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2024 (2) TMI 914 - AT - Insolvency and BankruptcyScope and ambit of Section 29A (c) of IBC - Disqualification to submit the Resolution Plan under Section 29A (c) of the IBC - Decision of Resolution Professional ( RP ) and Committee of Creditors ( CoC ) to declare the Appellant as disqualified under Section 29A rejected - eligibility to file a Resolution Plan under Section 29A(c) of the IBC - transfer of 100% of shareholding by the Appellant in its subsidiary. Whether Section 29A, sub-section (c) disqualify only those persons who were in management and control of the Corporate Debtor at the time when Corporate Debtor s account was declared NPA or the persons/ entity, which is in control of the management of the Corporate Debtor at the time of submission of Resolution Plan can also be held ineligible under Section 29A, sub-section (c)? - HELD THAT - The RIPL being 100% subsidiary of the Appellant, it cannot be held that the Appellant was exercising any management or control over the Corporate Debtor through its subsidiary RIPL. By amendment made in Section 29A by Act 26 of 2018 in Section 29A, sub-section (c), the words at the time of submission of resolution plan has an account , declared that ineligibility has to be seen under Section 29A at the time of submission of Resolution Plan. In the present case, date of submission of Resolution Plan by the Appellant is 04.06.2018. The learned Counsel for the Appellant placed reliance on the judgment of the Hon ble Supreme Court in Arcelormittal India Private Limited vs. Satish Kumar Gupta and Ors. 2018 (10) TMI 312 - SUPREME COURT . In Arcelormittal, the Hon ble Supreme Court had occasion to examine the validity of Section 29A of the IBC - The observations made by the Hon ble Supreme Court in Arcelormittal in paragraph 60, makes it clear that, those who were at a reasonably proximate point of time before the submission of Resolution Plan were in control of the affairs of the Corporate Debtor and they have arranged the affairs, as to avoid paying off the debts of the non-performing asset, such persons must also be held to be ineligible to submit a Resolution Plan. The persons in the management and control of the affairs of the Corporate Debtor, who led the Corporate Debtor to slip into NPA and persons, who are in the management and control of the affairs of the Corporate Debtor in the close proximate of time, before the submission of Resolution Plan, who failed to pay the debt of the Corporate Debtor, are also ineligible - it is satisfying that narrow interpretation of Section 29A (c) put by learned Counsel for the Appellant, cannot be accepted. Thus, the submission of the Appellant that since the Appellant was not in control and management of the Corporate Debtor admittedly on 31.05.2013, when the Corporate Debtor s account declared as NPA, he cannot be held to be ineligible under Section 29A, cannot be accepted. The relevant date for examining the ineligibility is the date of submission of Resolution Plan. Thus, Section 29A, sub-section (c) does, not only disqualify, those who were in management and control of the Corporate Debtor at the time when its account was declared NPA, but also disqualifies those, who were in management and control of the Corporate Debtor and in close proximity of time, before submission of Resolution Plan, who failed to clear the debts of the Corporate Debtor. Whether as per Second MoU dated 23/28.03.2016 entered between the Appellant, Corporate Debtor and Athena Group, the Appellant can be held to be in control and management of the Corporate Debtor with effect from the date of execution of the MoU? - Whether transfer of 100% of shareholding by the Appellant in its subsidiary RIPL on 22.09.2017 was a sham transaction? - Whether the Adjudicating Authority committed error in holding Appellant, disqualified, to submit the Resolution Plan under Section 29A (c) of the IBC? - HELD THAT - MoU cannot be read to mean that management and control was to be given to the Appellant only after investment of 51% of equity shares by the Appellant. The investment and running of the Company, are two different aspects, which were captured by the MoU and management and control of the Corporate Debtor was given to the Appellant, which is clear from various clauses as noted above. Thus, as per second MoU, the Appellant has to be held to be in control of the management of the Corporate Debtor from the date of execution of the MoU, i.e., 23/28.03.2016 - It is to be noted that it is the Indian Bank, who filed the Application under Section 7, which led to CIRP of the Corporate Debtor. Thus, the Appellant had every opportunity and right to clear the debt of short-term loan, which led to insolvency and the Appellant, who was in management and control of the Corporate Debtor, cannot be heard in saying that it has no opportunity to clear the debt in the proximate time of commencement of CIRP. On the question as to whether the transaction entered on 22.09.2017, under which the Appellant came to have transferred the 100% shareholding to the RIPL, the Adjudicating Authority has considered the issue in detail and recorded that the said transfer was made after the filing of Section 7 Application by the Financial Creditor and was six days before the order was passed initiating the CIRP. The transaction was carried on in cash consideration of Rs.1 lakh, which is despite the fact that the Appellant had given loan of Rs.328 Crores to RIPL. The shareholding was transferred to only two persons, i.e., Mr. K. Vijaybhaskar and C. Vijay Kumar, who were all Directors and Officials of NEC and C. Vijay Kumar was also related. The Adjudicating Authority after considering all materials including the Balance Sheets/ Financial Statements etc. of RIPL has come to the finding that transaction dated 22.09.2017 was a sham transaction - the view of the Adjudicating Authority is agreed upon that transaction of shares to RIPL on 22.09.2017 was a sham transaction with the object to claim that Appellant has nothing to do with RIPL. The Appellant was very much in control of the Corporate Debtor as per the MoU dated 23/28.03.2016. The Adjudicating Authority did not commit any error in holding the Appellant disqualified under Section 29A, sub-section (c) of the IBC. The order of the Adjudicating Authority rejecting the Application of the Appellant has been passed after considering all relevant materials and submissions of the parties - there are no error in the order passed by the Adjudicating Authority warranting interference - appeal dismissed.
Issues Involved:
1. Scope and ambit of Section 29A(c) of the Insolvency and Bankruptcy Code (IBC). 2. Whether the Appellant had control and management of the Corporate Debtor as per the MoU dated 23/28.03.2016. 3. Whether the transfer of 100% shareholding by the Appellant in its subsidiary RIPL on 22.09.2017 was a sham transaction. 4. Whether the Adjudicating Authority erred in holding the Appellant disqualified under Section 29A(c) of the IBC. Summary: Issue I: Scope and Ambit of Section 29A(c) of the IBC The Tribunal examined whether Section 29A(c) disqualifies only those in management and control of the Corporate Debtor at the time it was declared NPA or also those in control at the time of submitting the Resolution Plan. The Tribunal concluded that Section 29A(c) disqualifies not only those who were in management and control when the Corporate Debtor was declared NPA but also those in control at the time of submitting the Resolution Plan if they failed to clear the debts. This interpretation aligns with the purpose of the amendment to prevent persons responsible for NPAs from regaining control of the Corporate Debtor. Issue II: Control and Management as per MoU dated 23/28.03.2016 The Tribunal analyzed the MoU dated 23/28.03.2016 to determine if it transferred control and management of the Corporate Debtor to the Appellant. The Tribunal found that the MoU effectively transferred management and control to the Appellant from the effective date of the MoU, irrespective of the 51% equity investment. Various clauses of the MoU indicated that the Appellant was given affirmative rights and control over the Corporate Debtor's management from the effective date. Issue III: Sham Transaction of Share Transfer on 22.09.2017 The Tribunal scrutinized the transfer of 100% shareholding by the Appellant in its subsidiary RIPL on 22.09.2017. The Tribunal concluded that the transaction was a sham, executed just six days before the initiation of CIRP, for a nominal consideration of Rs.1 lakh, despite a loan of Rs.328 Crores given to RIPL. The Tribunal noted that the transfer was to individuals connected to the Appellant, reinforcing the conclusion that it was a sham transaction. Issue IV: Disqualification under Section 29A(c) of the IBC The Tribunal upheld the Adjudicating Authority's decision that the Appellant was disqualified under Section 29A(c) of the IBC. The Tribunal found that the Appellant had control and management of the Corporate Debtor as per the MoU dated 23/28.03.2016 and failed to clear the debts, thereby meeting the disqualification criteria under Section 29A(c). Conclusion: The Tribunal dismissed the Appeal, affirming the Adjudicating Authority's order disqualifying the Appellant under Section 29A(c) of the IBC. The Tribunal also disposed of the Interlocutory Application No.3622 of 2023, directing the Adjudicating Authority to consider and pass appropriate orders in IA No.2230 of 2022 filed by THDC India Limited.
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