2022 (1) TMI 811 - SC - Insolvency and Bankruptcy

Eligibility of persons to be resolution applicant - Interpretation of Statute - Section 29A(h) of the Insolvency and Bankruptcy Code, 2016 - time limitation - HELD THAT - Section 29A is a facet of the Code, and therefore, this provision has to be read with the main objective enshrined thereunder. The objective behind Section 29A of the Code is to avoid unwarranted and unscrupulous elements to get into the resolution process while preventing their personal interests to step in. Secondly, it consciously seeks to prevent certain categories of persons who may not be in a position to lend credence to the resolution process by virtue of their disqualification. Section 29A(h) of the Code creates one more category 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 - 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, notwithstanding the application being filed by any other creditor seeking initiation of insolvency resolution process. This is subject to further compliance of invocation of the said personal guarantee by any other creditor - Ineligibility has to be seen from the point of view of the resolution process. It can never be said that there can be ineligibility qua one creditor as against others. Rather, the ineligibility is to the participation in the resolution process of the corporate debtor. Exclusion is meant to facilitate a fair and transparent process. Having understood the provision and the objective behind it, as well as the Code, it is clear that, if there is a bar at the time of submission of resolution plan by a resolution applicant, it is obviously not maintainable. However, if the submission of the plan is maintainable at the time at which it is filed, and thereafter, by the operation of the law, a person becomes ineligible, which continues either till the time of approval by the CoC, or adjudication by the authority, then the subsequent amended provision would govern the question of eligibility of resolution applicant to submit a resolution plan. The resolution applicant has no role except to facilitate the process. If there is ineligibility which in turn prohibits the other stakeholders to proceed further and the amendment being in the nature of providing a better process, and that too in the interest of the creditors and the debtor, the same is required to be followed as against the provision that stood at an earlier point of time. Thus, a mere filing of the submission of a resolution plan has got no rationale, as it does not create any right in favour of a facilitator nor it can be extinguished. One cannot say, what is good today cannot be applied merely because an applicant was eligible to submit a resolution plan at an earlier point of time. It is only a part of procedural law. Admittedly, the Respondent No.3 has executed personal guarantees which were invoked by three of the financial creditors even prior to the application filed. The rigor of Section 29A(h) of the Code obviously gets attracted. The eligibility can never be restricted to the aforesaid three creditors, but also to other financial creditors in view of the import of Section 7 of the Code - In the case at hand, in pursuance to the invocation, an application invoking Section 7 indeed was 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-going operation of the Respondent No.1, need not be disturbed. Appeal disposed off.

Summary

Issues Involved:
1. Judicial interpretation of Section 29A(h) of the Insolvency and Bankruptcy Code, 2016.
2. Eligibility of a resolution applicant under Section 29A(h).
3. Impact of amendments to Section 29A(h).
4. Validity of the resolution plan submitted by the Respondent.
5. Procedural aspects and timelines under the Insolvency and Bankruptcy Code.

Issue-wise Detailed Analysis:

1. Judicial Interpretation of Section 29A(h) of the Insolvency and Bankruptcy Code, 2016:
The court was asked to interpret Section 29A(h) of the Insolvency and Bankruptcy Code, 2016, which disqualifies certain persons from being resolution applicants. The provision specifically disqualifies persons who have executed an enforceable guarantee in favor of a creditor concerning a corporate debtor under insolvency resolution or liquidation.

2. Eligibility of a Resolution Applicant under Section 29A(h):
The court examined whether the Respondent No.3, who had executed personal guarantees that were invoked by creditors, was eligible to submit a resolution plan. The adjudicating authority initially held that the Respondent No.3 was eligible, as the liability under the guarantee arises only upon its invocation. However, the court clarified that the existence of an invoked guarantee disqualifies the person from being a resolution applicant, irrespective of the creditor who filed the insolvency application.

3. Impact of Amendments to Section 29A(h):
Section 29A(h) underwent amendments, which were considered by the court. The original provision disqualified persons who had executed an enforceable guarantee. The amendments further clarified that the disqualification applies if the guarantee remains unpaid in full or part upon invocation. The court emphasized that the amendments aimed to ensure a fair and transparent resolution process by excluding certain categories of persons.

4. Validity of the Resolution Plan Submitted by the Respondent:
The court found that the resolution plan submitted by the Respondent No.3 should not have been entertained due to the disqualification under Section 29A(h). The adjudicating authority and the appellate tribunal's decisions were based on the premise that the earlier appeals were withdrawn without liberty, and thus, the eligibility issue could not be raised again. The court disagreed, stating that the appellant was not a party to the initial decision, and the principle of res judicata does not apply.

5. Procedural Aspects and Timelines under the Insolvency and Bankruptcy Code:
The court addressed the issue of limitation and the extension of the Corporate Insolvency Resolution Process (CIRP) period. It upheld the adjudicating authority's decision to exclude the delay caused by earlier litigation and interim orders, distinguishing between extension and exclusion under Section 12(3) of the Code. The court also noted that the resolution plan had achieved the requisite voting share and was backed by the techno-economic report on its viability and feasibility.

Conclusion:
While the court recognized that the resolution plan submitted by the Respondent No.3 was ineligible under Section 29A(h), it chose not to disturb the plan due to the significant progress made in its implementation and the interests of various stakeholders, including shareholders and employees. The court emphasized the ultimate objective of the Insolvency and Bankruptcy Code to revive the corporate debtor and ensure its continued operation.