TMI Blog2022 (1) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... f persons and thus, there is no such exclusion. It is merely illustrative/inclusive in nature and therefore, the persons mentioned in Section 29A alone are ineligible to be resolution applicants - Once a person executes a guarantee in favour of a creditor with respect to the credit facilities availed by a corporate debtor, and in a case where an application for insolvency resolution has been admitted, with the further fact of the said guarantee having been invoked, the bar qua eligibility would certainly come into play. What the provision requires is a guarantee in favour of a creditor . Once an application for insolvency resolution is admitted on behalf of a creditor then the process would be one of rem, and therefore, all creditors of the same class would have their respective rights at par with each other. The word such creditor in Section 29A(h) has to be interpreted to mean similarly placed creditors after the application for insolvency application is admitted by the adjudicating authority. As a result, what is required to earn a disqualification under the said provision is a mere existence of a personal guarantee that stands invoked by a single creditor, notwithstandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by one such creditor. It was invoked even at the time of submitting a resolution plan by the Respondent No.3. Thus, in the touchstone of interpretation of Section 29A(h), it is held that the plan submitted by the Respondent No.3 ought not to have been entertained. Time limitation - HELD THAT:- The delay of 106 days has been rightly condoned and excluded by the adjudicating authority by invoking Section 12(3) of the Code. It was done only on one occasion. The adjudicating authority was right in holding that there is a marked difference between extension and exclusion. Exclusion would come into play when the decision is challenged before a higher forum. Extension is one which is to be exercised by the authority constituted. The ultimate object of the Code, which is to put the corporate debtor back on the rails should be remembered. Incidentally, it is also noted that no prejudice would be caused to the dissenting creditors as their interests would otherwise be secured by the resolution plan itself, which permits them to get back the liquidation value of their respective credit limits. Thus, on the peculiar facts of the present case, the resolution plan leading to the on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank of Bikaner and Jaipur. We are given to understand that M/s. State Bank of Bikaner and Jaipur got merged with State Bank of India. The aforesaid two proceedings invoking Section 13(2) of the SARFAESI Act were initiated in the month of February and March, 2013, respectively. 5. On the aforesaid factual setting, M/s. RBL Bank filed an application bearing No. (IB)-170/KB/2017 under Section 7 of the Code before the National Company Law Tribunal, Kolkata (hereinafter referred to as adjudicating authority ) to initiate corporate insolvency resolution process (CIRP) against Respondent No.1. It was admitted vide order dated 30.03.2017, appointing an Interim Resolution Professional, leading to imposition of moratorium in terms of Section 14 of the Code. After the expiry of the initial period of CIRP, an application was filed by the Resolution Professional for extending the duration of CIRP by an additional 90 days, which was duly granted. 6. Two resolution plans were received by the Resolution Professional (Respondent No.2 herein) as he then was, of which, one was authored by Respondent No.3 on 29.06.2017. This was done prior to the introduction of Section 29A of the Code. 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 18.12.2017 held that the Respondent No.3 was eligible to submit a resolution plan, notwithstanding the fact that he did extend his personal guarantees on behalf of the Respondent No.1 which were duly invoked by some of the creditors, as aforesaid. This issue was never placed and raised before the adjudicating authority. Though the adjudicating authority took note of Section 29A(c) of the Code, it did not give any specific findings on it. However, it ruled that inasmuch as the personal guarantee having not been invoked and the Respondent No.3 merely having extended his personal guarantee, as such there is no disqualification per se under Section 29A(h) of the Code as the liability under a guarantee arises only upon its invocation. Thus, only those guarantors who had antecedents which might adversely impact the credibility of the process are alone to be excluded. As debt payable by Respondent No.3 was not crystalized, he could not be construed as a defaulter for breach of the guarantee. Incidentally, a finding has been given that the Respondent No.3 did not commit any default. With the aforesaid clarification, the application filed was allowed by taking into consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.50% vote share. 15. In the meanwhile, Section 29A(h) went through a further amendment which came into effect from 18.01.2018: Section 29 A 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 xxx xxx xxx (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. 16. On 23.03.2018, the appellate tribunal passed the following order in the appeals filed by Respondent No.10 and RBL Bank: When the matter was taken up learned counsel appearing on behalf of the Appellant Punjab National Bank sought permission to withdraw the appeal. One of the learned counsel appearing on behalf of the Respondent opposed the prayer. However, we are not inclined to the ground of opposition as made by the Respondent. Bank intends to withdraw the appeal, without any liberty. In this background, without taking into consideration the grounds shown in the affidavit for withdrawal, we allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Respondent No.3 was liable to be allowed. A direction was accordingly given, holding that the approved resolution plan shall come into force with immediate effect. 19. The appellant before us put into challenge, the aforesaid order passed by the adjudicating authority in Company Appeal (AT)(Insolvency) No. 194 of 2018. 20. In the meanwhile, Section 29A(h) went through a further change by way of ordinance dated 06.06.2018, which subsequently became an Act with effect from the same date through the Act 26 of 2018: Section 29 A- 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 xxx xxx xxx (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 credit and remains unpaid if full or part. 21. The appellate tribunal did explore other possibilities during the pendency of the appeal. It also directed the Respondent No.3 to submit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, prior commencement of CIRP. There is a clear suppression on the part of Respondent No.3, which was not taken note of by the adjudicating authority on both the occasions. Even the Respondent No.2 failed to bring the said fact before the adjudicating authority. Therefore, the premise on which the adjudicating held the Respondent No.3 eligible to submit a resolution plan is ex facie false. 26. The law which was prevailing on the date of the application has to be seen, therefore, the disqualification gets attracted on the date of filing of the application and on the same analogy not only Section 29A(h) but also Section 30(4) has to be interpreted. As fraud vitiates all solemn acts, the appeal deserves to be allowed. A legal ineligibility cannot be done away with by alleged estoppel, such ineligibility is a matter of fact to be considered by Courts irrespective of any waiver by any party or creditor. The approval of the resolution plan was made after the mandatory period of 270 days, i.e. after the expiry of the CIRP period. Since there is clear infraction of Section 12, the orders passed are liable to be interfered with. The learned Solicitor General has sought to place reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent is an on-going concern as of now and the resolution plan is under implementation since 18.04.2018. The object of the Code is revival of the Corporate Debtor and liquidation is the last resort. Any interference at this stage will have an adverse effect and militate against the very object of the Code. The Respondent No.3 has infused over ₹ 63 crores since the resolution plan has been in operation and has further received approval of the shareholders to raise ₹ 300 crores to revive the Respondent No.1. Since the approval of the resolution plan submitted by the Respondent No.3, several projects of national importance have been completed and various others are under execution. Further, all workmen have also been paid in full, and all current employees, operational creditors and statutory dues are being regularly paid. 32. Both the forums have rightly construed the issue qua extension and exclusion. Admittedly, there were earlier rounds of litigation and proceedings were pending against the interim orders. This issue has also been concluded finally by this Court inter alia holding that in such a scenario exclusion has to be granted, in light of the time spent i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must not, of course, be strained to include cases plainly omitted from the natural meaning of the words. (Pg. 66) In determining either the general object of the legislature, or the meaning of its language in any particular passage, it is obvious that the intention which appears to be most in accord with convenience, reason, justice or legal principles, should, in all cases of doubtful significance, be presumed to be the true one. (Pg. 183) 37.CRAIES IN STATUTE LAW, 7th Edition, Pg. 262: It is the duty of Courts of justice to try to get at the real intention of the legislature by carefully attending to the whole scope of the statute to be construed .. that in each case you must look to the subject-matter, consider the importance of the provision and the relation of that provision to the general object intended to be secured by the Act, and upon a review of the case in that aspect decide whether the enactment is what is called imperative or only directory. 38.A DRIEDGER, CONSTRUCTION OF STATUTE, 2nd Edition, 1983, Pg. 37: Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and they are thus finishers, refiners and polishers of legislation which comes to them in a state requiring varying degrees of further processing. (See: Corocraft Ltd. v. Pan American Airways Inc. [(1968) 3 WLR 714 : (1968) 2 All ER 1059 : (1969) 1 QB 616] WLR, p. 732 and State of Haryana v. Sampuran Singh [(1975) 2 SCC 810].) But by no stretch of imagination a Judge is entitled to add something more than what is there in the statute by way of a supposed intention of the legislature. It is, therefore, a cardinal principle of construction of statutes that the true or legal meaning of an enactment is derived by considering the meaning of the words used in the enactment in the light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed. 42. Touching upon the very interpretation of the Code, this Court on more than one occasion has adopted the very same approach in Arcellor Mittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1, Phoenix Arc (P) Ltd. v. Spade Financial Services Ltd., (2021) 3 SCC 475 and Arun Kumar Jagatramka v. Jindal Steel Power Limited, (2021) 7 SCC 474. INSOLVENCY AND BANKRUPTCY C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. 28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor s assets from further dilution, and also protects all its creditors and workers by seeing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinue to be NPAs and yet I am going to apply for this. Effectively this clause will mean that those who are in management and on account of whom this insolvent or non-performing asset has arisen will now try and say, I do not discharge any of the outstanding debts in terms of making the accounts operational and yet I would like to apply and set the enterprise back at a discount value, for this is not the object of this particular Act. So Clause 5 has been brought in with that purpose in mind. 47. The Statement of Objects and Reasons of the aforesaid Bill is as follows: 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 the 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroducing Section 29-A was adverted to in a judgment of this Court in Chitra Sharma v. Union of India (2018) 18 SCC 575 (hereinafter referred to as Chitra Sharma ). One of us (D.Y. Chandrachud, J.) speaking for a Bench of three learned Judges took note of the Statement of Objects and Reasons accompanying the Bill and emphasised the purpose of Section 29-A thus: 38. Parliament has introduced Section 29-A into IBC with a specific purpose. The provisions of Section 29-A are intended to ensure that among others, persons responsible for insolvency of the corporate debtor do not participate in the resolution process. The Statement of Objects and Reasons appended to the Insolvency and Bankruptcy Code (Amendment) Bill, 2017, which was ultimately enacted as Act 8 of 2018, states thus: 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, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile promoter who alone may purchase such properties piecemeal by public auction or by private contract. The same rationale that has been provided earlier in this judgment will apply to this proviso as well - there is no vested right in an erstwhile promoter of a corporate debtor to bid for the immovable and movable property of the corporate debtor in liquidation. Further, given the categories of persons who are ineligible under Section 29-A, which includes persons who are malfeasant, or persons who have fallen foul of the law in some way, and persons who are unable to pay their debts in the grace period allowed, are further, by this proviso, interdicted from purchasing assets of the corporate debtor whose debts they have either wilfully not paid or have been unable to pay. The legislative purpose which permeates Section 29-A continues to permeate the section when it applies not merely to resolution applicants, but to liquidation also. Consequently, this plea is also rejected. A purposive interpretation 53. This line of decisions, beginning with Chitra Sharma [Chitra Sharma v. Union of India, (2018) 18 SCC 575] and continuing to ArcelorMittal [ArcelorMittal (India) (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posive and creative interpretation while approving the interpretation given and approach taken by this Court in the earlier decision in Arcellor Mittal(supra): 89. In Arcelor Mittal (India) (P) Ltd. v. Satish Kumar Gupta [(2019) 2 SCC 1], the issue was whether ineligibility of the resolution applicant under Section 29-A(c) of the Code attached to an applicant at the date of commencement of the CIRP or at the time when the resolution plan is submitted by the resolution applicant. Speaking for this Court, Rohinton F. Nariman, J. interpreted the pre-2018 Amendment, framing of Section 29-A(c), in the following terms: (SCC pp. 61-62, para 46) 46. According to us, it is clear that the opening words of Section 29A furnish a clue as to the time at which clause (c) is to operate. The opening words of Section 29-A state: a person shall not be eligible to submit a resolution plan . It is clear therefore that the stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant. The contrary view expressed by Shri Rohatgi is obviously incorrect, as the date of commencement of the corporate insolvency resolution process is only relevant for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose is only to intimate the people that after lapse of a certain time from a certain event a proceeding will not be entertained and where a strict grammatical construction is normally the only safe guide, a literal and mechanical construction may have to be disregarded if it conflicts with some essential requirement of fair play and natural justice which the legislature never intended to throw overboard. Similarly, in a taxing statute provisions enacted to prevent tax evasion are given a liberal construction to effectuate the purpose of suppressing tax evasion although provisions imposing a charge are construed strictly there being no a priori liability to pay a tax and the purpose of a charging section being only to levy a charge on persons and activities brought within its clear terms. For the same reason, in a legislation relating to defence services the considerations of the security of the State and enforcement of high degree of discipline additionally intervene and have to be assigned weightage while dealing with any expression needing to be defined or any provision needing to be interpreted. 93. Similar words used in different parts of the enactment can have dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd (c), it was urged that this would exclude a public servant who had abused office at an earlier point in time and has now ceased to occupy that office. This Court speaking through Sirpurkar, J. rejected the argument and held: (Abhay Singh Chautala case(supra), SCC p.163, para 44) 44. we reject the argument based on the word is in clauses (a), (b) and (c). It is true that the section operates in praesenti; however, the section contemplates a person who continues to be a public servant on the date of taking cognizance. However, as per the interpretation, it excludes a person who has abused some other office than the one which he is holding on the date of taking cognizance, by necessary implication. Once that is clear, the necessity of the literal interpretation would not be there in the present case. Therefore, while we agree with the principles laid down in Robert Wigram Crawford v. Richard Spooner; Bidie [(1846 SCC OnLine PC 7)], In re [1949 Ch 121(CA)] and Bourne (Inspector of Taxes) v. Norwich Crematorium Ltd. [(1967) 1 WLR 691], we specifically hold that giving the literal interpretation to the section would lead to absurdity and some unwanted results, as had alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emphasis supplied) 97. This Court has approved of a purposive interpretation of Section 29-AIBC in Arcelor Mittal (India) (P) Ltd. v. Satish Kumar Gupta(supra), where it was observed that: (SCC pp. 46-47, paras 29-30) 29. In Eera v. State (NCT of Delhi) [(2017) 15 SCC 133], this Court, after referring to the golden rule of literal construction, and its older counterpart the object rule in Heydon case [(1584) 3 Co Rep 7a], referred to the theory of creative interpretation as follows: (Eera case(supra), SCC pp. 200-01 204, paras 122 127) 122. Instances of creative interpretation are when the Court looks at both the literal language as well as the purpose or object of the statute in order to better determine what the words used by the draftsman of legislation mean. In D.R. Venkatachalam v. Transport Commr. [(1977) 2 SCC 273], an early instance of this is found in the 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegory of persons not being eligible to be a resolution applicant. Other than the persons mentioned thereunder, there may not be any disqualification. The word person is of a wider import to include a promoter or a director, as the case may be. The definition of person as mentioned under Section 3(23) of the Code includes certain categories of persons and thus, there is no such exclusion. It is merely illustrative/inclusive in nature and therefore, the persons mentioned in Section 29A alone are ineligible to be resolution applicants. 52. Once a person executes a guarantee in favour of a creditor with respect to the credit facilities availed by a corporate debtor, and in a case where an application for insolvency resolution has been admitted, with the further fact of the said guarantee having been invoked, the bar qua eligibility would certainly come into play. What the provision requires is a guarantee in favour of a creditor . Once an application for insolvency resolution is admitted on behalf of a creditor then the process would be one of rem, and therefore, all creditors of the same class would have their respective rights at par with each other. This position has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t speaks of invocation by a creditor. The manner of invocation can never be a factor for the adjudicating authority to adjudge, as against its existence. Adequate importance will have to be given to the latter part of the provision which also disqualifies a person whose liability under the personal guarantee executed in favour of a creditor, remains unpaid in full or in part for the amount due from him, upon invocation. 55. It is quite obvious that a resolution applicant, other than a financial creditor under Section 7, an operational creditor under Section 8 and a corporate debtor under Section 10, can ever have an independent right to insist for the protection of its own interest in the resolution process. Thus, Section 29A has a laudable object of protecting and balancing the interest of the committee of creditors and the corporate debtor, while shutting the doors to canvas the interests of others. That is the reason why it consciously excludes certain categories of persons. We may add that Section 29A(h) foresees the creditors who are otherwise either already under the insolvency resolution process or are entitled to go under it. 56. Yet another issue which requires consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atutory dues are owed, operational creditors who were not a part of the CoC and the workforce of the Corporate Debtor who would now be governed by a new management. Such features of a Resolution Plan, where a statute extensively governs the form, mode, manner and effect of approval distinguishes it from a traditional contract, specifically in its ability to bind those who have not consented to it. In the pure contractual realm, an agreement binds parties who are privy to the contract. In the context of a resolution Plan governed by the IBC, the element of privity becomes inapplicable once the Adjudicating Authority confirms the Resolution Plan under Section 31(1) and declares it to be binding on all stakeholders, who are not a part of the negotiation stage or parties to the Resolution Plan. In fact, a commentator has noted that the purpose of bankruptcy law is to actually solve a specific contracting failure that accompanies financial distress. Such a contracting failure arises because financial distress involves too many parties with strategic bargaining incentives and too many contingencies for the firm and its creditors to define a set of rules of every scenario. Thus, insol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode. It was done only on one occasion. The adjudicating authority was right in holding that there is a marked difference between extension and exclusion. Exclusion would come into play when the decision is challenged before a higher forum. Extension is one which is to be exercised by the authority constituted. 61. Having held so, we would like to come to the last part of our order. Though the very resolution plan submitted by the Respondent No. 3, being ineligible is not maintainable, much water has flown under the bridge. The requisite percentage of voting share has been achieved. We may also note that the percentage has been brought down from 75% to 66% by way of an amendment to Section 30(4) of the Code. 62. Secondly, majority of the creditors have given their approval to the resolution plan. The adjudicating authority has rightly noted that it was accordingly approved after taking into consideration, the techno-economic report pertaining to the viability and feasibility of the plan. The plan is also put into operation since 18.04.2018, and as of now the Respondent No. 1 is an on-going concern. Though, the Respondent No.11 has taken up the plea that its offer was condition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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