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TMI Blog2018 (10) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... Crores). Shri Satish Kumar Gupta was appointed as the Interim Resolution Professional and confirmed as such on 4.9.2017. Consequently, the Resolution Professional published an advertisement dated 6.10.2017, seeking expression of interest from potential resolution applicants who wished to submit resolution plans for the revival of ESIL. In terms of the advertisement, the last date for submission of an expression of interest was 23.10.2017. Pursuant to this advertisement, one 'ArcelorMittal India Private Limited' (hereinafter referred to as "AMIPL") submitted an expression of interest on 11.10.2017. An entity called Numetal Limited (hereinafter referred to as "Numetal"), also submitted an expression of interest on 20.10.2017. On 24.12.2017, the Resolution Professional published a 'request for proposal', in which it was stated that the last date for submission of resolution plans would be 29.1.2018. On a request made by the Committee of Creditors, the NCLT extended the duration of the corporate insolvency resolution process by 90 days beyond the initial period of 180 days, i.e., upto 29.4.2018. The Resolution Professional therefore issued the first addendum to the request for proposa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to declassification as a promoter of Uttam Galva and) continued to be classified as a promoter of Uttam Galva. 4. In light of the above, AM India is ineligible under theprovisions of Section 29A(c) of the IBC and pursuant to paragraph 4.11.2(a) of the RPP, the Resolution Plan is hereby rejected and will not be placed before the Committee of Creditors." 3. Similarly, holding Numetal to be ineligible, the Resolution Professional, on the same date, found: "2.1. as on the date of submission of its expression of interest (EOI) on 20 October 2017 by Numetal, it relied on Essar Communications Limited (ECL), one of its shareholders to comply with the eligibility requirement relating to its 'tangible net worth' (TNW) (as stipulated in the section titled 'Eligibility Criteria' in the EOI); 2.2. as on the Plan Submission Date, Numetal relied on Crinium Bay, its shareholder to comply with the eligibility requirement relating to its TNW (as stipulated in Section 6.7 of the Resolution Plan); 2.3. Numetal was incorporated 7 days before submission of the EOI; and 2.4. Numetal is a newly incorporated joint venture between Aurora Enterprises Limited, Crinium Bay, Indo International Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Plan) was not eligible under Section 29A of the IBC. 7. Accordingly and for the reasons set out inparagraphs 5 and 6 above, please note that pursuant to paragraph 4.11.2(a) of the RFP, the Resolution Plan is hereby rejected and will not be placed before the Committee of Creditors." 4. On 26.3.2018, AMIPL filed I.A. No. 110 of 2018 before the Adjudicating Authority, challenging "the order" of the Resolution Professional dated 23.03.2018. Numetal did likewise vide I.A. No. 111 of 2018. 5. On 2.4.2018, pursuant to the Resolution Professional's invitation, fresh resolution plans were submitted (as both the resolution plans before this were found to be ineligible) by AMIPL, Numetal, and one other entity, namely 'Vedanta Resources Ltd.'. On this very date, the NCLT directed that the bids of the resolution applicants, submitted pursuant to the revised request for proposal, should not be opened pending adjudication of I.A. No. 98 of 2018 filed by Numetal. 6. On 19.4.2018, the Adjudicating Authority, being the NCLT, passed its order in all the I.A.s, in which it first held: "21. As per the matter available on the record, a third party contestant, Arcelor Mittal India Pvt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the other provisions of the Law. It has been also emphasised that the Numetal Ltd., is not a SPV brought into existence merely for the purpose of submitting the resolution plan in respect of the corporate debtor ESIL as it has recently entered into an agreement to acquire majority stock in Odisha Slurry Pipeline Infrastructure Ltd., by an independent contract from the Resolution Plan. Thus, it cannot be presumed that the applicant is such a corporate entity which is brought into the existence only for the purpose of putting forth resolution plan for the ESIL. Since, there is difference in the legal opinions among the Learned Luminaries and law firms and more than one views are possible in the present case to be acted upon then, it cannot be said that there is patently illegality in the conclusion of the RP or it acted arbitrarily or mala fidely in rejecting the resolution plan by relying on the legal opinion received and believed to be true by him and which were placed before the CoC. Moreover, the RP under the provision of the Code it is expected to make scrutiny of a resolution plan in conformity with the law of the land and to take such a prudent decision which a common man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of the record it is found that connectedperson of the applicant are the promoter of KSS Petron Pvt. Ltd., a company incorporated under the Companies Act, 1956, having registered office at Swastik Chamber, 6th Floor, Sion Trombay Road, Chembur, Mumbai has been NPA for more than a year and CIRP has been initiated against the KSS Petron vide order dated 01.08.2017 by Mumbai Bench of the National Company Law Tribunal. 22. It is also pertinent to mention herein that, in theminutes of the meeting of the committee of creditors which reproduces the decision of the RP pursuant to the opinions received by the RP from Cyril Amarchand Mangaldas and Mr. Khambatta. Cyril Amarchand Mangaldas had opined that AM Netherlands exercised positive control over Uttam Galva and merely divesting the shareholding prior to the submission of the resolution plan could not remove the disqualification under section 29A(c) of the Code, unless cured by payment. 23. It is an admitted position that AM Netherlands is anindirect 100% subsidiary of ArcelorMittal Societe Anonyme (AMSA) which is a listed company incorporated in Luxemburg. On the other hand, AM India is also an indirect subsidiary (99.99%) of AMSA. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Person connected to ArcelorMittal India Pvt. Ltd., who are either promoter or in the management with KSS Petron and Uttam Galva Steels Ltd., are ineligible. Mere sale of shares and declassification as promoter after the companies have gone into default cannot be absolved them responsibility. 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 ArcelorMittal before being eligible to bid, as provided in Section 29A itself." 8. Having said this, it then remanded the matter to the Committee of Creditors as follows:- "27. Further, we are of the view that RP ought to have produced both the resolution plan before the CoC, along with his comments of eligibility of both the resolution applicants for consideration of the CoC and to follow the provision of section 29A(c) read with section 30(4) for the purpose of affording the opportunity to the resolution applicants before declaring them ineligible. In our view, such procedure has not been followed hence, it vitiate the proceeding of the CoC and hence the present matter can be remanded back to the RP and CoC on this ground alone for their reconsideration." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KSS Petron and Overdue Amounts of such other companies which are classified as NPAs and where Arcelor Mittal Group is a promoter. Such payments will have to be made by AMIL or its constituents / connected persons no later than 15th May, 2018, especially since the law actually requires that this curative payment of overdue amounts, interests and charges should be made by the corporate resolution intending applicant / resolution applicant before the Resolution Plan is filed. This concession by the CoC is without prejudice to the CoC's right to strictly enforce the law and provisions of Section 29A(c) of the IBC. The proof of such payment in form of a No Overdue Amounts letter (indicative format set out in Annex) shall be submitted to the RP (with notification to the CoC) by 6:00 P.M. IST on 15 th May 2018. As we have limited time available under the CIR process of ESIL, AMIL is requested to adhere to these timelines." 10. By another order of the same date, the Committee of Creditors disqualified Numetal as follows: "44. Numetal and AEL are related as an associate company, on account of the fact that AEL (alias Rewant Ruia) has significant influence over Numetal pursuant to its cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is requested to adhere to these timelines." 11. In the appeals that were filed before it, the Appellate Authority, insofar as Numetal's Resolution plan was concerned, vide an order dated 7.9.2018 held as follows:- "44. On behalf of 'AM India Ltd.', it was submitted that 'VTB Bank' one of the shareholders of 'Numetal Ltd.' is ineligible in view of Article 5(c) of the EU Regulations of 2014. Though such submission has been made, no order or evidence has been placed on record to suggest that any order of prohibition was imposed by the European Union against the 'VTB Bank'. Neither the date of order nor order passed by any competent authority or court of law has been placed on record. 45. On the other hand, it will be evident that Council of European Union adopted Council Regulation (EU) No. 833/2014 concerning Restricting measures in view of Russia action. In fact, in view of situation in Ukraine, the European Union Regulation was adopted. Apart from the aforesaid fact, that 'AM India Ltd.' has not brought on record any penal order passed by any court of law relating to disability, if any, which is corresponding to any of the disability shown in clauses (a) to (h) of Section 29A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndment) 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 whatwill 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.? 109. Section 29A came into force on 23rd November,2017. Those who submitted 'Resolution Plan' prior to the said date and if covered by clause (c) of Section 29A are entitled to derive benefit of second proviso to sub-section (4) of Section 30. Under 'I&B Code' there is no provision to submit 'Expression of Interest' prior to 'Resolution Plan'. What we find from the invitation seeking 'Expression of Interest' to submit a 'Resolution Plan' for 'Essar Steel Limited' published on 6th October, 2017 is the first stage of 'Resolution Plan'. Therefore, we hold that 'Expression of Interest' is part of the 'Resolution Plan', which follows the 'Resolution Plan'. In such case, the date of submission of the 'Expression of Interest' should be trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 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 provisions, it is clear thatexcept in the manner the 'Resolution Applicants' can make it eligible and get rid of ineligibility under clause (c) of Section 29A that is by making payment of all overdue amounts in accordance with the proviso to clause (c) of Section 29A, no other manner a person, who is otherwise ineligible under clause (c) of Section 29A, can become eligible. There is no provision in the 'I&B Code' which permits an ineligible person to become eligible by selling or transferring its shares of the Company whose accounts have been declared as NPA in accordance with the guidelines of Reserve Bank of India. 117. Admittedly, 'AM Netherlands' is related party of 'AM India Ltd.'. 'AM Netherlands' was the promoter of 'Uttam Galva' on the date when the 'Uttam Galva' classified as NPA in accordance with the guidelines of Reserve Bank of India and a period of one year has elapsed from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .' 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 will continue for the purpose of ineligibility under clause (c) Section 29A, till the payment of all overdue amount with interest thereon and charges relating to NPA account of 'KSS Petron'. 122. 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'. 123. It is informed that after impugned order passed bythe Adjudicating Authority, the 'AM India Ltd.' had made conditional deposit of Rs. 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 condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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." 13. This is how both AMIPL and Numetal are before us in appeals from the Appellate Authority's order dated 7.9.2018. 14. Shri Harish N. Salve, learned Senior Advocate appearing on behalf of AMIPL, argued that Section 29A, as originally enacted, disqualified a person who has an account of a corporate debtor under the management or control of such person, or of whom such person is a promoter, which account was declared as a nonperforming asset. The further condition is that one year should have elapsed from the date of such declaration till the date of commencement of the corporate insolvency resolution process of the corporate debtor. Thus, a plain reading of the same establishes that the ineligibility under Section 29A is in relation to the submission of a resolution plan, which must consist of the elements set out in Section 30. Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow the said shares with effect from 7.2.2018. The Co-Promotion Agreement dated 4.9.2009, pursuant to which the status of "promoter" had been conferred on AMNLBV, stood automatically terminated vide clause 21.6 thereof on 7.2.2018. In order to put the matter beyond any doubt, the parties also executed a Co-Promotion Termination Agreement on 7.2.2018. On 8.2.2018, Uttam Galva filed the necessary forms with the Registrar of Companies and made the necessary disclosures with the National Stock Exchange and Bombay Stock Exchange to declassify AMNLBV as a promoter of Uttam Galva. This was accordingly done on 21.3.2018 and 23.3.2018 before the NSE and BSE respectively. Such declassification, being a ministerial act, is relatable to the date of sale of shares, i.e., 7.2.2009, and considered effective from the said date. Inasmuch as AMNLBV therefore ceased to be a promoter in Uttam Galva prior to 12.2.2018, the resolution plan is not hit by Section 29A(c). Similarly, according to the learned Senior Advocate, insofar as KSS Petron Private Limited (hereinafter referred to as "KSS Petron") is concerned, it is an admitted case that 'Fraseli Investments Sarl' (hereinafter referred to as "Fraseli" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted' (hereinafter referred to as "ECL"), a group company of the corporate debtor. On 19.10.2017 Shri Rewant Ruia settled an irrevocable discretionary trust, called the 'Crescent Trust', which purchased the shares of AHL at par value. On 20.10.2017, when Numetal submitted its expression of interest, it had two share holders, i.e., AEL (holding 73.9%) and ECL (holding 26.1%). On 22.11.2017, when the Finance Minister made a statement that the Code would be amended in order to prevent unscrupulous persons from submitting resolution plans, AEL transferred 13.9% of its shareholding in Numetal, and ECL its entire 26.1% shareholding, to one 'Crinium Bay Holdings Limited' (hereinafter referred to as "Crinium Bay"), a 100% indirectly held subsidiary of one 'VTB Bank', which in turn was a Russian company, the majority of whose shares were held by the Russian Government. Crinium Bay thus became the owner of 40% of the shareholding of Numetal. AEL subsequently transferred 25.1% of the shareholding in Numetal to one 'Indo International Trading FZCO' (hereinafter referred to as "Indo"), a Dubai company, and 9.9% of the shareholding to one 'JSC VO Tyazhpromexport' (hereinafter referred to as "TPE" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar to the expression "is" which is to be found in clauses (a), (b), (e) and (f), as contrasted with the expression "has been" used in clauses (d) and (g), of Section 29A. According to him, the amendment made in 2018 is in any case clarificatory in nature. He supported the attack of Shri Salve on the Appellate Authority's judgment, stating that so far as Uttam Galva is concerned, it is well established that the sale of shares is complete once they move out of the demat account of the seller, which in this case took place five days before 12.2.2008. For this he cited certain judgments. He also supported Shri Salve's argument by stating that Numetal is clearly disqualified under several clauses of Section 29A. 17. On the other hand, Shri Mukul Rohatgi, learned Senior Advocate, appearing on behalf of Numetal, stated that Numetal was a company which was therefore a separate person in law from its shareholders. He contended that on the date of submission of the resolution plan (i.e., 12.2.2018), AEL held only 25%, which would be below the figure of 26% mentioned in the request for proposal dated 24.12.2017, wherein "control" has been defined as a person holding more than 26% of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gi, the Appellate Authority was absolutely correct in saying that Numetal would not be ineligible under Section 29A. He strongly attacked Shri Salve's argument that VTB Bank, the holding company of Crinium Bay, was barred from accessing the securities market by either the European Union or the United States. He took us to the original orders and argued that the document of the European Union, being Council Regulation 833 of 2014 dated 31.7.2014, pursuant to Article 215 of the Treaty on the Functioning of the European Union, was owing to restrictive measures taken in view of Russia's actions destabilizing the situation in Ukraine. Because Russia had illegally annexed Crimea, political sanctions were imposed by this document, which cannot possibly be said to be sanctions imposed by an authority equivalent to SEBI in India. The sanctions also did not relate in any manner to the securities market. Equally, insofar as the two orders of the United States are concerned, they were also political sanctions imposed against Russian companies for the same reason by the Office of Foreign Assets Control by a Presidential Order. He even argued that insofar as the European Union is concerned, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lic offer that would have had to be made, the shares of Uttam Galva would have had to be purchased at the higher price that is mentioned in the said Regulations. Incidentally, according to Shri Rohatgi, in any case, getting out of Uttam Galva by paying a price of Re.1 per share when the market value on that date was Rs. 19.50 per share is again a fraudulent transaction, which cannot possibly pass muster under Section 29A. Further, insofar as KSS Petron is concerned, it is clear that Fraseli's holding of 32.22% in KSS Global would certainly amount to de facto control, if not de jure control, of KSS Petron, its wholly owned subsidiary, as defined under Section 2(27) of the Companies Act, 2013. The transfer of Fraseli's shareholding on 9.2.2018, before submission of the resolution plan on 12.2.2018, is again a dubious and fraudulent act squarely hit by Section 29A. Shri Rohatgi further argued that Shri Pramod Mittal, brother of Shri L.N. Mittal, is a connected person, which would trigger Section 29A(j). Shri Pramod Mittal is a promoter and director of one 'Gontermann Piepers (India) Limited', which has also been declared an NPA, rendering Shri L.N. Mittal ineligible under Section 29A( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal state of affairs of the facts of every given case. Therefore, it is very important to remember that phrases such as "persons acting in concert" and "control" are meant not only to pierce the corporate veil, but also to get to the real persons who present resolution plans. On the facts of each case, according to Shri Subramanium, both resolution plans were correctly rejected by the Resolution Professional and the Committee of Creditors, as they were both hit by the provisions of Section 29A. Any circular method, by which payment of debts of an NPA of a person acting jointly or in concert under the proviso to Section 29A(c) is sought to be avoided, should be interdicted. According to the learned Senior Advocate, both resolution plans are hit by Section 29A(c), and the only way out is for both resolution applicants to pay up the debts of the respective NPAs of the corporate debtors who are associated with them. 20. Shri K.V. Viswanathan, learned Senior Advocate, appearing on behalf of the Resolution Professional, drew our attention to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act as a director under theCompanies Act, 2013 (18 of 2013); (f) Has been prohibited by the Securities andExchange Board of India from trading in securities or accessing the securities markets; (g) Has indulged in preferential transaction orundervalued transaction or fraudulent transaction in respect of which an order has been made by the Adjudicating Authority under this Code; (h) Has executed an enforceable guarantee in favourof a creditor, in respect of a corporate debtor under insolvency resolution process or liquidation under this Code; (i) Where any connected person in respect of suchperson meets any of the criteria specified in clauses (a) to (h). Explanation - For the purposes of this clause, the expression "connected person" means- (i) any person who is promoter or in themanagement or control of the resolution applicant; or (ii) any person who shall be the promoter or inmanagement or control of the business of the corporate debtor during the implementation of the resolution plan; or (iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii) (j) Has been subject to any disability, correspon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under clauses (a) to (i). Explanation.- For the purposes of this clause, the expression "connected person" means- (i) any person who is the promoter or in themanagement or control of the resolution applicant; or (ii) any person who shall be the promoter or inmanagement or control of the business of the corporate debtor during the implementation of the resolution plan; or (iii) the holding company, subsidiary company,associate company or related party of a person referred to in clauses (i) and (ii): Provided that nothing in clause (iii) of this Explanation shall apply to- (A) a scheduled bank; or (B) an asset reconstruction company registeredwith the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); or (C) an Alternate Investment Fund registered withthe Securities and Exchange Board of India." 23. Finally, the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, received the assent of the President on 17.8.2018, but came into force with retrospective effect from 6.6.2018. The said amendment inter alia amended Section 29A, which now reads as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Code; (d) has been convicted for any offence punishable withimprisonment- (i) for two years or more under any Act specifiedunder the Twelfth Schedule; or (ii) for seven years or more under any other lawfor the time being in force: Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment: Provided further that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I; (e) is disqualified to act as a director under theCompanies Act, 2013 (18 of 2013): Provided that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I; (f) is prohibited by the Securities and Exchange Boardof India from trading in securities or accessing the securities markets; (g) has been a promoter or in the management orcontrol of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code: Provided that this clause shall not ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... central bankor a securities market regulator or other financial sector regulator of a jurisdiction outside India which jurisdiction is compliant with the Financial Action Task Force Standards and is a signatory to the International Organisation of Securities Commissions Multilateral Memorandum of Understanding; (c) any investment vehicle, registered foreigninstitutional investor, registered foreign portfolio investor or a foreign venture capital investor, where the terms shall have the meaning assigned to them in regulation 2 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 made under the Foreign Exchange Management Act, 1999 (42 of 1999); (d) an asset reconstruction company registeredwith the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (e) an Alternate Investment Fund registered withthe Securities and Exchange Board of India; (f) such categories of persons as may be notifiedby the Central Government." 24. The Hon'ble Minister of Finance and Minister of Corporate Affairs, Shri Arun Jaitley ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Code as the unscrupulous person would be seen to be rewarded at the expense of the 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 eligible." (emphasis supplied) 26. It is in this background that the section has to be construed. In Ms. Eera Through Dr. Manjula Krippendorf v. State (Govt. of NCT of Delhi) & Anr., (2017) 15 SCC 133, this Court, after referring to the golden rule of literal construction, and its older counterpart the "object rule" in Heydon's case, referred to the theory of creative interpretation as follows:- "122. Instances of creative interpretation are when the Court looks at both the literal language as well as the purpose or object of the statute in order to better determine what the words used by the draftsman of legislation mean. In D.R. Venkatachalam v. Transport Commr. [D.R. Venkatachalam v. Transport Commr., (1977) 2 SCC 273], an early instance of this is found in the concurring judgment of Beg, J. The learned Jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st, therefore, inform our interpretation of the same. We are concerned in the present matter with sub-clauses (c), (f), (i) and (j) thereof. 28. It will be noticed that the opening lines of Section 29A contained in the Ordinance of 2017 are different from the opening lines of Section 29A as contained in the Amendment Act of 2017. What is important to note is that the phrase "persons acting in concert" is conspicuous by its absence in the Ordinance of 2017. The concepts of "promoter", "management" and "control" which were contained in the opening lines of Section 29A under the Ordinance have now been transferred to sub-clause (c) in the Amendment Act of 2017. It is, therefore, important to note that the Amendment Act of 2017 opens with language which is of wider import than that contained in the Ordinance of 2017, evincing an intention to rope in all persons who may be acting in concert with the person submitting a resolution plan. 29. The opening lines of Section 29A of the Amendment Act refer to a de facto as opposed to a de jure position of the persons mentioned therein. This is a typical instance of a "see through provision", so that one is able to arrive at persons who are ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendent and legal personality distinct from the individuals who are its members, it has since been held that the corporate veil may be lifted, the corporate personality may be ignored and the individual members recognised for who they are in certain exceptional circumstances Pennington in his Company Law (4th Edn.) states: "Four inroads have been made by the law on the principle of the separate legal personality of companies. By far the most extensive of these has been made by legislation imposing taxation. The government, naturally enough, does not willingly suffer schemes for the avoidance of taxation which depend for their success on the employment of the principle of separate legal personality, and in fact legislation has gone so far that in certain circumstances taxation can be heavier if companies are employed by the taxpayer in an attempt to minimise his tax liability than if he uses other means to give effect to his wishes. Taxation of companies is a complex subject, and is outside the scope of this book. The reader who wishes to pursue the subject is referred to the many standard text books on corporation tax, income tax, capital gains tax and capital transfer tax. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the law was followed in Union of India v. ABN Amro Bank and others, (2013) 16 SCC 490, at paragraphs 43 and 44 as follows: "43. We are of the view that in a given situation the authorities functioning under FERA find that there are attempts to overreach the provision of Section 29(1) (a), the authority can always lift the veil and examine whether the parties have entered into any fraudulent, sham, circuitous device so as to overcome statutory provisions like Section 29(1)(a). It is trite law that any approval/permission obtained by non-disclosure of all necessary information or making a false representation tantamount to approval/permission obtained by practising fraud and hence a nullity. Reference may be made to the judgment of this Court in Union of India v. Ramesh Gandhi [(2012) 1 SCC 476]. 44. Even in Escorts case [(1986) 1 SCC 264], this Court has taken the view that it is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othe use of the company structure to avoid or conceal liability; (v) To justify piercing the corporate veil, theremust be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and (vi) The company may be a "façade" even thoughit was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done 72. The principles laid down by Ben Hashem case [Ben Hashem v. Ali Shayif, 2008 EWHC 2380 (Fam)] have been reiterated by the UK Supreme Court by Lord Neuberger in Prest v. Petrodel Resources Ltd. [(2013) 2 AC 415], UKSC at para 64. Lord Sumption, in Prest case [(2013) 2 AC 415], finally observed as follows: (AC p. 488, para 35) "35. I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it is not necessary to refer to all of them, the one relevant to us is "when the corporate personality is being blatantly used as a cloak for fraud or improper conduct". [Gower: Modern Company Law - 4th Edn. (1979) at p. 137.] Pennington ( Company Law - 5th Edn. 1985 at p. 53) also states that "where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law", the court will disregard the corporate veil. A Professor of Law, S. Ottolenghi in his article "From peeping behind the Corporate Veil, to ignoring it completely" says "the concept of 'piercing the veil' in the United States is much more developed than in the UK. The motto, which was laid down by Sanborn, J. and cited since then as the law, is that 'when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons'. The same can be seen in various European jurisdictions." [(1990) 53 Modern Law Review 338] Indeed, as far back as 1912, another American Professor L. Maurice Wormser examined the American decisions on the subject in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly work for the corporation." 27. In DHN Food Distributors Ltd. v. London Borough of Tower Hamlets [(1976) 3 All ER 462] the court of appeal dealt with a group of companies. Lord Denning quoted with approval the statement in Gower's Company Law that "there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group". The learned Master of Rolls observed that "this group is virtually the same as a partnership in which all the three companies are partners". He called it a case of "three in one" - and, alternatively, as "one in three". 28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares and includes: i. a company, its holding company, or subsidiaries ofsuch companies or companies under the same management either individually or all with each other. ii. a company with any of its directors, or any personentrusted with the management of the funds of the company; iii. directors of companies, referred to in clause (i) andhis associates; and iv. mutual fund, financial institution, merchant banker, portfolio manager and any investment company in which any person has an interest as director, fund manager, trustee, or as a shareholder having not less than 2% of the paid-up capital of that company. Explanation - For the purposes of this clause "associate" means:- A. Any relative of that person within the meaningof section 6 of the Companies Act, 1956 (1 of 1956); B. the director or his relative whether individuallyor in aggregate holding more than 2% of the paid-up equity capital of such company." This was replaced in 1997 by the Regulations of 1997, and then further by the 2011 Takeover Regulations. 37. The Justice P.N. Bhagwati Committee Report on Takeovers, 1997, pursuant to which the Regulations of 1997 were framed, stated as follows: "2.22 Definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons are grouped in categories such that the persons may be presumed to be acting in concert only with another person belonging to the same category. A general reading of the existing provisions implies that a person belonging to any one of the categories mentioned in sub-clauses (i) to (iv) of clause (d) of regulation 2 could be presumed to be acting in concert with a person belonging to any other category. Thus, a company could be presumed to be acting in concert with a merchant banker, mutual fund, or any other body even though they may all be distinctly independent entities without any connection whatsoever. Such irrebuttable presumption of a common motive amongst unrelated parties would be illogical and not legally tenable. A distinction must be made between persons who could be presumed to be acting in concert unless proved to the contrary and others who may be acting in concert even though such a presumption cannot be raised against them. In this context, it may be noted that the UK City Code of Takeovers and Mergers, for this very reason, has divided the persons acting in concert into groups in such a manner that these persons would in the natural course of affairs be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate relatives; (vi) a mutual fund, its sponsor, trustees, trusteecompany, and asset management company; (vii) a collective investment scheme and itscollective investment management company, trustees and trustee company; (viii) a venture capital fund and its sponsor,trustees, trustee company and asset management company; (viiia) an alternative investment fund and its sponsor, trustees, trustee company and manager; (ix) [***] (x) a merchant banker and its client, who is anacquirer; (xi) a portfolio manager and its client, who is anacquirer; (xii) banks, financial advisors and stock brokersof the acquirer, or of any company which is a holding company or subsidiary of the acquirer, and where the acquirer is an individual, of the immediate relative of such individual: Provided that this sub-clause shall not apply to a bank whose sole role is that of providing normal commercial banking services or activities in relation to an open offer under these regulations; (xiii) an investment company or fund and anyperson who has an interest in such investment company or fund as a shareholder or unitholder having not less than 10 per cent of the paid-up capital of the investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is unclear whether the term 'connected person' in clause (j) applies to only the resolution applicant or even 'persons acting jointly or in concert with such person'. If the latter interpretation is taken, this provision would be applicable to multiple layers of persons who are related to the resolution applicant even remotely. Further, ARCs, banks and alternate investment funds which are specifically excluded from the definition of 'connected person' provided in section 29A may be caught by the term 'person acting jointly or in concert with such person'. The Committee felt that section 29A was introduced to disqualify only those who had contributed in the downfall of the corporate debtor or were unsuitable to run the company because of their antecedents whether directly or indirectly. Therefore, extending the disqualification to a resolution application owing to infirmities in persons remotely related may have adverse consequences. Such interpretation of this provision may shrink the pool of resolution applicants. Accordingly, the Committee felt that the words, "..., if such person, or any other person acting jointly or in concert with such person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Takeover Panel was whether Guinness had acted in concert with Pipetec when Pipetec purchased shares in Distillers Company PLC. Various factors were taken into consideration to conclude that Guinness had acted in concert with Pipetec to get control over Distillers Company. The Panel said: "The nature of acting in concert requires that the definition be drawn in deliberately wide terms. It covers an understanding as well as an agreement, and an informal as well as a formal arrangement, which leads to cooperation to purchase shares to acquire control of a company. This is necessary, as such arrangements are often informal, and the understanding may arise from a hint. The understanding may be tacit, and the definition covers situations where the parties act on the basis of a 'nod or a wink'.... Unless persons declare this agreement or understanding, there is rarely direct evidence of action in concert, and the Panel must draw on its experience and common sense to determine whether those involved in any dealings have some form of understanding and are acting in cooperation with each other." [Guinness PLC and Distillers Company PLC (Panel hearing on 25-8-1987 and 2-9-1987 at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 29A, the first thing that was argued, at which the parties were at loggerheads, was the time at which sub-clause (c) can be said to operate. According to Shri Rohatgi, in the original sub-clause (c), preamendment, the time must necessarily be the date of commencement of the corporate insolvency resolution process, as is mentioned by the Section itself. According to Messrs Salve and Singhvi, it is clear that since submission of a resolution plan is spoken of, it is the time of submission of such plan and not any anterior stage. 43. According to us, it is clear that the opening words of Section 29A furnish a clue as to the time at which sub-clause (c) is to operate. The opening words of Section 29A state: "a person shall not be eligible to submit a resolution plan...". It is clear therefore that the stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant. The contrary view expressed by Shri Rohatgi is obviously incorrect, as the date of commencement of the corporate insolvency resolution process is only relevant for the purpose of calculating whether one year has lapsed from the date of classification of a person as a nonperforming asset. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrol the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;" 47. The expression "control" is therefore defined in two parts. The first part refers to de jure control, which includes the right to appoint a majority of the directors of a company. The second part refers to de facto control. So long as a person or persons acting in concert, directly or indirectly, can positively influence, in any manner, management or policy decisions, they could be said to be "in control". A management decision is a decision to be taken as to how the corporate body is to be run in its day to day affairs. A policy decision would be a decision that would be beyond running day to day affairs, i.e., long term decisions. So long as management or policy decisions can be, or are in fact, taken by virtue of shareholding, management rights, shareholders agreements, voting agreements or otherwise, control can be said to exist. 48. Thus, the expression "control", in Section 29A(c), denotes only positive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rather than taking the initiative. It is a positive power and not a negative power. In a board managed company, it is the board of directors that is in control. If an acquirer were to have power to appoint majority of directors, it is obvious that he would be in control of the company but that is not the only way to be in control. If an acquirer were to control the management or policy decisions of a company, he would be in control. This could happen by virtue of his shareholding or management rights or by reason of shareholders agreements or voting agreements or in any other manner. The test really is whether the acquirer is in the driving seat. To extend the metaphor further, the question would be whether he controls the steering, accelerator, the gears and the brakes. If the answer to these questions is in the affirmative, then alone would he be in control of the company. In other words, the question to be asked in each case would be whether the acquirer is the driving force behind the company and whether he is the one providing motion to the organization. If yes, he is in control but not otherwise. In short control means effective control." 49. We think that these observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion." (emphasis supplied) 52. The third concept is that of a promoter. "Promoter" is defined by Section 2(69) of the Companies Act, 2013 as follows: "(69) "promoter" means a person- (a) who has been named as such in a prospectusor is identified by the company in the annual return referred to in Section 92; or (b) who has control over the affairs of thecompany, directly or indirectly whether as a shareholder, director or otherwise; or (c) in accordance with whose advice, directionsor instructions the Board of Directors of the company is accustomed to act: Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity;" 53. Here again, sub-clause (a) refers to a de jure position, namely, where a person is expressly named in a prospectus or identified by the company in an annual return as a promoter. Subclauses (b) and (c) speak of a de facto position. Under sub-clause (b), so long as a perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As generally, and not merely from the NPAs of the corporate debtor in respect of which it is receiving resolution plans. In this context, therefore, if there is a system by which a person who presents a resolution plan can pay off the entire amount of the NPAs as a part of its resolution plan, to be appropriated before the resolution plan is accepted and implemented, it would fully subserve the object of both the proviso and the statute generally. According to them, the words of a statute can be altered suitably to avoid hardship or absurdity. We are afraid that we cannot accept the aforesaid submission. The plain language of the proviso makes it clear, that ineligibility can only be removed if the necessary payment is made before submission of a resolution plan. It is not possible to accede to the argument that, commercially speaking, no person would ever make a speculative bid, where he would pay off the debt of another related corporate debtor, classified as an NPA, without being certain that his resolution plan would be accepted, as this would narrow the pool of resolution applicants to nil, and therefore stultify the object sought to be achieved by the proviso to Section 29A(c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (g), who are eligible to submit resolution plans under sub-clause (c) of Section 29A, if they happen to be persons who were in the erstwhile management or control of the corporate debtor. 57. It is important for the competent authority to see that persons, who are otherwise ineligible and hit by sub-clause (c), do not wriggle out of the proviso to sub-clause (c) by other means, so as to avoid the consequences of the proviso. For this purpose, despite the fact that the relevant time for the ineligibility under subclause (c) to attach is the time of submission of the resolution plan, antecedent facts reasonably proximate to this point of time can always be seen, to determine whether the persons referred to in Section 29A are, in substance, seeking to avoid the consequences of the proviso to sub-clause (c) before submitting a resolution plan. If it is shown, on facts, that, at a reasonably proximate point of time before the submission of the resolution plan, the affairs of the persons referred to in Section 29A are so arranged, as to avoid paying off the debts of the non-performing asset concerned, such persons must be held to be ineligible to submit a resolution plan, or otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 34 (1) of the Act of 1965 must be held to be a provision corresponding to Section 11(4) of the Act of 1959." 59. In the light thereof, it is clear that if a person is prohibited by a regulator of the securities market in a foreign country from trading in securities or accessing the securities market, the disability under sub-clause (i) would then attach. 60. When we come to sub-clause (j), a "connected person" is defined as meaning the three categories of persons mentioned in the three sub-clauses therein. The first sub-clause of Explanation 1 again takes us back to the same three definitions of "promoter", "management" and "control" of the resolution applicant. Under sub-clause (ii), again, a "connected person" is a person who is either the promoter, or in management or control, of the business of the corporate debtor during implementation of the resolution plan. And under sub-clause (iii), holding companies, subsidiary companies and associate companies as defined under the Companies Act, 2013, or related parties of persons referred to in clauses (1) and (2) also become connected persons1. 61. We now come to the equally important question as to the timelines within which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision similar to Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985. Consequently, creditors were given liberty to file suits or initiate other proceedings for recovery of dues despite pendency of proceedings for the revival or rehabilitation of sick companies before the National Company Law Tribunal. 42. This Amendment Act came under challenge, which challenge culminated in the Constitution Bench decision in Union of India v. R, Gandhi, President, Madras Bar Association, (2010) 11 SCC 10 by which the amendments were upheld, with certain changes recommended by the Constitution Bench of this Court. 43. Close on the heels of the amendment made to the Companies Act came the Sick Industrial Companies (Special Provisions) Repeal Act, 2003. This particular Act was meant to repeal the Sick Industrial Companies (Special Provisions) Act, 1985 consequent to some of its provisions being telescoped into the Companies Act. Thus, the Companies Amendment Act, 2002 and the SICA Repeal Act formed part of one legislative scheme, and neither has yet been brought into force. In fact, even the Companies Act, 2013, which repeals the Companies Act, 1956, contains Chapter 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... last at least one statutory measure has proved to be of some efficacy. This Court would be loathe to give such an interpretation as would thwart the recovery process under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 which Act alone seems to have worked to some extent at least." (emphasis supplied) 63. These two enactments were followed by the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002. As has been noted hereinabove, amounts recovered under the said Act recorded improvement over the previous two enactments, but this was yet found to be inadequate. 64. The Code was passed after great deliberation and pursuant to various Committee Reports, as has been held in Innoventive Industries Ltd. v. ICICI Bank & Anr. (2018) 1 SCC 407 at paragraph 12. The Statement of Objects and Reasons, which is reproduced in the said paragraph, makes it clear that the existing framework for insolvency and bankruptcy was not only inadequate and ineffective, but resulted in undue delays in resolution. One of the primary objects of the Code, therefore, is to resolve such matters in a time bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion plan to the resolution professional, which is prepared on the basis of an information memorandum. This plan must provide for payment of insolvency resolution process costs, management of the affairs of the corporate debtor after approval of the plan, and implementation and supervision of the plan. It is only when such plan is approved by a vote of not less than 75% of the voting share of the financial creditors and the adjudicating authority is satisfied that the plan, as approved, meets the statutory requirements mentioned in Section 30, that it ultimately approves such plan, which is then binding on the corporate debtor as well as its employees, members, creditors, guarantors and other stakeholders. Importantly, and this is a major departure from previous legislation on the subject, the moment the adjudicating authority approves the resolution plan, the moratorium order passed by the authority under Section 14 shall cease to have effect. The scheme of the Code, therefore, is to make an attempt, by divesting the erstwhile management of its powers and vesting it in a professional agency, to continue the business of the corporate body as a going concern until a resolution plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Adjudicating Authority when a default has occurred. Explanation.-For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an applicationunder sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with theapplication furnish- (a) record of the default recorded with the informationutility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed toact as an interim resolution professional; and (c) any other information as may be specified by theBoard. (4) The Adjudicating Authority shall, within fourteendays of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under subsection (3). (5) Where the Adjudicating Authority is satisfied that- (a) a default has occurred and the application undersub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t he is eligible under Section 29-A to the resolution professional prepared on the basis of the information memorandum. (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan- (a) provides for the payment of insolvency resolutionprocess costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor; (b) provides for the payment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor under Section 53; (c) provides for the management of the affairs of thecorporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of thelaw for the time being in force; (f) conforms to such other requirements as may bespecified by the Board. Explanation.-For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of 2013) or any other law for the time being in force for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Approval of resolution plan.-(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of Section 30 meets the requirements as referred to in sub-section (2) of Section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan: Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation. (2) Where the Adjudicating Authority is satisfied thatthe resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section (1),- (a) the moratorium order passed by the AdjudicatingAuthority under Section 14 shall cease to have effect; and (b) the resolution professional shall forward all recordsrelating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of subsection (1). (4) On receipt of an application under sub-section (3),if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (5) Subject to Section 52, when a liquidation order hasbeen passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor: Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority. (6) The provisions of sub-section (5) shall not apply tolegal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (7) The order for liquidation under this section shall bedeemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, excep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded. 61. Appeals and Appellate Authority. - (1) Notwithstanding anything to the contrary contained under the Companies Act, 2013, any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2) Every appeal under sub-section (1) shall be filedwithin thirty days before the National Company Law Appellate Tribunal: Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal but such period shall not exceed fifteen days. (3) An appeal against an order approving a resolutionplan under Section 31 may be filed on the following grounds, namely- (i) the approved resolution plan is in contravention ofthe provisions of any law for the time being in force; (ii) there has been material irregularity in exercise ofthe powers by the resolution professional during the corporate insolvency resolution period; (iii) the debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to rectification of defects, which the proviso in Section 7(5) says must be done within 7 days of receipt of such notice from the Adjudicating Authority by the applicant. The time frame within which ascertainment of default is to take place, as well as the time within which the defect is to be rectified, have both been held by a judgment of this Court to be directory in nature, the reason being that the stage of these provisions is before admission of the application (see Surendra Trading Co. v. Juggilal Kamlapat Jute Mills Company Ltd. & Ors. (2017) 16 SCC 143). The corporate insolvency resolution process commences from the date of admission of the application vide Section 7(6). Section 7(7) makes it incumbent upon the Adjudicating Authority to communicate the order accepting or rejecting the application to the financial creditor and the corporate debtor within a period of 7 days of such admission or rejection. 70. The time limit for completion of the insolvency resolution process is laid down in Section 12. A period of 180 days from the date of admission of the application is given by Section 12(1). This is extendable by a maximum period of 90 days only if the Committee of Credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 7 by the Adjudicating Authority. (ii) Under Section 17, the corporate debtor's affairs are to be managed by the Interim Resolution Professional so appointed, and the Board of Directors of the corporate debtor shall stand superseded. The officers and managers of the corporate debtor are now to report to the Interim Resolution Professional, who has the authority to act on behalf of the corporate debtor. (iii) Under Section 18(1), some of the important duties of this Interim Resolution Professional are set out, which are to collect all information relating to the financial position of the corporate debtor and, most importantly, to constitute a Committee of Creditors. That this has to be done at the very earliest, is clear from the scheme of the corporate insolvency resolution process which, as has been stated earlier, cannot exceed the maximum period of 270 days from the date of admission of the financial creditors' application. (iv) Under Section 21, the Interim Resolution Professional is to constitute this Committee of Creditors after collating all claims received against the corporate debtor and after determination of the financial position of the corporate debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Creditors for its approval under Section 30(3). This can then be approved by the Committee of Creditors by a vote of not less than 66% under sub-section (4). What is important to note is that the Committee of Creditors shall not approve a resolution plan where the resolution applicant is ineligible under Section 29A, and may require the Resolution Professional to invite a fresh resolution plan where no other resolution plan is available. Once approved by the Committee of Creditors, the resolution plan is to be submitted to the Adjudicating Authority under Section 31 of the Code. It is at this stage that a judicial mind is applied by the Adjudicating Authority to the resolution plan so submitted, who then, after being satisfied that the plan meets (or does not meet) the requirements mentioned in Section 30, may either approve or reject such plan. . (ix) An appeal from an order approving such plan is only on the limited grounds laid down in Section 61(3). However, an appeal from an order rejecting a resolution plan would also lie under Section 61. . (x) As has been stated hereinbefore, the liquidation process gets initiated under Section 33 if, (1) either no resolution plan is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointed by 40th day of commencement T+40 Regulation 27 Appointment of valuer Within 7 days of appointment of RP, but not later than 40th day of commencement T+47 Section 12A/Regulation 30A Submission of application for withdrawal of application admitted. Before issue of EoI W CoC to dispose of the application Within 7 days of its receipt or 7 days of constitution of CoC, whichever is later. W+7 Filing application of withdrawal, if approved by CoC with 90 % majority voting, by RP to AA Within 3 days of approval by CoC W+10 Regulation 35A RP to form an opinion on preferential and other transactions Within 75 days of the commencement T+75 RP to make a determination on preferential and other transactions Within 115 days of commencement T+115 RP to file applications to AA for appropriate relief Within 135 days to commencement T+135 Regulation 36(1) Submission of IM to CoC Within 2 weeks of appointment of RP, but not later than 54th day of commencement T+54 Regulation 36A Publish Form G Within 75 days of commencement T+75 Invitation of EoI Submission of EoI At least 15 days from issue of EoI (Assume 15 days) T+90 Provisional List o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Stovin [1889] 22 Q.B.D.513 and in particular the following observations of Fry, L. J., at page 519: "The only alternative construction offered to us would lead to this result, that the plain intention of the legislature has entirely failed by reason of a slight inexactitude in the language of the section. If we were to adopt this construction, we should be construing the Act in order to defeat its object rather than with a view to carry its object into effect". Vide also Craies on Statute Law, p. 90 and Maxwell on The Interpretation of Statutes, Tenth Edn., pp. 236-237. "A statute is designed", observed Lord Dunedin in Whitney v. Commissioners of Inland Revenue [1925] 10 Tax Cas.88, 110, "to be workable, and the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable". 76. Given the timeline referred to above, and given the fact that a resolution applicant has no vested right that his resolution plan be considered, it is clear that no challenge can be preferred to the Adjudicating Authority at this stage. A writ petition under Article 226 filed before a High Court would also be turned down on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion applicant complies with- (a) the provisions of clause (h) of sub-section (2) of section 25; (b) the applicable provisions of section 29A,and (c) other requirements, as specified in theinvitation for expression of interest. (9) The resolution professional may seek anyclarification or additional information or document from the prospective resolution applicant for conducting due diligence under sub-regulation (8). (10) The resolution professional shall issue aprovisional list of eligible prospective resolution applicants within ten days of the last date for submission of expression of interest to the committee and to all prospective resolution applicants who submitted the expression of interest. (11) Any objection to inclusion or exclusion of aprospective resolution applicant in the provisional list referred to in sub-regulation (10) may be made with supporting documents within five days from the date of issue of the provisional list. (12) On considering the objections received under subregulation (11), the resolution professional shall issue the final list of prospective resolution applicants within ten days of the last date for receipt of objections, to the committee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the resolution plan is violative of the provisions of any law, including Section 29A of the Code, after hearing arguments from the resolution applicant as well as the Committee of Creditors, after which an appeal can be preferred from the decision of the Adjudicating Authority to the Appellate Authority under Section 61. 81. If, on the other hand, a resolution plan has been approved by the Committee of Creditors, and has passed muster before the Adjudicating Authority, this determination can be challenged before the Appellate Authority under Section 61, and may further be challenged before the Supreme Court under Section 62, if there is a question of law arising out of such order, within the time specified in Section 62. Section 64 also makes it clear that the timelines that are to be adhered to by the NCLT and NCLAT are of great importance, and that reasons must be recorded by either the NCLT or NCLAT if the matter is not disposed of within the time limit specified. Section 60(5), when it speaks of the NCLT having jurisdiction to entertain or dispose of any application or proceeding by or against the corporate debtor or corporate person, does not invest the NCLT with the jurisdic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process, and the corporate debtor otherwise being put into liquidation. We must not forget that the corporate debtor consists of several employees and workmen whose daily bread is dependent on the outcome of the corporate insolvency resolution process. If there is a resolution applicant who can continue to run the corporate debtor as a going concern, every effort must be made to try and see that this is made possible. 3 A reasonable and balanced construction of this statute would therefore lead to the result that, where a resolution plan is upheld by the Appellate Authority, either by way of allowing or dismissing an appeal before it, the period of time taken in litigation ought to be excluded. This is not to say that the NCLT and NCLAT will be tardy in decision making. This is only to say that in the event of the NCLT, or the NCLAT, or this Court taking time to decide an application beyond the period of 270 days, the time taken in legal proceedings to decide the matter cannot possibly be excluded, as otherwise a good resolution plan may have to be shelved, resulting in corporate death, and the consequent displacement of employees and workers. 84. Coming to the facts of the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttled an irrevocable and discretionary trust, viz., the 'Crescent Trust', and settled the entire share capital of AHL into the Trust, at a par value of USD 10,000. The beneficiaries of this Trust were general charities, as well as entitles owned by Shri Shashikant Ruia (brother of Shri Ravi Ruia, promoter of the corporate debtor), and entities owned by Shri Rewant Ruia himself. 87. On 20.11.2017, Shri Rewant Ruia settled 'Prisma Trust', another irrevocable and discretionary trust, whose beneficiaries are "general charities" and one 'Solis Enterprises Limited', a company incorporated in Bermuda, whose share capital is held by Shri Rewant Ruia. Numetal, vide a response dated 30.3.2018, admitted that while the trust deed relating to Prisma Trust allowed the trustee to benefit any English or Bermuda charity, "no particular charity is named at this stage". The Trustee of AEL is one 'Rhone Trustee', Singapore. What is important to note is that Shri Rewant Ruia was the ultimate natural person who held the beneficial interest in AEL through Prisma Trust, through Solis Enterprises Limited. This emerges from Section 6.7 of the resolution plan submitted by Numetal to the Resolution Professio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant Ruia, who is the ultimate beneficiary in the chain of control of the trusts which in turn controlled AEL, was very much on the scene, holding through AEL 25% of the shareholding of Numetal. 91. One other extremely important fact needs to be noticed at this stage. The earnest money in the form of Rs. 500 crores, credited to the account of the corporate debtor, has been provided to Numetal by AEL as a shareholder of the resolution applicant, viz. Numetal. It is important to note that this earnest money deposit of Rs. 500 crores made by AEL continues to remain with the Resolution Professional till date, despite the fact that, by the time the second resolution plan was submitted by Numetal on 2.4.2018, AEL had exited as a shareholder of Numetal. It is also important to note that under clause 4.4.4 of the request for proposal for submission of resolution plans for ESIL, the earnest money deposit stands to be forfeited if any condition thereof is breached or the qualifications of the potential resolution applicant are found to be untrue. At this stage, it is important to reproduce relevant extracts of the resolution plan first submitted by Numetal in response to the request for prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... metal bring to the table, considerable experience from difference industries covering finance, steel, oil and gas, metals and mining chemicals and other sectors across geographies. They have extensive experience in the field of management of distressed assets/situations, restructuring of debt, turnaround of corporates and improvement of strategies for cash flows. In addition these shareholders have a good understanding of Asian markets having dealt with large corporates in these markets. The above factors coupled with the financial strength of its shareholders, put Numetal in a strong position to implement the turnaround successfully. xxx xxx xxx (c) ... Aurora Enterprises Limited ("AEL") brings a careful focus on financial returns and expertise of the Indian business and commercial sector to Numetal. AEL is a pure financial investor. The beneficiaries of such discretionary trust are general charities and Solis Enterprise Limited, a company incorporated in Bermuda, the share capital of which is held by Mr. Rewant Ruia. Mr. Rewant Ruia is the son of Ravi Ruia, who is one of the existing promoters of the Corporate Debtor." 92. Clause 6.7 of Numetal's resolution plan stipulated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eil, none of the parameters of the request for proposal could have been met by Numetal itself. It is thus clear that the four shareholders of Numetal were persons "acting jointly" within the meaning of Section 29A. This being the case, it is clear that Shri Salve's argument that VTB Bank is a "connected person", being ineligible under sub-clause (j), would have to be rejected, as VTB Bank is itself, through its wholly owned subsidiary of Crinium Bay, a person acting jointly with the three other shareholders of Numetal, and would, therefore, fall within the first part of Section 29A itself. This being so, it cannot be said that VTB Bank is a person "connected to" any one of the persons acting jointly, as it is itself a person acting jointly, and therefore covered by the first part of Section 29A. 94. It is important to note that on 29.3.2018, AEL transferred its 25% shareholding in Numetal to the other three constituent shareholders, thereby leaving its shareholding in Numetal as 'Nil'. In response to the Resolution Professional's invitation, the second Resolution Plan, therefore, submitted by Numetal on 2.4.2018, did not have AEL as a constituent of Numetal; instead, Crinium Bay c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ruia has been found all along, from the date of incorporation of Numetal, till the date of submission of the second resolution plan. 96. Another argument raised by Shri Salve is that VTB Bank is ineligible to present a resolution plan, as the major constituent of Numetal, through its wholly owned subsidiary of Crinium Bay, as VTB Bank is ineligible as sub-clause (f) read with sub-clause (i) of Section 29A have been attracted. 97. In February/March 2014, the Russian Federation annexed the Ukrainian region of Crimea. Consequently, on 6.3.2014, the President of the United States issued Executive Order 13660, pursuant to the International Emergency Economic Powers Act and the National Emergencies Act. The said order sought to block the property of Russian entities contributing to the situation in Ukraine. Summarizing the executive order issued by the President, the Department of Treasury's Office of Foreign Assets Control commented:- "The Ukraine/Russia-related sanctions program implemented by the Office of Foreign Assets Control (OFAC) began on March 6, 2014, when the President, in Executive Order (E.O.) 13660, declared a national emergency to deal with the threat posed by the act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NDER EXECUTIVE ORDER 13662 Pursuant to sections 1(a)(i), 1(b), and 8 of Executive Order 13662 of March 20, 2014, "Blocking Property of Additional Persons Contributing to the Situation in Ukraine" (the Order) and 31 C.F.R. § 589.802, taking appropriate account of the Countering Russian Influence in Europe and Eurasia Act of 2017, and following the Secretary of the Treasury's determination under section 1(a)(i) of the Order with respect to the energy sector of the Russian Federation economy, the Director of the Office of Foreign Assets Control has determined, in consultation with the Department of State, that the following activities by a U.S. person or within the United States are prohibited, except to the extent provided by law or unless licensed or otherwise authorized by the Office of Foreign Assets Control: (1) For new debt issued on or after July 16, 2014 andbefore November 28, 2017, all transactions in, provision of financing for, and other dealings in new debt of longer than 90 days maturity of persons determined to be subject to this Directive or any earlier version thereof, their property, or their interests in property. (2) For new debt issued on or after November 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssistance in the issuance of, or otherwise deal with transferable securities and money-market instruments with a maturity exceeding 90 days, issued after 1 August 2014 by..." Further, Annexure III thereto listed VTB Bank as one of the institutions subject to the 'restrictive measures'. 101. What has been argued on behalf of Shri Rohatgi is that, in order to be covered by sub-clause (f) read with sub-clause (i) of Section 29A, the person must be subject to a disability, which corresponds to a prohibition by SEBI in India from trading in securities or accessing the securities markets. Sub-clauses (f) and (i) therefore refer to persons who, on account of their antecedents, may adversely impact the credibility of the processes under the Code. This is in fact stated in the Preamble of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, dated 23.11.2017, which introduced Section 29A into the Code, as follows: "AND WHEREAS in order to strengthen further the insolvency resolution process, it has been considered necessary to provide for prohibition of certain persons from submitting a Resolution Plan who, on account of their antecedents, may adversely impact the credibility o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sk to VTB Capital which could then hedge the risk in the swaps market. VTB obtained pricing from VTB Capital for these transactions that was more favorable than it admittedly could have obtained from third-parties in the futures market. With this structure, Respondents, as intended, negated market risk and avoided price competition. Accordingly, Respondents' block trades were "fictitious from the standpoint of reality and substance" and in violation of Section 4c(a)(1) and (2) (A) of the Act. In re Goldwurm, 7 Agric. Dec. 265, 275 (providing that cotton futures trades entered for purpose of accomplishing income tax reporting goals were "fictitious from the standpoint of reality and substance"). Further, Respondents' trades caused prices to be reported to or recorded by the CME that were not true and bona fide prices in violation of Section 4c(a)(2)(B) of the Act. See In re Morgan Stanley & Co., [2012 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 32,218 (CFTC June 5, 2012) (settlement order) (finding violation of Section 4c(a) where unlawfully executed exchanges for related positions caused non-bona fide prices to be reported or recorded). xxx xxx xxx V. FINDINGS OF V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Uttam Galva is concerned, the corporate structure is as follows:AMSA is a listed company in Luxemburg. This company is the ultimate parent company of the resolution applicant, through its wholly owned subsidiary AMBD, a company incorporated in Luxemburg, which in turn holds 100% of the shares in Oakey Holding BV, a company incorporated in the Netherlands, which in turn holds 99.99% shares in AMIPL, a company incorporated in India. AMNLBV is a company incorporated in the Netherlands, and is a 100% subsidiary of AMSA. It is this group company of Shri L.N. Mittal that held 29.05% of the shareholding in Uttam Galva (as on 7.2.2018). 107. On 4.9.2009, a Co-Promotion Agreement was executed between AMNLBV and the Indian promoters of Uttam Galva, who are stated to be the Miglani family, who are residents of Mumbai. As per the Co-Promotion Agreement, the foreign promoter, viz., AMNLBV was entitled to nominate one half of the non-independent directors on the board of Uttam Galva, the other half being nominated by the Miglanis. Both of them were to jointly nominate all of the independent directors. Clause 16 of the said agreement, read with Schedule II thereof, provides a list of matters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and therefore exempt from such requirement under Regulation 10 of the said regulations. Also, as a matter of fact, the sale of the said shares was effected without taking the consent of the lenders of Uttam Galva, which consent was necessary as per the Non Disclosure Undertaking that was executed by AMNLBV. On 7.2.2018, consequent to the aforesaid inter se transfer, the Co-Promotion Agreement is said to have stood automatically terminated. By way of abundant caution, a formal deed of termination was entered into. AMNLBV addressed letters to the NSE and the BSE to record the aforesaid inter se transfer, who accordingly declassified AMNLBV as a promoter of Uttam Galva on 21.3.2018 and 23.3.2018 respectively. 109. It is absolutely clear that Shri L.N. Mittal, who is the ultimate shareholder of the resolution applicant, viz. AMIPL, is directly the ultimate shareholder of AMNLBV as well, which is an L.N. Mittal Group Company. When the corporate veil of the various companies aforementioned is pierced, both AMIPL and AMNLBV are found to be managed and controlled by Shri L.N. Mittal, and are therefore persons deemed to be acting in concert as per Regulation 2(1)(q)(2)(i) of the 2011 Tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board of KSS Global. 111. From the aforementioned facts, there can be no doubt whatsoever that Fraseli, being a company managed and controlled by Shri L.N. Mittal, holding one third of the shares in KSS Global, which in turn held 100% of the share capital in KSS Petron, was in joint control of KSS Petron, if the corporate veil of all these companies is disregarded. Further, the Shareholders Agreement of 19.5.2011 makes it clear that the joint control of KSS Global would be between three entities, viz., KSS Holding, KSS Infra EALQ and Fraseli, each of whom had the right to appoint an equal number of directors on the board of directors of KSS Global. Not only this, but Fraseli was also granted affirmative voting rights as aforementioned, on certain important specified matters. There would be no doubt whatsoever that, just before presentation of the resolution plan of 12.2.2018, AMIPL would be hit by Section 29A(c), as a group company of Shri L.N. Mittal exercised positive control, by its shareholding, right to appoint directors and affirmative voting rights, over KSS Global, which in turn held 100% shareholding in KSS Petron. Again, as in the case of Uttam Galva, there can be no do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod 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. CASE NOTE:- 1 By the Insolvency and Bankruptcy Code (Second Amendment) Act of 2018 a new definition of "related party" has been inserted with effect from 6.6.2018, as section 5(24-A) of the Code, as follows:- "(24-A) "related party", in relation to an individual, means- (a) a person who is a relative of the individual or a relative of the spouse ofthe individual; (b) a partner of a limited liability partnership, or a limited liability partnership ora partnership firm, in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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