2018 Supreme(SC) 965

SUPREME COURT OF INDIA
R.F. NARIMAN, INDU MALHOTRA, JJ.
ARCELORMITTAL INDIA PRIVATE LIMITED – APPELLANT
VERSUS
SATISH KUMAR GUPTA & ORS. – RESPONDENTS
CIVIL APPEAL NOs.9402-9405 OF 2018 WITH CIVIL APPEAL NO.9582 OF 2018 CIVIL APPEAL NO._______ OF 2018 DIARY NO.35253 OF 2018 CIVIL APPEAL NO._______ OF 2018 DIARY NO.33971 OF 2018

IMPORTANT POINTS
Legislative intent of section 29A is to rope in all persons who may be acting in concert with the person submitting a resolution plan.
Creative interpretation necessary to lift the corporate veil.
Expression “acting jointly” in opening sentence of Section 29A cannot be confused with “joint venture agreements”.
Section 29A(c) operates from the date the resolution plan is submitted.
Section 29A(c) will apply if any of the three conditions are established: the corporate debtor may be under the management of the person, the Corporate debtor may be a person under the control of such person, or the corporate debtor may be a person of whom such person is a promoter.
‘Management’ means de jure management ordinarily vesting in a Board of Directors which includes a person mentioned as “manager”, “managing director” and “officer” in Sections 2(53), 2(54) and 2(59) of Companies Act, 2013 respectively.
Control denotes only positive control.
Any person who wishes to submit a resolution plan acting jointly or in concert with other persons, any of whom may either manage, control or be a promoter of a corporate debtor classified as a non-performing asset in the period of at least one year before commencement of the corporate insolvency resolution process, must first pay off the debt of the said corporate debtor classified as a non-performing asset in order to become eligible under Section 29A(c).
Ineligibility would attach to a person mentioned in section 29A (including a person situate abroad if prohibited by a regulator of the securities market in a foreign country from trading in securities or accessing the securities market) if he is prohibited by SEBI from either trading in securities or accessing the securities market.
Period of time taken in litigation ought to be excluded.
Numetal and AMIPL both are ineligible to submit resolution plan.

Headnote:(a) Insolvency and Bankruptcy Code, 2016 and Insolvency and Bankruptcy Code (Amendment) Act, 2017 – Section 29A – “Persons acting in concert”, “promoter”, “management” and “control” – Legislative intent to rope in all persons who may be acting in concert with the person submitting a resolution plan – Creative interpretation – Section 29A referring to a de facto, as opposed to a de jure, position of persons mentioned therein. – Typical instance of a “see through provision” – One is able to arrive at persons who are actually in “control”, whether jointly, or in concert, with other persons – Tearing of corporate veil, not possible with literal interpretation. (Para 28, 29)

       (2017) 15 SCC 133; (1986) 1 SCC 264 – Relied upon

       [1897] AC 22 – Referred

       (b) Interpretation of statute – Creative interpretation – Section 29A, Insolvency and Bankruptcy Code, 2016 and Insolvency and Bankruptcy Code (Amendment) Act, 2017 – Lifting of corporate veil – Expression “acting jointly” in opening sentence of Section 29A – Cannot be confused with “joint venture agreements”. (Para 35)

       (2013) 16 SCC 490; (2014) 9 SCC 407; (1996) 4 SCC 622 – Relied upon

       (c) Insolvency and Bankruptcy Code, 2016 and Insolvency and Bankruptcy Code (Amendment) Act, 2017 – Section 29A – “Persons acting in concert” – SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 – Regulation 2(1)(q)(2) – The expression includes any understanding, even if informal, and to indirectly cooperate to exercise control over a target company – Regulation 2(1)(q)(2) enacting a deeming fiction – Raising a presumption that a person falling within one category is deemed to be acting in concert with another person mentioned in the same category unless “the contrary is established”, Sub-clauses (i) to (iv) – Sub-clause (v) also covering “immediate relatives” and “associates” including a trust, partnership firm and HUF – Presumption held rebuttable. (Para 39, 41)

       (d) Insolvency and Bankruptcy Code, 2016 and Insolvency and Bankruptcy Code (Amendment) Act, 2017 – Section 29A – “Persons acting in concert” – Standard of proof required to establish such concert – One of probability – Shared common objective for substantial acquisition of shares of a target company – Sine qua non under SEBI regulations – An accidental fortuitous relationship does not amount to “persons acting in concert”. (Para 40, 41)

       (2005) 5 SCC 465; (2010) 7 SCC 449 – Relied upon

       (e) Insolvency and Bankruptcy Code, 2016 – Section 29A(c) – Relevant time – Opening words “a person shall not be eligible to submit a resolution plan…” – Provision operates from the date the resolution plan is submitted – further, word “has” is in praesenti as contrasted with “has been” used on sub-clauses (d) and (g) referring to an anterior point of time – Therefore words “at the time of submission of the resolution plan” in amendment of 2018 held clarificatory. (Para 43)

       (f) Insolvency and Bankruptcy Code, 2016 – Section 29A(c) – Ingredients – Inability attaching to a person to submit resolution plan – If the person has an account, or is a promoter of, or in the management or control of, a corporate debtor which has an account, which account has been classified as a non-performing asset, for a period of at least one year from the date of such classification till the date of commencement of the corporate insolvency resolution process – Provision will apply if any of the three conditions are established – The corporate debtor may be under the management of the person, the Corporate debtor may be a person under the control of such person, or the corporate debtor may be a person of whom such person is a promoter – ‘Management’ means de jure management ordinarily vesting in a Board of Directors which includes a person mentioned as “manager”, “managing director” and “officer” in Sections 2(53), 2(54) and 2(59) of Companies Act, 2013 respectively. (Para 44, 45)

       (g) Insolvency and Bankruptcy Code, 2016 – Section 29A(c) – Control – Denotes only positive control – Mere power to block special resolutions of a company cannot amount to control – Similarly `promoter’ also denotes a de jure position. (Para 48, 50, 53)

       (2018) 7 SCC 443; (2016) 6 SCC 368 – Relied upon

       Appeal No. 8 of 2009 (Securities Appellate Tribunal) – Cited with approval

       (h) Insolvency and Bankruptcy Code, 2016 – Section 29A(c) – Eligibility to submit a resolution plan – Any person who wishes to submit a resolution plan acting jointly or in concert with other persons, any of whom may either manage, control or be a promoter of a corporate debtor classified as a non-performing asset in the period of at least one year before commencement of the corporate insolvency resolution process, must first pay off the debt of the said corporate debtor classified as a non-performing asset in order to become eligible under Section 29A(c). (Para 54)

       (i) Interpretation of statute – Section 29A(c), Proviso – Plain meaning – Ineligibility can only be removed if necessary payment is made before submission of a resolution plan – Does not lead to leads to absurdity or hardship – Plain meaning also in line with the object sought to be achieved, namely, that other corporate debtors who are declared as NPAs, whose debts may never be cleared in full, are required to be cleared as a condition precedent to submission of a resolution plan. (Para 55)

       (j) Insolvency and Bankruptcy Code, 2016 – Section 29A – Sub-clause (g) making a person ineligible to submit resolution plan who has been a promoter, or in the management, or control, of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place, and in respect of which an order has been made by the Adjudicating Authority under the Code – This ineligibility cannot be cured by paying off the debts of the corporate debtor – Therefore, only the persons not covered by sub-clause (g), are eligible to submit resolution plans under Section 29A(c), if they happen to be persons who were in the erstwhile management or control of the corporate debtor – Despite the relevant time for the ineligibility under sub-clause (c) to attach being the time of submission of the resolution plan, antecedent facts reasonably proximate to this point of time can always be seen by the competent authority to determine whether the persons referred to in Section 29A are, in substance, seeking to avoid the consequences of the proviso to sub-clause (c) before submitting a resolution plan

       (Para 56, 57)

       (k) Insolvency and Bankruptcy Code, 2016 – Section 29A(f) – Ineligibility would attach to a person mentioned in section 29A if he is prohibited by SEBI from either trading in securities or accessing the securities market – ‘Person’ includes a person situate abroad if prohibited by a regulator of the securities market in a foreign country from trading in securities or accessing the securities market. (Para 58, 59)

       (1969) 2 SCC 194 – Relied upon

       (l) Insolvency and Bankruptcy Code, 2016 – Section 29A(f) – “Connected person” – A person who is either the promoter, or in management or control, of the business of the corporate debtor during implementation of the resolution plan – It also includes holding companies, subsidiary companies and associate companies. (Para 60)

       (m) Insolvency and Bankruptcy Code, 2016 – Section 7, – Time line – Code aimed at resolving insolvency and bankruptcy matters in a time bound manner – Time frame given in section 7 viz 14 days for determination of default after receipt of application for resolution, 7 days for removal of defects if any, are directory – Corporate insolvency resolution process commences from the date of admission of the application vide Section 7(6) to be communicated within 7 days of decision. (Para 64, 66, 69)

       (2016) 4 SCC 1; (2018) 1 SCC 407; (2017) 16 SCC 143 – Relied upon

       (n) Insolvency and Bankruptcy Code, 2016 – Section 12 and 33 r/w Regulation 40A, Corporate Insolvency Resolution Process – Insolvency resolution process – Required to be completed within 180 days – Extendable only once by 90 days only if Committee of Creditors, by a vote of 66% so votes, subject to satisfaction of Adjudicating Authority – If either no resolution is received or if received, is rejected, Corporate debtor is required to be liquidated – Periods mentioned u/s 12 held to be mandatory. (Para 70, 71, 72)

       (2016) 4 SCC 1; (2018) 1 SCC 407; (2017) 16 SCC 143 – Relied upon

       (o) Insolvency and Bankruptcy Code, 2016 – Section 30(2)(e) r/w sections 25(2)(i), 30(4), 29A(c) and Regulation 36A and 39(3), CIRP Regulations – Resolution Professional is only required to ensure that a resolution plan is complete in all respects, and to conduct a due diligence in order to report to the Committee of Creditors whether or not it is in order – He is not empowered to take any decision – It is for the Committee of Creditors to approve or disapprove a resolution plan – Adjudicating Authority has to decide, after hearing the resolution applicant and committee of Creditors whether the resolution plan is violative of the provisions of any law, including Section 29A of the Code – Decision of Adjudicating Authority is appealable before Appellate Authority u/s 61 and thereafter before the Supreme Court u/s 62. (Para 77, 78, 80, 81)

       (p) Insolvency and Bankruptcy Code, 2016 – Sections 33 and 62 – Appeal – An appeal is a continuation of the original proceedings – If Adjudicating Authority decides in favour of a resolution plan but Appellate Authority in appeal sets it aside, this will be the order rejecting the resolution plan u/s 33 – Same would apply to an ultimate order of rejection by the Supreme Court u/s 62. (Para 82)

       AIR 1941 FC 5 – Relied upon

       (q) Insolvency and Bankruptcy Code, 2016 – Section 31 – Time limit for completion of resolution process – 270 days including extended time – NCLT or the NCLAT or subsequently the Court deciding a matter beyond the extended time limit – Effect – Actus curiae neminem gravabit - the act of the Court shall harm no man – A maxim firmly rooted in our jurisprudence – Balance needs to be maintained between timely completion of the corporate insolvency resolution process, and the corporate debtor otherwise being put into liquidation – Every effort must be made to try and see that corporate debtor runs as a going concern – Held, period of time taken in litigation ought to be excluded. (Para 83)

       [1964] 2 S.C.R. 146; [1988] Supp. 1 S.C.R. 1– Relied upon

       (r) Takeover Regulations, 2011 – Regulation 2(1)(q)(v) and section 29A, – Rewant Ruia holding entire share capital of AHL which in turn held entire share holding of AEL – AEL transferring its 26.1% shareholding in Numetal to ECL, a group company – ECL ultimately owned by ‘Virgo Trust’ and ‘Triton Trust’ beneficiaries of which are companies owned by Rewant Ruia, his brother and their immediate family members. – Rawant Ruia being son of Ravi Ruia, the promoter of the corporate debtor ESIL, would be deemed to be a person acting in concert with the corporate debtor – Rewant Ruia settling two trusts ‘Crescent Trust’ and ‘Prisma Trust’ – Beneficiaries of both Trusts being general charities and one ‘Solis Enterprises Limited’ whose share capital is held by Rewant Ruia – Resolution Professional correctly noting that trustee was under the complete control of Shri Rewant Ruia – At the time of submission of its first Resolution Plan dated 12.2.2018 90% of Numetal’s holding were held by Crinium Bay, Indo, TPE and AEL; Rewant Ruia holding 25% of shatreholding of Numetal through AEL – AEL providing earnest money of Rs.500 crores as a shareholder of resolution applicant, viz. Numetal – Earnest money remaining with Resolution Professional even after exit of AEL from Numetal – Held, the four shareholders of Numetal were persons “acting jointly” within the meaning of Section 29A – ESIL account having been declared NPA in 2015, held Numetal is ineligible for submitting resolution plan of ESIL unless it paid debts of ESIL, as well as those of such other corporate debtors of the Ruia group of companies, which were declared as NPAs prior to the aforesaid period of one year – All transactions of Numetal that have taken place after Section 29A came into force on 23.11.2017 undoubtedly to avoid application of Section 29A(c), including its proviso – Numetal held ineligible to submit resolution plan for ESIL. (Para 84, 85, 87, 88, 91, 93, 95)

       (s) Insolvency and Bankruptcy Code, 2016 – Section 29A(f) and (i) – VTB Bank in the wake of annexation of Crimea by Russia was held by the Commodity Futures Trading Commission as violating Section 4c(a)(1) and (2) of the Act and Regulation 1.38(a) – Despite this VTB Bank not prohibited from trading in securities or accessing the securities market – VTB Bank and VTB Capital willingly undertaking to desist from privately negotiated futures options, or combination transactions with one another – Held, not a a prohibition from trading in securities or accessing the securities market incurring disability u/s 29A(f) and (i). (Para 105)

       (t) Insolvency and Bankruptcy Code, 2016 – Section 29A(c) – KSS Petron was managed and controlled by KSS Holding, KSS Infra EALQ and KSS Global which held 100% shareholding in KSS Petron – Fraseli owned and managed by L.N.Mittal held 32.22% of the shareholding of KSS Global – KSS Petron account was declared NPA – Just three days before second resolution plan was submitted by AMIPL Fraseli sold its shareholding in KSS Petron and Directors nominated by LNMittal through Fraseli also resigned from the Board of KSS Global – Held, transaction of divestment of shareholding by Fraseli being reasonably proximate to the date of submission of the resolution plan by AMIPL, held, was undertaken with the sole object of avoiding the consequence of proviso to Section 29A(c) – AMIPL, wholly owned by L.N.Mittal is therefore ineligible under Section 29A(c). (Para 110, 111)

       (u) Insolvency and Bankruptcy Code, 2016 – Section 29A(c) – One more opportunity given to both resolution applicants to pay off NPAs of their related corporate debtors within a period of two weeks – Thereafter both resolution applicants can resubmit their resolution plans dated 2.4.2018 to the Committee of Creditors – Committee of Creditors given a period of 8 weeks from this date, to accept the best amongst the plans submitted, including the resolution plan submitted by Vedanta – If no plan is found acceptable, the corporate debtor, i.e. ESIL, shall go into liquidation. (Para 112)

       Facts of the case:

       On 2.8.2017, the Adjudicating Authority, the NCLT, Ahmedabad Bench, passed an order under Section 7 of the Code at the behest of financial creditors, being the State Bank of India and the Standard Chartered Bank, admitting a petition filed under the Code for financial debts owed to them by the corporate debtor Essar Steel India Limited, in the sum of roughly Rs.45,000,00,00,000 (Rupees Forty Five Thousand Crores).

       The Resolution Professional published an advertisement dated 6.10.2017, seeking expression of interest from potential resolution applicants who wished to submit resolution plans for the revival of ESIL. Pursuant to this advertisement, one ‘ArcelorMittal India Private Limited’ submitted an expression of interest on 11.10.2017. An entity called Numetal Limited, also submitted an expression of interest on 20.10.2017. On 24.12.2017, the Resolution Professional published a ‘request for proposal’, in which it was stated that the last date for submission of resolution plans would be 29.1.2018 which was extended upto 29.4.2018. Given this, both AMIPL and Numetal submitted their resolution plans on this date.

       On 2.4.2018, pursuant to the Resolution Professional’s invitation, fresh resolution plans were submitted (as both the resolution plans before this were found to be ineligible) by AMIPL, Numetal, and one other entity, namely ‘Vedanta Resources Ltd.’. On this very date, the NCLT directed that the bids of the resolution applicants, submitted pursuant to the revised request for proposal, should not be opened pending adjudication of I.A. No. 98 of 2018 filed by Numetal.

       The NCLTAT disqualified both AMIPL and Numetal.

       Finding of the Court:

       Both the resolution applicants, AMIPL and Numetal, are ineligible.

       Result: Appeals disposed of.