caused prices to be reported or recorded that were not true and bona fide prices. Section 4c(a)(1) and (2) of the Act makes it unlawful for any person to offer to enter into, enter into, or confirm the execution of a transaction that is ... a fictitious sale or that is used to cause any price to be reported, registered, or recorded that is not a true and bona fide price. xxx xxx xxx Respondents' RUB/USD block trades were fictitious sales under the Act. Respondents designed the block trades to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er on or through any U.S.-based futures exchange for a period of two years from the date of this Order; 105. A reading of this order makes it clear that, even assuming that the Commodity Futures Trading Commission is an authority which corresponds with SEBI (Shri Rohatgi has argued that in the United States the Securities Exchange Commission is the authority which corresponds with SEBI in India), it is clear that there is no prohibition by the Commodity Futures Trading Commission of the United States interdicting VTB Bank from trading in securities or accessing the securities market. All that VTB Bank has done is consent to a cease and desist order; consent to pay a monetary penalty in the amount of USD five million; and further consent to not enter into privately negotiated futures options with a particular subsidiary, viz. VTB Capital, on or through any US-based futures exchange for a period of two years from the date of the order. Obviously, a prohibition regarding privately negotiated futures options, or combination transactions with one another, is not a prohibition from trading in securities or accessing the securities market. We thus agree with Shri Rohatgi that Crinium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alva, to the lender banks of Uttam Galva, which included the State Bank of India. On 31.3.2016, Canara Bank and Punjab National Bank declared Uttam Galva s accounts as NPA. It is important to note that, in all the annual returns of Uttam Galva till date, AMNLBV s shareholding has been shown as promoter s shareholding. All the annual reports, upto 2017, contained a list of promoters, which included AMNLBV as one such, holding 29.05%% of the share capital of the company, and having significant influence over the company. Shri Salve s argument that, in point of fact, no control was actually exercised as AMNLBV never appointed any directors or exercised its voting rights, cannot be accepted as that makes no difference to the de jure position of AMNLBV being a promoter as defined in Section 2(69)(a) of the Companies Act, 2013. 108. On 7.2.2018, a few days before AMIPL submitted its first resolution plan, AMNLBV sold its entire shareholding in Uttam Galva by way of an off market sale, to a company of the Indian copromoters, viz., Sainath Trading Company Private Limited . Shares that were purchased for ₹ 120 each, were sold for Re.1 each, when the market value of the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 each, so as to overcome the provisions of Section 29A(c) and the proviso thereto. It is clear therefore that the Uttam Galva transaction clearly renders AMIPL ineligible under Section 29A(c) of the Code. 110. Insofar as the transaction with regard to KSS Petron is concerned, the facts are as follows:- on 3.3.2011, Fraseli, an entity registered and incorporated in Luxemburg, which is managed and controlled by Shri L.N. Mittal, held 32.22% of the shareholding of KSS Global, a company domiciled in the Netherlands. On 19.5.2011, by a Shareholders Agreement entered into between KSS Holding, KSS Infra EALQ, Fraseli and KSS Global, the first three companies were each given a right to appoint an equal number of directors on the board of directors of KSS Global, which in turn held 100% of the share capital of KSS Petron, a company incorporated in India. Fraseli was also granted affirmative voting rights on decisions regarding certain specified matters, both at the board and the shareholder level, in respect of KSS Global and all companies controlled by it, which would include KSS Petron. As has been stated hereinabove, KSS Petron was declared as an NPA on 30.9.2015. As in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarded as a person acting in concert with Shri L.N. Mittal. Since this aspect of the case has not been argued before the authorities below, though raised in an I.A. by Numetal before the Appellate Authority, we will not countenance such an argument for the first time before this Court. 113. Since it is clear that both sets of resolution plans that were submitted to the Resolution Professional, even on 2.4.2018, are hit by Section 29A(c), and since the proviso to Section 29A(c) will not apply as the corporate debtors related to AMIPL and Numetal have not paid off their respective NPAs, ordinarily, these appeals would have been disposed of by merely declaring both resolution applicants to be ineligible under Section 29A(c). Shri Subramanium, on behalf of the Committee of Creditors, requested us to give one more opportunity to the parties before us to pay off their corporate debtors respective debts in accordance with Section 29A, as the best resolution plan can then be selected by the requisite majority of the Committee of Creditors, so that all dues could be cleared as soon as possible. Acceding to this request, in order to do complete justice under Article 142 of the Constitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions or instructions, the individual isaccustomed to act; (i) a company, where the individual or the individual along with its relatedparty, own more than fifty per cent. of the share capital of the company or controls the appointment of the board of directors of the company. Explanation.-For the purposes of this clause,- (a) relative , with reference to any person, means anyone who is related to another, in the following manner, namely:- (i) members of a Hindu Undivided Family, (ii) husband, (iii) wife, (iv) father, (v) mother, (vi) son, (vii) daughter, (viii) son's daughter and son, (ix) daughter's daughter and son,(x) grandson's daughter and son, (xi) granddaughter's daughter and son, (xii) brother, (xiii) sister, (xiv) brother's son and daughter, (xv) sister's son and daughter, (xvi) father's father and mother, (xvii) mother's father and mother, (xviii) father's brother and sister, (xix) mother's brother and sister, and (b) wherever the relation is that of a son, daughter, sister or brother, their spouses shall also be included; 2. It is pertinent to note that the I ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
