2018 (9) TMI 945 - AT - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - control of nominee directors - Eligibility to submit Resolution Plan in terms of Section 29A - Committee of Creditors has not followed the procedures under Section 30(4), partly allowed the applications directing the Resolution Professional and the Committee of Creditors to revisit and reconsider their decision in the light of proviso to Section 29A (c) read with proviso to Section 30(4) of the I&B Code - Held that - Admittedly, there are three nominee Directors of AM India Ltd. in KSS Petron , one of the NPA Company. The nominee Directors of the Appellant- AM India Ltd. had also resigned on 9th February, 2018 i.e. three days before the submission of the Resolution Plan . Therefore, it is clear that the AM India Ltd. had complete control over the KSS Petron . As informed that after impugned order passed by the Adjudicating Authority, the AM India Ltd. had made conditional deposit of ₹ 7,000 Crores in its own current account (Escrow Account). Such depositation of the amount in its own Escrow Account does not qualify as a payment of overdue amounts in terms of proviso to clause (c) of Section 29A. A conditional offer to pay the over dues amount cannot be accepted till it is complied in the light of proviso to clause (c) of Section 29A unconditionally. Dr. Abhishek Manu Singhvi, learned Senior Counsel 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. As we hold that AM India Ltd. is also entitled to the 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, 2018, and if so necessary, may negotiate with the Resolution Applicant(s) . An early decision should be taken by the Committee of Creditors and on approval of the Resolution Plan , the Resolution Professional will place the same immediately before the Adjudicating Authority who in its turn will pass order under Section 31 in accordance with law. The Successful Resolution Applicant will take steps for execution of its Resolution Plan and deposit the upfront money if proposed, in terms of the Resolution Plan . We direct the Adjudicating Authority to exclude the period the appeal was pending before this Appellate Tribunal i.e. from 26th April, 2018 till today (7th September, 2018) for the purpose of counting the total period of 270 days. The impugned order dated 19th April, 2018 passed by the Adjudicating Authority so far as it relates to eligibility of Numetal Ltd. as on the date of the submission of the Resolution Plan dated 29th March, 2018 is set aside. The impugned judgment/order in respect to AM India Ltd. is affirmed with conditions as mentioned in the preceding paragraphs. All the appeals are disposed of with aforesaid observations and directions. The parties will bear their respective cost.

Summary

Issues Involved:
1. Eligibility of Resolution Applicants under Section 29A of the Insolvency and Bankruptcy Code (I&B Code).
2. Compliance with the procedures under Section 30(4) of the I&B Code.
3. Validity of the Committee of Creditors' (CoC) decisions.
4. Interpretation and application of the term "person acting in concert."
5. Impact of shareholding changes on eligibility.
6. Compliance with international sanctions and their impact on eligibility.
7. Procedural fairness and transparency in the Corporate Insolvency Resolution Process (CIRP).

Detailed Analysis:

1. Eligibility of Resolution Applicants under Section 29A of the I&B Code:
The judgment primarily revolves around the eligibility of 'Numetal Ltd.' and 'ArcelorMittal India Pvt. Ltd.' (AM India Ltd.) to submit resolution plans for 'Essar Steel India Ltd.' under Section 29A of the I&B Code. Section 29A disqualifies certain persons from submitting resolution plans if they have connections to non-performing assets (NPAs), are wilful defaulters, or have been convicted for offenses punishable with imprisonment, among other criteria.

Numetal Ltd.: The Resolution Professional (RP) found 'Numetal Ltd.' ineligible due to its association with 'Aurora Enterprises Ltd.' (AEL), which was controlled by Mr. Rewant Ruia, the son of Mr. Ravi Ruia, a promoter of 'Essar Steel India Ltd.'. The RP concluded that 'Numetal Ltd.' was acting in concert with an ineligible person under Section 29A.

AM India Ltd.: The RP found 'AM India Ltd.' ineligible due to its connections with 'Uttam Galva' and 'KSS Petron,' both of which were NPAs. 'AM India Ltd.' had divested its shareholding in these companies just before submitting the resolution plan, but the RP and the Adjudicating Authority held that this divestment did not remove the ineligibility under Section 29A.

2. Compliance with Procedures under Section 30(4) of the I&B Code:
The Adjudicating Authority found that the CoC had not followed the procedures under Section 30(4) of the I&B Code while evaluating the resolution plans. The CoC was directed to revisit and reconsider their decisions in light of the proviso to Section 29A(c) and Section 30(4) of the I&B Code.

3. Validity of the CoC's Decisions:
The CoC initially found both 'Numetal Ltd.' and 'AM India Ltd.' ineligible. However, the CoC later decided to invite fresh resolution plans from the same entities and 'Vedanta.' The judgment highlights procedural lapses and the need for the CoC to adhere to the legal framework while making such decisions.

4. Interpretation and Application of the Term "Person Acting in Concert":
The term "person acting in concert" was crucial in determining the eligibility of 'Numetal Ltd.' and 'AM India Ltd.'. The judgment relied on the definition provided in Regulation 2(1)(q) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011. It was held that 'AEL,' controlled by Mr. Rewant Ruia, was acting in concert with 'Numetal Ltd.' and thus rendered 'Numetal Ltd.' ineligible.

5. Impact of Shareholding Changes on Eligibility:
The judgment examined the impact of shareholding changes on the eligibility of the resolution applicants. 'Numetal Ltd.' changed its shareholding structure before submitting its second resolution plan, which made it eligible under Section 29A. However, 'AM India Ltd.' was found ineligible despite divesting its shareholding in 'Uttam Galva' and 'KSS Petron' before submitting the resolution plan.

6. Compliance with International Sanctions and Their Impact on Eligibility:
The judgment addressed the argument that 'VTB Bank,' a shareholder in 'Numetal Ltd.,' was subject to international sanctions, which could impact its eligibility. However, no concrete evidence or order was presented to support this claim, and it was rejected.

7. Procedural Fairness and Transparency in the CIRP:
The judgment emphasized the need for procedural fairness and transparency in the CIRP. It directed the CoC to consider the resolution plans submitted by 'Numetal Ltd.' and 'AM India Ltd.' after ensuring compliance with the legal provisions. The CoC was also instructed to negotiate with the resolution applicants if necessary and take an early decision.

Conclusion:
The judgment provided a detailed analysis of the eligibility criteria under Section 29A of the I&B Code, the procedural requirements under Section 30(4), and the interpretation of "persons acting in concert." It highlighted the importance of procedural fairness and transparency in the CIRP and directed the CoC to reconsider the resolution plans submitted by 'Numetal Ltd.' and 'AM India Ltd.' after ensuring compliance with the legal framework. The judgment also excluded the period of appeal from the total period of 270 days for the CIRP.