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TMI Blog2022 (3) TMI 412X X X X Extracts X X X X X X X X Extracts X X X X ..... tly comply with the Resolution Plan forthwith. The Adjudicating Authority held that erstwhile Promoter Group has to sell away their shares to the Applicant @ INR 2/- per share. Aggrieved by the above order passed by the Adjudicating Authority, this Appeal has been filed. 2. We need to notice certain facts and events to decide the issues raised in this Appeal. (i) M/s Bhushan Steel Limited owed a debt of Rs. 59 thousand crores to its creditors. On an Application filed by State Bank of India, Corporate Insolvency Resolution Process (CIRP) begun in the year 2017. (ii) M/s. Tata Steel Limited (Respondent No.1) submitted a Resolution Plan proposing an upfront payment of Rs. 35 thousand crores. The Resolution Plan submitted by M/s. Tata Steel Limited was approved by the Adjudicating Authority on 15.05.2018. M/s. Tata Steel Limited implemented the Plan on 18.05.2018 by making payment to the creditors and appointing necessary managerial officials. (iii) On 18.05.2018, Bamnipal Steel Ltd., a subsidiary of M/s. Tata Steel Limited wrote to the Promoters including the Appellants to transfer all of their unpaid equity shares of the Company held by them to Bamnipal Steel Ltd. for consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... romoters of the Bhushan Steel Ltd. 3. We have heard Shri Kapil Sibal, learned senior Counsel, Shri S. Niranjan Reddy, learned senior Counsel on behalf of the Appellants and Shri Ramji Srinivasan, learned senior Counsel appearing on behalf of Respondent No.1 - M/s Tata Steel Ltd. 4. Shri Kapil Sibal, learned senior Counsel submits that Adjudicating Authority by issuing the impugned direction has virtually modified the Resolution Plan approved on 15.05.2018. It is submitted that as per Resolution Plan, Annexure-5 Para-3, the Tata Steel Ltd. was obliged to subscribe to 89,70,44,238 equity shares of the Company at face value of INR 2/- per share, whereas Tata Steel Ltd. has subscribed only 794,428,986 equity shares of the Company at a face value of INR 2/- and has written to the Appellants to sell their equity shares held by Existing Promoter Group i.e. 256,53,813 @ INR 2/- per share, which was not permissible. It is submitted that eventuality of purchasing of equity shares of Existing Promoter Group was to arise only when SEBI does not allow the erstwhile Existing Promoter Group shareholding to be counted towards public shareholding. In the present case on 26.05.2018, a letter has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholding, it had to compulsory purchase the subject shareholding by 2% approximately is an argument in contravention of the Resolution Plan. It is the Respondent, who has not complied with the Resolution Plan, since it was required to subscribe 89,70,44,238 fresh equity shares, whereas it has subscribed only 794,428,986 equity shares. On 18.05.2018, the Appellants were no longer Promoters. 7. Mr. Niranjan Reddy, learned senior Counsel also supporting the submissions of Shri Sibal contended that closing date will be the date when all steps are completed. Reclassification of shareholding of the Appellants having not been completed till 25.06.2018, the closing date cannot be earlier than to 25.06.2018. The closing date is dependent on SEBI's approval. The Adjudicating Authority in paragraph 82 of the order dated 15.05.2018 has observed that the Resolution Applicant to obtain necessary approval has to approach the competent Authorities, which also impel the Resolution Applicant to approach the SEBI for obtaining reclassification. 8. Shri Ramji Srinivasan, learned Advocate appearing for the Tata Steel refuting the submissions of learned Counsel for the Appellants submits that pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INR 27/- at the relevant time. The letters dated 26.05.2018 written to National Stock Exchange and Bombay Stock Exchange were in line with the Regulation 31A, sub-regulation (5) of Regulation 2015, which is a separate and independent provision from Regulation 31A(7), sub-clause (b) of Regulation 2015. The letters dated 26.05.2018 should not be treated to have been written towards seeking any exception from Regulation 31A(7)(b). It was the Resolution Applicant, who was to implement the Resolution Plan and on 18.05.2018 it having taken all steps including sending a letter to Appellants to sell their equity shares @ INR 2/- per share, nothing more was required to be done and the Appellants were obliged to sell the equity shares at the rate of INR 2/-. 10. Shri Srinivasan further submits that all acts taken by Respondents were in accordance with the Resolution Plan and above Option 2 in the Clause 3 of Annexure 5 was elected by the Respondent since Option 1 on the relevant date that is 18.05.2018 was not permissible, there being a specific prohibition from treating the reclassified Promoter shareholding towards minimum public shareholding i.e. 25%. Option 1 in the Clause 3 thus was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,58,984 100.00% The above structure is assuming that the erstwhile Existing Promoter Group shareholding is not counted towards promoter shareholding for the purposes of SEBI (Listing Obligations and Disclosure Requirement) Regulation, 2015. If SEBI does not allow the erstwhile Existing Promoter Group shareholding to be counted towards public shareholding, then the following structure will be adopted instead of the structure indicated above in this step 3: On the Closing Date, the Company shall issue, by way of preferential allotment, and the Resolution Applicant shall subscribe to 79,44,28,986 (Seventy Nine Crore Forty Four Lakh Twenty Eight Thousand Nine Hundred and Eighty Six) equity shares of the Company at face value of 2 (Indian Rupees two only) per share. Further, the Resolution Applicant shall on the Closing Date, purchase, and the Existing Promoter Group shall be bound to sell, all the shares held by the Existing Promoter Group (i.e. 256,53,813 equity shares) for a consideration of 2 (Indian Rupees two only) per share, such that the Resolution Application holds 75% of the fully paid up equity share capital of the Company (on a fully diluted basis). Upon the Plan b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant provisions of Regulation 2015 as well as the provisions of Securities Contracts (Regulation) Rules, 1957. The Securities Contracts (Regulation) Rules, 1957, Rule 19A provided that "Every listed company other than public sector company shall maintain public shareholding of at least twenty five percent". The Bhushan Steel being listed company, it was obliged to maintain public shareholding of at least 25%. Now we come to Regulation 2015. Regulation 31A, sub-regulation (7), which is relevant for the present case is as follows: "31A(7) Without prejudice to sub-regulations (5) and (6), re-classification of promoter as public shareholders shall be subject to the following conditions: (a) Such promoter shall not, directly or indirectly, exercise control, over the affairs of the entity. (b) Increase in the level of public shareholding pursuant to re-classification of promoter shall not be counted towards achieving compliance with minimum public shareholding requirement under rule 19A of the Securities Contracts (Regulation) Rules, 1957, and the provisions of these regulations. (c) The event of re-classification shall be disclosed to the stock exchanges as a material event i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by you to Bamnipal for a consideration of INR 2 (Rupees two only) per share (which is the same price as the price at which Bamnipal is subscribing to the equity shares) at the earliest. The details of our dematerialized account are set out in Annexure A below. 4. We look forward to receiving your support and co-operation on implementing the terms of the Resolution Plan which has been approved by the NCLT. 5. Any communication pursuant to this letter should be addressed to the following: Bamnipal Steel Limited Address: Tarapur Complex, Plot No.F8, MIDC, Tarapur Industrial Area, Palghar Thane, Maharashtra - 401506. Attention: Mr. R Ranganath Tel. No.: 033 22883332 Email: [email protected] With a copy to: Attn: Managing Director Bhushan Steel Limited Ground Floor, Hyatt Regency Complex, Bhikaji Cama Place, New Delhi-110066. 6. This letter is without prejudice and we reserve all our rights and remedies in law and under the IBC in particular. Thanking you, Yours Sincerely _____________ Name: Sd/- Authorised signatory Bamnipal Steel Limited" 15. The Tata Steel thus on 18.05.2018 itself opted Structure two and wrote to the Appellants to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018 when Notification was gazetted, which notification was not applicable on 15.05.2018 or 18.05.2018. The prohibition contained in Regulation 31A, sub-regulation 7(b) was very much in existence on the day when Resolution Plan was approved. In this context, learned Counsel for the Appellant has referred to Clause 10 of the Resolution Plan, by which 'Reliefs and concessions' were asked for Resolution Applicant. In clause 10 of the Resolution Plan, which deals with 'relief and concessions' in para 10.1.26, it is provided: "10. Reliefs and concessions ... 10.1.26 SEBI shall: a) provide dispensation from Regulation 31A(7)(b) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 in respect of shareholding of the Existing promoter Group post re-classification of the Existing Promoter Group to public shareholding category to be counted towards satisfaction of the minimum public shareholding requirement;" 17. It is relevant to notice that Adjudicating Authority while approving the Resolution Plan on 15.05.2018 with regard to reliefs and concessions in paragraph 82 of the judgment denied to grant relief and concession as prayed for and only observation was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout awaiting for reclassification by National Stock Exchange and Bombay Stock Exchange, since the Resolution Plan itself provided for two structures for acquiring the equity shares of the existing Promoter Group. When on 18.05.2018 after Board Resolution was passed divesting rights of the existing Promoter Group, the Plan was fully implemented on 18.05.2018 for subscribing the equity shares as per Para-3, Tata Steel was not to wait till reclassification of application was to be decided. 21. Much arguments have been addressed by the parties on the expression "if SEBI does not allow" in respect of para-3 of the Resolution Plan. It is contended by the Appellant that word SEBI used in para-3 is the word as per definition Clause in Resolution Plan itself. When Respondent acted on Regulation 2015, which contains prohibition of shareholding of existing Promoter Group to be counted for achieving minimum 25% of public shareholding, action of Respondent not to proceed under Structure one can neither be said to be contrary to Resolution Plan or any statutory provisions, rather the said action is inconsonance of the statutory provisions as existed at the relevant date that is 15.05.2018 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same will result in modification in the terms of the resolution plan. Since, the resolution plan has a specific clause dealing with a specified rate INR 2.00 with respect to unpledged shares. Any other interpretation of the same shall result in modification in the terms of the Resolution Plan which is not permissible in light of the law laid down by the Hon'ble Supreme Court in the matter of Ebix Singapore Private Limited vs. Committee of Creditors of Educomp Solutions Limited & Anr. Civil Appeal No.3224 of 2020 dated 13.09.2021. The extract of the relevant portion is reproduced below: "203..... In this context, we hold that the existing insolvency framework in India provides no scope for effecting further modifications or withdrawals of CoC-approved Resolution Plans, at the behest of the successful Resolution Applicant once the plan has been submitted to the Adjudicating Authority." 23. We may further notice that Resolution Plan dated 15.05.2018 was challenged before this Appellate Tribunal by filing an Appeal by the Appellants, which Appeal was dismissed and thereafter matter was taken up before the Hon'ble Supreme Court by the Appellants by filing Civil Appeal. The learned S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent to oblige the Appellant to sell their equity shares @ INR 2/- and specific number of shares that is 256,53,813 as mentioned in the Plan itself, the Appellants cannot refuse to follow the aforesaid portion of the Resolution Plan. As per Section 31, sub-section (1) of the Code, after approval of the Resolution Plan, same is binding on Corporate Debtor, its employees, members, creditors. Section 31, sub-section (1) is to the following effect: "31. 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, [including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan. Provided that the Adjudicating Authority shall, befo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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