2018 (10) TMI 312 - SC - Insolvency and Bankruptcy

Ineligibility of resolution applicants to submit resolution plans after the introduction of Section 29A into the Insolvency and Bankruptcy Code, 2016 with effect from 23.11.2017 - Persons not eligible to be resolution applicant - Held 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 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.

Summary

Issues Involved:
1. Ineligibility of resolution applicants under Section 29A of the Insolvency and Bankruptcy Code, 2016 (IBC).
2. Interpretation and application of Section 29A(c) of the IBC.
3. Consideration of antecedent transactions to determine eligibility under Section 29A.
4. Timelines and procedural aspects of the corporate insolvency resolution process (CIRP).
5. Role and responsibilities of the Resolution Professional and Committee of Creditors.

Detailed Analysis:

1. Ineligibility of Resolution Applicants under Section 29A of the IBC:
The core issue revolves around the ineligibility of resolution applicants, specifically AMIPL and Numetal, to submit resolution plans after the introduction of Section 29A into the IBC. Section 29A disqualifies certain persons from being resolution applicants to prevent those who contributed to the financial distress of the corporate debtor from regaining control.

2. Interpretation and Application of Section 29A(c) of the IBC:
Section 29A(c) disqualifies a person from submitting a resolution plan if they have an account classified as a non-performing asset (NPA) for more than one year before the commencement of the CIRP, unless they clear the overdue amounts before submitting the resolution plan.

- AMIPL's Ineligibility: AMIPL was found ineligible due to its connection with Uttam Galva and KSS Petron. AMNLBV, an L.N. Mittal Group company, was a promoter of Uttam Galva, which had been classified as an NPA. Despite selling its shares in Uttam Galva before submitting the resolution plan, the sale was deemed a device to avoid the ineligibility under Section 29A(c). Similarly, Fraseli, another L.N. Mittal Group company, had control over KSS Petron, which was also an NPA.

- Numetal's Ineligibility: Numetal was found ineligible due to its association with Rewant Ruia, son of Ravi Ruia, a promoter of the corporate debtor ESIL. Despite changes in shareholding and the exit of AEL (Aurora Enterprises Limited), the presence of Rewant Ruia and the financial involvement of AEL indicated that Numetal was attempting to circumvent Section 29A(c).

3. Consideration of Antecedent Transactions to Determine Eligibility:
The court held that antecedent transactions reasonably proximate to the submission of the resolution plan must be scrutinized to prevent circumvention of Section 29A. Both AMIPL and Numetal's transactions were found to be devices to avoid ineligibility under Section 29A(c).

4. Timelines and Procedural Aspects of the CIRP:
The judgment emphasized the importance of adhering to the timelines prescribed under the IBC for completing the CIRP. The maximum period for the CIRP is 270 days, and any delay beyond this period should be avoided to prevent liquidation of the corporate debtor. The court also highlighted the necessity of excluding the time taken in legal proceedings from the 270-day period to avoid corporate death and displacement of employees and workers.

5. Role and Responsibilities of the Resolution Professional and Committee of Creditors:
The Resolution Professional (RP) is responsible for ensuring that resolution plans comply with the provisions of the IBC, including Section 29A. The RP's role is to examine and confirm the completeness of resolution plans before presenting them to the Committee of Creditors (CoC). The CoC, in turn, evaluates the feasibility and viability of the plans and approves them by a requisite majority.

Conclusion:
Both AMIPL and Numetal were found ineligible to submit resolution plans under Section 29A(c) due to their connections with NPAs. The court provided an additional opportunity for both applicants to clear the NPAs within two weeks and resubmit their plans. The CoC was given eight weeks to select the best plan, failing which the corporate debtor would go into liquidation. The judgment underscores the importance of adhering to statutory timelines and the roles of the RP and CoC in the CIRP.