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TMI Blog2018 (9) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... ). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For The Respondents : Mr. Ramji Srinivasan, Senior Advocate assisted by Mr. Indranil Deshmukh, Mr. Raunak Dhillon, Mr. Animesh Bisht, Mr. George Varghesse, Mr. Sidhant Sharma, Mr. Karan Khanna Advocates and Mr. Satish Kumar Gupta -RP, Mr. Sudipto Sarkar, Senior Advocate assisted by Mr. Sapan Gupta, Mr. Vijayant Paliwal, and Ms. Mrida Lakhmani Advocates, for Committee of Creditors, Dr. Abhishek Manu Singhvi, Mr. S.N. Mukherjee, Mr. Raju Nayor, Senior Advocates assisted by Ms. Ruby Singh Ahuja, Mr. Sudhir Sharma, Mr. Vishal Gehrana, Mr. Anupam Prakash, Mr. Sameen Vyas, Mr. Abhishek Swaroop, Mr. Akhil Anand, Mr. Shubham Saigal, Ms. Misha Chandra, Avishkar Singhvi and Mr. Amit Bhandari, Advocates for Arcelormittal India Pvt. Ltd., Dr. Abhishek Manu Singhvi, Mr. S.N. Mukherjee, Mr. Raju Nayor, Senior Advocates assisted by Ms. Ruby Singh Ahuja, Mr. Sudhir Sharma, Mr. Vishal Gehrana, Mr. Anupam Prakash, Mr. Sameen Vyas, Mr. Abhishek Swaroop, Mr. Akhil Anand, Mr. Shubham Saigal, Ms. Misha Chandra, Avishkar Singhvi and Mr. Amit Bhandari, Advocates for Arcelormittal India Pvt. Ltd. JUDGMENT SUDHANSU JYOTI MUKHOPADHAYA, J. Pursuant to applications under Section 7 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with all relevant documents on 20th October, 2017, which was accepted and confirmed by the Resolution Professional on 31st October, 2017. 8. After submission of the Expression of Interest of Resolution Plan(s) , Section 29A was inserted by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, followed by the Insolvency and Bankruptcy Code (Amendment) Act, 2017 w.e.f 23rd November, 2017. 9. In view of insertion of Section 29A, the Resolution Professional by an addendum dated 8th February, 2018, asked the Resolution Applicants to submit the Resolution Plans . The AM India Ltd. thereafter, submitted Resolution Plan on 12th February, 2018. Numetal also submitted its Resolution Plan on the same date i.e. 12th February, 2018. 10. On receipt of Resolution Plan s , the Resolution Professional explained the eligibility of both the Appellants, after advice of Resolution Professionals , Legal Counsel, Cyril Amarchand Mangaldas (CAM), Mr. Darius Khambata, Former Advocate General, Maharashtra and Former Additional Solicitor General, for his opinion as follows: Numetal Limited As on the Plan Submission Date: (a) Ravi Ruia (who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) in the view of Mr. Darius Khambata, negative control did not constitute 'control' for the purposes of Section 29A(c) of the IBC and accordingly, KSS Petron was not a ground for disqualifying AM India. On account of above two views, CAM recommended to the RP to take the opinion of Mr. Darius Khambata and rely on his advice. Relying on Mr. Khambata's view, the RP stated that ArcelorMittal cannot be said to be in control of KSS Petron and hence KSS Petron was not a ground for disqualifying AM India. As regards Uttam Galva, Both CAM and Mr. Darius Khambhata were of the view that positive control (of the nature which AM Netherlands had in relation to Uttam Galva) constituted control for the purposes of Section 29A(c) of the IBC. Further, the RP informed the COC that: (i) in CAM's view, since AM Netherlands exercised positive control over Uttam Galva, merely divesting the shareholding prior to submission of the resolution plan by AM India could not remote the disqualification of AM Netherlands under Section 29A(c) of the IBC unless cured by payment of the overdue amounts as mentioned in the proviso to Section 29A (c); and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th a view to being fair and transparent treatment to all Resolution Applicants . In this background, the Resolution Professional suggested following options to the Committee of Creditors : i. Initiate a new process of inviting bids from all interested parties (Starting with issuance of a new Expression of Interest) and follow the entire process as per new request for proposals approved by the Committee of Creditors ( Option 1 ); or ii. Extend the due date for submission of Resolution Plans (as defined in the request for proposals) and permit all the potential Resolution Applicants (as defined in the request for proposal, along with its new addendum) to submit their new Resolution Plans in respect of the Corporate Debtor ( Option 2 ). 12. After discussions in the meeting of the Committee of Creditors and keeping in view the timelines available in the Corporate Insolvency Resolution Process , Option 2 was put to vote and approved by a majority voting rights of the Committee of Creditors . Relevant facts relating to Numetal Limited 13. The Corporate Insolvency Resolution Process relates to Essar Steel India Limited ( ESIL ) of which Mr. Ravi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Numetal Ltd. which cannot block any resolution of any nature in Numetal Ltd. . Consequent to such change in the shareholding, the AEL had no right to appoint any Director on the Board of Numetal Ltd. , nor the AEL represented the Board of Numetal Ltd. . 18. It is stated that VTB Bank is one of the largest emerging market banking group listed in the Moscow Exchange and London Stock Exchange , with total assets of ₹ 14,30,000 crores approximately having a net-worth of ₹ 1,35,000 crores. The main shareholder of VTB Bank is the Russian Government. 19. The other entity i.e. TPE , is a wholly owned subsidiary of the Russian State Corporation called Rostec (annual turn-over of approximately US$ 21 Billion i.e. over ₹ 1,30,000 crores) and is a leading Engineering Company which had set up all the earlier Steel Plants in India such as Steel Authority of India Limited (SAIL) and Rashtriya Ispat Nigam Limited (RINL) and has operations in 30 countries. 20. The third entity, Indo is trading in Steel and Steel related raw materials for the last 15 years and has trading relations with all the major steel manufacturers of the world. 21. Numetal L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Rewant s father. 29. It was submitted that Mr. Ravi was the promoter of Essar Steel India Limited - ( Corporate Debtor ) and Mr. Rewant is his son. Mr. Rewant has his own business and otherwise directly or indirectly not connected with Essar Steel India Limited - ( Corporate Debtor ). 30. Following submission was also advanced by learned Senior Counsel for the Appellant: i. A shareholder cannot be said to be acting jointly or in concert with Numetal Ltd. irrespective of its shareholding. In the instant case AEL s shareholding was just 25% with no management or control rights or even a right of negative control. Numetal Ltd. cannot be said to be acting jointly or in concert with any of its shareholders much less with AEL . ii. AEL or Mr. Rewant does not suffer from any ineligibility under clauses (a) to (i) of Section 29A. iii. Numetal Ltd. has no connected person ineligible under clauses (a) to (i) of Section 29A. 31. It was also submitted that the Resolution Professional wrongly held that Numetal Limited is a consortium of four shareholders. Such finding is not based on any evidence. 32. Learned Senior Counsel for the Numetal Ltd. also hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50 %by an entity listed in Annex III; or (c) a legal person, entity or body acting on behalf or at the direction of an entity referred to in point (b) of this paragraph or listed in Annex III. 36. It was submitted that a combined reading of Article 5 and Article 13 demonstrates that the Council of the European Union has prohibited VTB Bank from all securities trading within the territory of the EU or with companies incorporated under the law of an EU member state with a maturity increasing 90 days. 37. It was also submitted that Article 5(c) further prohibits securities transactions with legal persons acting on behalf of or at the direction of an entity listed in Annex III, therefore, apart from VTB Bank , the Resolution applicant itself would be prohibited from trading in securities and accessing the securities market of the EU. For this reason, also, the Applicant is squarely attached with the disability under sub-clause (f) read with sub-clause (i) of Section 29A of the Code. 38. It was further submitted that similar sanctions have been imposed on VTB Bank by the concerned authorities in the USA. Around March 2014 onwards, in the wake of Russia s annexatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person- (a) is an undischarged insolvent; (b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949; (c) has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor: Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of resolution plan; (d) has been convicted for any offence punishable with imprisonment for two years or more; (e) is disqualified to act as a director under the Companies Act, 2013; (f) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and Reasons appended to the Insolvency and Bankruptcy Code (Amendment) Bill, 2017 (Bill No. 280 of 2017) in Lok Sabha (ultimately passed as Act 8 of 2018), seeking the abovesaid amendment is as under: 2. The provisions for insolvency resolution and liquidation of a corporate person in the Code did not restrict or bar any person from submitting a resolution plan or participating in the acquisition process of the assets of a company at the time of liquidation. Concerns have been raised that persons who, with their misconduct contributed to defaults of companies or are otherwise undesirable, may misuse this situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process, and gain or regain control of the corporate debtor. This may undermine the processes laid down in the Code as the unscrupulous person would be seen to be rewarded at the expense of creditors. In addition, in order to check that the undesirable persons who may have submitted their resolution plans in the absence of such a provision, responsibility is also being entrusted on the committee of creditors to give a reasonable period to repay overdue amounts and become eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to clause (d) of Article 2(i) of the European Union Directive 2004/25/EC of the European Parliament and of the Council of 21st April, 2004 on takeover bids for the purpose of definition of person acting in concert , which reads as follows: Article 2 Definitions 1. For the purposes of this Directive: (d) persons acting in concert shall mean natural or legal persons who cooperate with the offeror or the offeree company on the basis of an agreement, either express or tacit, either oral or written, aimed either at acquiring control of the offeree company or at frustrating the successful outcome of a bid: 48. On the other hand Dr. A.M. Singhvi, learned Senior Counsel appearing on behalf of the AM India Ltd. relied on Regulation 2(1)(q) of the SEBI (Substantial Acquisition of Share and Takeover) Regulations, 2011 for the purpose of definition of person acting in concert , which reads as follows (q) persons acting in concert means,-- (1) persons who, with a common objective or purpose of acquisition of shares or voting rights in, or exercising control over a target company, pursuant to an agreement or understanding, formal or inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation .-For the purposes of this clause associate of a person means,-- (a) any immediate relative of such person; (b) trusts of which such person or his immediate relative is a trustee; (c) partnership firm in which such person or his immediate relative is a partner; and (d) members of Hindu undivided families of which such person is a coparcener; 49. It was submitted that Mr. Rewant being son of Mr. Ravi, Promoter of ESIL ( Corporate Debtor ) comes within the meaning of person acting in concert . Mr. Rewant being the 100% shareholder of AEL , it is to be held that Numetal Ltd. is acting in concert with immediate relative of the Corporate Debtor . 50. The stand taken by the learned Senior Counsel for the Numetal Ltd. is that Regulation 2(1) (q) cannot be relied upon for the purpose of defining the person acting in concert , as mentioned in Section 29A. 51. Sections 3 and 5 of the I B Code are the definition/provision but do not define the expression persons acting in concert . As per Section 3(37) of the I B Code meaning of the words and expressions used but not defined in the I B Code is to be found out fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or regulation or both Houses agree that the rule or regulation should not be made, the rule or regulation shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule or regulation. 56. The SEBI (Substantial Acquisition of Shares and Takeover) Regulation, 2011 has been approved by both the houses of the Parliament, therefore, it can be said that the Regulations 2011 is part of the self-contained Code, namely- Securities and Exchange Board of India Act, 1992 . 57. In State of U.P. v. Babu Ram Upadhya (1961) 2 SCR 679 , the Hon ble Supreme Court dealt with the position of rules made under a statute as follows: 23. What then is the effect of the said propositions in their application to the provisions of the Police Act and the rules made thereunder? The Police Act of 1861 continues to be good law under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umetal Ltd. , it had four shareholders. (i) Crinium Bay : 40% (ii) Indo : 25.1% (iii) TPE : 9.9% (iv) AEL : 25% 61. Admittedly, Mr. Rewant is 100% shareholder of AEL and AEL held 25% in Numetal Ltd. even as on 12th February, 2018, Mr. Rewant being son of Mr. Ravi, who is the promoter of the Corporate Debtor , we hold that AEL is a related party and comes within the meaning of person in concert in terms of Regulation 2(1)(q). 62. In view of the aforesaid findings, we hold that at the time of submission of 1st Resolution Plan by Numetal Ltd. , one of the shareholders being AEL , Numetal Ltd. was not eligible to submit Resolution Plan in terms of Section 29A. Position of Numetal Ltd. as on 29th March, 2018 when the subsequent Resolution Plan was submitted by Numetal Ltd. . 63. The Committee of Creditors had extended the period for submitting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited which submitted its Expression of Interest to submit Resolution Plan on 12th October, 2017. 70. AM Netherlands is 100% subsidiary of ArcelorMittal Societe Anonyme ( AMSA for short) which is a listed company incorporated in Luxemburg. AM India Ltd. is also a subsidiary (99.99%) of AMSA . Accordingly, AMSA is promoter, in the management and in control of AM India Ltd. . According to the Resolution Professional , the Committee of Creditors and the Adjudicating Authority in view of the aforesaid connection, AM Netherlands becomes a connected person and such connected person has an account of Corporate Debtor - Uttam Galva under the management, control or of whom such connected person namely AM Netherlands is a promoter and is classified as NPA for more than one year before 2nd August, 2017. 71. KSS Petron Private Limited ( KSS Petron for short) is a wholly owned subsidiary of KazStroy Service Global BV Netherlands ( KSS Global BV for short). KSS Petron has a subsidiary company called Petron Engineering Construction Limited ( Petron Engineering for short). Pursuant to a Share Purchase Agreement dated 3rd March, 2011, one Freseli I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofessional and the Committee of Creditors held that AM India Ltd. is ineligible. The Adjudicating Authority while noticed that Section 29A has come into force on 23rd November, 2017, whereas Expression of Interest for Resolution Plan was submitted by AM India Ltd. much prior to the said date i.e. on 22nd October, 2017, referring second proviso to sub-section (4) of Section 30, the Adjudicating Authority observed and held that the AM India Ltd. shall be eligible to submit a Resolution Plan , if it makes payment of all overdue amounts with interest thereon and charges relating to NPA accounts before submission of Resolution Plan . As the declassification started since 2nd August, 2017, the Adjudicating Authority held that it can only be remitted in the manner as provided under clause (c) of Section 29A read with second proviso to sub-section (4) of Section 30 and in no other manner. 78. By impugned order, the Adjudicating Authority while held that in order to become eligible, overdue amounts to lenders in both the cases of KSS Petron and Uttam Galva Steels Ltd. should be paid by Arcelor Mittal before being eligible to bid, as provided in Section 29A itself. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a promoter in Uttam Galva by reason of the following:- a) It had transferred its entire shareholding of 29.05% in Uttam Galva on 7th February, 2018, who received the entire consideration for such transfer on 7th February, 2018; and b) The Depository Participant Account of AM Netherlands ceased to show the said shares and instead the demat account of the transferee i.e. Sainath Trading Company Private Limited was credited with the said shares on and w.e.f. 7th February, 2018. 83. According to learned Senior Counsel, the sale stood concluded on 7th February, 2018 with the Depository Participant Account of AM Netherlands being rectified and not reflecting such shareholding and on Sainath Trading Company Private Limited Depository Participant Account being credited with the concerned shares. 84. Pursuant to the sale and as a consequence of AM Netherlands shareholding becoming zero, the Co-Promotion Agreement dated 4th September, 2009, pursuant to which the status of promoter had been conferred on AM Netherlands in Uttam Galva , stood automatically terminated on 7th February, 2018, in terms of clause 21.6 of the said agreement. 85. Subsequent th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Global group, which included KSS Petron , would not be deemed to be an affiliate of Fraseli . (d) Fraseli had no right in the appointment of the CEO of KSS Global; and (e) Fraseli did not hold any share in KSS Petron and did not have the right to nominate any Directors in KSS Petron . 89. Further, according to learned Senior Counsel for the Appellant, the entire shareholding of Fraseli in KSS Global was transferred on 9th February, 2018, which was before the plan submission date. 90. It also submitted that the Resolution Professional , after examination of all relevant material, had concluded that AM India Ltd. was not disqualified on account of KSS Petron issue. Stand of Numetal Limited against AM India Ltd. 91. Mr. Mukul Rohatgi, learned Senior Counsel appearing on behalf of the Numetal Ltd. submitted that an entity controlled and managed by connected persons of AM India Ltd. allegedly divested its shareholding in KSS Global BV (100% owner of KSS Petron an NPA company) on 9th February, 2018 and its nominee Directors also resigned on the same day i.e. 3 days before submission of the Expression of Interest of the Resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Corporate Debtor or not. Analysis of law and the case of AM India Ltd. 99. Section 25 of the I B Code relates to Duties of Resolution Professional . Clause (h) of sub-section (2) of Section 25 reads as follows: 25. Duties of resolution professional.- . xxx xxx xxx (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely: - .. xxx xxx xxx (h) invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans. . 100. From the aforesaid provision, it is clear that the Resolution Professional with the approval of the Committee of Creditors is required to provide the date for submission of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntents of Resolution Plan (Regulation 38) and Approval of Resolution Plan (Regulation 39) no provision has been made therein for submission of Expression of Interest . 106. We have noticed that for inviting prospective resolution plans in terms of clause (h) of sub-section (2) of Section 25, the Resolution Professional has with the approval of Committee of Creditors , issued advertisement on 6th October, 2017, relevant of which is as follows: 107. In the present case, the Expression of Interest was submitted by AM India Ltd. on 11th October, 2017 and by Numetal Ltd. on 20th October, 2017, both prior to 23rd November, 2017 i.e. the date Section 29A was inserted by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 but the Resolution Plans were submitted by both AM India Ltd. and Numetal Ltd. on 12th February, 2018. 108. The question arises for consideration is as to what will be the position if, on the basis of Information Memorandum the Expression of Interest is submitted by the Resolution Applicants prior to 23rd November, 2017 and whether they are eligible to take advantage of 2nd proviso to sub-section (4) of Section 30.? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be eligible to submit a Resolution Plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of Resolution Plan . It does not stipulate any other mode to become eligible and thereby does not prescribe any other mode to become ineligible, including by selling the shares thereby existing as a member of the Company whose account has been classified as non-performing asset accounts in accordance with the guidelines of the Reserve Bank of India. 115. Second proviso to sub-section (4) of Section 30 also stipulates, as follows: 30. Submission of resolution plan.─ (4) xxx xxx xxx Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of section 29A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29A 116. From both the aforesaid prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that it has nominee Directors, who also resigned on 9th February, 2018 i.e. 3 days before submission of the Expression of Interest of Resolution Plan by AM India Ltd. This will be also clear from the fact that the AM India Ltd. was nothing that an entity controlling and managing in KSS Global BV (which is 100% owner of KSS Petron an NPA Company) divested its shareholding in KSS Global BV on 9th February, 2018 i.e. 3 days before submission of the Expression of Interest of Resolution Plan . 121. We have also noticed that consequent to such acquisition of control by Fraseli , on 23rd May, 2011 a public announcement was made under SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 for the acquisition of shares of Petron Engineering inter alia by KSS Global BV and Fraseli . Therefore, we hold that Mr. L.N. Mittal Group, a connected person of AM India Ltd. being the promoter and in the control and management of KSS Petron since 2011 and KSS Petron having classified as NPA by multiple banks, the stigma attached to it cannot be cleared by KSS Global by divesting its shares in KSS Petron on 9th February, 2018 and the stigma wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 126. Taking into consideration the fact that a long period has taken due to pendency of the case before the Adjudicating Authority and thereafter, before this Appellate Tribunal, 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 wi ..... 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