ARCELORMITTAL INDIA PRIVATE LIMITED versus SATISH KUMAR GUPTA & ORS.

[2018] 12 S.C.R.

AARCELORMITTAL INDIA PRIVATE LIMITED

SATISH KUMAR GUPTA & ORS.

(Civil Appeal Nos. 9402-9405 of 2018)

OCTOBER 4, 2018

[R. F. NARIMAN AND INDU MALHOTRA, JJ.]

Insolvency and Bankruptcy Code, 2016: s.29A – Issue relatesto ineligibility of resolution applicants to submit resolution plansafter the introduction of s.29A into the Code – Petition filed underCthe Code for financial debts owed to the financial creditors-Banksby the corporate debtor ESIL for Rs.45,000 crores – RP (ResolutionProfessional) invited an expression of interest from potentialresolution applicants – Appellant (AMIPL) and one entity Numetalsubmitted expression of interest – Submission of resolution plan byDAMIPL and Numetal – RP found both AMIPL and Numetal ineligibleunder s.29A – RP held that AM Netherlands mentioned as aconnected person of AMIPL was disclosed as promoter of UttamGalva which was declared as NPA – Similar was the situation ofNumetal – AMIPL and Numetal challenged the order of RP beforeAdjudicating Authority (NCLT) – On 2.4.2018, pursuant to the RP’sEinvitation, fresh resolution plans submitted by AMIPL, Numetal andone other entity ‘Vedanta’ – On 19.4.2018, NCLT passed order inall the IAs, wherein it first held that there was no patent illegality inthe decision of RP for declaring ineligibility of applicants – It thenwent on to hold that RP ought to have produced both the resolutionFplans before the Committee of Creditors (CoC) and to follow theprovision of s.29A(c) r/w s.30(4) for affording opportunity to theresolution applicants before declaring them ineligible and, therefore,remanded back the matter to RP and CoC on this ground – Pendingappeals before NCLAT, on 8.5.2018, CoC disqualified AMIPL andNumetal – On 7.9.2018, NCLAT held that at the time of first resolutionGplan by Numetal, one of the shareholders being ‘AEL’ was relatedparty and therefore, Numetal was not eligible to submit resolutionplan in terms of s.29A and that on 29.3.2018, as the AEL was notthe shareholder of Numetal and all the three shareholders beingeligible, Numetal was eligible – Therefore, resolution plan submitted

by Numetal to be considered by CoC to find out its viability – Asregards AMIPL, order of NCLT was affirmed subject to conditionthat AMIPL shall make payment of all overdue amount with interestthereon and charges relating to NPA of both the “Uttam Galva”and “KSS Petron” within three days – Instant appeals filed by AMIPLand Numetal – Held: The ingredients of sub-clause (c) of s.29A arethat, the ineligibility to submit resolution plan attaches if anyperson, as is referred to in the opening lines of s.29A, either itselfhas an account, or is promoter of, or in the management or controlof, corporate debtor which has an account, which account hasbeen classified as non-performing asset, for period of at leastone year from the date of such classification till the date ofcommencement of the corporate insolvency resolution process – Ifit is shown, on facts, that, at reasonably proximate point of timebefore the submission of the resolution plan, the affairs of thepersons referred to in s.29A are so arranged, as to avoid payingoff the debts of the non-performing asset concerned, such personsmust be held to be ineligible to submit resolution plan – In theinstant case, since both the resolution plans even on 2.4.2018,were hit by s.29A(c), and since the proviso to s.29A(c) will not applyas the corporate debtors related to AMIPL and Numetal have notpaid off their respective NPAs, ordinarily, these appeals would bedisposed of by merely declaring both resolution applicants to beineligible under s.29A(c) – However, in order to do complete justiceunder Art.142 of the Constitution of India, one more opportunity isgiven to both resolution applicants to pay off the NPAs of theirrelated corporate debtors within period of two weeks inaccordance with the proviso to s.29A(c) – If such payments aremade within the said period, both resolution applicants can resubmittheir resolution plans dated 2.4.2018 to CoC, who are then given aperiod of 8 weeks to accept, by the requisite majority, the bestamongst the plans submitted, including the resolution plan submittedby Vedanta – In the event that no plan is found worthy of acceptanceby the requisite majority of the CoC, the corporate debtor, i.e. ESIL,shall go into liquidation – Constitution of India – Art.142 – Companylaw.

Insolvency and Bankruptcy Code, 2016: s.29A(c) – It isimportant for the competent authority to see that persons, who are

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Aotherwise ineligible and hit by sub-clause (c), do not wriggle out ofthe proviso to sub-clause (c) by other means, so as to avoid theconsequences of the proviso – For this purpose, despite the factthat the relevant time for the ineligibility under sub-clause (c) toattach is the time of submission of the resolution plan, antecedentfacts reasonably proximate to this point of time can always be seen,Bto determine whether the persons referred to in s.29A are, insubstance, seeking to avoid the consequences of the proviso to sub-clause (c) before submitting resolution plan.

Insolvency and Bankruptcy Code, 2016: s.29A – Point of timeat which the disqualification in sub-clause (c) of s.29A will attach –CHeld: The stage of ineligibility attaches when the resolution plan issubmitted by resolution applicant – The date of commencement ofthe corporate insolvency resolution process is only relevant for thepurpose of calculating whether one year has lapsed from the dateof classification of person as non-performing asset.DInsolvency and Bankruptcy Code, 2016: s.3(37) – By s.3(37)of the Code, words and expressions used but not defined in theCode but defined inter alia by the SEBI Act, 1992, and the CompaniesAct, 2013, shall have the meanings respectively assigned to them inthose Acts – SEBI (Substantial Acquisition of Shares and Takeovers)ERegulations, 2011 – s.2(1)(q).

Doctrines/Principles: Doctrine of lifting veil – Held: Thedoctrine is applicable even to group companies, so that one is ableto look at the economic entity of the group as whole.

Words and phrases: Expression “acting jointly” – MeaningFof in the context of s.29A of Insolvency and Bankruptcy Code, 2016.

Disposing of the appeals, the Court

HELD: 1.1 Where statute itself lifts the corporate veil,or where protection of public interest is of paramount importance,or where company has been formed to evade obligationsGimposed by the law, the court will disregard the corporate veil.Further, this principle is applied even to group companies, sothat one is able to look at the economic entity of the group as awhole. [Para 34] [427-F-G]

Faqir Chand Gulati v. Uppal Agencies Pvt. Ltd. & Anr.(2008) 10 SCC 345 : [2008] 10 SCR 697; LaurelEnergetics Private Limited v. Securities and ExchangeBoard of India, (2017) 8 SCC 541 : [2017] 5 SCR 1005– held inapplicable.

1.2 The expression “acting jointly” in the opening sentenceof Section 29A cannot be confused with “joint venture agreements”.All that is to be seen by the expression “acting jointly” is whethercertain persons have got together and are acting “jointly” in thesense of acting together. If this is made out on the facts, nosuper added element of “joint venture” as is understood in law isto be seen. The other important phrase is “in concert”. BySection 3(37) of the Code, words and expressions used but notdefined in the Code but defined inter alia by the SEBI Act, 1992,and the Companies Act, 2013, shall have the meaningsrespectively assigned to them in those Acts. In exercise of powersconferred by Sections 11 and 30 of the SEBI Act, 1992, the 2011Takeover Regulations have been promulgated by SEBI. ByRegulation 2(1)(q) of the 2011 Takeover Regulations, “personsacting in concert” is defined. Under sub-clause (2) of clause (q),a deeming fiction is enacted, by which presumption is raised inthe categories mentioned, that person falling within one categoryis deemed to be acting in concert with another person mentionedin the same category, unless the contrary is established. Thecorporate veil is not merely torn but is left in tatters by sub-clauses (i) to (iv) of Regulation 2(1)(q)(2). Sub-clause (v) covers“immediate relatives” i.e., father and son, brothers, etc.Explanation to Regulation 2(1)(q)(2) defines “associate”, whichsubsumes not merely immediate relatives but other forms in whicha person can be associated with another - which includes the formof trust, partnership firm and HUF. Wherever persons act jointlyor in concert with the “person” who submits resolution plan, allsuch persons are covered by Section 29A. [Paras 35, 38, 39] [427-G-H; 428-A-C; 431-E; 433-D-F]

Technip SA v. SMS Holding (Pvt.) Ltd. & Ors. (2005) 5 SCC 465 :[2005] 1 Suppl. SCR 223; M/s. Daiichi Sankyo Company Ltd. v.Jayaram Chigurupati & Ors. (2010) 7 SCC 449 : [2010] 8 SCR 251 – relied on.

A2.1 The opening words of Section 29A state: “a personshall not be eligible to submit resolution plan…”. It is thereforeclear that the stage of ineligibility attaches when the resolutionplan is submitted by resolution applicant. The date ofcommencement of the corporate insolvency resolution processis only relevant for the purpose of calculating whether one yearBhas lapsed from the date of classification of person as non-performing asset. Further, the expression used is “has”, is inpraesenti. This is to be contrasted with the expression “has been”,which is used in sub-clauses (d) and (g), which refers to an anteriorpoint of time. [Para 43] [437-D-F]C2.2 The ingredients of sub-clause (c) are that, theineligibility to submit resolution plan attaches if any person, asis referred to in the opening lines of Section 29A, either itselfhas an account, or is promoter of, or in the management orcontrol of, corporate debtor which has an account, which accountDhas been classified as non-performing asset, for period of atleast one year from the date of such classification till the date ofcommencement of the corporate insolvency resolution process.For the purpose of applying sub-clause (c), any one of three things,which are disjunctive, needs to be established. The expression“management” would refer to the de jure management of aEcorporate debtor. The de jure management of corporate debtorwould ordinarily vest in Board of Directors, and would include,in accord with the definitions of “manager”, “managing director”and “officer” in Sections 2(53), 2(54) and 2(59) respectively ofthe Companies Act, 2013, the persons mentioned therein. TheFexpression “control” is defined in Section 2(27) of the CompaniesAct, 2013. The expression “control” is defined in two parts. Thefirst part refers to de jure control, which includes the right toappoint majority of the directors of company. The secondpart refers to de facto control. So long as person or personsacting in concert, directly or indirectly, can positively influence,Gin any manner, management or policy decisions, they could besaid to be “in control”. management decision is decision tobe taken as to how the corporate body is to be run in its day today affairs. policy decision would be decision that would bebeyond running day to day affairs, i.e., long term decisions. SoH

long as the management or policy decisions can be, or are in fact,taken by virtue of shareholding, management rights, shareholdersagreements, voting agreements or otherwise, control can be saidto exist. Thus, the expression “control”, in Section 29A(c),denotes only positive control, which means that the mere powerto block special resolutions of company cannot amount to control.“Control” here, as contrasted with “management”, means de factocontrol of actual management or policy decisions that can be orare in fact taken. [Para 44-48] [438-A-E]

M/s Subhkam Ventures (I) Private Limited v. TheSecurities and Exchange Board of India (Appeal No. 8of 2009 decided on 15.1.2010) – relied on.

2.3 Section 29A(c) speaks of corporate debtor “underthemanagement or control of such person”. The expression “under”would seem to suggest positive or proactive control, as opposedto mere negative or reactive control. This becomes even clearerwhen sub-clause (g) of Section 29A is read, wherein theexpression used is “in the management or control of corporatedebtor”. Under sub-clause (g), only person who is in proactiveor positive control of corporate debtor can take the proactivedecisions mentioned in sub-clause (g), such as, entering intopreferential, undervalued, extortionate credit, or fraudulenttransactions. It is thus clear that in the expression “managementor control”, the two words take colour from each other, in whichcase the principle of noscitur sociis must also be held to apply.Thus viewed, what is referred to in sub-clauses (c) and (g) is dejure or de facto proactive or positive control, and not mere negativecontrol which may flow from an expansive reading of the definitionof the word “control” contained in Section 2(27) of the CompaniesAct, 2013, which is inclusive and not exhaustive in nature. [Para50] [440-F-H; 441-A]

Chintalapati Srinivasa Raju v. Securities and ExchangeBoard of India, (2018) 7 SCC 443; Securities andExchange Board of India v. Kishore R. Ajmera (2016)6 SCC 368 : [2016] 1 SCR 1118 – relied on.

2.4 Sub-clause (a) refers to de jure position, namely, wherea person is expressly named in prospectus or identified by the

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Acompany in an annual return as promoter. Sub-clauses (b) and(c) speak of de facto position. Under sub-clause (b), so long asa person has “control” over the affairs of company, directly orindirectly, in any manner, he could be said to be promoter ofsuch company. Under sub-clause (c), such person need not be amember of the Board of Directors of company, but can be aBperson who in fact advises, directs or instructs the Board to act.Under the proviso, only person who acts in professionalcapacity is excluded from the talons of sub-clause (c). Any personwho wishes to submit resolution plan, if he or it does so actingjointly, or in concert with other persons, which person or otherCpersons happen to either manage or control or be promoters of acorporate debtor, who is classified as non-performing asset andwhose debts have not been paid off for period of at least oneyear before commencement of the corporate insolvencyresolution process, becomes ineligible to submit resolution plan.

The first proviso to sub-clause (c) makes it clear that theDineligibility can only be removed if the person submitting aresolution plan makes payment of all overdue amounts withinterest thereon and charges relating to the non-performing assetin question beforesubmission of resolution plan. Any personwho wishes to submit resolution plan acting jointly or in concertEwith other persons, any of whom may either manage, control orbe promoter of corporate debtor classified as non-performingasset in the prescribed period must first pay off the debt of thesaid corporate debtor classified as non-performing asset in orderto become eligible under Section 29A(c). [Paras 53, 54] [442-A-G]F3.1 If person has been promoter, or in the management,or control, of corporate debtor in which preferentialtransaction, undervalued transaction, extortionate credittransaction or fraudulent transaction has taken place, and inrespect of which an order has been made by the AdjudicatingAuthority under the Code, such person is ineligible to present aGresolution plan under Section 29A(g). This ineligibility cannotbe cured by paying off the debts of the corporate debtor.Therefore, it is only such persons who do not fall foul of sub-clause (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.[Para 56] [444-B-D]

3.2 It is important for the competent authority to see thatpersons, 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 undersub-clause (c) to attach is the time of submission of the resolutionplan, antecedent facts reasonably proximate to this point of timecan always be seen, to determine whether the persons referredto in Section 29A are, in substance, seeking to avoid theconsequences of the proviso to sub-clause (c) before submittinga resolution plan. If it is shown, on facts, that, at reasonablyproximate point of time before the submission of the resolutionplan, the affairs of the persons referred to in Section 29A are soarranged, as to avoid paying off the debts of the non-performingasset concerned, such persons must be held to be ineligible tosubmit resolution plan, or otherwise both the purpose of thefirst proviso to sub-section (c) of Section 29A, as well as the largerobjective sought to be achieved by the said sub-clause in publicinterest, will be defeated. [Para 57] [446-E-G]Madras Petrochem Ltd. and Anr. v. Board for Industrialand Financial Reconstruction and Ors., (2016) 4 SCC1: [2016] 11 SCR 419; Innoventive Industries Ltd. v.ICICI Bank & Anr. (2018) 1 SCC 407 : [2017] 8SCR 33; E.V. Mathai v. Subordinate Judge, Kottayam& Ors., (1969) 2 SCC 194 : [1970] 1 SCR 345 – reliedon.

4.1 How the corporate insolvency resolution process is towork from the inception.Before admission of an application underSection 7 by financial creditor, the Adjudicating Authority is,under Section 7(4), to first ascertain the existence of defaultwithin 14 days of receipt of the application, as specified in Section7(4). Upon satisfaction that such default has occurred, it maythen admit such application, subject to rectification of defects,which the proviso in Section 7(5) says must be done within 7days of receipt of such notice from the Adjudicating Authority by

Athe applicant. The time frame within which ascertainment of defaultis to take place, as well as the time within which the defect is tobe rectified are directory in nature, the reason being that thestage of these provisions is before admission of the application.The corporate insolvency resolution process commences fromthe date of admission of the application vide Section 7(6). SectionB7(7) makes it incumbent upon the Adjudicating Authority tocommunicate the order accepting or rejecting the application tothe financial creditor and the corporate debtor within period of7 days of such admission or rejection. [Para 69] [462-E-H]

Surendra Trading Co. v. Juggilal Kamlapat Jute MillsCCompany Ltd. & Ors. (2017) 16 SCC 143 – relied on.4.2 The time limit for completion of the insolvencyresolution process is laid down in Section 12. period of 180days from the date of admission of the application is given bySection 12(1). This is extendable by maximum period of 90Ddays only if the Committee of Creditors, by vote of 66%, votesto extend the said period, and only if the Adjudicating Authorityis satisfied that such process cannot be completed within 180days. The authority may then, by order, extend the duration ofsuch process by maximum period of 90 days. What is also ofEimportance is the proviso to Section 12(3) which states that anyextension of the period under Section 12 cannot be granted morethan once. This has to be read with the third proviso to Section30(4), which states that the maximum period of 30 days mentionedin the second proviso is allowable as the only exception to theextension of the aforesaid period not being granted more thanFonce. Section 33 makes it clear that when either of these twocontingencies occurs, the corporate debtor is required to beliquidated in the manner laid down in Chapter III. Section 12,construed in the light of the object sought to be achieved by theCode, and in the light of the consequence provided by SectionG33, therefore, makes it clear that the periods previouslymentioned are mandatory and cannot be extended. In fact, eventhe literal language of Section 12(1) makes it clear that theprovision must read as being mandatory. The expression “shallbe completed” is used. Further, sub-section (3) makes it clearthat the duration of 180 days may be extended further “but notH

exceeding 90 days”, making it clear that maximum of 270 daysis laid down statutorily. Also, the proviso to Section 12 makes itclear that the extension “shall not be granted more than once”.[Paras 70, 71, 72] [463-A-C, E-G; 464-A]

4.3 Regulation 40A of the CIRP Regulations presents amodel timeline of the corporate insolvency resolution process,on the basis that the time available is 180 days. It is of utmostimportance for all authorities concerned to follow this modeltimeline as closely as possible. [Para 74] [466-F-G; 470-F]

4.4 It is settled law that statute is designed to be workable,and the interpretation thereof should be designed to make it soworkable. [Para 75] [470-G-H]

Commissioner of Income Tax, Delhi v. S. Teja Singh

[1959] Supp. 1 SCR 394 – relied on.

4.5 Given the timeline, and given the fact that resolutionapplicant has no vested right that his resolution plan beconsidered, it is clear that no challenge can be preferred to theAdjudicating Authority at this stage. writ petition under Article226 filed before High Court would also be turned down on theground that no right, much less fundamental right, is affected atthis stage. This is also made clear by the first proviso to Section30(4), whereby Resolution Professional may only invite freshresolution plans if no other resolution plan has passed muster.However, Resolution Professional is only to “examine” and“confirm” that each resolution plan conforms to what is providedby Section 30(2). The Resolution Professional is required toexamine that the resolution plan submitted by various applicantsis complete in all respects, before submitting it to the Committeeof Creditors. The Resolution Professional is not required to takeany decision, but merely to ensure that the resolution planssubmitted are complete in all respects before they are placedbefore the Committee of Creditors, who may or may not approveit. The fact that the Resolution Professional is also to confirmthat resolution plan does not contravene any of the provisionsof law for the time-being in force, including Section 29A of theCode, only means that his prima facie opinion is to be given tothe Committee of Creditors that law has or has not been

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Acontravened. Section 30(2)(e) does not empower the ResolutionProfessional to “decide” whether the resolution plan does or doesnot contravene the provisions of law. Thus, the importance ofthe Resolution Professional is to ensure that resolution plan iscomplete in all respects, and to conduct due diligence in orderto report to the Committee of Creditors whether or not it is inBorder. Even though it is not necessary for the ResolutionProfessional to give reasons while submitting resolution planto the Committee of Creditors, it would be in the fitness of thingsif he appends the due diligence report carried out by him withrespect to each of the resolution plans under consideration, andCto state briefly as to why it does or does not conform to the law.[Paras 76-78] [471-F-H; 472-A-E; 473-D-E]

5.1 Resolution Professional has presented resolutionplan to the Committee of Creditors for its approval, but theCommittee of Creditors does not approve such plan afterDconsidering its feasibility and viability, as the requisite vote ofnot less than 66% of the voting share of the financial creditors isnot obtained. The first proviso to Section 30(4) furnishes theanswer, which is that all that can happen at this stage is to requirethe Resolution Professional to invite fresh resolution plan withinthe time limits specified where no other resolution plan is availableEwith him. It is clear that at this stage again no application beforethe Adjudicating Authority could be entertained as there is novested right or fundamental right in the resolution applicant tohave its resolution plan approved, and as no adjudication has yettaken place. It is the Committee of Creditors which will approve

For disapprove resolution plan, given the statutory parametersof Section 30. [Paras 79, 80] [473-E-H; 474-A]

5.2 Regulation 39 of CIRP Regulations shows that thedisapproval of the Committee of Creditors on the ground thatthe resolution plan violates the provisions of any law, includingGthe ground that resolution plan is ineligible under Section 29A,is not final. The Adjudicating Authority, acting quasi-judicially,can determine whether the resolution plan is violative of theprovisions of any law, including Section 29A of the Code, afterhearing arguments from the resolution applicant as well as theCommittee of Creditors, after which an appeal can be preferredH

from the decision of the Adjudicating Authority to the AppellateAuthority under Section 61. If, on the other hand, resolutionplan has been approved by the Committee of Creditors, and haspassed muster before the Adjudicating Authority, thisdetermination can be challenged before the Appellate Authorityunder Section 61, and may further be challenged before theSupreme Court under Section 62, if there is question of lawarising out of such order, within the time specified in Section 62.Section 64 also makes it clear that the timelines that are to beadhered to by the NCLT and NCLAT are of great importance,and that reasons must be recorded by either the NCLT or NCLATif the matter is not disposed of within the time limit specified.Section 60(5), when it speaks of the NCLT having jurisdiction toentertain or dispose of any application or proceeding by or againstthe corporate debtor or corporate person, does not invest theNCLT with the jurisdiction to interfere at an applicant’s behestat stage before the quasi-judicial determination made by theAdjudicating Authority. [Paras 80, 81] [474-C-G]

Lachmeshwar Prasad Shukul & Ors. v. Keshwar LalChaudhuri & Ors. AIR 1941 FC 5; Jang Singh v. Brijlal& Ors. [1964] 2 SCR 146; A.S. Antulay v. R.S. Nayak& Ors. [1988] Supp. 1 SCR – relied on.

6.1 Facts of this case: Numetal was incorporated inMauritius on 13.10.2017, expressly for the purpose of submissionof resolution plan qua the corporate debtor, i.e., ESIL. Twoother companies, viz., AHL and AEL, were also incorporated onthe same day in Mauritius. The son of the promoter of ESIL heldthe entire share capital of AHL, which in turn held the entireshareholding of AEL, which in turn held the entire share capitalof Numetal. At this stage there can be no doubt whatsoever thatthe son of the promoter, would be deemed to be person actingin concert with the corporate debtor, being covered by Regulation2(1)(q)(v) of the 2011 Takeover Regulations. On 18.10.2017, AELtransferred its shareholding of 26.1% in Numetal to groupcompany, viz., ECL. This group company was ultimately ownedby ‘Virgo Trust’ and ‘Triton Trust’, the beneficiaries of which arecompanies owned by the promoter of ESIL, his brother and theirimmediate family members. The very next day, the son of

Apromoter of ESIL settled an irrevocable and discretionary trust,viz., the ‘Crescent Trust’, and settled the entire share capital ofAHL into the Trust, at par value of USD 10,000. Thebeneficiaries of this Trust were general charities, as well asentitles owned by the brother of promoter of the corporate debtor,and entities owned by son of promoter. [Paras 84-86] [476-C-F;B477-C-D]

6.2 On 20.11.2017, the son of the promoter of ESIL settled‘Prisma Trust’, another irrevocable and discretionary trust, whosebeneficiaries are “general charities” and one ‘Solis EnterprisesLimited’, company incorporated in Bermuda, whose shareCcapital is held by the son of promoter of ESIL. Numetal by aresponse dated 30.3.2018, admitted that while the trust deedrelating to Prisma Trust allowed the trustee to benefit any Englishor Bermuda charity, “no particular charity is named at this stage”.The Trustee of AEL is one ‘Rhone Trustee’, Singapore. The sonDof promoter of ESIL was the ultimate natural person who heldthe beneficial interest in AEL through Prisma Trust, through SolisEnterprises Limited. This emerged from Section 6.7 of theresolution plan submitted by Numetal to the ResolutionProfessional. The Resolution Professional, after looking at thisaffidavit of Prisma Trust, correctly noted that statements of suchEa nature would not have been made by truly independent trusteeof discretionary trust, which demonstrated that the trustee wasunder the complete control of the son of promoter of ESIL. Thisin turn indicated that Prisma Trust was one more smokescreenin the chain of control, which would conceal the fact that the actualFcontrol over AEL is by none other than the son of the promoter.

[Paras 87, 88] [477-D-F; 478--B-C]

6.3 One day later on 22.11.2017, the trustees of the PrismaTrust acquired 100% of the shareholding of AHL for par valueof approximately USD 10,000 from the trustees of the CrescentGTrust. On this very date, merely one day before the Ordinancebringing into force Section 29A was promulgated, ECL transferredits shareholding of 26.1% of the share capital of Numetal toCrinium Bay, an indirect wholly owned subsidiary of VTB Bank,whose shares in turn are held by the Russian Government. AELalso transferred shares representing 13.9% of the share capitalH

of Numetal to Crinium Bay, thus making Crinium Bay’s totalholding in Numetal 40%. On the same date, AEL also transferredshares representing 25.1% of the share capital of Numetal toIndo, and also transferred shares representing 9.9% of the sharecapital of Numetal to TPE. These transfers were likely to havetaken place between 10.2.2018 and 12.2.2018. At the time ofsubmission of its first Resolution Plan dated 12.2.2018, theshareholding of Numetal was as follows: Crinium Bay: 40% Indo: 25.1% TPE: 9.9% AEL: 25%. As of this date, the son ofpromoter, who is the ultimate beneficiary in the chain of controlof the trusts which in turn controlled AEL, was very much on thescene, holding through AEL 25% of the shareholding of Numetal.[Paras 89-90] [478-D-H]

7.1 One other extremely important fact is that the earnestmoney in the form of Rs. 500 crores, credited to the account ofthe corporate debtor, was provided to Numetal by AEL as ashareholder of the resolution applicant, viz. Numetal. This earnestmoney deposit of Rs.500 crores made by AEL continued to remainwith the Resolution Professional till date, despite the fact that,by the time the second resolution plan was submitted by Numetalon 2.4.2018, AEL had exited as shareholder of Numetal. Underclause 4.4.4 of the request for proposal for submission ofresolution plans for ESIL, the earnest money deposit stands tobe forfeited if any condition thereof is breached or thequalifications of the potential resolution applicant are found to beuntrue. [Para 91] [479-A-C]7.2 Clause 6.7 of Numetal’s resolution plan stipulated thatit satisfied the minimum tangible net worth requirement, as setout under the request for proposal, because Crinium Bay held40% of the shareholding of Numetal, and that VTB Bank, CriniumBay’s holding company had sufficient net worth, as on 31.12.2016,to comply with the requirement under the request for proposal.The excerpted portions of Numetal’s resolution plan make it clearthat, since Numetal itself was newly incorporated entity, withno financial or experience credentials of its own, it thereforerelied entirely on the credentials of each of its constituentshareholders. This shows that Numetal itself revealed in itsresolution plan that its corporate veil should be lifted, for withoutlifting this veil, none of the parameters of the request for proposal

ABC

Acould have been met by Numetal itself. It is thus clear that thefour shareholders of Numetal were persons “acting jointly” withinthe meaning of Section 29A. This being the case, it is clear thatthe argument that VTB Bank is “connected person”, beingineligible under sub-clause (j), would have to be rejected, as VTBBank is itself, through its wholly owned subsidiary of CriniumBBay, person acting jointly with the three other shareholders ofNumetal, and would, therefore, fall within the first part of Section29A itself. This being so, it cannot be said that VTB Bank is aperson “connected to” any one of the persons acting jointly, as itis itself person acting jointly, and therefore covered by the firstCpart of Section 29A. [Paras 92, 93] [481-C-D; 482-B-D]

7.3 On 29.3.2018, AEL transferred its 25% shareholdingin Numetal to the other three constituent shareholders, therebyleaving its shareholding in Numetal as ‘Nil’. In response to theResolution Professional’s invitation, the second Resolution Plan,Dtherefore, submitted by Numetal on 2.4.2018, did not have AELas constituent of Numetal; instead, Crinium Bay continued with40% of the shareholding of Numetal, with TPE’s holding nowaugmented to 29.5% and Indo’s to 34.1%. Given the fact thatthe son of promoter is person deemed to be acting in concertwith his father (who was promoter of the corporate debtor ESIL),Ethere is no doubt whatsoever that Section 29A(c) would beattracted as on the date of submission of the first resolution plan,viz. 12.2.2018, as AEL was held by Prisma Trust, whose ultimatebeneficiary is son of promoter himself. This would show that theNPA declared over year before the date of commencement ofFthe corporate resolution process of ESIL (i.e. in 2015) wouldrender Numetal ineligible to submit resolution plan. The onlymanner in which Numetal could successfully present resolutionplan would be to first pay off the debts of ESIL, as well as those ofsuch other corporate debtors of the Ruia group of companies,which were declared as NPAs prior to the aforesaid period of oneGyear, before submitting its resolution plan. However, if the dateof the second resolution plan is to be seen, son of promoter ofthe corporate debtor ESIL appears to have disappeared from thescene altogether, as the three entities left are stated to beindependent entities in the form of two Russian entities and oneHUAE entity. Viewed on 2.4.2018, therefore, it could not be saidthat son of promoter of the corporate debtor ESIL had disappearedfrom the scene altogether, so as to obviate the application ofSection 29A(c). This is for two reasons. First, Rs.500 croresthat was deposited towards submission of earnest moneycontinued to remain deposited by AEL even post 2.4.2018,showing thereby that son of promoter of the corporate debtorESIL continued to be present, insofar as Numetal’s secondresolution plan was concerned. Further, having regard to thereasonably proximate state of affairs before submission of theresolution plan on 2.4.2018, beginning with Numetal’s initialcorporate structure, and continuing with the changes made tilldate, it is evident that, the object of all the transactions that havetaken place after Section 29A came into force on 23.11.2017 wasundoubtedly to avoid the application of Section 29A(c), includingits proviso. Therefore, whether the first or second resolutionplan is taken into account, both would clearly be hit by Section29A(c), as the looming presence of son of promoter of thecorporate debtor ESIL was found all along, from the date ofincorporation of Numetal, till the date of submission of the secondresolution plan. [Paras 94, 95] [482-E-H; 483-A-E]

8.1 The ultimate shareholder of the resolution applicant,viz. AMIPL, is directly the ultimate shareholder of AMNLBV aswell, which is an L.N. Mittal Group Company. When the corporateveil of the various companies is pierced, both AMIPL andAMNLBV are found to be managed and controlled by Shri L.N.Mittal, and are therefore persons deemed to be acting in concertas per Regulation 2(1)(q)(2)(i) of the 2011 Takeover Regulations.That AMNLBV is promoter of Uttam Galva is clear from theaforementioned facts, being expressly stated as such in UttamGalva’s annual returns. The reasonably proximate facts prior tothe submission of both resolution plans by AMIPL would showthat there is no doubt whatsoever that AMNLBV’s shares inUttam Galva were sold only in order to get out of the ineligibilitymentioned by Section 29A(c), and consequently the provisothereto. The fact that the lenders with whom AMNLBV had aNon Disposal Undertaking have not yet moved any forum for adeclaration that the sale of the shares, being without their consent,

Ais non est, does not absolve AMNLBV from having failed to firstobtain their consent before selling off its shares in Uttam Galva.Such sale is directly contrary to the Non Disposal Undertakinggiven to the lenders. Quite apart from this, it is also clear thatshares worth Rs.19.50 each were sold at distress value of Re.1each, so as to overcome the provisions of Section 29A(c) and theBproviso thereto. It is clear therefore that the Uttam Galvatransaction clearly renders AMIPL ineligible under Section 29A(c)of the Code. [Para 109] [491-G-H; 492-A-D]

8.2 Insofar as the transaction with regard to KSS Petron isconcerned, the facts are that on 3.3.2011, Fraseli, an entityCregistered and incorporated in Luxemburg, which is managedand controlled by Shri L.N. Mittal, held 32.22% of theshareholding of KSS Global, company domiciled in theNetherlands. On 19.5.2011, by Shareholders Agreemententered into between KSS Holding, KSS Infra EALQ, FraseliDand KSS Global, the first three companies were each given aright to appoint an equal number of directors on the board ofdirectors of KSS Global, which in turn held 100% of the sharecapital of KSS Petron, company incorporated in India. Fraseliwas also granted affirmative voting rights on decisions regardingcertain specified matters, both at the board and the shareholderElevel, in respect of KSS Global and all companies controlled byit, which would include KSS Petron. As has been statedhereinabove, KSS Petron was declared as an NPA on 30.9.2015.As in the case of Uttam Galva, Fraseli divested its shareholdingin KSS Petron on 9.2.2018, i.e., only three days before AMIPLFsubmitted its first resolution plan. On the same day, the directorsnominated by Shri L.N. Mittal, through Fraseli, resigned fromthe board of KSS Global. [Para 110] [492-E-H]

8.3 There can be no doubt whatsoever that Fraseli, being acompany managed and controlled by Shri L.N. Mittal, holdingGone third of the shares in KSS Global, which in turn held 100% ofthe 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 clearthat the joint control of KSS Global would be between threeentities, viz., KSS Holding, KSS Infra EALQ and Fraseli, each ofH

whom had the right to appoint an equal number of directors onthe board of directors of KSS Global. Not only this, but Fraseliwas also granted affirmative voting rights as aforementioned, oncertain important specified matters. There would be no doubtwhatsoever that, just before presentation of the resolution planof 12.2.2018, AMIPL would be hit by Section 29A(c), as groupcompany of Shri L.N. Mittal exercised positive control, by itsshareholding, right to appoint directors and affirmative votingrights, over KSS Global, which in turn held 100% shareholdingin KSS Petron. Again, as in the case of Uttam Galva, there canbe no doubt whatsoever that the sale of Fraseli’s shareholding inKSS Global, together with the resignation of the Mittal directorsfrom the board of directors of KSS Global, is transactionreasonably proximate to the date of submission of the resolutionplan by AMIPL, undertaken with the sole object of avoiding theconsequence mentioned in the proviso to Section 29A(c). Havingregard to the law laid down in this judgment, it is, therefore, clearthat AMIPL is ineligible under Section 29A(c) of the Code, onthis account as well. [Para 111] [493-A-E]

8.4 Since it is clear that both sets of resolution plans thatwere submitted to the Resolution Professional, even on 2.4.2018,are hit by Section 29A(c), and since the proviso to Section 29A(c)will not apply as the corporate debtors related to AMIPL andNumetal have not paid off their respective NPAs, ordinarily, theseappeals would have been disposed of by merely declaring bothresolution applicants to be ineligible under Section 29A(c). Inorder to do complete justice under Article 142 of the Constitutionof India, one more opportunity is given to both resolutionapplicants to pay off the NPAs of their related corporate debtorswithin period of two weeks from the date of receipt of thisjudgment, in accordance with the proviso to Section 29A(c). Ifsuch payments are made within the said period, both resolutionapplicants can resubmit their resolution plans dated 2.4.2018 tothe Committee of Creditors, who are then given period of 8weeks from this date, to accept, by the requisite majority, thebest amongst the plans submitted, including the resolution plansubmitted by Vedanta. In the event that no plan is found worthyof acceptance by the requisite majority of the Committee of

ACreditors, the corporate debtor, i.e. ESIL, shall go into liquidation.[Para 113] [493-H; 494-A-E]

Ms. Eera Through Dr. Manjula Krippendorf v. State(Govt. of NCT of Delhi) & Anr. (2017) 15 SCC 133 :[2017] 7 SCR 924; Salomon v. Salomon and Co. Ltd.B[1897] AC 22; Life Insurance Corporation of India v.Escorts Ltd. & Ors., (1986) 1 SCC 264 : [1985] 3 Suppl.SCR 909; Union of India v. ABN Amro Bank and others(2013) 16 SCC 490; Balwant Rai Saluja & Anr. etc.etc. v. Air India Ltd. & Ors., (2014) 9 SCC 407; DelhiDevelopment Authority v. Skipper ConstructionCCompany (P) Ltd. & Another, (1996) 4 SCC 622 : [1996]

2 Suppl. SCR 295 – referred to.

Case Law Reference

ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISHKUMAR GUPTA & ORS.

[1964] 2 SCR 146

relied onPara 83relied onPara 83

[1988] Supp. 1 SCR

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 9402-9405 of 2018

From the Judgment and Order dated 07.09.2018 passed by theNational Company Law Appellate Tribunal, New Delhi in CompanyAppeal (AT) (Insolvency) Nos. 169, 171, 172 and 173 of 2018

WITH

Civil Appeal Nos. 9582, 10204, 10208 of 2018.

Harish N. Salve, Dr. A. M. Singhvi, Neeraj Kishan Kaul, MukulRohatgi, Mihir Thakore, K. V. Vishwanathan, Ramji Srinivasan, GopalSubramanium, Sr. Advs., Raghav Shankar, R. N. Karanjawala, Ms. RubySingh Ahuja, Vishal Gehrana, Anupam Prakash, Sanjeet Ranjan, UtkarshMaria, Sudhir Sharma, Abhishek Swaroop, Akhil Anand, Sameen KumarVyas, Amit Bhandari, Ms. Misha Chandna, Avishkar Singhvi, NamanSingh Bagga, Ms. Manik Karanjawala, Rajat Sethi, Sahil Monga, DeepakJoshi, Sanyat Lodha, Devanshu Sajlan, Akash Lamba for M/s.Karanjawala & Co., Mahesh Agarwal, Keyur Gandhi, Raheel Patel,Arjun Joshi, Ms. Aastha Mehta, Rudreshwar Singh, Gautam Singh, Ms.Shaili A. Shah, Hemanta Kothari, Kumar Saurabh Singh, AashutoshSampath, Ashwij Ramiah, Kaushik Poddar, Ms. Kristy Baptist, Ms. Zainab,Ms. Devanshi Singh, Raunak Dhillon, Karan Khanna, Naveen Hegde,Bunmeet Singh Grover, Ms. Ananya Dhar Choudhury, Ms. VrindaBhandari, R. Venkataraman for M/s. Cyril Amarchand Mangaldas, Ms.Misha, Sapan Gupta, Hitesh Kumar Saini, Pavan Bhushan, VaijayantPaliwal, Ms. Jasveen Kaur, S. S. Shroff, Advs. with them for theappearing parties.

The Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. The facts of the present case revolvearound the ineligibility of resolution applicants to submit resolution plansafter the introduction of Section 29A into the Insolvency and BankruptcyCode, 2016 (hereinafter referred to as “the Code”), with effect from23.11.2017.

2. On 2.8.2017, the Adjudicating Authority, being the NCLT,Ahmedabad Bench, passed an order under Section 7 of the Code at the

Abehest of financial creditors, being the State Bank of India and theStandard Chartered Bank, admitting petition filed under the Code forfinancial debts owed to them by the corporate debtor Essar Steel IndiaLimited (hereinafter referred to as “ESIL”), in the sum of roughlyRs.45,000,00,00,000 (Rupees Forty Five Thousand Crores). Shri SatishKumar Gupta was appointed as the Interim Resolution Professional andBconfirmed as such on 4.9.2017. Consequently, the Resolution Professionalpublished an advertisement dated 6.10.2017, seeking expression ofinterest from potential resolution applicants who wished to submitresolution 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.CPursuant to this advertisement, one ‘ArcelorMittal India Private Limited’(hereinafter referred to as “AMIPL”) submitted an expression of intereston 11.10.2017. An entity called Numetal Limited (hereinafter referredto as “Numetal”), also submitted an expression of interest on 20.10.2017.On 24.12.2017, the Resolution Professional published ‘request forproposal’, in which it was stated that the last date for submission ofDresolution plans would be 29.1.2018. On request made by theCommittee of Creditors, the NCLT extended the duration of the corporateinsolvency resolution process by 90 days beyond the initial period of 180days, i.e., upto 29.4.2018. The Resolution Professional therefore issuedthe first addendum to the request for proposal, extending the date forEsubmission of resolution plans to 12.2.2018. Given this, both AMIPL andNumetal submitted their resolution plans on this date. On 20.3.2018,apprehending that the Resolution Professional would recommend that itbe declared ineligible, Numetal filed I.A. No. 98 of 2018 before theNCLT inter alia seeking that it be declared eligible as resolutionapplicant. On 23.3.2018, however, the Resolution Professional foundFboth AMIPL and Numetal to be ineligible under Section 29A. Insofar asAMIPL is concerned, the Resolution Professional found thus:

“2. Please note that during the course of the evaluation of theResolution Plan, I became aware of the fact that ArcelorMittalNetherlands B.V. (AM Netherlands) (which is mentioned as aG‘connected person’ of AM India in the Resolution Plan) has beendisclosed as the ‘promoter’ of Uttam Galva Steels Limited (UttamGalva) pursuant to which my Advisor had requested certainclarifications from AM India on 26 February 2018 (Request forClarification 1) and on 14 March 2018 (Request for Clarification 2).

Further to the responses received from AM India on 28 February2018 and 17 March 2018 (collectively the AM India Responses)on the aforementioned requests for clarifications, I understandthat:

2.1. AM Netherlands had acquired 29.05% of the shareholding inUttam Galva in 2009 and has since been classified as promoterof Uttam Galva;

2.2. AM Netherlands had entered into ‘co-promoter’ agreementdated 4 September 2009 with the other promoters of Uttam Galva(Co-Promoter Agreement) under which AM Netherlands hadvarious rights (including certain rights which can be consideredas participative in nature and not merely protective);

2.3. Uttam Galva’s account was classified as ‘non-performingasset’ (NPA) on 31 March 2016 by Canara Bank and PunjabNational Bank (which classification has continued for more 1 yeartill 02 August 2017);

2.4. AM Netherlands has sold its shareholding in Uttam Galva tothe other promoters of Uttam Galva on 7 February 2018; and

2.5. AM Netherlands has applied to the National Stock ExchangeLimited and the BSE Limited, each on 8 February 2018 fordeclassification as ‘promoter’ of Uttam Galva under Regulation31A(2) of the Securities and Exchange Board of India

3. Further, as on the Plan Submission Date, AM Netherlands (hadnot obtained the Stock Exchange Approvals relating todeclassification as promoter of Uttam Galva and) continued tobe classified as promoter of Uttam Galva.

4. In light of the above, AM India is ineligible under the provisionsof 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 beplaced before the Committee of Creditors.”

3. Similarly, holding Numetal to be ineligible, the ResolutionProfessional, 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 EssarCommunications 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’ inthe EOI);

2.2. as on the Plan Submission Date, Numetal relied on CriniumBay, its shareholder to comply with the eligibility requirementrelating to its TNW (as stipulated in Section 6.7 of the ResolutionPlan);

2.3. Numetal was incorporated 7 days before submission of theEOI; and

2.4. Numetal is newly incorporated joint venture between AuroraEnterprises Limited, Crinium Bay, Indo International Limited andTyazhpromexport.

3. Since Numetal has at all stages relied on its shareholders tocomply with the eligibility requirements relating to submission of aresolution plan in respect of ESIL, for the purposes of ensuringcompliance with Section 29A of the Insolvency and BankruptcyCode, 2016 (IBC), I have considered each of the shareholders ofNumetal as joint venture partners to be acting jointly for thepurposes of submission of the Resolution Plan. Whilst consideringthe eligibility of the shareholders of Numetal, since AuroraEnterprises Limited (AEL) is held completely by Rewant Ruia(through various companies and trust), I have considered RewantRuia, Crinium Bay, Indo International Limited and Tyazhpromexportfor scrutiny under Section 29A of the IBC.

4. Further, pursuant to Regulation 2(q) of the Securities andExchange Board of India (Substantial Acquisition of Shares andTakeovers) Regulations, 2011 (SAST Regulations), person isdeemed to acting in concert with amongst others, his (or her)‘immediate relatives’, which term (as defined under Regulation2(1) of the SAST Regulations) includes the father of such person.Therefore, in relation to the Resolution Plan in respect of ESIL(which contemplates the acquisition of ESIL by Numetal by wayof merger of ESIL with wholly owned subsidiary of Numetal),Rewant Ruia is deemed to be acting in concert with his fatherRavi Ruia.

5. Further, as on the Plan Submission Date:

(a)* Ravi Ruia (who Rewant Ruia is deemed to be acting inconcert with) was the promoter of ESIL whose account wasclassified as an NPA for more than 1 year, prior to thecommencement of corporate-insolvency resolution process(CIRP) of ESIL on 2 August 2017; and

(b) Ravi Ruia (who Rewant Ruia is deemed to be acting inconcert with) has executed guarantee in favour of SBI (foritself and consortium of lenders) and the CIRP applicationfiled by SBI has been admitted by the National Company LawTribunal on 2 August 2017.

6. In light of the above, Rewant Ruia (who is acting jointly withthe other shareholders of Numetal for the purposes of submissionof the Resolution Plan) is ineligible under Section 29A of the IBC,specifically paragraphs (c) and (h) and accordingly, as on the PlanSubmission Date, Numetal (which is nothing but an incorporatedjoint venture investment vehicle through which its shareholdersare submitting the Resolution Plan) was not eligible under Section29A of the IBC.

7. Accordingly and for the reasons set out in paragraphs 5 and 6above, please note that pursuant to paragraph 4.11.2(a) of theRFP, the Resolution Plan is hereby rejected and will not be placedbefore the Committee of Creditors.”

4. On 26.3.2018, AMIPL filed I.A. No. 110 of 2018 before theAdjudicating Authority, challenging “the order” of the ResolutionProfessional dated 23.03.2018. Numetal did likewise vide I.A. No. 111of 2018.

5. On 2.4.2018, pursuant to the Resolution Professional’s invitation,fresh resolution plans were submitted (as both the resolution plans beforethis were found to be ineligible) by AMIPL, Numetal, and one otherentity, namely ‘Vedanta Resources Ltd.’. On this very date, the NCLTdirected that the bids of the resolution applicants, submitted pursuant tothe revised request for proposal, should not be opened pending adjudicationof 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, third partycontestant, Arcelor Mittal India Pvt. Ltd., by filing AdditionalApplication No. P-7 of 2018 has also sought for impleading itselfin Intervention Application No. IA 98/2018 the Numetal has fileda Reply opposing such relief as being sought for by the presentApplicant, Numetal Ltd., and in the present IA and also sought adeclaration in its favour to be declared as eligible for filing validresolution plan as on 12.2.2018 thus, it has opposed the applicationalleging disability/ineligibility on the part of M/s. Numetal Ltd., tofile valid and proper resolution plan as on date of 12.2.2018.Since we have not decided the Impleadment Application in favourof ArcelorMittal by formally impleading it as party in the presentI.A. No. 98 of 2018 and only audience were given to its learnedcounsel in support of its resolution plan, therefore, we find itappropriate to confine the issue of determination of eligibility mainlyon the reason which formed basis for the RP and CoC for notfounding eligible for submission of resolution plan by the resolutionapplicant, M/s. Numetal Ltd., and not on additional ground as putforth by the ArcelorMittal. However, the oral submissionsadvanced by learned counsel for parties including the ArcelorMittalduly supported by their Written Submissions are being taken intoconsideration for deciding the issue involved in the presentapplication.

For arriving at such findings/conclusion of the RP has obtainedlegal opinion and its such findings is based on such opinion whichwere explained to the CoC for reaching to appropriate conclusion/decision. Equally, the applicant in I.A. No. 98/2018 also obtain

legal opinion from renowned jurists, e.g. (former judge of thehon’ble Supreme Court) and from former learned Law Officer ofthe GOI which are placed on record along with the present IAalso in support of their case in this opinion it is expressed theNumetal Ltd. (Resolution Applicant) is single and independentcorporate entity and it cannot be termed as consortium of itsshareholders not it intend to implement the resolution plan jointlywith another person hence, in view of this the amended clause4.11.2(1) to the RFP would neither be applicable nor binding uponthe resolution applicant and thus, it is not required at all to seek anapproval from the RP or the CoC. In respect of proposed change

its shareholding of ESIL in terms of RET and also are requiredunder the other provisions of the Law. It has been also emphasisedthat the Numetal Ltd., is not SPV brought into existence merelyfor the purpose of submitting the resolution plan in respect of thecorporate debtor ESIL as it has recently entered into an agreementto acquire majority stock in Odisha Slurry Pipeline InfrastructureLtd., by an independent contract from the Resolution Plan. Thus,it cannot be presumed that the applicant is such corporate entitywhich is brought into the existence only for the purpose of puttingforth resolution plan for the ESIL.Since, there is difference in the legal opinions among the LearnedLuminaries and law firms and more than one views are possiblein the present case to be acted upon then, it cannot be said thatthere is patently illegality in the conclusion of the RP or it actedarbitrarily or mala fidely in rejecting the resolution plan by relyingon the legal opinion received and believed to be true by him andwhich were placed before the CoC. Moreover, the RP under theprovision of the Code it is expected to make scrutiny of resolutionplan in conformity with the law of the land and to take such aprudent decision which common man in normal course mayarrive and think just and proper. This court being the AdjudicatingAuthority under the Code is not expected to substitute its viewupon the discretion and wisdom of the RP and CoC to opt for onlywhich particular view until and unless it is the case of patentillegality or arbitrariness.

Therefore, for the aforesaid reason in our prima facie view we donot find any patent illegality in the decision of the RP for declaringineligible to applicants which is prudent decision where there ispossibility of more than one legal view then this court at this stageis not expected to substitute its view and to interfere with theconclusion of the RP.”

7. It then went on to hold:

“19. Thus, the date on which person stands disqualified wouldbe the date of commencement of the Corporate InsolvencyResolution Process of the Corporate Debtor, i.e., ESIL. Thisdate is 02.08.2017 on which date, ArcelorMittal India Pvt. Ltd., isdisqualified in view of the fact that its connected persons of AM

Netherland and L.N. Mittal are disqualified as they have an accountor an account of the corporate debtor under their managementand control or of whom they are promoter classified as NPAunder the guidelines of the Reserve Bank of India and at least aperiod of one year has lapsed from the date of such classificationtill the date of commencement of corporate insolvency resolutionprocess of the corporate debtor. The said disqualification startsfrom 02.08.2017 can only be remedied in the manner provided inthe proviso to clause (c) of section 29A read with section 30(4)proviso and in no other manner. The disqualification commencedon 02.08.2017 continues till 12.02.2018 and the samedisqualification cannot be relieved by merely ceasing to be thepromoter or by selling shares in the companies whose accountsare NPA such as Uttam Galva or KSS Petron.

20. On perusal of annexure R/4, i.e., shareholding pattern annexedwith the reply of Numetal Ltd., it is found that ArcelorMittal is apublicly known promoter of Uttam Galva and its shareholding isclassified under “promoter and promoter group” in the filings madein the Stock Exchange of India. As per shareholding pattern ofUttam Galva disclosed in the stock exchange as on December,2017 ArcelorMittal was single largest shareholder havingsignificant shareholding of 29.05 % in Uttam Galva.

21. On perusal of the record it is found that connected person ofthe applicant are the promoter of KSS Petron Pvt. Ltd., companyincorporated under the Companies Act, 1956, having registeredoffice at Swastik Chamber, 6th Floor, Sion Trombay Road,Chembur, Mumbai has been NPA for more than year and CIRPhas been initiated against the KSS Petron vide order dated01.08.2017 by Mumbai Bench of the National Company LawTribunal.

22. It is also pertinent to mention herein that, in the minutes of themeeting of the committee of creditors which reproduces thedecision of the RP pursuant to the opinions received by the RPfrom Cyril Amarchand Mangaldas and Mr. Khambatta.

Cyril Amarchand Mangaldas had opined that AM Netherlandsexercised positive control over Uttam Galva and merely divestingthe 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 an indirect100% subsidiary of ArcelorMittal Societe Anonyme (AMSA)which is listed company incorporated in Luxemburg. On theother hand, AM India is also an indirect subsidiary (99.99%) ofAMSA. Accordingly, AMSA is promoter, in management and incontrol of AM India, the resolution applicant and AM Netherlandsis subsidiary company/associate company of AMSA in view ofwhich AM Netherlands becomes connected person and suchconnected person has an account of corporate debtor Uttam Galvaunder its management, control or of whom such connected person,namely, AM Netherlands is promoter is classified as NPA formore than one year before 02.082017. Consequently, AM Indiashall not be eligible to submit resolution plan as on 12.02.2018.

24. It is an admitted position that Laxminarayan Mittal is controllingAM India being an indirect subsidiary of AMSA. Accordingly,LN Mittal/AMSA is promoter in management and in control ofAM India, the resolution applicant, and LN Mittal is also inmanagement and control of KSS Global BV in view of what isstated above and KSS Petron which is 100% subsidiary of KSSGlobal BV is also under management and control of LN Mittal.KSS Petron has NPA for more than one year and consequently,LN Mittal being promoter/in control of KSS Global BV/KSSPetron Pvt. Ltd., is connected person whose account is classifiednon-performing. Consequently, AM India shall not be eligible tosubmit resolution plan.

25. From bare reading of section 29A(c) it is very clear that aperson shall not be eligible to submit resolution plan, if suchperson, or any other person acting jointly or in concert with suchperson; has an account, or an account of corporate debtor underthe management or control of such person or whom such personis promoter, classified as non-performing asset in accordancewith the guidelines of the Reserve Bank of India issued under theBanking Regulation Act, 1949 (10 of 1949) and at least periodof one year has lapsed from the date of such classification till thedate of commencement of the corporate insolvency resolutionprocess of the corporate debtor,

PROVIDED that the person shall be eligible to submit resolutionplan if such person makes payment of all overdue amounts withinterest thereon and charges relating to non-performing assetaccounts before submission of resolution plan.

Section 29A does not distinguish between positive and negativeBcontrol. Any person who is either promoter or in the managementor in the control of the business of the corporate debtor and indefault is ineligible. Person connected to ArcelorMittal India Pvt.Ltd., who are either promoter or in the management with KSSPetron and Uttam Galva Steels Ltd., are ineligible. Mere sale ofshares and declassification as promoter after the companies haveCgone into default cannot be absolved them responsibility. In orderto become eligible, overdue amounts to lenders in both the casesof KSS Petron and Uttam Galva Steels Ltd., should be paid byArcelorMittal before being eligible to bid, as provided in Section29A itself.”

8. Having said this, it then remanded the matter to the Committeeof Creditors as follows:-

“27. Further, we are of the view that RP ought to have producedboth the resolution plan before the CoC, along with his commentsof eligibility of both the resolution applicants for consideration ofEthe CoC and to follow the provision of section 29A(c) read withsection 30(4) for the purpose of affording the opportunity to theresolution applicants before declaring them ineligible. In our view,such procedure has not been followed hence, it vitiate theproceeding of the CoC and hence the present matter can beFremanded back to the RP and CoC on this ground alone for theirreconsideration.”

9. Appeals were filed by both Numetal and AMIPL, on 26.4.2018and 27.4.2018 respectively, before the Appellate Authority, being theNCLAT. Before these appeals could be decided, in compliance with theGorder passed by the Adjudicating Authority, the Committee of Creditors,after hearing both AMIPL and Numetal, disqualified AMIPL by an orderdated 8.5.2018 as follows:

“48. In wrapping up this post-decisional hearing, we reiterate thatAMIL is an ineligible resolution applicant under Section 29A(c)of the IBC, who acting in concert with AMBV (the promoter of

Uttam Galva on insolvency commencement date and connectedperson of AMIL) and Arcelor Mittal Group in attempting to avoidtheir obligations to make payment as provided under Section29A(c) of mc (sic) with reference to Uttam Galva and KSS Petron.Their unwillingness to make payment in the Uttam Galva matteror the KSS Petron matter by their actions of 7[th] of February, 2018and 9[th] of February, 2018 as stated above is an avoidance device.

49. In case of Uttam Galva, AMBV arranged the sale of itsshareholding at nominal value just days prior to the date ofsubmission of the Resolution Plan is evidence of the fact thatAMIL is in concert with AMBV such action is manifestation ofthe passage of Section 29A under IBC. As promoter of UttamGalva and as member of the Arcelor Mittal Group referred above,they should have made payment of the Overdue Amounts to thelenders of Uttam Galva.

50. The same conduct of Arcelor Mittal Group acting throughFraselli and KSS Global in terminating the shareholders agreementin KSS Global, the holding company of KSS Petron, device hasbeen to avoid payment of the Overdue Amounts of KSS Petronbefore filing the Resolution Plan for ESIL. The close proximity ofthis action on 9[th] February, 2018, one day before the plansubmission date is telling act of avoidance.

51. Since the CoC have not by themselves filed an appeal overthe Ld. Adjudicating Authority’s order dated 19[th] April, 2018, theconcession granted by the Ld. Adjudicating Authority to give anopportunity to cure the ineligibility, we are indicating to AMIL, itsconnected persona and persons in concert to cure their disabilityunder Section 29A(c) of IBC by making payment to the lendersof Uttam Galva for Overdue Amounts of Uttam Galva, anotherpayment to the lenders of KSS Petron constituting OverdueAmounts in KSS Petron and Overdue Amounts of such othercompanies which are classified as NPAs and where Arcelor MittalGroup is promoter. Such payments will have to be made byAMIL or its constituents / connected persons no later than 15thMay, 2018, especially since the law actually requires that thiscurative payment of overdue amounts, interests and charges shouldbe made by the corporate resolution intending applicant / resolutionapplicant before the Resolution Plan is filed. This concession by

the CoC is without prejudice to the CoC’s right to strictly enforcethe law and provisions of Section 29A(c) of the IBC. The proofof such payment in form of No Overdue Amounts letter(indicative format set out inAnnex) shall be submitted to the RP(with notification to the CoC) by 6:00 P.M. IST on 15thMay2018. As we have limited time available under the CIR processof ESIL, AMIL is requested to adhere to these timelines.”

10. By another order of the same date, the Committee of Creditorsdisqualified Numetal as follows:

“44. Numetal and AEL are related as an associate company, onaccount of the fact that AEL (alias Rewant Ruia) has significantinfluence over Numetal pursuant to its control of at least 20% ofthe total voting power of Numetal. Since an associate company isconsidered as related party to resolution applicant wheresuch resolution applicant and other persons are acting jointly or inconcert, Numetal is clearly said to be acting jointly and in concertwith AEL. This in turn means Numetal is acting in concert withMr. Rewant Ruia and hence with Mr. Ravi Ruia, the promoterand guarantor of ESIL (a non-performing asset since 2016). Thisinflicts disability and ineligibility upon Numetal / its consortiumand constituent shareholders.”

xxx xxx xxx

57. Thus in wrapping up the post decisional hearing, we reiteratethat Numetal is an ineligible resolution applicant acting in concertwith Rewant Ruia and his connected person namely his relative /father Ravi Ruia, who is promoter of corporate debtor ESIL,which has non-performing asset account.

58. Since the CoC have not by themselves filed an appeal overthe Ld. Adjudicating Authority’s Order dated 19[th] April, 2018, theconcession granted by the Ld. Adjudicating Authority to give anopportunity to cure the ineligibility, we are indicating to the resolutionapplicant, i.e. Numetal and the consortium of Crinium Bay, Indo,TPE and AEL as persons acting in concert with Numetal, thatthey would be eligible only if they make payment of (i) the OverdueAmounts constituting NPA in ESIL as on 30[th] April, 2018aggregating to Rs. 37,558.65 crores in principal and interest andRs. 1,688.27 crores in penal interest and other charges and such

other additional Overdue Amounts which have accrued till thedate of payment; and (ii) the Overdue Amounts of such othercompanies which are classified as NPAs and where Mr. RaviRuia / Mr. Rewant Ruia are promoters. Such payments will haveto be made by Numetal or its constituents / consortium no laterthan 15thMay, 2018, especially since the law actually requiresthat this curative payment should be made before the resolutionplan is filed. This concession is without prejudice to the CoC’sright to strictly enforce the law and the provisions of Sections29A(c) and 29A(h) of IBC. The proof of such payment in formof no-Overdues Amounts letter (indicative format set out inAnnex 3) shall be submitted to the RP (with notification to CoC)by 6:00 P.M. IST on 15thMay 2018, As we have limited timeavailable under the CIR process of ESIL, Numetal is requestedto 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 dated7.9.2018 held as follows:-

“44. On behalf of ‘AM India Ltd.’, it was submitted that ‘VTBBank’ one of the shareholders of ‘Numetal Ltd.’ is ineligible inview of Article 5(c) of the EU Regulations of 2014. Though suchsubmission has been made, no order or evidence has been placedon record to suggest that any order of prohibition was imposed bythe European Union against the ‘VTB Bank’. Neither the date oforder nor order passed by any competent authority or court oflaw has been placed on record.

45. On the other hand, it will be evident that Council of EuropeanUnion adopted Council Regulation (EU) No. 833/2014 concerningRestricting measures in view of Russia action. In fact, in view ofsituation in Ukraine, the European Union Regulation was adopted.Apart from the aforesaid fact, that ‘AM India Ltd.’ has not broughton record any penal order passed by any court of law relating todisability, if any, which is corresponding to any of the disabilityshown in clauses (a) to (h) of Section 29A. Therefore, the standtaken by the ‘AM India Ltd.’ with regard to ineligibility of ‘VTBBank’ is fit to be rejected.

xxx xxx xxx

AResolution Plan submitted by the ‘Numetal Ltd.’ on 12thFebruary, 2018

60. As on 12[th] February, 2018, when the 1[st] Resolution Plan wassubmitted by ‘Numetal Ltd.’, it had four shareholders.

61. Admittedly, Mr. Rewant is 100% shareholder of ‘AEL’ and‘AEL’ held 25% in ‘Numetal Ltd.’ even as on 12[th] February, 2018,Mr. Rewant being son of Mr. Ravi, who is the promoter of the‘Corporate Debtor’, we hold that ‘AEL’ is related party andcomes within the meaning of ‘person in concert’ in terms ofRegulation 2(1)(q).

62. In view of the aforesaid findings, we hold that at the time ofsubmission of 1[st] Resolution Plan by ‘Numetal Ltd.’, one of theshareholders being ‘AEL’, ‘Numetal Ltd.’ was not eligible to submit‘Resolution Plan’ in terms of Section 29A.

Position of ‘Numetal Ltd.’ as on 29thMarch, 2018 when thesubsequent ‘Resolution Plan’ was submitted by ‘Numetal’Ltd..

63. The ‘Committee of Creditors’ had extended the period forsubmitted fresh ‘Resolution Plan’ by 2[nd] April, 2018. ‘NumetalLtd.’ filed fresh ‘Resolution Plan’ on 29[th] March, 2018. On thesaid date the ‘Numetal Ltd.’ consisted of the three shareholders: -

64. As on 29[th] March, 2018, as the ‘AEL’ was not the shareholderof ‘Numetal Ltd.’ and all the three shareholders aforesaid beingeligible, we hold that ‘Numetal Ltd.’ in respect of the ‘ResolutionPlan’ dated 29[th] March, 2018, is eligible and the provision of Section29A, as on 29[th] March, 2018 is not attracted to the ‘Numetal

Ltd.’. For the reasons aforesaid, we are of the view that the‘Resolution Plan’ submitted by ‘Numetal Ltd.’ on 29[th] March, 2018is required to be considered by the ‘Committee of Creditors’ tofind out its viability, feasibility and financial matrix.”

12. In the same order, insofar as AMIPL’s resolution plan wasconcerned, the Appellate Authority held as follows:

“107. In the present case, the ‘Expression of Interest’ wassubmitted by ‘AM India Ltd.’ on 11th October, 2017 and by‘Numetal Ltd.’ on 20[th] October, 2017, both prior to 23rd November,2017 i.e. the date Section 29A was inserted by the Insolvencyand Bankruptcy Code (Amendment) Ordinance, 2017 but the‘Resolution Plans’ were submitted by both ‘AM India Ltd.’ and‘Numetal Ltd.’ on 12th February, 2018.

108. The question arises for consideration is as to what will bethe position if, on the basis of ‘Information Memorandum’ the‘Expression of Interest’ is submitted by the ‘Resolution Applicants’prior to 23[rd] November, 2017 and whether they are eligible to takeadvantage of 2[nd] proviso to sub-section (4) of Section 30.?

109. Section 29A came into force on 23rd November, 2017. Thosewho submitted ‘Resolution Plan’ prior to the said date and if coveredby clause (c) of Section 29A are entitled to derive benefit of secondproviso to sub-section (4) of Section 30. Under ‘I&B Code’ thereis no provision to submit ‘Expression of Interest’ prior to‘Resolution Plan’. What we find from the invitation seeking‘Expression of Interest’ to submit ‘Resolution Plan’ for ‘EssarSteel 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 ‘ResolutionPlan’. In such case, the date of submission of the ‘Expression ofInterest’ should be treated to be the date of submission of the‘Resolution Plan’. In this background, we hold that the date ofsubmissions of the 1st ‘Resolution Plan(s)’ of ‘AM India Ltd.’and ‘Numetal Ltd.’ will be deemed to be 11th October, 2017/12thFebruary, 2018 and 20th October, 2017/12th February, 2018respectively.

110. If the aforesaid proposition is not accepted, it will deprivethe ‘Resolution Applicants’ from deriving advantage of second

proviso to sub-section (4) of Section 30 inserted on 23rdNovember, 2017, even though they acted to submit the ‘ResolutionPlan’ by submitting the ‘Expression of Interest’ of ‘ResolutionPlan’.

111. In view of the aforesaid finding, we hold that the AdjudicatingAuthority rightly held that the Appellant- ‘AM India Ltd.’ shouldhave been given the opportunity by the ‘Committee of Creditors’in terms of second proviso to sub-section (4) of Section 30.

112. The question arises for consideration is whether the ‘AMNetherlands’ is eligible, having transferred its entire shareholdingof ‘Uttam Galva’ on 7th February, 2018 and by transferring of itsentire shareholding of ‘Fraseli’ in ‘KSS Global’ on 9th February,2018 i.e. two to four days prior to the submission of ‘Expressionof Interest’ (first phase of ‘Resolution Plan’).

113. Proviso to clause (c) of Section 29A reads as follows:

“Provided that the person shall be eligible to submit aresolution plan if such person makes payment of all overdueamounts with interest thereon and charges relating to non-performing asset accounts before submission of resolutionplan”

114. The aforesaid proviso to clause (c) makes it clear that theperson shall be eligible to submit ‘Resolution Plan’ if such personmakes payment of all overdue amounts with interest thereon andcharges relating to non-performing asset accounts beforesubmission of ‘Resolution Plan’. It does not stipulate any othermode to become eligible and thereby does not prescribe any othermode to become ineligible, including by selling the shares therebyexisting as member of the Company whose account has beenclassified as non-performing asset accounts in accordance withthe guidelines of the Reserve Bank of India.

115. Second proviso to sub-section (4) of Section 30 also stipulates,as follows:

“30. Submission of resolution plan.%

(4) xxx xxx xxx

Provided further that where the resolution applicant referredto in the first proviso is ineligible under clause (c) of section

29A, the resolution applicant shall be allowed by the committeeof creditors such period, not exceeding thirty days, to makepayment of overdue amounts in accordance with the provisoto clause (c) of section 29A”

116. From both the aforesaid provisions, it is clear that except inthe manner the ‘Resolution Applicants’ can make it eligible andget rid of ineligibility under clause (c) of Section 29A that is bymaking payment of all overdue amounts in accordance with theproviso to clause (c) of Section 29A, no other manner person,who is otherwise ineligible under clause (c) of Section 29A, canbecome eligible. There is no provision in the ‘I&B Code’ whichpermits an ineligible person to become eligible by selling ortransferring its shares of the Company whose accounts have beendeclared as NPA in accordance with the guidelines of ReserveBank of India.

117. Admittedly, ‘AM Netherlands’ is related party of ‘AM IndiaLtd.’. ‘AM Netherlands’ was the promoter of ‘Uttam Galva’ onthe date when the ‘Uttam Galva’ classified as NPA in accordancewith the guidelines of Reserve Bank of India and period of oneyear has elapsed from the date of such classification, at the timeof commencement of ‘Corporate Insolvency Resolution Process’of the ‘Corporate Debtor’.

118. Once the stigma of “classification of the account as NPA”has been labelled on the promoter of the ‘Uttam Galva’, evenafter sale of shares by ‘AM Netherlands’ it may ceased to be amember or promoter of the ‘Uttam Galva’, but stigma as wasattached with it will continue for the purpose of ineligibility underclause (c) of Section 29A, till payment of all overdue amount withinterest and charges relating to NPA account of the ‘Uttam Galva’is paid.

119. ‘AM Netherlands’ is 100% subsidiary of ‘AMSA’ which isa listed company incorporated in Luxemburg. ‘AM India Ltd.’ isalso subsidiary of ‘AMSA’ having 99.99% shareholding in it.Accordingly, ‘AMSA’ is also promoter, in the management andin control of ‘AM India Ltd.’. ‘Fraseli’ is company owned andcontrolled by company called by ‘Mittal Investments’ acquiredabout one third of the share capital of ‘KSS Global BV’. Pursuant

to such acquisition, ‘Fraseli’ acquired control over ‘KSS GlobalBV’ which in turn controls ‘KSS Petron’ and ‘Petron Engineering’.‘Mittal Investments’ is owned and controlled by LN Mittal Group,the promoters of the ‘AM India Pvt. Ltd’.

120. ‘AM India Ltd.’ divested its shareholding in ‘KSS GlobalBV’ which is 100% owner of ‘KSS Petron’ (a Company whoseaccount has been declared as NPA). ‘AM India Ltd.’ has itscontrol over it will be evident from the fact that it has nomineeDirectors, who also resigned on 9[th] February, 2018 i.e. 3 daysbefore submission of the ‘Expression of Interest’ of ‘ResolutionPlan’ by ‘AM India Ltd.’ This will be also clear from the fact thatthe ‘AM India Ltd.’ was nothing that an entity controlling andmanaging in ‘KSS Global BV’ (which is 100% owner of ‘KSSPetron’ an NPA Company) divested its shareholding in ‘KSSGlobal BV’ on 9th February, 2018 i.e. 3 days before submissionof the ‘Expression of Interest’ of ‘Resolution Plan’.121. We have also noticed that consequent to such acquisition ofcontrol by ‘Fraseli’, on 23rd May, 2011 public announcementwas made under ‘SEBI (Substantial Acquisition of Shares andTakeover) Regulations, 1997’ for the acquisition of shares of‘Petron Engineering’ inter alia by ‘KSS Global BV’ and ‘Fraseli’.Therefore, we hold that Mr. L.N. Mittal Group, connected personof ‘AM India Ltd.’ being the promoter and in the control andmanagement of ‘KSS Petron’ since 2011 and ‘KSS Petron’ havingclassified as ‘NPA’ by multiple banks, the stigma attached to itcannot be cleared by ‘KSS Global’ by divesting its shares in ‘KSSPetron’ on 9th February, 2018 and the stigma will continue for thepurpose of ineligibility under clause (c) Section 29A, till the paymentof all overdue amount with interest thereon and charges relatingto NPA account of ‘KSS Petron’.

122. Admittedly, there are three nominee Directors of ‘AM IndiaLtd.’ in ‘KSS Petron’, one of the NPA Company. The nomineeDirectors of the Appellant- ‘AM India Ltd.’ had also resigned on9th 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 by theAdjudicating Authority, the ‘AM India Ltd.’ had made conditionaldeposit of Rs. 7,000 Crores in its own current account (EscrowAccount). Such depositation of the amount in its own EscrowAccount does not qualify as payment of overdue amounts interms of proviso to clause (c) of Section 29A. conditional offerto pay the over dues amount cannot be accepted till it is compliedin the light of proviso to clause (c) of Section 29A unconditionally.

124. Dr. Abhishek Manu Singhvi, learned Senior Counselappearing on behalf of ‘AM India Ltd.’ when asked, on instruction,submitted that if this Appellate Tribunal accept the ‘ResolutionPlan’ submitted by the ‘AM India Ltd.’, it may deposit the non-performing assets amount with interest in the respective accountswhich were declared as NPA in accordance with the guidelinesof the Reserve Bank of India.

125. As we hold that ‘AM India Ltd.’ is also entitled to the benefitof second proviso to sub-section (4) of Section 30, we give oneopportunity to the ‘Resolution Applicant’- ‘AM India Ltd.’ to makepayment of all overdue amount with interest thereon and chargesrelating to Non Performing Accounts of both the ‘Uttam Galva’and the ‘KSS Petron’ in their respective accounts within threedays i.e. by 11th September, 2018. If such amount is deposited inthe accounts of both Non-Performing Accounts of ‘Uttam Galva’and ‘KSS Petron’ within time aforesaid and is informed, the‘Committee of Creditors’ will consider the ‘Resolution Plan’submitted by ‘AM India Ltd.’ along with other ‘Resolution Plans’,including the ‘Resolution Plan’ submitted by the ‘Numetal Ltd.’on 29th March, 2018, and if so necessary, may negotiate with the‘Resolution Applicant(s)’. An early decision should be taken bythe ‘Committee of Creditors’ and on approval of the ‘ResolutionPlan’, the ‘Resolution Professional’ will place the sameimmediately before the Adjudicating Authority who in its turn willpass order under Section 31 in accordance with law. The‘Successful Resolution Applicant’ will take steps for execution ofits ‘Resolution Plan’ and deposit the upfront money if proposed, interms of the ‘Resolution Plan’.

A126. Taking into consideration the fact that long period hastaken due to pendency of the case before the AdjudicatingAuthority and thereafter, before this Appellate Tribunal, we directthe Adjudicating Authority to exclude the period the appeal waspending before this Appellate Tribunal i.e. from 26th April, 2018till today (7th September, 2018) for the purpose of counting theBtotal period of 270 days. The impugned order dated 19th April,2018 passed by the Adjudicating Authority so far as it relates toeligibility of ‘Numetal Ltd.’ as on the date of the submission of the‘Resolution Plan’ dated 29th March, 2018 is set aside. Theimpugned judgment/order in respect to ‘AM India Ltd.’ is affirmedCwith conditions as mentioned in the preceding paragraphs. All theappeals 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 appealsfrom the Appellate Authority’s order dated 7.9.2018.

D14. Shri Harish N. Salve, learned Senior Advocate appearing onbehalf of AMIPL, argued that Section 29A, as originally enacted,disqualified person who has an account of corporate debtor underthe management or control of such person, or of whom such person is apromoter, which account was declared as non-performing asset. TheEfurther condition is that one year should have elapsed from the date ofsuch declaration till the date of commencement of the corporate insolvencyresolution process of the corporate debtor. Thus, plain reading of thesame establishes that the ineligibility under Section 29A is in relation tothe submission of resolution plan, which must consist of the elementsset out in Section 30. Responding to preliminary enquiries, i.e., anFexpression of interest, is not the subject matter of resolution plan, andtherefore, the relevant time is the time of submission of resolutionplan. He further argued that the amendment made to Section 29A inJune, 2018, expressly stating that the relevant time was the time ofsubmission of resolution plan, is clarificatory in nature. Once thisGbecomes clear, everything on facts falls into place. According to thelearned Senior Advocate, AMIPL is an indirect subsidiary of one‘ArcelorMittal Societe Anonyme’ (hereinafter referred to as “AMSA”),which is listed company in Luxemburg. AMSA holds 100% shares inone ‘ArcelorMittal Belvel & Differdange Societe Anonyme’ (hereinafterreferred to as “AMBD”), company incorporated in Luxemburg, which

in turn holds 100% in one ‘Oakey Holding BV’, company incorporatedin the Netherlands, which in turn holds 99.99% shares in AMIPL.ArcelorMittal Netherlands BV (hereinafter referred to as “AMNLBV”),which is member of the L.N. Mittal Group incorporated in theNetherlands, is 100% held by AMSA (the Chairman and CEO of AMSAbeing Shri L.N. Mittal). AMNLBV held 29.05% in one ‘Uttam GalvaSteels Limited’ (hereinafter referred to as “Uttam Galva”) which is anIndian company, listed in India. Uttam Galva was declared as non-performing asset on 31.3.2016, with debt of around Rs. 6000 crores.According to Shri Salve, Uttam Galva, though it entered into Co-Promotion Agreement with AMNLBV on 4.9.2009, was really promotedby the Miglani Group of businessmen who are Indian citizens residing inMumbai. The Co-Promotion Agreement conferred on AMNLBV theright to appoint 50% of the non-independent directors on the board, aswell as certain affirmative voting rights. This required that the Articlesof Association be amended, which was never in fact done. In 2015itself, AMNLBV had written off the investment in Uttam Galva from itsbooks, seeking an exit from Uttam Galva at this time. AMNLBV neverappointed any director or exercised any voting rights in Uttam Galva.What is important to note is that it had transferred its entire shareholdingin Uttam Galva on 7.2.2018 to one ‘Sainath Trading Company PrivateLimited’, which was Miglani Group Company, for Re.1 per share (havingpurchased the shares at Rs.120 per share). The depository participantaccount of AMNLBV ceased to show the said shares with effect from7.2.2018. The Co-Promotion Agreement dated 4.9.2009, pursuant towhich the status of “promoter” had been conferred on AMNLBV, stoodautomatically terminated vide clause 21.6 thereof on 7.2.2018. In orderto put the matter beyond any doubt, the parties also executed Co-Promotion Termination Agreement on 7.2.2018. On 8.2.2018, UttamGalva filed the necessary forms with the Registrar of Companies andmade the necessary disclosures with the National Stock Exchange andBombay Stock Exchange to declassify AMNLBV as promoter ofUttam Galva. This was accordingly done on 21.3.2018 and 23.3.2018before the NSE and BSE respectively. Such declassification, being aministerial act, is relatable to the date of sale of shares, i.e., 7.2.2009,and considered effective from the said date. Inasmuch as AMNLBVtherefore ceased to be promoter in Uttam Galva prior to 12.2.2018,the resolution plan is not hit by Section 29A(c). Similarly, according tothe learned Senior Advocate, insofar as KSS Petron Private Limited

A(hereinafter referred to as “KSS Petron”) is concerned, it is an admittedcase that ‘Fraseli Investments Sarl’ (hereinafter referred to as “Fraseli”)is company owned and controlled by one ‘Mittal Investments Sarl,’which in turn is owned and controlled by the L.N. Mittal Group, thepromoters of AMIPL. Fraseli held 32.22% in one ‘KazStroy ServiceGlobal BV’ (hereinafter referred to as “KSS Global”), companyBincorporated in the Netherlands which in turn held 100% of KSS Petron,an Indian company. The shareholders agreement entered into betweenFraseli and KSS Global permitted Fraseli to appoint two out of six nomineedirectors in KSS Global, and provided for an affirmative vote ofshareholders with respect to certain matters. According to the learnedCSenior Advocate, if the definition of “control” in Section 2(27) of theCompanies Act, 2013 is applied, the relationship of KSS Global withKSS Petron would not constitute “control” over the wholly ownedsubsidiary in India. In any case, the entire shareholding of Fraseli inKSS Global was transferred back to the promoters of KSS Global on9.2.2018, i.e., 3 days before submission of the resolution plan. KSSDPetron has been classified as non-performing asset by multiple banks,and the corporate insolvency resolution process was initiated against iton 1.8.2017 before the NCLT. It may be added that KSS Petron wasdeclared non-performing asset on 30.9.2015 with debt of around Rs.1000 crores. The learned Senior Advocate therefore attacked the findingEof the Appellate Authority on this score, and stated that, as Section 29Awas not attracted, the question of paying off the debts of Uttam Galvaand KSS Petron would not arise.

15. When it came to Numetal’s resolution plan, the learned SeniorAdvocate argued that it is important to remember that Numetal wasFincorporated on 13.10.2017 by Shri Rewant Ruia, son of Shri Ravi Ruia(who was promoter of the corporate debtor of ESIL), with the specificobjective of trying to acquire ESIL. At the time of its incorporation, one‘Aurora Enterprises Limited’ (hereinafter referred to as “AEL”), RuiaGroup Company, held 100% shareholding of Numetal. In turn AEL’s100% shareholding was held by one ‘Aurora Holdings Limited’G(hereinafter referred to as “AHL”), 100% of whose shareholding washeld by Shri Rewant Ruia, who was former director of the corporatedebtor, i.e. ESIL. On 18.10.2017, few weeks before Section 29A wasintroduced, AEL transferred 26.1% of its shares in Numetal to one ‘EssarCommunications Limited’ (hereinafter referred to as “ECL”), groupHcompany of the corporate debtor. On 19.10.2017 Shri Rewant Ruia settledan irrevocable discretionary trust, called the ‘Crescent Trust’, whichpurchased the shares of AHL at par value. On 20.10.2017, whenNumetal 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 statement that the Code would beamended in order to prevent unscrupulous persons from submittingresolution plans, AEL transferred 13.9% of its shareholding in Numetal,and ECL its entire 26.1% shareholding, to one ‘Crinium Bay HoldingsLimited’ (hereinafter referred to as “Crinium Bay”), 100% indirectlyheld subsidiary of one ‘VTB Bank’, which in turn was Russian company,the majority of whose shares were held by the Russian Government.Crinium Bay thus became the owner of 40% of the shareholding ofNumetal. AEL subsequently transferred 25.1% of the shareholding inNumetal to one ‘Indo International Trading FZCO’ (hereinafter referredto as “Indo”), Dubai company, and 9.9% of the shareholding to one‘JSC VO Tyazhpromexport’ (hereinafter referred to as “TPE”), aRussian company. AEL was left with only 25% shareholding in Numetal.Even this holding in Numetal was ultimately divested on 29.3.2018, sothat Crinium Bay held 40%, TPE held 25.9% and Indo held 34.1% inNumetal, with AEL’s holding becoming ‘Nil’. Shri Salve has arguedthat Numetal is hit by Section 29A(i) of the Code, as VTB Bank, theparent of Crinium Bay, stands prohibited from accessing the securitiesmarkets in the European Union pursuant to an order dated 31.7.2004,and in the United States by two orders. This being the case, Numetal isdirectly hit by sub-section (f) read with sub-section (i) of Section 29A. Itis also hit by Section 29A(j) as Crinium Bay, being subsidiary of VTBBank, becomes “connected person” as defined under sub-clauses (i)and (iii) of Explanation 1 to Section 29A(j). One very important factthat was stressed by him was that an amount of Rs. 500 crores wasgiven by AEL to Numetal so that it could deposit the requisite earnestmoney that had to be made along with the resolution plan furnished byNumetal. This amount, that was admittedly furnished by AEL, continuesto remain with the Resolution Professional, and has till date not beenwithdrawn by AEL, showing that Shri Rewant Ruia continues to bevitally interested and linked with the resolution plan of Numetal, evenafter the complete exit of AEL as its shareholder. He therefore submittedthat, given these facts, whereas AMIPL should have been held eligible,it was wrongly held to be ineligible by the Appellate Authority; and that

CDE

ANumetal, being clearly hit by several provisions of Section 29A, waswrongly held to be eligible. He stressed the fact that one of the coreobjectives of Section 29A was to ensure that the promoter of the corporatedebtor should not through or by circular means come back in order toregain the company that he himself had run to the ground. For thispurpose, he relied upon the Finance Minister’s statement on 29.12.2017,Bwhile introducing the Bill to amend the Code by introducing Section 29A,together with the Statements of Objects and Reasons appended to thesaid Bill.16. Dr. A.M. Singhvi, learned Senior Advocate, supported thearguments of Shri Salve. According to him, Section 29A(c) always hadCthe application of the resolution plan date as the relevant date, given thein praesenti “has” which is also there in clauses (h) and (j), and issimilar 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 inD2018 is in any case clarificatory in nature. He supported the attack ofShri Salve on the Appellate Authority’s judgment, stating that so far asUttam Galva is concerned, it is well established that the sale of shares iscomplete once they move out of the demat account of the seller, whichin this case took place five days before 12.2.2008. For this he citedcertain judgments. He also supported Shri Salve’s argument by statingEthat Numetal is clearly disqualified under several clauses of Section 29A.

17. On the other hand, Shri Mukul Rohatgi, learned SeniorAdvocate, appearing on behalf of Numetal, stated that Numetal was acompany which was therefore separate person in law from itsshareholders. He contended that on the date of submission of theFresolution plan (i.e., 12.2.2018), AEL held only 25%, which would bebelow the figure of 26% mentioned in the request for proposal dated24.12.2017, wherein “control” has been defined as person holdingmore than 26% of the voting share capital in the company. According tohim, in any case by 2.4.2018, when it submitted fresh resolution plan,GAEL had walked out completely, leaving behind two Russian companiesholding 40% and 25.9% respectively of Numetal, and Indo, DubaiCompany, holding 34.1%. According to the learned Senior Advocate,Numetal cannot possibly be described as joint venture of itsshareholders, and for this purpose he cited some of our judgments.According to him, joint venture is contractual arrangement wherebyHtwo or more parties undertake an economic activity which is subject tojoint control, which is missing in the present case as shareholder in acompany is distinct from the company itself. He added that Section29A(c) requires that Numetal as person, together with any other personacting jointly or in concert, has to have an account of corporate debtorunder its management or control, or of whom such person is promoter(which is classified as non-performing asset for period of at leastone year before the date of commencement of the corporate insolvencyresolution process of the corporate debtor). According to the learnedSenior Advocate, Shri Rewant Ruia would not fall within any of thesecategories, on reading of Section 2(27) of the Companies Act, 2013,which defines “control”; Section 2(69) of the Companies Act, 2013,which defines “promoter”; and Sections 2(53) and 2(54) of the CompaniesAct, 2013, which define “manager” and “managing director”respectively. He emphatically argued that though Shri Rewant Ruia isthe son of Shri Ravi Ruia, who is promoter of the corporate debtor, andthough he may be deemed to be “person acting in concert” withinthe definition contained in Regulation 2(1)(q) of the SEBI (SubstantialAcquisition of Shares and Takeovers) Regulations, 2011 (hereinafterreferred to as the “2011 Takeover Regulations”), yet, he cannot beconsidered to be “connected person” under Section 29A(j) of theCode. This is for the reason that under Explanation 1 to Section 29A(j),the expression “connected person” can only mean related party or aperson who is referred to in sub-clauses (i) and (ii) of Explanation 1, andsince Shri Rewant Ruia is neither promoter of nor in the managementor control of the resolution applicant Numetal, he would fall outside ofsub-clause (iii) of Explanation 1. According to Shri Rohatgi, the AppellateAuthority was absolutely correct in saying that Numetal would not beineligible under Section 29A. He strongly attacked Shri Salve’s argumentthat VTB Bank, the holding company of Crinium Bay, was barred fromaccessing the securities market by either the European Union or theUnited States. He took us to the original orders and argued that thedocument of the European Union, being Council Regulation 833 of 2014dated 31.7.2014, pursuant to Article 215 of the Treaty on the Functioningof the European Union, was owing to restrictive measures taken in viewof Russia’s actions destabilizing the situation in Ukraine. Because Russiahad illegally annexed Crimea, political sanctions were imposed by thisdocument, which cannot possibly be said to be sanctions imposed by anauthority equivalent to SEBI in India. The sanctions also did not relate

Ain any manner to the securities market. Equally, insofar as the twoorders of the United States are concerned, they were also politicalsanctions imposed against Russian companies for the same reason bythe Office of Foreign Assets Control by Presidential Order. He evenargued that insofar as the European Union is concerned, thecorresponding “authority” to SEBI is the ‘European Securities andBMarket Authority’, whereas in the United States it would be the ‘SecuritiesExchange Commission,’ neither of whom has issued any sanctions whichwould interdict VTB Bank from accessing or trading in the securitiesmarket. He also countered Shri Salve’s submission that the Rs. 500crores that was advanced by AEL and given as earnest money for theCresolution plan was not yet withdrawn, contending that this was so becausethe validity of the first bid by Numetal continues to be sub judice.18. Shri Rohatgi then attacked AMIPL by stating that even aliteral reading of Section 29A(c) would make it clear that in the case ofUttam Galva, AMNLBV, which is admittedly an L.N. Mittal GroupDCompany, was directly covered by sub-clause (c) as it had been shownas “promoter” in the annual reports of Uttam Galva, and wouldtherefore fit the definition of “promoter” contained in Section 2(69) ofthe Companies Act, 2013. What is of great importance, and what is infact not disclosed, is that Non-Disposal Undertaking was issued to theState Bank of India, the secured creditor of Uttam Galva, on 12.7.2011Eby AMNLBV, agreeing that it would not sell, transfer or dispose of anyshares held by it without the consent of the lenders of Uttam Galva.According to Shri Rohatgi, therefore, the transfer of these shares, therecognition of such transfer by Uttam Galva, and the consequentapplication to the Stock Exchanges for declassification as promoter,Fwithout obtaining the consent of the State Bank of India, is invalid in lawand fraud played by AMNLBV. Further, in the disclosures that weremade under the 2011 Takeover Regulations, the column relatable to theexistence of any non-disposal undertakings was left blank. In addition,since sale of shares between co-promoters inter se is exempted from

the requirement of making public offer under Regulation 3(1) readGwith Regulation 10(1)(a)(2) of the 2011 Takeover Regulations, it is clearthat on the one hand promoter status is claimed in order to avail of theregulation, whereas, in the present case, it is argued that, in substance,AMNLBV is not in fact promoter. Equally, leaving blank in the formagainst the column which required disclosure of non-disposal undertakings,H

is fraud played on SEBI, and on the shareholders of Uttam Galva; asotherwise, in the public offer that would have had to be made, the sharesof Uttam Galva would have had to be purchased at the higher price thatis mentioned in the said Regulations. Incidentally, according to ShriRohatgi, in any case, getting out of Uttam Galva by paying price ofRe.1 per share when the market value on that date was Rs.19.50 pershare is again fraudulent transaction, which cannot possibly pass musterunder Section 29A. Further, insofar as KSS Petron is concerned, it isclear that Fraseli’s holding of 32.22% in KSS Global would certainlyamount to de facto control, if not de jure control, of KSS Petron, itswholly owned subsidiary, as defined under Section 2(27) of theCompanies Act, 2013. The transfer of Fraseli’s shareholding on 9.2.2018,before submission of the resolution plan on 12.2.2018, is again dubiousand fraudulent act squarely hit by Section 29A. Shri Rohatgi furtherargued that Shri Pramod Mittal, brother of Shri L.N. Mittal, is connectedperson, which would trigger Section 29A(j). Shri Pramod Mittal is apromoter and director of one ‘Gontermann Piepers (India) Limited’, whichhas also been declared an NPA, rendering Shri L.N. Mittal ineligibleunder Section 29A(j). Equally, Shri L.N. Mittal, Shri Pramod Mittal andother members of the Mittal family are promoters of one ‘Ispat ProfilesIndia Limited’. This company was ordered to be wound up by the BIFR,appeals from which have been dismissed by the AAIFR. Consequently,Shri L.N. Mittal, as related party of Shri Pramod Mittal, would renderAMIPL ineligible under sub-clause (c) read with sub-clause (j) of Section29A of the Code.19. Shri Gopal Subramanium, learned Senior Advocate appearingon behalf of the Committee of Creditors, has placed before us theInsolvency and Bankruptcy Code (Amendment) Ordinance, 2017,introducing Section 29A, and commented on the difference between theopening lines of the said Ordinance as compared with those of theAmendment Act of 2017. The Amendment Act of 2017 brings in“persons acting in concert”. According to the learned senior counsel,“persons acting in concert” has been dealt with by the Justice P.N.Bhagwati Committee Report on Takeovers, 1997, which he read out tous in copious detail. He also referred to some of our judgments ontearing the corporate veil, and on persons acting in concert. Accordingto him, there should be no interference by the appropriate authority atthe behest of resolution applicant at the stage of Resolution

AProfessional processing resolution applications, and the subsequent stageof Committee of Creditors disapproving resolution plan. Accordingto him, the period of 270 days is watertight compartment, within whicheither resolution plan will be approved, or the corporate debtor bewound up. According to him, the practice of interlocutory applicationsbeing filed at anterior stages of the proceedings before the AdjudicatingBAuthority, and orders of remand to the Committee of Creditors, shouldbe stopped. However, the time taken by the Adjudicating Authority andthe Appellate Authority in deciding disputes that may arise before themshould be excluded from the computation of 270 days as aforesaid.According to the learned Senior Advocate, the expressions “personsCacting in concert” and “control” are broad enough to bring all associatedpersons within the dragnet of Section 29A. He cited number ofjudgments on how this provision should be construed in accordance withthe object sought to be achieved by the said provision, which shouldnever be stultified or defeated, so as to get to the real state of affairs of

the facts of every given case. Therefore, it is very important to rememberDthat phrases such as “persons acting in concert” and “control” aremeant not only to pierce the corporate veil, but also to get to the realpersons who present resolution plans. On the facts of each case,according to Shri Subramanium, both resolution plans were correctlyrejected by the Resolution Professional and the Committee of Creditors,Eas they were both hit by the provisions of Section 29A. Any circularmethod, by which payment of debts of an NPA of person acting jointlyor in concert under the proviso to Section 29A(c) is sought to be avoided,should be interdicted. According to the learned Senior Advocate, bothresolution plans are hit by Section 29A(c), and the only way out is forboth resolution applicants to pay up the debts of the respective NPAs ofFthe corporate debtors who are associated with them.

20. Shri K.V. Viswanathan, learned Senior Advocate, appearingon behalf of the Resolution Professional, drew our attention to theInsolvency and Bankruptcy Board of India (Insolvency ResolutionProcess for Corporate Persons) Regulations, 2016 (hereinafter referredGto as the “CIRP Regulations”), and stated that the role of the ResolutionProfessional is essentially to do due diligence on each resolution plansubmitted before it. It is only after such due diligence is done that thisplan is to be forwarded to the Committee of Creditors. According tohim, even if it is found that the resolution plan in question contravenes

any law, such finding would only be tentative opinion formed by theResolution Professional, who has to submit the plan to the Committee ofCreditors once it is complete in all respects. According to him, conjointreading of Section 25(2)(i) of the Code, read with Section 30(3) and thesecond proviso to Section 30(4), would necessarily lead to this conclusion.Also, according to the learned Senior Advocate, the expression “control”contained in Section 29A(c) should be construed noscitur sociis withthe word “management”, and so construed, would only mean positive,de facto, control of such person.

21. At this point, it is necessary to first set out Section 29A in itsvarious forms: as first introduced by the Insolvency and BankruptcyCode (Amendment) Ordinance, 2017 and the Insolvency and BankruptcyCode (Amendment) Act, 2017, together with the amendment made bythe Insolvency and Bankruptcy Code (Second Amendment) Act, 2018.Section 29A, as introduced by the Insolvency & Bankruptcy Code(Amendment) Ordinance, 2017, on 23.11.2017, reads as follows:

“29A. person shall not be eligible to submit resolution plan, ifsuch person, or any other person acting jointly with such person,or any person who is promoter or in the management or controlof such person,-

(a) is an undischarged insolvent;

(b) has been identified as wilful defaulter in accordance withthe guidelines of the Reserve Bank of India issued under theBanking Regulation Act, 1949 (10 of 1949);

(c) Whose account is classified as non-performing asset inaccordance with the guidelines of the Reserve Bank of India issuedunder the Banking Regulation Act, 1949 (10 of 1949) and periodof one year or more has lapsed from the date of such classificationand who has failed to make the payment of all overdue amountswith interest thereon and charges relating to non-performing assetbefore submission of the resolution plan;

(d) Has been convicted for any offence punishable withimprisonment for two years or more; or

(e) Has been disqualified to act as director under the CompaniesAct, 2013 (18 of 2013);

A(f) Has been prohibited by the Securities and Exchange Board ofIndia from trading in securities or accessing the securities markets;

(g) Has indulged in preferential transaction or undervaluedtransaction or fraudulent transaction in respect of which an orderhas been made by the Adjudicating Authority under this Code;

(h) Has executed an enforceable guarantee in favour of creditor,in respect of corporate debtor under insolvency resolution processor liquidation under this Code;

(i) Where any connected person in respect of such person meetsany 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 the management or controlof the resolution applicant; or

D(ii) any person who shall be the promoter or in management orcontrol of the business of the corporate debtor during theimplementation of the resolution plan; or

(iii) the holding company, subsidiary company, associatecompany or related party of person referred to in clauses (i)Eand (ii)

(j) Has been subject to any disability, corresponding to clauses (a)to (i), under any law in jurisdiction outside India.”

22. The Insolvency and Bankruptcy Code (Amendment) Act, 2017,received the assent of the President on 28.1.2018, but came into forceFwith retrospective effect from 23.11.2017. Section 29A, as containedtherein, reads as follows:

“29A. Persons not eligible to be resolution applicant. - Aperson shall not be eligible to submit resolution plan, if suchperson, or any other person acting jointly or in concert with suchGperson—

(a) is an undischarged insolvent;

(b) is wilful defaulter in accordance with the guidelines of theReserve Bank of India issued under the Banking Regulation Act,1949 (10 of 1949);

(c) has an account, or an account of corporate debtor under themanagement or control of such person or of whom such person isa promoter, classified as non-performing asset in accordance withthe guidelines of the Reserve Bank of India issued under theBanking Regulation Act, 1949 (10 of 1949) and at least periodof one year has lapsed from the date of such classification till thedate of commencement of the corporate insolvency resolutionprocess of the corporate debtor:

Provided that the person shall be eligible to submit resolutionplan if such person makes payment of all overdue amounts withinterest thereon and charges relating to non-performing assetaccounts before submission of resolution plan;

(d) has been convicted for any offence punishable withimprisonment for two years or more;

(e) is disqualified to act as director under the Companies Act,2013 (18 of 2013);

(f) is prohibited by the Securities and Exchange Board of Indiafrom trading in securities or accessing the securities markets;

(g) has been promoter or in the management or control of acorporate debtor in which preferential transaction, undervaluedtransaction, extortionate credit transaction or fraudulent transactionhas taken place and in respect of which an order has been madeby the Adjudicating Authority under this Code;

(h) has executed an enforceable guarantee in favour of creditorin respect of corporate debtor against which an application forinsolvency resolution made by such creditor has been admittedunder this Code;

(i) has been subject to any disability, corresponding to clauses (a)to (h), under any law in jurisdiction outside India; or

(j) has connected person not eligible 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 the management or controlof the resolution applicant; or

412SUPREME COURT REPORTS

(ii) any person who shall be the promoter or in management orcontrol of the business of the corporate debtor during theimplementation of the resolution plan; or

(iii) the holding company, subsidiary company, associate companyor related party of person referred to in clauses (i) and (ii):

Provided that nothing in clause (iii) of this Explanation shall applyto—

(A) scheduled bank; or

(B) an asset reconstruction company registered with the ReserveBank of India under section 3 of the Securitisation andReconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 (54 of 2002); or

(C) an Alternate Investment Fund registered with the Securitiesand Exchange Board of India.”

D23. Finally, the Insolvency and Bankruptcy Code (SecondAmendment) Act, 2018, received the assent of the President on 17.8.2018,but came into force with retrospective effect from 6.6.2018. The saidamendment inter alia amended Section 29A, which now reads as follows:

“29A. Persons not eligible to be resolution applicant.—AEperson shall not be eligible to submit resolution plan, if suchperson, or any other person acting jointly or in concert with suchperson—

(a) is an undischarged insolvent;

(b) is wilful defaulter in accordance with the guidelines of theFReserve Bank of India issued under the Banking Regulation Act,1949 (10 of 1949);

(c) at the time of submission of the resolution plan has an account,or an account of corporate debtor under the management orcontrol of such person or of whom such person is promoter,Gclassified as non-performing asset in accordance with the guidelinesof the Reserve Bank of India issued under the Banking RegulationAct, 1949 (10 of 1949) or the guidelines of financial sectorregulator issued under any other law for the time being in force,and at least period of one year has lapsed from the date of such

classification till the date of commencement of the corporateinsolvency resolution process of the corporate debtor:

Provided that the person shall be eligible to submit resolutionplan if such person makes payment of all overdue amounts withinterest thereon and charges relating to non-performing assetaccounts before submission of resolution plan:

Provided further that nothing in this clause shall apply to resolutionapplicant where such applicant is financial entity and is not arelated party to the corporate debtor.

Explanation I.—For the purposes of this proviso, the expression“related party” shall not include financial entity, regulated by afinancial sector regulator, if it is financial creditor of the corporatedebtor and is related party of the corporate debtor solely onaccount of conversion or substitution of debt into equity shares orinstruments convertible into equity shares, prior to the insolvencycommencement date.

Explanation II.—For the purposes of this clause, where aresolution applicant has an account, or an account of corporatedebtor under the management or control of such person or ofwhom such person is promoter, classified as non-performingasset and such account was acquired pursuant to prior resolutionplan approved under this Code, then, the provisions of this clauseshall not apply to such resolution applicant for period of threeyears from the date of approval of such resolution plan by theAdjudicating Authority under this Code;

(d) has been convicted for any offence punishable withimprisonment—

(i) for two years or more under any Act specified under theTwelfth Schedule; or

(ii) for seven years or more under any other law for the timebeing in force:

Provided that this clause shall not apply to person after theexpiry of period of two years from the date of his release fromimprisonment:

Provided further that this clause shall not apply in relation to aconnected person referred to in clause (iii) of Explanation I;

(e) is disqualified to act as director under the Companies Act,2013 (18 of 2013):

Provided that this clause shall not apply in relation to connectedperson referred to in clause (iii) of Explanation I;

(f) is prohibited by the Securities and Exchange Board of Indiafrom trading in securities or accessing the securities markets;

(g) has been promoter or in the management or control of acorporate debtor in which preferential transaction, undervaluedtransaction, extortionate credit transaction or fraudulent transactionhas taken place and in respect of which an order has been madeby the Adjudicating Authority under this Code:

Provided that this clause shall not apply if preferential transaction,undervalued transaction, extortionate credit transaction orfraudulent transaction has taken place prior to the acquisition ofthe corporate debtor by the resolution applicant pursuant to aresolution plan approved under this Code or pursuant to schemeor plan approved by financial sector regulator or court, andsuch resolution applicant has not otherwise contributed to thepreferential transaction, undervalued transaction, extortionatecredit transaction or fraudulent transaction;

(h) has executed guarantee in favour of creditor in respect ofa corporate debtor against which an application for insolvencyresolution made by such creditor has been admitted under thisFCode and such guarantee has been invoked by the creditor andremains unpaid in full or part;

(i) is subject to any disability, corresponding to clauses (a) to (h),under any law in jurisdiction outside India; or

(j) has connected person not eligible under clauses (a) to (i).

Explanation I.—For the purposes of this clause, the expression“connected person” means—

(i) any person who is the promoter or in the management orcontrol of the resolution applicant; or

(ii) any person who shall be the promoter or in management orcontrol of the business of the corporate debtor during theimplementation of the resolution plan; or

(iii) the holding company, subsidiary company, associatecompany or related party of person referred to in clauses (i)and (ii):

Provided that nothing in clause (iii) of Explanation I shall apply toa resolution applicant where such applicant is financial entityand is not related party of the corporate debtor:

Provided further that the expression “related party” shall notinclude financial entity, regulated by financial sector regulator,if it is financial creditor of the corporate debtor and is relatedparty of the corporate debtor solely on account of conversion orsubstitution of debt into equity shares or instruments convertibleinto equity shares, prior to the insolvency commencement date;

Explanation II.—For the purposes of this section, “financial entity”shall mean the following entities which meet such criteria orconditions as the Central Government may, in consultation withthe financial sector regulator, notify in this behalf, namely—

(a) scheduled bank;

(b) any entity regulated by foreign central bank or securitiesmarket regulator or other financial sector regulator of ajurisdiction outside India which jurisdiction is compliant withthe Financial Action Task Force Standards and is signatoryto the International Organisation of Securities CommissionsMultilateral Memorandum of Understanding;

(c) any investment vehicle, registered foreign institutionalinvestor, registered foreign portfolio investor or foreign venturecapital investor, where the terms shall have the meaningassigned to them in regulation 2 of the Foreign ExchangeManagement (Transfer or Issue of Security by PersonResident Outside India) Regulations, 2017 made under theForeign Exchange Management Act, 1999 (42 of 1999);

(d) an asset reconstruction company registered with theReserve Bank of India under Section 3 of the Securitisation

Aand Reconstruction of Financial Assets and Enforcement ofSecurity Interest Act, 2002 (54 of 2002);

(e) an Alternate Investment Fund registered with the Securitiesand Exchange Board of India;

(f) such categories of persons as may be notified by the CentralBGovernment.”

24. The Hon’ble Minister of Finance and Minister of CorporateAffairs, Shri Arun Jaitley, while moving the Insolvency and BankruptcyCode (Amendment) Bill, 2017, stated on 29.12.2017:

C“The core and soul of this new Ordinance is really Clause 5, whichis Section 29A of the original Bill. I may just explain that once acompany goes into the resolution process, then applications wouldbe invited with regard to the potential resolution proposals as faras the company is concerned or the enterprise is concerned. Nowa number of ineligibility clauses were not there in the original ActDand, therefore, Clause 29A introduces those who are not eligibleto apply. For instance there is clause with regard to anundischarged insolvent who is not eligible to apply; person whohas been disqualifies under the Companies Act as director cannotapply and person who is prohibited under the SEBI Act cannotEapply. So these are statutory disqualifications. And there is also adisqualification in Clause (c) with regard to those who arecorporate debtors and who as on the date of the application makinga bid do not operationalise the account by paying the interest itselfi.e. you cannot say that I have an NPA. I am not making theaccount operational. The accounts will continue to be NPAs andFyet I am going to apply for this. Effectively this clause will meanthat those who are in management and on account of whom thisinsolvent or non-performing asset has arisen will now try and say.I do not discharge any of the outstanding debts in terms of makingthe accounts operational and yet I would like to apply and set theGenterprise back at discount value, for this is not the object of thisparticular Act, So clause 5 has been brought in with that purposein mind.” (emphasis supplied)

25. The Statement of Objects and Reasons of the aforesaid Billlays down:

“2. The provisions for insolvency resolution and liquidation of acorporate person in the Code did not restrict or bar any personfrom submitting resolution plan or participating in the acquisitionprocess of the assets of the company at the time of liquidation.Concerns have been raised that persons who, with their misconductcontributed to defaults of companies or are otherwise undesirable,may misuse this situation due to lack of prohibition or restrictionsto participate in the resolution or liquidation process, and gain orregain control of the corporate debtor.This may undermine theprocesses laid down in the Code as the unscrupulous person wouldbe seen to be rewarded at the expense of the creditors. In addition,in order to check that the undesirable persons who may havesubmitted their resolution plans in the absence of such provision,responsibility is also being entrusted on the committee of creditorsto give reasonable period to repay overdue amounts and becomeeligible.” (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. ofNCT of Delhi) & Anr., (2017) 15 SCC 133, this Court, after referringto the golden rule of literal construction, and its older counterpart the“object rule” in Heydon’s case, referred to the theory of creativeinterpretation as follows:-

“122. Instances of creative interpretation are when the Court looksat both the literal language as well as the purpose or object of thestatute in order to better determine what the words used by thedraftsman of legislation mean. In D.R.Venkatachalam v. Transport Commr. [D.R.Venkatachalam v. Transport Commr., (1977) 2 SCC 273], anearly instance of this is found in the concurring judgment of Beg,J. The learned Judge put it rather well when he said: (SCC p. 287,para 28)

“28. It is, however, becoming increasingly fashionable to startwith some theory of what is basic to provision or chapteror in statute or even to our Constitution in order to interpretand determine the meaning of particular provision or rulemade to subserve an assumed “basic” requirement. I thinkthat this novel method of construction puts, if I may say so, the

cart before the horse. It is apt to seriously mislead us unlessthe tendency to use such mode of construction is checked orcorrected by this Court. What is basic for section or chapterin statute is provided: firstly, by the words used in the statuteitself; secondly, by the context in which provision occurs, or,in other words, by reading the statute as whole; thirdly, bythe Preamble which could supply the “key” to the meaning ofthe statute in cases of uncertainty or doubt; and, fourthly, wheresome further aid to construction may still be needed to resolvean uncertainty, by the legislative history which discloses thewider context or perspective in which provision was made tomeet particular need or to satisfy particular purpose. Thelast mentioned method consists of an application of the mischiefrule laid down in Heydon case [Heydon case, (1584) 3 CoRep 7a : 76 ER 637] long ago.”

xxx xxx xxx

127. It is thus clear on reading of English, US, Australian andour own Supreme Court judgments that the “Lakshman Rekha”has in fact been extended to move away from the strictly literalrule of interpretation back to the rule of the old English caseof Heydon [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637],Ewhere the Court must have recourse to the purpose, object, textand context of particular provision before arriving at judicialresult. In fact, the wheel has turned full circle. It started out bythe rule as stated in 1584 in Heydon case [Heydon case, (1584)3 Co Rep 7a : 76 ER 637], which was then waylaid by the literalinterpretation rule laid down by the Privy Council and the HouseFof Lords in the mid-1800s, and has come back to restate the rulesomewhat in terms of what was most felicitously put over 400years ago in Heydon case [Heydon case, (1584) 3 Co Rep 7a :76 ER 637].”

27. purposive interpretation of Section 29A, depending both onthe text and the context in which the provision was enacted, must,therefore, inform our interpretation of the same. We are concerned inthe present matter with sub-clauses (c), (f), (i) and (j) thereof.

28. It will be noticed that the opening lines of Section 29A containedin the Ordinance of 2017 are different from the opening lines of Section

29A as contained in the Amendment Act of 2017. What is important tonote is that the phrase “persons acting in concert” is conspicuous byits absence in the Ordinance of 2017. The concepts of “promoter”,“management” and “control” which were contained in the opening linesof Section 29A under the Ordinance have now been transferred to sub-clause (c) in the Amendment Act of 2017. It is, therefore, important tonote that the Amendment Act of 2017 opens with language which is ofwider import than that contained in the Ordinance of 2017, evincing anintention to rope in all persons who may be acting in concert with theperson submitting resolution plan.

29. The opening lines of Section 29A of the Amendment Act referto de facto as opposed to de jure position of the persons mentionedtherein. This is typical instance of “see through provision”, so thatone is able to arrive at persons who are actually in “control”, whetherjointly, or in concert, with other persons. wooden, literal, interpretationwould obviously not permit tearing of the corporate veil when it comesto the “person” whose eligibility is to be gone into. However, purposefuland contextual interpretation, such as is the felt necessity of interpretationof such provision as Section 29A, alone governs. For example, it iswell settled that shareholder is separate legal entity from the companyin which he holds shares. This may be true generally speaking, butwhen it comes to corporate vehicle that is set up for the purpose ofsubmission of resolution plan, it is not only permissible but imperativefor the competent authority to find out as to who are the constituentelements that make up such company. In such cases, the principle laiddown in Salomon v. Salomon and Co. Ltd. [1897] AC 22 will notapply. For it is important to discover in such cases as to who are the realindividuals or entities who are acting jointly or in concert, and who haveset up such corporate vehicle for the purpose of submission of aresolution plan.

30. The doctrine of piercing the corporate veil is as well settled asthe Salomon (supra.) principle itself. In Life Insurance Corporationof India v. Escorts Ltd. & Ors., (1986) 1 SCC 264, this Court held:

“90. It was submitted that the thirteen Caparo companies werethirteen companies in name only; they were but one and that onewas an individual, Mr Swraj Paul. One had only to pierce thecorporate veil to discover Mr Swraj Paul lurking behind. It was

submitted that thirteen applications were made on behalf of thirteencompanies in order to circumvent the scheme which prescribed aceiling of one per cent on behalf of each non-resident of Indiannationality or origin, or each company 60 per cent of whose shareswere owned by non-residents of Indian nationality/origin. Ourattention was drawn to the picturesque pronouncement of LordDenning M.R. in Wallersteiner v. Moir [(1974) 3 All ER 217]and the decisions of this Court in Tata Engineering andLocomotive Co. Ltd. v. State of Bihar [(1964) 6 SCR885], CIT v. Sri Meenakshi Mills Ltd. [(1967) 1 SCR 934]and Workmen v. Associated Rubber Industry Ltd. [(1985) 4 SCC114]. While it is firmly established ever since Salomon v. A.Salomon & Co. Ltd. [1897 AC 22] was decided that companyhas an independent and legal personality distinct from the individualswho are its members, it has since been held that the corporateveil may be lifted, the corporate personality may be ignored andthe individual members recognised for who they are in certainexceptional circumstances Pennington in his Company Law (4thEdn.) states:“Four inroads have been made by the law on the principle ofthe separate legal personality of companies. By far the mostextensive of these has been made by legislation imposingtaxation. The government, naturally enough, does not willinglysuffer schemes for the avoidance of taxation which dependfor their success on the employment of the principle of separatelegal personality, and in fact legislation has gone so far that incertain circumstances taxation can be heavier if companiesare employed by the taxpayer in an attempt to minimise his taxliability than if he uses other means to give effect to his wishes.Taxation of companies is complex subject, and is outside thescope of this book. The reader who wishes to pursue the subjectis referred to the many standard text books on corporation tax,income tax, capital gains tax and capital transfer tax.

The other inroads on the principle of separate corporatepersonality have been made by two sections of the CompaniesAct, 1948, by judicial disregard of the principle where theprotection of public interest is of paramount importance, orwhere the company has been formed to evade obligations

imposed by the law, and by the courts implying in certain casesthat company is an agent or trustee for its members.”

In Palmer’s Company Law (23rd Edn.), the present position inEngland is stated and the occasions when the corporate veil maybe lifted have been enumerated and classified into fourteencategories. Similarly in Gower’s Company Law (4th Edn.), achapter is devoted to ‘lifting the veil’ and the various occasionswhen that may be done are discussed. In Tata Engineering andLocomotive Co. Ltd. [(1964) 6 SCR 885] the company wantedthe corporate veil to be lifted so as to sustain the maintainability ofthe petition, filed by the company under Article 32 of theConstitution, by treating it as one filed by the shareholders of thecompany. The request of the company was turned down on theground that it was not possible to treat the company as citizenfor the purposes of Article 19. In CIT v. Sri Meenakshi MillsLtd. [(1967) 1 SCR 934] the corporate veil was lifted and evasionof income tax prevented by paying regard to the economic realitiesbehind the legal facade. In Workmen v. Associated RubberIndustry Ltd. [(1985) 4 SCC 114] resort was had to the principleof lifting the veil to prevent devices to avoid welfare legislation. Itwas emphasised that regard must be had to substance and not theform of transaction. Generally and broadly speaking, we maysay that the corporate veil may be lifted where statute itselfcontemplates lifting the veil, or fraud or improper conduct isintended to be prevented, or taxing statute or beneficent statuteis sought to be evaded or where associated companies areinextricably connected as to be, in reality, part of one concern. Itis neither necessary nor desirable to enumerate the classes ofcases where lifting the veil is permissible, since that mustnecessarily depend on the relevant statutory or other provisions,the object sought to be achieved, the impugned conduct, theinvolvement of the element of the public interest, the effect onparties who may be affected etc.” (Emphasis supplied.)

31. This statement of the law was followed in Union of India v.ABN Amro Bank and others, (2013) 16 SCC 490, at paragraphs 43and 44 as follows:

“43. We are of the view that in given situation the authoritiesfunctioning under FERA find that there are attempts to overreach

ABC

the provision of Section 29(1)(a), the authority can always lift theveil and examine whether the parties have entered into anyfraudulent, sham, circuitous device so as to overcome statutoryprovisions like Section 29(1)(a). It is trite law that any approval/permission obtained by non-disclosure of all necessary informationor making false representation tantamount to approval/permissionobtained by practising fraud and hence nullity. Reference maybe made to the judgment of this Court in Union ofIndia v. Ramesh Gandhi [(2012) 1 SCC 476].44. Even in Escorts case [(1986) 1 SCC 264], this Court has takenthe view that it is neither necessary nor desirable to enumeratethe classes of cases where lifting the veil is permissible, since thatmust necessarily depend on the relevant statutory or otherprovisions, the object sought to be achieved, the impugned conduct,the involvement of the element of the public interest, the effect onparties who may be affected, etc. In Escorts case [(1986) 1 SCC264], this Court held as follows: (SCC pp. 335-36, para 90)

“90. … Generally and broadly speaking, we may say that thecorporate veil may be lifted where statute itself contemplateslifting the veil, or fraud or improper conduct is intended to beprevented, or taxing statute or beneficent statute is soughtto be evaded or where associated companies are inextricablyconnected as to be, in reality, part of one concern.””

32. Similarly in Balwant Rai Saluja & Anr. etc. etc. v. AirIndia Ltd. & Ors., (2014) 9 SCC 407, this Court in following EscortsLtd. (supra.), held:

“70. The doctrine of “piercing the corporate veil” stands as anexception to the principle that company is legal entity separateand distinct from its shareholders with its own legal rights andobligations. It seeks to disregard the separate personality of thecompany and attribute the acts of the company to those who areallegedly in direct control of its operation. The starting point ofthis doctrine was discussed in the celebrated caseof Salomon v. Salomon & Co. Ltd. [1897 AC 22] Lord HalsburyLC, negating the applicability of this doctrine to the facts of thecase, stated that: (AC pp. 30 & 31)

“[a company] must be treated like any other independent personwith its rights and liabilities [legally] appropriate to itself …whatever may have been the ideas or schemes of those whobrought it into existence.”

Most of the cases subsequent to Salomon case [1897 AC 22],attributed the doctrine of piercing the veil to the fact that thecompany was “sham” or “façade”. However, there was yetto be any clarity on applicability of the said doctrine.

71. In recent times, the law has been crystallised around the sixprinciples formulated by Munby, J. in Ben Hashem v. AliShayif [Ben Hashem v. Ali Shayif, 2008 EWHC 2380 (Fam)].The six principles, as found at paras 159-64 of the case are asfollows:

(i) Ownership and control of company were not enough tojustify piercing the corporate veil;

(ii) The court cannot pierce the corporate veil, even in theabsence of third-party interests in the company, merely becauseit is thought to be necessary in the interests of justice;

(iii) The corporate veil can be pierced only if there is someimpropriety;

(iv) The impropriety in question must be linked to the use ofthe company structure to avoid or conceal liability;

(v) To justify piercing the corporate veil, there must be bothcontrol of the company by the wrongdoer(s) and impropriety,that is use or misuse of the company by them as device orfacade to conceal their wrongdoing; and

(vi) The company may be “façade” even though it was notoriginally incorporated with any deceptive intent, provided thatit is being used for the purpose of deception at the time of therelevant transactions. The court would, however, pierce thecorporate veil only so far as it was necessary in order to providea remedy for the particular wrong which those controlling thecompany had done

72. The principles laid down by Ben Hashem case [BenHashem v. Ali Shayif, 2008 EWHC 2380 (Fam)] have been

Areiterated by the UK Supreme Court by Lord Neubergerin Prest v. Petrodel Resources Ltd. [(2013) 2 AC 415], UKSCat para 64. Lord Sumption, in Prest case [(2013) 2 AC 415], finallyobserved as follows: (AC p. 488, para 35)

“35. I conclude that there is limited principle of English lawwhich applies when person is under an existing legal obligationor liability or subject to an existing legal restriction which hedeliberately evades or whose enforcement he deliberatelyfrustrates by interposing company under his control. Thecourt may then pierce the corporate veil for the purpose, andonly for the purpose, of depriving the company or its controllerof the advantage that they would otherwise have obtained by

the company’s separate legal personality. The principle isproperly described as limited one, because in almost everycase where the test is satisfied, the facts will in practice disclosea legal relationship between the company and its controllerDwhich will make it unnecessary to pierce the corporate veil.”

73. The position of law regarding this principle in India has beenenumerated in various decisions. Constitution Bench of this Courtin LIC v. Escorts Ltd. [(1986) 1 SCC 264], while discussing thedoctrine of corporate veil, held that: (SCC pp. 335-36, para 90)

“90. … Generally and broadly speaking, we may say that thecorporate veil may be lifted where statute itself contemplateslifting the veil, or fraud or improper conduct is intended to beprevented, or taxing statute or beneficent statute is soughtto be evaded or where associated companies are inextricablyFconnected as to be, in reality, part of one concern. It is neithernecessary nor desirable to enumerate the classes of caseswhere lifting the veil is permissible, since that must necessarilydepend on the relevant statutory or other provisions, the objectsought to be achieved, the impugned conduct, the involvementof the element of the public interest, the effect on parties whoGmay be affected, etc.””

33. Similarly in Delhi Development Authority v. SkipperConstruction Company (P) Ltd. & Another, (1996) 4 SCC 622, thisCourt held:

“24. In Salomon v. Salomon & Co. Ltd. [1897 AC 22] the Houseof Lords had observed,

“the company is at law different person altogether from thesubscribers …; and, though it may be that after incorporationthe business is precisely the same as it was before, the samepersons are managers, and the same hands receive the profits,the company is not in law the agent of the subscribers or trusteefor them. Nor are the subscribers as members liable, in anyshape or form, except to the extent and in the manner providedby that Act.”

Since then, however, the courts have come to recognise severalexceptions to the said rule. While it is not necessary to refer to allof them, the one relevant to us is “when the corporate personalityis being blatantly used as 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 statesthat “where the protection of public interests is of paramountimportance or where the company has been formed to evadeobligations imposed by the law”, the court will disregard thecorporate veil. Professor of Law, S. Ottolenghi in his article“From peeping behind the Corporate Veil, to ignoring itcompletely” says

“the concept of ‘piercing the veil’ in the United States is muchmore developed than in the UK. The motto, which was laiddown by Sanborn, J. and cited since then as the law, is that‘when the notion of legal entity is used to defeat publicconvenience, justify wrong, protect fraud, or defend crime, thelaw 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 subjectin brilliantly written article “Piercing the veil of corporateentity” [published in (1912) XII Columbia Law Review 496] andsummarised their central holding in the following words:

“The various classes of cases where the concept of corporateentity should be ignored and the veil drawn aside have now

been briefly reviewed. What general rule, if any, can be laiddown? The nearest approximation to generalisation which thepresent state of the authorities would warrant is this: Whenthe conception of corporate entity is employed to defraudcreditors, to evade an existing obligation, to circumvent statute,to achieve or perpetuate monopoly, or to protect knavery orcrime, the courts will draw aside the web of entity, will regardthe corporate company as an association of live, up-and-doing,men and women shareholders, and will do justice between realpersons.”

25. In Palmer’s Company Law, this topic is discussed in Part IIof Vol. I. Several situations where the court will disregard thecorporate veil are set out. It would be sufficient for our purposesto quote the eighth exception. It runs:

“The courts have further shown themselves willing to ‘liftingthe veil’ where the device of incorporation is used for someillegal or improper purpose…. Where vendor of land soughtto avoid the action for specific performance by transferringthe land in breach of contract to company he had formed forthe purpose, the court treated the company as mere ‘sham’and made an order for specific performance against both thevendor and the company.”

Similar views have been expressed by all the commentators onthe Company Law which we do not think necessary to refer to.

26. The law as stated by Palmer and Gower has been approvedby this Court in TELCO v. State of Bihar [(1964) 6 SCR 885].The following passage from the decision is apposite:

“… Gower has classified seven categories of cases where theveil of corporate body has been lifted. But, it would not bepossible to evolve rational, consistent and inflexible principlewhich can be invoked in determining the question as to whetherthe veil of the corporation should be lifted or not. Broadly stated,where fraud is intended to be prevented, or trading with anenemy is sought to be defeated, the veil of corporation islifted by judicial decisions and the shareholders are held to bethe persons who actually work for the corporation.”

27. In DHN Food Distributors Ltd. v. London Borough ofTower Hamlets [(1976) 3 All ER 462] the court of appeal dealtwith group of companies. Lord Denning quoted with approvalthe statement in Gower’s Company Law that

“there is evidence of general tendency to ignore the separatelegal entities of various companies within group, and to lookinstead at the economic entity of the whole group”.

The learned Master of Rolls observed that “this group is virtuallythe same as partnership in which all the three companies arepartners”. He called it case of “three in one” — and, alternatively,as “one in three”.

28. The concept of corporate entity was evolved to encourageand promote trade and commerce but not to commit illegalities orto defraud people. Where, therefore, the corporate character isemployed for the purpose of committing illegality or for defraudingothers, the court would ignore the corporate character and willlook at the reality behind the corporate veil so as to enable it topass appropriate orders to do justice between the partiesconcerned. The fact that Tejwant Singh and members of his familyhave created several corporate bodies does not prevent this Courtfrom treating all of them as one entity belonging to and controlledby Tejwant Singh and family if it is found that these corporatebodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporationwas really ploy adopted for committing illegalities and/or todefraud people.” (emphasis supplied)

34. It is thus clear that, where statute itself lifts the corporateveil, or where protection of public interest is of paramount importance,or where company has been formed to evade obligations imposed bythe law, the court will disregard the corporate veil. Further, this principleis applied even to group companies, so that one is able to look at theeconomic entity of the group as whole.

35. The expression “acting jointly” in the opening sentence ofSection 29A cannot be confused with “joint venture agreements”, aswas sought to be argued by Shri Rohatgi. He cited various judgmentsincluding Faqir Chand Gulati v. Uppal Agencies Pvt. Ltd. & Anr.,

A(2008) 10 SCC 345, and Laurel Energetics Private Limited v.Securities and Exchange Board of India, (2017) 8 SCC 541, tobuttress his submission that joint venture is contractually agreedsharing of control over an economic activity. We are afraid that thesejudgments are wholly inapplicable. All that is to be seen by the expression“acting jointly” is whether certain persons have got together and areBacting “jointly” in the sense of acting together. If this is made out onthe facts, no super added element of “joint venture” as is understood inlaw is to be seen. The other important phrase is “in concert”. BySection 3(37) of the Code, words and expressions used but not definedin the Code but defined inter alia by the SEBI Act, 1992, and theCCompanies Act, 2013, shall have the meanings respectively assigned tothem in those Acts. In exercise of powers conferred by Sections 11 and30 of the SEBI Act, 1992, the 2011 Takeover Regulations have beenpromulgated by SEBI.

36. Originally, the SEBI (Substantial Acquisition of Shares andDTakeovers) Regulations, 1994, defined “persons acting in concert” asfollows:

“(d) “person acting in concert” comprises persons who, pursuantto an agreement or understanding acquires or agrees to acquireshares in company for common objective o purpose ofEsubstantial acquisition of shares and includes:

i. company, its holding company, or subsidiaries of such companiesor companies under the same management either individually orall with each other.

ii. company with any of its directors, or any person entrustedFwith the management of the funds of the company;

iii. directors of companies, referred to in clause (i) and hisassociates; and

iv. mutual fund, financial institution, merchant banker, portfoliomanager and any investment company in which any person hasGan interest as director, fund manager, trustee, or as shareholderhaving 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 meaning of section 6of the Companies Act, 1956 (1 of 1956);

B. the director or his relative whether individually or inaggregate holding more than 2% of the paid-up equity capitalof such company.”

This was replaced in 1997 by the Regulations of 1997, and thenfurther 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 asfollows:

“2.22 Definition of ‘Persons acting in concert’

“Persons acting in concert” have particular relevance to publicoffers, for often an acquirer can acquire shares or voting rights ina company “in concert” with any other person in manner thatthe acquisitions made by him remain below the threshold limit,though taken together with the voting rights of persons in concert,the threshold may well be exceeded. It is therefore, important todefine “persons acting in concert”.

To be acting in concert with an acquirer, persons must fulfil certain“bright line” tests. They must have commonality of objectivesand community of interests which could be acquisition of sharesor voting rights beyond the threshold limit, or gaining control overthe company and their act of acquiring the shares or voting rightsin company must serve this common objective. Implicit in theconcerted action of these persons must be an element ofcooperation. And as has been observed, this cooperation could beextended in several ways, directly or indirectly, or through anagreement – formal or informal. The committee was of the viewthat the present definition of “persons acting in concert” in sub-clause (d) of regulation 2 needed to be strengthened byincorporating all the ingredients discussed in the foregoingparagraph to bring out clearly the import of acting in concert.

Any person fulfilling the “bright line” tests would be acting inconcert. But there could also be certain persons who, by theirposition in relation to an acquirer or by the very nature of their

business, could be generally presumed to be acting in concert,unless proved to the contrary. In other words, rebuttablepresumption of being persons in concert with burden of proofcast on them will be raised against these persons. The Committeewas of the view that while the net of presumption should be castto include all such persons, it should not be cast too widely so asto impinge on the freedom of any person to carry on his normalbusiness activities. In other words, there should be well definedbounds of presumption.

xxx xxx xxx

2.23 Burden of proof on ‘persons acting in concert’

The Committee further noted that in the existing Regulations, thereis no burden of proof on the ‘persons acting in concert’. Once theburden of proof is cast on the persons presumed to be acting inconcert, it would be important to ensure that the persons aregrouped in categories such that the persons may be presumed tobe acting in concert only with another person belonging to thesame category. general reading of the existing provisions impliesthat person belonging to any one of the categories mentioned insub-clauses (i) to (iv) of clause (d) of regulation 2 could bepresumed to be acting in concert with person belonging to anyother category. Thus, company could be presumed to be actingin concert with merchant banker, mutual fund, or any other bodyeven though they may all be distinctly independent entities withoutany connection whatsoever. Such irrebuttable presumption of acommon motive amongst unrelated parties would be illogical andnot legally tenable. distinction must be made between personswho could be presumed to be acting in concert unless proved tothe contrary and others who may be acting in concert even thoughsuch 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 intogroups in such manner that these persons would in the naturalcourse of affairs be presumed to be acting in concert only withanother person in the same group. This served to set the patternfor raising rebuttable presumptions.

The Committee recommends that

• In the definition of persons acting in concert, the personsbe grouped in such manner in the same group orcategory that they bear such relationship amongstthemselves as could justify raising of presumption inthe normal course of affairs that they are acting inconcert. For example, sponsor of mutual fund could bepresumed to be acting in concert with the trustee companyor asset management company of the same mutual fund;similarly merchant banker may be presumed to be actingin concert with his client as acquirer. But no presumptionmay be made that persons in one group are acting in concertwith persons in another group. It has to be proved by evidencethat they are acting in concert.(Reference: Part II of theReport – sub-clause (e) of sub-regulation (1) of regulation2).

The definition of the persons acting in concert as defined abovewould imply rebuttable presumption. The question which arisesis who would rule whether the presumption has been rebutted.The responsibility of ruling will lie with SEBI and over period oftime, jurisprudence on the subject will develop.”

38. By Regulation 2(1)(q) of the 2011 Takeover Regulations,“persons acting in concert” is defined as follows:-

“(q) “persons acting in concert” means,—

(1) persons who, with common objective or purpose of acquisitionof shares or voting rights in, or exercising control over targetcompany, pursuant to an agreement or understanding, formal orinformal, directly or indirectly co-operate for acquisition of sharesor voting rights in, or exercise of control over the target company.

(2) Without prejudice to the generality of the foregoing, the personsfalling within the following categories shall be deemed to be personsacting in concert with other persons within the same category,unless the contrary is established,—

(i) company, its holding company, subsidiary company andany company under the same management or control;

(ii) company, its directors, and any person entrusted with themanagement of the company;

(iii) directors of companies referred to in item (i) and (ii) of thissub-clause and associates of such directors;

(iv) promoters and members of the promoter group;

(v) immediate relatives;

(vi) mutual fund, its sponsor, trustees, trustee company, andasset management company;

(vii) collective investment scheme and its collective investmentmanagement company, trustees and trustee company;

(viii) venture capital fund and its sponsor, trustees, trusteecompany and asset management company;

(viiia) an alternative investment fund and its sponsor, trustees,trustee company and manager;

(ix) [***]

(x) merchant banker and its client, who is an acquirer;

(xi) portfolio manager and its client, who is an acquirer;

(xii) banks, financial advisors and stock brokers of the acquirer,or of any company which is holding company or subsidiaryof the acquirer, and where the acquirer is an individual, of theimmediate relative of such individual:

Provided that this sub-clause shall not apply to bank whosesole role is that of providing normal commercial bankingservices or activities in relation to an open offer under theseregulations;

(xiii) an investment company or fund and any person who hasan interest in such investment company or fund as shareholderor unitholder having not less than 10 per cent of the paid-upcapital of the investment company or unit capital of the fund,and any other investment company or fund in which such personor his associate holds not less than 10 per cent of the paid-upcapital of that investment company or unit capital of that fund:

Provided that nothing contained in this sub-clause shall applyto holding of units of mutual funds registered with the Board;

Explanation.—For the purposes of this clause ¯ “associate”of person means,—

(a) any immediate relative of such person;

(b) trusts of which such person or his immediate relative is atrustee;

(c) partnership firm in which such person or his immediaterelative is partner; and

(d) members of Hindu undivided families of which such personis coparcener;”

39. It will be seen from the wide language used, that anyunderstanding, even if it is informal, and even if it is to indirectly cooperateto exercise control over target company, is included. Under sub-clause(2) of clause (q), deeming fiction is enacted, by which presumption israised in the categories mentioned, that person falling within onecategory is deemed to be acting in concert with another person mentionedin the same category, unless the contrary is established. The corporateveil is not merely torn but is left in tatters by sub-clauses (i) to (iv) ofRegulation 2(1)(q)(2). What is also important to note is that “immediaterelatives” are also covered by sub-clause (v) – i.e., father and son,brothers, etc. Also of importance is the definition of “associate” in theexplanation to Regulation 2(1)(q)(2), which subsumes not merelyimmediate relatives but other forms in which person can be associatedwith another - which includes the form of trust, partnership firm andHUF. What is of great importance is that wherever persons act jointlyor in concert with the “person” who submits resolution plan, all suchpersons are covered by Section 29A. It is interesting to note that thereport of the Insolvency Law Committee of March, 2018, wanted tocurtail the wide definition of persons acting jointly or in concert as follows:

“14.3 The term ‘person acting jointly or in concert’ has not beendefined in the Code and using the definition provided in the SEBI(Substantial Acquisition of Shares and Takeovers) Regulations,2011 results in inclusion of an extremely wide gamut of personwithin the scope of section 29A. In practice, it is unclear whetherthe term ‘connected person’ in clause (j) applies to only the

Aresolution applicant or even ‘persons acting jointly or in concertwith such person’. If the latter interpretation is taken, this provisionwould be applicable to multiple layers of persons who are relatedto the resolution applicant even remotely. Further, ARCs, banksand alternate investment funds which are specifically excludedfrom the definition of ‘connected person’ provided in section 29ABmay be caught by the term ‘person acting jointly or in concertwith such person’. The Committee felt that section 29A wasintroduced to disqualify only those who had contributed in thedownfall of the corporate debtor or were unsuitable to run thecompany because of their antecedents whether directly orCindirectly. Therefore, extending the disqualification to aresolution application owing to infirmities in personsremotely related may have adverse consequences. Suchinterpretation of this provision may shrink the pool ofresolution applicants. Accordingly, the Committee felt thatthe words, “…, if such person, or any other person actingDjointly or in concert with such person” in the first line ofsection 29A must be deleted. This would clarify that section29A is applicable to the resolution applicant and itsconnected person only. Further, in order to ensure thatanyone who acts with common objective along with theEresolution applicant to acquire shares, voting rights orcontrol of the corporate debtor is required to pass the testlaid down in section 29A, the Committee felt that thefollowing clause must be added as clause (iv) to the definitionof connected person in the explanation to clause (j), “(iv)any persons who along with the resolution applicant, with aFcommon objective or purpose of acquisition of shares or votingrights in, or exercising control over corporate debtor,pursuant to an agreement or understanding, formal orinformal, directly or indirectly co-operate for acquisition ofshares or voting rights in, or exercise of control over theGcorporate debtor.””

This part of the report has not been accepted by the legislature, as noneof the suggested changes in the law have been made.

40. In Technip SA v. SMS Holding (Pvt.) Ltd. & Ors., (2005)

5 SCC 465, this Court after referring to the Bhagwati Committee ReportHof 1997, stated as follows:-

“54. The standard of proof required to establish such concert isone of probability and may be established

“if having regard to their relation etc., their conduct, and theircommon interest, that it may be inferred that they must beacting together: evidence of actual concerted acting is normallydifficult to obtain, and is not insisted upon” [CIT v. East CoastCommercial Co. Ltd., (1967) 1 SCR 821]. (SCR p. 829 H)

55. While deciding whether company was one in which thepublic were substantially interested within the meaning of Section23-A of the Income Tax Act, 1922 this Court said:

“The test is not whether they have actually acted in concertbut whether the circumstances are such that human experiencetells us that it can safely be taken that they must be actingtogether. It is not necessary to state the kind of evidence thatwill prove such concerted actings. Each case must necessarilybe decided on its own facts.” [CIT v. Jubilee Mills Ltd., (1963)48 ITR 9 (SC), p. 20]

56. In Guinness PLC and Distillers Co. PLC [Guinness PLCand Distillers Company PLC (Panel hearing on 25-8-1987 and2-9-1987 at p. 10052 — Reasons for decisions of the Panel.)] thequestion before the Takeover Panel was whether Guinness hadacted in concert with Pipetec when Pipetec purchased shares inDistillers Company PLC. Various factors were taken intoconsideration to conclude that Guinness had acted in concert withPipetec to get control over Distillers Company. The Panel said:

“The nature of acting in concert requires that the definition bedrawn in deliberately wide terms. It covers an understandingas well as an agreement, and an informal as well as formalarrangement, which leads to cooperation to purchase sharesto acquire control of company. This is necessary, as sucharrangements are often informal, and the understanding mayarise from hint. The understanding may be tacit, and thedefinition covers situations where the parties act on the basisof ‘nod or wink’…. Unless persons declare this agreementor understanding, there is rarely direct evidence of action inconcert, and the Panel must draw on its experience andcommon sense to determine whether those involved in any

dealings have some form of understanding and are acting incooperation with each other.” [Guinness PLC and DistillersCompany PLC (Panel hearing on 25-8-1987 and 2-9-1987 atp. 10052 — Reasons for decisions of the Panel.)]”(emphasis supplied)

B41. In M/s. Daiichi Sankyo Company Ltd. v. JayaramChigurupati & Ors., (2010) 7 SCC 449, this Court referred to theconcept of “persons acting in concert” and held that there must be ashared common objective for substantial acquisition of shares of targetcompany under the SEBI regulations. fortuitous relationship cominginto existence by accident or chance obviously cannot amount to “personsCacting in concert”. This Court held:-

“49. The other limb of the concept requires two or more personsjoining together with the shared common objective and purposeof substantial acquisition of shares, etc. of certain targetcompany. There can be no “persons acting in concert” unlessDthere is shared common objective or purpose between twoor more persons of substantial acquisition of shares, etc. of thetarget company. For, dehors the element of the shared commonobjective or purpose the idea of “person acting in concert” is asmeaningless as criminal conspiracy without any agreement toEcommit criminal offence. The idea of “persons acting in concert”is not about fortuitous relationship coming into existence byaccident or chance. The relationship can come into being only bydesign, by meeting of minds between two or more persons leadingto the shared common objective or purpose of acquisition orsubstantial acquisition of shares, etc. of the target company. It isFanother matter that the common objective or purpose may be inpursuance of an agreement or an understanding, formal or informal;the acquisition of shares, etc. may be direct or indirect or thepersons acting in concert may cooperate in actual acquisition ofshares, etc. or they may agree to cooperate in such acquisition.GNonetheless, the element of the shared common objective orpurpose is the sine qua non for the relationship of “persons actingin concert” to come into being.” (emphasis supplied)

When coming to the presumption created by the provision, this Courtheld that the deeming provision is left open to rebuttal as indicated by the

words “unless the contrary is established” (see paragraph 54 ofDaiichi (supra.)). Finally, this Court held that whether person is or isnot acting in concert would depend upon the facts of each case. (seeparagraph 57 of Daiichi (supra.)).

42. When we come to sub-clause (c) of Section 29A, the firstthing that was argued, at which the parties were at loggerheads, was thetime at which sub-clause (c) can be said to operate. According to ShriRohatgi, in the original sub-clause (c), pre-amendment, the time mustnecessarily be the date of commencement of the corporate insolvencyresolution process, as is mentioned by the Section itself. According toMessrs Salve and Singhvi, it is clear that since submission of resolutionplan is spoken of, it is the time of submission of such plan and not anyanterior stage.

43. According to us, it is clear that the opening words of Section29A furnish 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 eligibleto submit resolution plan…”. It is clear therefore that the stage ofineligibility attaches when the resolution plan is submitted by resolutionapplicant. The contrary view expressed by Shri Rohatgi is obviouslyincorrect, as the date of commencement of the corporate insolvencyresolution process is only relevant for the purpose of calculating whetherone year has lapsed from the date of classification of person as non-performing asset. Further, the expression used is “has”, which as Dr.Singhvi has correctly argued, is in praesenti. This is to be contrastedwith the expression “has been”, which is used in sub-clauses (d) and(g), which refers to an anterior point of time. Consequently, theamendment of 2018 introducing the words “at the time of submissionof the resolution plan” is clarificatory, as this was always the correctinterpretation as to the point of time at which the disqualification in sub-clause (c) of Section 29A will attach. In fact, the amendment was madepursuant to the Insolvency Law Committee Report of March, 2018.That report clearly stated:

“In relation to applicability of section 29A(c), the Committee alsodiscussed that it must be clarified that the disqualification pursuantto section 29A(c) shall be applicable if such NPA accounts areheld by the resolution applicant or its connected persons at thetime of submission of the resolution plan to the RP.”

A44. The ingredients of sub-clause (c) are that, the ineligibility tosubmit resolution plan attaches if any person, as is referred to in theopening lines of Section 29A, either itself has an account, or is promoterof, or in the management or control of, corporate debtor which has anaccount, which account has been classified as non-performing asset,for period of at least one year from the date of such classification tillBthe date of commencement of the corporate insolvency resolution process.For the purpose of applying this sub-section, any one of three things,which are disjunctive, needs to be established. The corporate debtormay be under the management of the person referred to in Section 29A,the corporate debtor may be person under the control of such person,Cor the corporate debtor may be person of whom such person is apromoter.

45. The expression “management” would refer to the de juremanagement of corporate debtor. The de jure management of acorporate debtor would ordinarily vest in Board of Directors, and wouldDinclude, in accord with the definitions of “manager”, “managingdirector” and “officer” in Sections 2(53), 2(54) and 2(59) respectivelyof the Companies Act, 2013, the persons mentioned therein.

46. The expression “control” is defined in Section 2(27) of theCompanies Act, 2013 as follows:-

“(27) “control” shall include the right to appoint majority of thedirectors or to control the management or policy decisionsexercisable by person or persons acting individually or in concert,directly or indirectly, including by virtue of their shareholding ormanagement rights or shareholders agreements or votingFagreements 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 appointa majority of the directors of company. The second part refers to defacto control. So long as person or persons acting in concert, directlyGor indirectly, can positively influence, in any manner, management orpolicy decisions, they could be said to be “in control”. managementdecision is decision to be taken as to how the corporate body is to berun in its day to day affairs. policy decision would be decision thatwould be beyond running day to day affairs, i.e., long term decisions. Solong 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), denotesonly positive control, which means that the mere power to block specialresolutions of company cannot amount to control. “Control” here, ascontrasted with “management”, means de facto control of actualmanagement or policy decisions that can be or are in fact taken. Ajudgment of the Securities Appellate Tribunal in M/s Subhkam Ventures(I) Private Limited v. The Securities and Exchange Board of India(Appeal No. 8 of 2009 decided on 15.1.2010), made the followingobservations qua “control” under the SEBI (Substantial Acquisition ofShares and Takeover) Regulations, 1997, wherein “control” is definedin Regulation 2(1)(e) in similar terms as in Section 2(27) of the CompaniesAct, 2013. The Securities Appellate Tribunal held:

“6. …The term control has been defined in Regulation 2(1)(c) ofthe takeover code to “include the right to appoint majority of thedirectors or to control the management or policy decisionsexercisable by person or persons acting individually or in concert,directly or indirectly, including by virtue of their shareholding ormanagement rights or shareholders agreements or votingagreements or in any other manner.” This definition is an inclusiveone and not exhaustive and it has two distinct and separatefeatures: i) the right to appoint majority of directors or, ii) theability to control the management or policy decisions by variousmeans referred to in the definition. This control of managementor policy decisions could be by virtue of shareholding ormanagement rights or shareholders agreement or votingagreements or in any other manner. This definition appears to besimilar to the one as given in Black’s Law Dictionary (EighthEdition) at page 353 where this term has been defined as under:

“Control - The direct or indirect power to direct the managementand policies of person or entity, whether through ownershipof voting securities, by contract, or otherwise; the power orauthority to manage, direct, or oversee.”

Control, according to the definition, is proactive and not reactivepower. It is power by which an acquirer can command thetarget company to do what he wants it to do. Control really means

creating or controlling situation by taking the initiative. Powerby which an acquirer can only prevent company from doingwhat the latter wants to do is by itself not control. In that event,the acquirer is only reacting rather than taking the initiative. It is apositive power and not negative power. In board managedcompany, it is the board of directors that is in control. If an acquirerwere to have power to appoint majority of directors, it is obviousthat he would be in control of the company but that is not the onlyway to be in control. If an acquirer were to control themanagement or policy decisions of company, he would be incontrol. This could happen by virtue of his shareholding ormanagement rights or by reason of shareholders agreements orvoting agreements or in any other manner. The test really iswhether the acquirer is in the driving seat. To extend the metaphorfurther, the question would be whether he controls the steering,accelerator, the gears and the brakes. If the answer to thesequestions is in the affirmative, then alone would he be in controlof the company. In other words, the question to be asked in eachcase would be whether the acquirer is the driving force behindthe company and whether he is the one providing motion to theorganization. If yes, he is in control but not otherwise. In shortcontrol means effective control.”

49. We think that these observations are apposite, and apply tothe expression “control” in Section 29A(c).

50. Section 29A(c) speaks of corporate debtor “underthemanagement or control of such person”. The expression “under”would seem to suggest positive or proactive control, as opposed to mereFnegative or reactive control. This becomes even clearer when sub-clause (g) of Section 29A is read, wherein the expression used is “in themanagement or control of corporate debtor”. Under sub-clause(g), only person who is in proactive or positive control of corporatedebtor can take the proactive decisions mentioned in sub-clause (g),Gsuch as, entering into preferential, undervalued, extortionate credit, orfraudulent transactions. It is thus clear that in the expression“management or control”, the two words take colour from each other,in which case the principle of noscitur sociis must also be held toapply. Thus viewed, what is referred to in sub-clauses (c) and (g) is dejure or de facto proactive or positive control, and not mere negative

control which may flow from an expansive reading of the definition ofthe word “control” contained in Section 2(27) of the Companies Act,2013, which is inclusive and not exhaustive in nature.

51. In recent judgment delivered by one of us (Nariman, J.) inChintalapati Srinivasa Raju v. Securities and Exchange Board ofIndia, (2018) 7 SCC 443, this Court after referring to the definition of“control” in the SEBI regulations, held on facts that an executive director,on fixed monthly salary, post resignation, cannot be held to be personexercising “control” within the meaning of the SEBI regulations. ThisCourt referred to with approval the following test laid down inSecurities and Exchange Board of India v. Kishore R. Ajmera,(2016) 6 SCC 368:-“26. It is fundamental principle of law that proof of an allegationlevelled against person may be in the form of direct substantiveevidence or, as in many cases, such proof may have to be inferredby logical process of reasoning from the totality of the attendingfacts and circumstances surrounding the allegations/charges madeand levelled. While direct evidence is more certain basis to cometo conclusion, yet, in the absence thereof the Courts cannot behelpless. It is the judicial duty to take note of the immediate andproximate facts and circumstances surrounding the events onwhich the charges/allegations are founded and to reach what wouldappear to the Court to be reasonable conclusion therefrom. Thetest would always be that what inferential process that areasonable/prudent man would adopt to arrive at conclusion.”(emphasis supplied)

52. The third concept is that of promoter. “Promoter” is definedby Section 2(69) of the Companies Act, 2013 as follows:

“(69) “promoter” means person—

(a) who has been named as such in prospectus or is identifiedby the company in the annual return referred to in Section 92; or

(b) who has control over the affairs of the company, directly orindirectly whether as shareholder, director or otherwise; or

(c) in accordance with whose advice, directions or instructionsthe Board of Directors of the company is accustomed to act:

AProvided that nothing in sub-clause (c) shall apply to personwho is acting merely in professional capacity;”

53. Here again, sub-clause (a) refers to de jure position, namely,where person is expressly named in prospectus or identified by thecompany in an annual return as promoter. Sub-clauses (b) and (c)Bspeak of de facto position. Under sub-clause (b), so long as personhas “control” over the affairs of company, directly or indirectly, in anymanner, he could be said to be promoter of such company. Under sub-clause (c), such person need not be member of the Board of Directorsof company, but can be person who in fact advises, directs or instructsthe Board to act. Under the proviso, only person who acts in aCprofessional capacity is excluded from the talons of sub-clause (c).

54. The interpretation of Section 29A(c) now becomes clear. Anyperson who wishes to submit resolution plan, if he or it does so actingjointly, or in concert with other persons, which person or other personshappen to either manage or control or be promoters of corporate debtor,Dwho is classified as non-performing asset and whose debts have notbeen paid off for period of at least one year before commencement ofthe corporate insolvency resolution process, becomes ineligible to submita resolution plan. This provision therefore ensures that if person wishesto submit resolution plan, and if such person or any person actingEjointly or any person in concert with such person, happens to eithermanage, control, or be promoter of corporate debtor declared as anon-performing asset one year before the corporate insolvency resolutionprocess begins, is ineligible to submit resolution plan. The first provisoto sub-clause (c) makes it clear that the ineligibility can only be removedif the person submitting resolution plan makes payment of all overdueFamounts with interest thereon and charges relating to the non-performingasset in question beforesubmission of resolution plan. The position inlaw is thus clear. Any person who wishes to submit resolution planacting jointly or in concert with other persons, any of whom may eithermanage, control or be promoter of corporate debtor classified as aGnon-performing asset in the period abovementioned, must first pay offthe debt of the said corporate debtor classified as non-performingasset in order to become eligible under Section 29A(c).

55. However, Messrs Salve and Singhvi have argued that theexpression “before submission of resolution plan” contained in the

proviso must be read in commercially sensible manner. The provisionmust, therefore, be interpreted to make it workable, and create situationso that banks can recover the maximum possible amounts from the NPAsgenerally, and not merely from the NPAs of the corporate debtor inrespect of which it is receiving resolution plans. In this context, therefore,if there is system by which person who presents resolution plancan pay off the entire amount of the NPAs as part of its resolutionplan, to be appropriated before the resolution plan is accepted andimplemented, it would fully subserve the object of both the proviso andthe statute generally. According to them, the words of statute can bealtered suitably to avoid hardship or absurdity. We are afraid that wecannot accept the aforesaid submission. The plain language of the provisomakes it clear, that ineligibility can only be removed if the necessarypayment is made before submissionof resolution plan. It is not possibleto accede to the argument that, commercially speaking, no person wouldever make speculative bid, where he would pay off the debt of anotherrelated corporate debtor, classified as an NPA, without being certainthat his resolution plan would be accepted, as this would narrow the poolof resolution applicants to nil, and therefore stultify the object sought tobe achieved by the proviso to Section 29A(c). First, it is clear that theremay be persons who may submit resolution plans, either by themselves,or in concert, or jointly with other persons who do not have debts whichare declared as NPAs. Also, it is very difficult to say that in nocircumstance whatsoever would person submitting resolution planpay off the NPA dues of another person, with whom it is acting in concertor jointly. The dues may be such that it may be worth the while of theperson, together with the persons with whom he is acting in concert orjointly, to first pay off the dues of the concerned corporate debtor whoseaccount has been declared to be an NPA, as such dues may be negligiblewhen compared with the gaining of control of the corporate debtor thatis sought to be run as going concern as per resolution plan submitted.It is, therefore, impossible to say that the plain, literal, meaning of thelanguage used by the proviso leads to absurdity or hardship. Thisinterpretation is also in line with the object sought to be achieved, namely,that other corporate debtors who are declared as NPAs, whose debtsmay never be cleared in full, are required to be cleared as conditionprecedent to submission of resolution plan under the Code. In order,therefore, to make the statute “workable”, as is suggested by Messrs

CDEFG

ASalve and Singhvi, we cannot disregard the plain language of the provisoand substitute words which would have the opposite effect.

56. Since Section 29A(c) is see-through provision, great caremust be taken to ensure that persons who are in charge of the corporatedebtor for whom such resolution plan is made, do not come back inBsome other form to regain control of the company without first payingoff its debts. The Code has bifurcated such persons into two groups, asa perusal of sub-clauses (c) and (g) of Section 29A shows. If personhas been promoter, or in the management, or control, of corporatedebtor in which preferential transaction, undervalued transaction,extortionate credit transaction or fraudulent transaction has taken place,Cand in respect of which an order has been made by the AdjudicatingAuthority under the Code, such person is ineligible to present resolutionplan under Section 29A(g). This ineligibility cannot be cured by payingoff the debts of the corporate debtor. Therefore, it is only such personswho do not fall foul of sub-clause (g), who are eligible to submit resolutionDplans under sub-clause (c) of Section 29A, if they happen to be personswho 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 outof the proviso to sub-clause (c) by other means, so as to avoid theEconsequences of the proviso. For this purpose, despite the fact that therelevant time for the ineligibility under sub-clause (c) to attach is thetime of submission of the resolution plan, antecedent facts reasonablyproximate to this point of time can always be seen, to determine whetherthe persons referred to in Section 29A are, in substance, seeking toavoid the consequences of the proviso to sub-clause (c) before submittingFa resolution plan. If it is shown, on facts, that, at reasonably proximatepoint of time before the submission of the resolution plan, the affairs ofthe persons referred to in Section 29A are so arranged, as to avoidpaying off the debts of the non-performing asset concerned, such personsmust be held to be ineligible to submit resolution plan, or otherwiseGboth the purpose of the first proviso to sub-section (c) of Section 29A,as well as the larger objective sought to be achieved by the said sub-clause in public interest, will be defeated.

58. When we come to sub-clause (f), it is clear that, if any of thepersons mentioned in Section 29A is prohibited by SEBI from either

trading in securities or accessing the securities market – again, ineligibilityof the person submitting the resolution plan attaches. Under sub-clause(i), if person situate abroad is subject to any disability which correspondsto sub-clause (f), such person also gets interdicted. In E.V. Mathai v.Subordinate Judge, Kottayam & Ors., (1969) 2 SCC 194, theexpression “corresponding to” was explained as follows:-

“It was argued by Mr Daphtary that Section 4 was not applicablebecause different intention appeared from Section 34(1) of theAct of 1965. We find ourselves unable to accept this contention.The proviso to Section 34(1) lays down that legal proceedingwhich could have been instituted, continued or enforced underthe repealed Act of 1959 may be instituted under the correspondingprovisions of the new Act. Mr Daphtary tried to meet this byurging that Section 11(4) of the Act of 1959 did not contain anycorresponding provision. Sub-section (1) of Section 11 of the 1959Act laid down that:

“Notwithstanding anything to the contrary contained in anyother law or contract tenant shall not be evicted, whether inexecution of decree or otherwise except in accordance withthe provisions of this Act:

Provided....”

Sub-section (4)(i) of Section 11 however gave the landlord rightto apply for eviction and for an order directing him to be put inpossession of the building:

“if the tenant has without the consent of the landlord transferredhis right under the lease or sub-let the entire building or anyportion thereof, if the lease does not confer on him any right todo so, or the landlord has not consented to such sub-letting;”

We find ourselves unable to accept Mr Daphtary’s argument thatthe above quoted provision of Section 11 of the Act of 1959 wasnot “a corresponding provision” within the meaning of the provisoto sub-section (1) of Section 34 of the Act of 1965. To correspondmeans to “be in harmony with or be similar, analogous to”. It doesnot mean to “be identical with” and therefore the relevant provisionsof Section 34 (1) of the Act of 1965 must be held to be provisioncorresponding to Section 11(4) of the Act of 1959.”

A59. In the light thereof, it is clear that if person is prohibited by aregulator of the securities market in foreign country from trading insecurities or accessing the securities market, the disability under sub-clause (i) would then attach.

60. When we come to sub-clause (j), “connected person” isdefined as meaning the three categories of persons mentioned in theBthree sub-clauses therein. The first sub-clause of Explanation 1 againtakes 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 person who is either the promoter, or inmanagement or control, of the business of the corporate debtor duringCimplementation of the resolution plan. And under sub-clause (iii), holdingcompanies, subsidiary companies and associate companies as definedunder the Companies Act, 2013, or related parties of persons referred toin clauses (1) and (2) also become connected persons[1]

1 By the Insolvency and Bankruptcy Code (Second Amendment) Act of 2018 newDdefinition of “related party” has been inserted with effect from 6.6.2018, as section5(24-A) of the Code, as follows:-“(24-A) “related party”, in relation to an individual, means—(a) person who is relative of the individual or relative of the spouse of theindividual;

(b) partner of limited liability partnership, or limited liability partnership or apartnership firm, in which the individual is partner;E(c) person who is trustee of trust in which the beneficiary of the trust includes theindividual, or the terms of the trust confers power on the trustee which may beexercised for the benefit of the individual;(d) private company in which the individual is director and holds along with hisrelatives, more than two per cent. of its share capital;

(e) public company in which the individual is director and holds along with relatives,more than two per cent. of its paid-up share capital;F(f) body corporate whose board of directors, managing director or manager, in theordinary course of business, acts on the advice, directions or instructions of theindividual;

(g) limited liability partnership or partnership firm whose partners or employees inthe ordinary course of business, act on the advice, directions or instructions of theindividual;G(h) person on whose advice, directions or instructions, the individual is accustomed toact;

(i) company, where the individual or the individual along with its related party, ownmore than fifty per cent. of the share capital of the company or controls the appointmentof the board of directors of the company.Explanation.—For the purposes of this clause,—(a) “relative”, with reference to any person, means anyone who is related to another, inHthe following manner, namely:—

61. We now come to the equally important question as to thetimelines within which the insolvency process is to be completed.

62. Previous legislation, namely, the Sick Industrial Companies(Special Provisions) Act, 1985, and the Recovery of Debts Due to Banksand Financial Institutions Act, 1993, which made provision for rehabilitationof sick companies and repayment of loans availed by them, were foundto have completely failed. This was taken note of by our judgment inMadras Petrochem Ltd. and Anr. v. Board for Industrial andFinancial Reconstruction and Ors., (2016) 4 SCC 1:

“40. An interesting pointer to the direction Parliament has takenafter enactment of the Securitisation and Reconstruction ofFinancial Assets and Enforcement of Security Interest Act, 2002is also of some relevance in this context. The Eradi CommitteeReport relating to insolvency and winding up of companies dated31-7-2000, observed that out of 3068 cases referred to BIFR from1987 to 2000 all but 1062 cases have been disposed of. Out of thecases disposed of, 264 cases were revived, 375 cases were undernegotiation for revival process, 741 cases were recommendedfor winding up, and 626 cases were dismissed as not maintainable.These facts and figures speak for themselves and place big

(i) members of Hindu Undivided Family,(ii) husband,

(iii) wife,

(iv) father,

(v) mother,

(vi) son,

(vii) daughter,

(viii) son’s daughter and son,

(ix) daughter’s daughter and son,

(x) grandson’s daughter and son,

(xi) grand daughter’s daughter and son,

(xii) brother,

(xiii) sister,

(xiv) brother’s son and daughter,

(xv) sister’s son and daughter,

(xvi) father’s father and mother,

(xvii) mother’s father and mother,

(xviii) father’s brother and sister,

(xix) mother’s brother and sister, and

(b) wherever the relation is that of son, daughter, sister or brother, their spouses shallalso be included;”

question mark on the utility of the Sick Industrial Companies(Special Provisions) Act, 1985. The Committee further pointedout that effectiveness of the Sick Industrial Companies (SpecialProvisions) Act, 1985 as has been pointed out earlier, has beenseverely undermined by reason of the enormous delays involvedin the disposal of cases by BIFR. (See Paras 5.8, 5.9 and 5.15 ofthe Report.) Consequently, the Committee recommended that theSick Industrial Companies (Special Provisions) Act, 1985 berepealed and the provisions thereunder for revival and rehabilitationshould be telescoped into the structure of the Companies Act,1956 itself.

41. Pursuant to the Eradi Committee Report, the Companies Actwas amended in 2002 by providing for the constitution of NationalCompany Law Tribunal as substitute for the Company LawBoard, the High Court, BIFR and AAIFR. The Eradi CommitteeReport was further given effect to by inserting Sections 424-A to424-H into the Companies Act, 1956 which, with few changes,mirrored the provisions of Sections 15 to 21 of the Sick IndustrialCompanies (Special Provisions) Act, 1985. Interestingly, theCompanies Amendment Act, 2002 omitted provision similar toSection 22(1) of the Sick Industrial Companies (Special Provisions)Act, 1985. Consequently, creditors were given liberty to file suitsor initiate other proceedings for recovery of dues despite pendencyof proceedings for the revival or rehabilitation of sick companiesbefore the National Company Law Tribunal.42. This Amendment Act came under challenge, which challengeculminated in the Constitution Bench decision in Union of India v.R, Gandhi, President, Madras Bar Association, (2010) 11 SCC 10by which the amendments were upheld, with certain changesrecommended by the Constitution Bench of this Court.

43. Close on the heels of the amendment made to the CompaniesAct came the Sick Industrial Companies (Special Provisions)Repeal Act, 2003. This particular Act was meant to repeal theSick Industrial Companies (Special Provisions) Act, 1985consequent to some of its provisions being telescoped into theCompanies Act. Thus, the Companies Amendment Act, 2002 andthe SICA Repeal Act formed part of one legislative scheme, andneither has yet been brought into force. In fact, even the Companies

Act, 2013, which repeals the Companies Act, 1956, containsChapter 19 consisting of Sections 253 to 269 dealing with revivaland rehabilitation of sick companies along the lines of Sections424-A to 424-H of the amended Companies Act, 1956.Conspicuous by its absence is provision akin to Section 22(1) ofthe Sick Industrial Companies (Special Provisions) Act, 1985 inthe 2013 Act.However, this Chapter is also yet to be brought intoforce. These statutory provisions, though not yet brought into force,are also an important pointer to the fact that Section 22(1) of theSick Industrial Companies (Special Provisions) Act, 1985 has beenstatutorily sought to be excluded, Parliament veering around fromwanting to protect sick industrial companies and rehabilitate themto giving credence to the public interest contained in the recoveryof public monies owing to banks and financial institutions. Theseprovisions also show that the aforesaid construction of theprovisions of the Securitisation and Reconstruction of FinancialAssets and Enforcement of Security Interest Act, 2002 vis-à-visthe Sick Industrial Companies (Special Provisions) Act, 1985, leansin favour of creditors being able to realise their debts outside thecourt process over sick industrial companies being revived orrehabilitated. In fact, another interesting document is the Reporton Trend and Progress of Banking in India 2011-2012 for the yearended 30-6-2012 submitted by Reserve Bank of India to the CentralGovernment in terms of Section 36(2) of the Banking RegulationAct, 1949. In Table IV.14 the Report provides statistics regardingtrends in non-performing assets bank-wise, group-wise. As perthe said Table, the opening balance of non-performing assets inpublic sector banks for the year 2011-2012 was Rs 746 billion butthe closing balance for 2011-2012 was Rs 1172 billion only. Thetotal amount recovered through the Securitisation andReconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 during 2011-2012 registered decline comparedto the previous year, but, even then, the amounts recovered underthe said Act constituted 70% of the total amount recovered. Theamounts recovered under the Recovery of Debts Due to Banksand Financial Institutions Act, 1993 constituted only 28%. All thiswould go to show that the amounts that public sector banks andfinancial institutions have to recover are in staggering figures andat long last at least one statutory measure has proved to be of

ABCDE

some efficacy. This Court would be loathe to give such aninterpretation as would thwart the recovery process under theSecuritisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 which Act alone seemsto have worked to some extent at least.” (emphasis supplied)

B63. These two enactments were followed by the Securitizationand Reconstruction of Financial Assets and Enforcement of SecuritiesInterest Act, 2002. As has been noted hereinabove, amounts recoveredunder the said Act recorded improvement over the previous twoenactments, but this was yet found to be inadequate.

C64. The Code was passed after great deliberation and pursuant tovarious Committee Reports, as has been held in Innoventive IndustriesLtd. v. ICICI Bank & Anr. (2018) 1 SCC 407 at paragraph 12. TheStatement of Objects and Reasons, which is reproduced in the saidparagraph, makes it clear that the existing framework for insolvencyand bankruptcy was not only inadequate and ineffective, but resulted inDundue delays in resolution. One of the primary objects of the Code,therefore, is to resolve such matters in time bound manner. This wouldnot only support the development of credit markets and encourageentrepreneurship, but would also improve ease of doing business andfacilitate more investment, leading to higher economic growth andEdevelopment.

65. Paragraph 16 of the said judgment refers to the report ofNovember, 2015 of the Bankruptcy Law Reforms Committee and refersto speed being of essence as follows:

“Speed is of essenceF

Speed is of essence for the working of the bankruptcy code, fortwo reasons. First, while the “calm period” can help keep anorganisation afloat, without the full clarity of ownership and control,significant decisions cannot be made. Without effective leadership,the firm will tend to atrophy and fail. The longer the delay, theGmore likely it is that liquidation will be the only answer. Second,the liquidation value tends to go down with time as many assetssuffer from high economic rate of depreciation.

From the viewpoint of creditors, good realisation can generallybe obtained if the firm is sold as going concern. Hence, when

delays induce liquidation, there is value destruction. Further, evenin liquidation, the realisation is lower when there are delays. Hence,delays cause value destruction. Thus, achieving high recoveryrate is primarily about identifying and combating the sources ofdelay.”

66. The Committee then chose certain principles within which thenew Insolvency and Bankruptcy Code would work. One of them is thatthe Code will ensure time bound process, which will not be extended,to better preserve the economic value of the asset (see Principle No.8set out at page 427 of Innoventive Industries (supra.)).

67. After setting out the Scheme of the Code, this Court furtherwent on to hold:

“31. The rest of the insolvency resolution process is also veryimportant. The entire process is to be completed within periodof 180 days from the date of admission of the application underSection 12 and can only be extended beyond 180 days for furtherperiod of not exceeding 90 days if the committee of creditors by avoting of 75% of voting shares so decides. It can be seen thattime is of essence in seeing whether the corporate body can beput back on its feet, so as to stave off liquidation.”

xxx xxx xxx

33. Under Section 30, any person who is interested in putting thecorporate body back on its feet may submit resolution plan tothe resolution professional, which is prepared on the basis of aninformation memorandum. This plan must provide for payment ofinsolvency resolution process costs, management of the affairs ofthe corporate debtor after approval of the plan, and implementationand supervision of the plan. It is only when such plan is approvedby vote of not less than 75% of the voting share of the financialcreditors and the adjudicating authority is satisfied that the plan,as approved, meets the statutory requirements mentioned inSection 30, that it ultimately approves such plan, which is thenbinding on the corporate debtor as well as its employees, members,creditors, guarantors and other stakeholders. Importantly, and thisis major departure from previous legislation on the subject, themoment the adjudicating authority approves the resolution plan,the moratorium order passed by the authority under Section 14

Ashall cease to have effect. The scheme of the Code, therefore, isto make an attempt, by divesting the erstwhile management of itspowers and vesting it in professional agency, to continue thebusiness of the corporate body as going concern until resolutionplan is drawn up, in which event the management is handed overunder the plan so that the corporate body is able to pay back itsBdebts and get back on its feet. All this is to be done within periodof 6 months with maximum extension of another 90 days or elsethe chopper comes down and the liquidation process begins.”

68. It is in this backdrop that we must consider the provisions ofthe Code, insofar as the Code requires either that the corporate debtorCbe taken over by another management and run as going concern or, ifthat fails, go into liquidation. Some of the relevant provisions of theCode, insofar as this case is concerned, are set out hereinbelow:

“5. (12) “insolvency commencement date” means the dateof admission of an application for initiating corporate insolvencyDresolution process by the Adjudicating Authority under Sections7, 9 or Section 10, as the case may be:

Provided that where the interim resolution professional is notappointed in the order admitting application under Section 7, 9 orSection 10, the insolvency commencement date shall be the dateEon which such interim resolution professional is appointed by theAdjudicating Authority;

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(14) “insolvency resolution process period” means the periodof one hundred and eighty days beginning from the insolvencyFcommencement date and ending on one hundred and eightiethday;

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(25) “resolution applicant” means person, who individuallyGor jointly with any other person, submits resolution plan to theresolution professional pursuant to the invitation made under clause(h) of sub-section (2) of Section 25;

(26) “resolution plan” means plan proposed by resolutionapplicant for insolvency resolution of the corporate debtor as aHgoing concern in accordance with Part II;

(27) “resolution professional”, for the purposes of this Part,means an insolvency professional appointed to conduct thecorporate insolvency resolution process and includes an interimresolution professional;

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7. Initiation of corporate insolvency resolution process byfinancial creditor.—(1) financial creditor either by itself orjointly with other financial creditors, or any other person on behalfof the financial creditor, as may be notified by the CentralGovernment, may file an application for initiating corporateinsolvency resolution process against corporate debtor beforethe Adjudicating Authority when default has occurred.

Explanation.—For the purposes of this sub-section, defaultincludes default in respect of financial debt owed not only tothe applicant financial creditor but to any other financial creditorof the corporate debtor.

(2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with suchfee as may be prescribed.

(3) The financial creditor shall, along with the application furnish—

(a) record of the default recorded with the information utility orsuch other record or evidence of default as may be specified;

(b) the name of the resolution professional proposed to act as aninterim resolution professional; and

(c) any other information as may be specified by the Board.

(4) The Adjudicating Authority shall, within fourteen days of thereceipt of the application under sub-section (2), ascertain theexistence of default from the records of an information utility oron the basis of other evidence furnished by the financial creditorunder sub-section (3).

(5) Where the Adjudicating Authority is satisfied that—

(a) default has occurred and the application under sub-section(2) is complete, and there is no disciplinary proceedings pendingagainst the proposed resolution professional, it may, by order, admit

Asuch application; or

(b) default has not occurred or the application under sub-section(2) is incomplete or any disciplinary proceeding is pending againstthe proposed resolution professional, it may, by order, reject suchapplication:

Provided that the Adjudicating Authority shall, before rejectingthe application under clause (b) of sub-section (5), give noticeto the applicant to rectify the defect in his application within sevendays of receipt of such notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shall commencefrom the date of admission of the application under sub-section(5).

(7) The Adjudicating Authority shall communicate—

(a) the order under clause (a) of sub-section (5) to the financialcreditor and the corporate debtor;

(b) the order under clause (b) of sub-section (5) to the financialcreditor,

within seven days of admission or rejection of such application, asthe case may be.

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12. Time-limit for completion of insolvency resolutionprocess.—(1) Subject to sub-section (2), the corporate insolvencyresolution process shall be completed within period of onehundred and eighty days from the date of admission of theapplication to initiate such process.

(2) The resolution professional shall file an application to theAdjudicating Authority to extend the period of the corporateinsolvency resolution process beyond one hundred and eighty days,if instructed to do so by resolution passed at meeting of thecommittee of creditors by vote of sixty-six per cent of the votingshares.

(3) On receipt of an application under sub-section (2), if theAdjudicating Authority is satisfied that the subject-matter of thecase is such that corporate insolvency resolution process cannot

be completed within one hundred and eighty days, it may by orderextend the duration of such process beyond one hundred and eightydays by such further period as it thinks fit, but not exceeding ninetydays:

Provided that any extension of the period of corporate insolvencyresolution process under this section shall not be granted morethan once.

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30. Submission of resolution plan.—(1) resolution applicantmay submit resolution plan along with an affidavit stating thathe is eligible under Section 29-A to the resolution professionalprepared on the basis of the information memorandum.

(2) The resolution professional shall examine each resolution planreceived by him to confirm that each resolution plan—

(a) provides for the payment of insolvency resolution process costsin manner specified by the Board in priority to the payment ofother debts of the corporate debtor;

(b) provides for the payment of the debts of operational creditorsin such manner as may be specified by the Board which shall notbe less than the amount to be paid to the operational creditors inthe event of liquidation of the corporate debtor under Section53;

(c) provides for the management of the affairs of the corporatedebtor after approval of the resolution plan;

(d) the implementation and supervision of the resolution plan;

(e) does not contravene any of the provisions of the law for thetime being in force;

(f) conforms to such other requirements as may be specified bythe Board.

Explanation.—For the purposes of clause (e), if any approval ofshareholders is required under the Companies Act, 2013 (18 of2013) or any other law for the time being in force for theimplementation of actions under the resolution plan, such approval

shall be deemed to have been given and it shall not be acontravention of that Act or law.

(3) The resolution professional shall present to the committee ofcreditors for its approval such resolution plans which confirm theconditions referred to in sub-section (2).

(4) The committee of creditors may approve resolution plan bya vote of not less than sixty-six per cent of voting share of thefinancial creditors, after considering its feasibility and viability, andsuch other requirements as may be specified by the Board:

Provided that the committee of creditors shall not approve aresolution plan, submitted before the commencement of theInsolvency and Bankruptcy Code (Amendment) Ordinance, 2017(Ord. 7 of 2017), where the resolution applicant is ineligible underSection 29-A and may require the resolution professional to invitea fresh resolution plan where no other resolution plan is availablewith it:

Provided further that where the resolution applicant referred to inthe first proviso is ineligible under clause (c) of Section 29-A, theresolution applicant shall be allowed by the committee of creditorssuch period, not exceeding thirty days, to make payment of overdueamounts in accordance with the proviso to clause (c) of Section29-A:

Provided also that nothing in the second proviso shall be construedas extension of period for the purposes of the proviso to sub-section (3) of Section 12, and the corporate insolvency resolutionprocess shall be completed within the period specified in that sub-section.

Provided also that the eligibility criteria in Section 29-A as amendedby the Insolvency and Bankruptcy Code (Amendment) Ordinance,2018 (Ord. 6 of 2018) shall apply to the resolution applicant whohas not submitted resolution plan as on the date of commencementof the Insolvency and Bankruptcy Code (Amendment) Ordinance,2018.

(5) The resolution applicant may attend the meeting of thecommittee of creditors in which the resolution plan of the applicantis considered:

Provided that the resolution applicant shall not have right to voteat the meeting of the committee of creditors unless such resolutionapplicant is also financial creditor.

(6) The resolution professional shall submit the resolution plan asapproved by the committee of creditors to the AdjudicatingAuthority.

31. Approval of resolution plan.—(1) If the AdjudicatingAuthority is satisfied that the resolution plan as approved by thecommittee of creditors under sub-section (4) of Section 30 meetsthe requirements as referred to in sub-section (2) of Section 30, itshall by order approve the resolution plan which shall be bindingon 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 anorder for approval of resolution plan under this sub-section, satisfythat the resolution plan has provisions for its effectiveimplementation.

(2) Where the Adjudicating Authority is satisfied that the resolutionplan 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 Adjudicating Authorityunder Section 14 shall cease to have effect; and

(b) the resolution professional shall forward all records relating tothe conduct of the corporate insolvency resolution process andthe resolution plan to the Board to be recorded on its database.

(4) The resolution applicant shall, pursuant to the resolution planapproved under sub-section (1), obtain the necessary approvalrequired under any law for the time being in force within periodof one year from the date of approval of the resolution plan by theAdjudicating Authority under sub-section (1) or within such periodas provided for in such law, whichever is later:

Provided that where the resolution plan contains provision forcombination, as referred to in Section 5 of the Competition Act,

2002 (12 of 2003), the resolution applicant shall obtain the approvalof the Competition Commission of India under that Act prior tothe approval of such resolution plan by the committee of creditors.

32. Appeal.—Any appeal from an order approving the resolutionplan shall be in the manner and on the grounds laid down in sub-section (3) of Section 61.

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33. Initiation of liquidation.—(1) Where the AdjudicatingAuthority,—

(a) before the expiry of the insolvency resolution process periodor the maximum period permitted for completion of the corporateinsolvency resolution process under Section 12 or the fast trackcorporate insolvency resolution process under Section 56, as thecase may be, does not receive resolution plan under sub-section(6) of Section 30; or

(b) rejects the resolution plan under Section 31 for the non-compliance of the requirements specified therein,

it shall—

(i) pass an order requiring the corporate debtor to be liquidated inthe manner as laid down in this Chapter;

(ii) issue public announcement stating that the corporate debtoris in liquidation; and

(iii) require such order to be sent to the authority with which thecorporate debtor is registered.

(2) Where the resolution professional, at any time during thecorporate insolvency resolution process but before confirmationof resolution plan, intimates the Adjudicating Authority of thedecision of the committee of creditors approved by not less thansixty-six per cent of the voting share to liquidate the corporatedebtor, the Adjudicating Authority shall pass liquidation order asreferred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

(3) Where the resolution plan approved by the AdjudicatingAuthority is contravened by the concerned corporate debtor, any

person other than the corporate debtor, whose interests areprejudicially affected by such contravention, may make anapplication to the Adjudicating Authority for liquidation order asreferred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

(4) On receipt of an application under sub-section (3), if theAdjudicating Authority determines that the corporate debtor hascontravened the provisions of the resolution plan, it shall pass aliquidation order as referred to in sub-clauses (i), (ii) and (iii) ofclause (b) of sub-section (1).

(5) Subject to Section 52, when liquidation order has been passed,no suit or other legal proceeding shall be instituted by or againstthe corporate debtor:

Provided that suit or other legal proceeding may be instituted bythe liquidator, on behalf of the corporate debtor, with the priorapproval of the Adjudicating Authority.

(6) The provisions of sub-section (5) shall not apply to legalproceedings in relation to such transactions as may be notified bythe Central Government in consultation with any financial sectorregulator.

(7) The order for liquidation under this section shall be deemed tobe notice of discharge to the officers, employees and workmenof the corporate debtor, except when the business of the corporatedebtor is continued during the liquidation process by the liquidator.

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60. Adjudicating Authority for corporate persons.—(1) TheAdjudicating Authority, in relation to insolvency resolution andliquidation for corporate persons including corporate debtors andpersonal guarantors thereof shall be the National Company LawTribunal having territorial jurisdiction over the place where theregistered office of the corporate person is located.

(2) Without prejudice to sub-section (1) and notwithstandinganything to the contrary contained in this Code, where corporateinsolvency resolution process or liquidation proceeding of

corporate debtor is pending before National Company LawTribunal, an application relating to the insolvency resolutionor liquidation or bankruptcy of corporate guarantor or personalguarantor, as the case may be, of such corporate debtor shall befiled before such National Company Law Tribunal.

(3) An insolvency resolution process or liquidation or bankruptcyproceeding of corporate guarantor or personal guarantor, as thecase may be, of the corporate debtor pending in any court ortribunal shall stand transferred to the Adjudicating Authority dealingwith insolvency resolution process or liquidation proceeding ofsuch corporate debtor.

(4) The National Company Law Tribunal shall be vested with allthe powers of the Debts Recovery Tribunal as contemplated underPart III of this Code for the purpose of sub-section (2).

(5) Notwithstanding anything to the contrary contained in any otherlaw for the time being in force, the National Company LawTribunal shall have jurisdiction to entertain or dispose of—

(a) any application or proceeding by or against the corporate debtoror corporate person;

(b) any claim made by or against the corporate debtor or corporateperson, including claims by or against any of its subsidiariessituated in India; and

(c) any question of priorities or any question of law or facts, arisingout of or in relation to the insolvency resolution or liquidationproceedings of the corporate debtor or corporate person underthis Code.

(6) Notwithstanding anything contained in the Limitation Act, 1963(36 of 1963) or in any other law for the time being in force, incomputing the period of limitation specified for any suit orapplication by or against corporate debtor for which an order ofmoratorium has been made under this Part, the period during whichsuch moratorium is in place shall be excluded.

61. Appeals and Appellate Authority. - (1) Notwithstandinganything to the contrary contained under the Companies Act, 2013,

any person aggrieved by the order of the Adjudicating Authorityunder this part may prefer an appeal to the National CompanyLaw Appellate Tribunal.

(2) Every appeal under sub-section (1) shall be filed within thirtydays before the National Company Law Appellate Tribunal:

Provided that the National Company Law Appellate Tribunal mayallow an appeal to be filed after the expiry of the said period ofthirty days if it is satisfied that there was sufficient cause for notfiling the appeal but such period shall not exceed fifteen days.

(3) An appeal against an order approving resolution plan underSection 31 may be filed on the following grounds, namely—

(i) the approved resolution plan is in contravention of the provisionsof any law for the time being in force;

(ii) there has been material irregularity in exercise of the powersby the resolution professional during the corporate insolvencyresolution period;

(iii) the debts owed to operational creditors of the corporate debtorhave not been provided for in the resolution plan in the mannerspecified by the Board;

(iv) the insolvency resolution process costs have not been providedfor repayment in priority to all other debts; or

(v) the resolution plan does not comply with any other criteriaspecified by the Board.

(4) An appeal against liquidation order passed under Section 33may be filed on grounds of material irregularity or fraud committedin relation to such liquidation order.

62. Appeal to Supreme Court.—(1) Any person aggrieved byan order of the National Company Law Appellate Tribunal mayfile an appeal to the Supreme Court on question of law arisingout of such order under this Code within forty-five days from thedate of receipt of such order.

(2) The Supreme Court may, if it is satisfied that person wasprevented by sufficient cause from filing an appeal within forty-

five days, allow the appeal to be filed within further period notexceeding fifteen days.

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64. Expeditious disposal of applications.—(1) Where anapplication is not disposed of or an order is not passed within theBperiod specified in this Code, the National Company Law Tribunalor the National Company Law Appellate Tribunal, as the casemay be, shall record the reasons for not doing so within the periodso specified; and the President of the National Company LawTribunal or the Chairperson of the National Company LawCAppellate Tribunal, as the case may be, may, after taking intoaccount the reasons so recorded, extend the period specified inthe Act but not exceeding ten days.

(2) No injunction shall be granted by any court, tribunal or authorityin respect of any action taken, or to be taken, in pursuance of anyDpower conferred on the National Company Law Tribunal or theNational Company Law Appellate Tribunal under this Code.”

69. Since the present case deals, on facts, with financial creditors,we may set out how the corporate insolvency resolution process is towork from the inception. Before admission of an application under SectionE7 by financial creditor, the Adjudicating Authority is, under Section7(4), to first ascertain the existence of default within 14 days of receiptof the application, as specified in Section 7(4). Upon satisfaction thatsuch default has occurred, it may then admit such application, subject torectification of defects, which the proviso in Section 7(5) says must bedone within 7 days of receipt of such notice from the AdjudicatingFAuthority by the applicant. The time frame within which ascertainmentof default is to take place, as well as the time within which the defect isto be rectified, have both been held by judgment of this Court to bedirectory in nature, the reason being that the stage of these provisions isbefore admission of the application (see Surendra Trading Co. v.GJuggilal Kamlapat Jute Mills Company Ltd. & Ors. (2017) 16 SCC143). The corporate insolvency resolution process commences fromthe date of admission of the application vide Section 7(6). Section 7(7)makes it incumbent upon the Adjudicating Authority to communicate theorder accepting or rejecting the application to the financial creditor andthe corporate debtor within period of 7 days of such admission orHrejection.

70. The time limit for completion of the insolvency resolutionprocess is laid down in Section 12. period of 180 days from the dateof admission of the application is given by Section 12(1). This isextendable by maximum period of 90 days only if the Committee ofCreditors, by vote of 66%[2], votes to extend the said period, and only ifthe Adjudicating Authority is satisfied that such process cannot becompleted within 180 days. The authority may then, by order, extend theduration of such process by maximum period of 90 days (see Sections12(2) and 12(3)). What is also of importance is the proviso to Section12(3) which states that any extension of the period under Section 12cannot be granted more than once. This has to be read with the thirdproviso to Section 30(4), which states that the maximum period of 30days mentioned in the second proviso is allowable as the only exceptionto the extension of the aforesaid period not being granted more thanonce.

71. What is important to note is that consequence is provided, inthe event that the said period ends either without receipt of resolutionplan or after rejection of resolution plan under Section 31. Thisconsequence is provided by Section 33, which makes it clear that wheneither of these two contingencies occurs, the corporate debtor is requiredto be liquidated in the manner laid down in Chapter III. Section 12,construed in the light of the object sought to be achieved by the Code,and in the light of the consequence provided by Section 33, therefore,makes it clear that the periods previously mentioned are mandatory andcannot be extended.

72. In fact, even the literal language of Section 12(1) makes itclear that the provision must read as being mandatory. The expression“shallbe completed” is used. Further, sub-section (3) makes it clearthat the duration of 180 days may be extended further “but not exceeding

2 It is pertinent to note that the Insolvency and Bankruptcy Code (Second Amendment)Act, 2018 (26 of 2018), inter alia amended the Code, with retrospective effect from 6[th]June, 2018, in so far as the requirement in certain sections of approval of 75% of theCommittee of Creditors for various decisions was reduced to 51% in Section 21(8) (i.e.the minimum percentage of votes required for any decision of the Committee, where nototherwise provided for in the Code), and to 66% in Sections 12(2) (i.e. extension of timefor completion of the process by 90 days), 22(2) (i.e. appointment of resolutionprofessional), 27(2) (i.e. replacement of resolution professional), 28(3) (i.e. approvalfor certain actions by the resolution professional), 30(4) (i.e. approval of resolutionplan), and 33(2) (i.e. initiation of liquidation).

A90 days”, making it clear that maximum of 270 days is laid downstatutorily. Also, the proviso to Section 12 makes it clear that the extension“shall not be granted more than once”.

73. After admission of the application under Section 7 by theAdjudicating Authority, the scheme of the Code is as follows:

(i) Under Sections 13 to 15, moratorium is declared; publicannouncement of the initiation of the corporate insolvencyresolution process and call for submission of claims is made; andan Interim Resolution Professional is to be appointed under Section16 of the Code. This action is to be completed by the AdjudicatingAuthority within period of 14 days from the insolvencycommencement date, i.e., the date of admission of the applicationunder Section 7 by the Adjudicating Authority.

(ii) Under Section 17, the corporate debtor’s affairs are to bemanaged by the Interim Resolution Professional so appointed, andthe Board of Directors of the corporate debtor shall standsuperseded. The officers and managers of the corporate debtorare now to report to the Interim Resolution Professional, who hasthe authority to act on behalf of the corporate debtor.

(iii) Under Section 18(1), some of the important duties of thisInterim Resolution Professional are set out, which are to collectall information relating to the financial position of the corporatedebtor and, most importantly, to constitute Committee ofCreditors. That this has to be done at the very earliest, is clearfrom the scheme of the corporate insolvency resolution processwhich, as has been stated earlier, cannot exceed the maximumperiod of 270 days from the date of admission of the financialcreditors’ application.

(iv) Under Section 21, the Interim Resolution Professional is toconstitute this Committee of Creditors after collating all claimsreceived against the corporate debtor and after determination ofthe financial position of the corporate debtor, both of which needto be done at the very earliest. This Committee of Creditors is tocomprise of financial creditors of the corporate debtor. All decisionsof this Committee of Creditors are to be taken by majority voteof not less than 51% of the voting share of each financial creditor.

(v) Under Section 22, the first meeting of the Committee ofCreditors is to be held within 7 days of its constitution in order toappoint Resolution Professional. The Committee of Creditorseither continues the Interim Resolution Professional or replacesthe Interim Resolution Professional by majority vote of 66%.The application to replace the Interim Resolution Professional isthen to be sent to the Adjudicating Authority, who is to forwardthe same to the Insolvency and Bankruptcy Board of India(hereinafter referred to as the “IBBI”) for confirmation. Uponsuch confirmation, the Adjudicating Authority then appoints theResolution Professional. In case the IBBI does not confirm thename of the proposed Resolution Professional within 10 days ofreceipt of the same, the Adjudicating Authority is then to directthe Interim Resolution Professional to continue to function as theResolution Professional until such time as the IBBI confirms theappointment of the Resolution Professional.

(vi) It is this Resolution Professional who is then to conduct thecorporate insolvency resolution process, which really begins atthis stage (see Section 23). Section 25 then lays down some ofthe duties of this Resolution Professional, which are to continuethe business operations of the corporate debtor, subject to theprior approval of the Committee of Creditors over the mattersstated in Section 28. One of the important duties of the ResolutionProfessional under Section 25 is to invite prospective resolutionapplicants to submit resolution plans.

(vii) Under Section 29, the Resolution Professional is to preparean information memorandum giving relevant information, as maybe specified by the IBBI, to persons interested in formulating aresolution plan.

(viii) Section 30 is an important provision in that resolutionapplicant may submit resolution plan to the ResolutionProfessional, who is then to examine the said plan to see that itconforms to the requirements of Section 30(2). Once this planconforms to such requirements, the plan is then to be presented tothe Committee of Creditors for its approval under Section 30(3).This can then be approved by the Committee of Creditors by avote of not less than 66% under sub-section (4). What is important

to note is that the Committee of Creditors shall not approve aresolution plan where the resolution applicant is ineligible underSection 29A, and may require the Resolution Professional to invitea fresh resolution plan where no other resolution plan is available.Once approved by the Committee of Creditors, the resolution planis to be submitted to the Adjudicating Authority under Section 31of the Code. It is at this stage that judicial mind is applied by theAdjudicating Authority to the resolution plan so submitted, whothen, after being satisfied that the plan meets (or does not meet)the requirements mentioned in Section 30, may either approve orreject such plan.

(ix) An appeal from an order approving such plan is only on thelimited grounds laid down in Section 61(3). However, an appealfrom an order rejecting resolution plan would also lie underSection 61.

(x) As has been stated hereinbefore, the liquidation process getsinitiated under Section 33 if, (1) either no resolution plan is submittedwithin the time specified under Section 12, or resolution planhas been rejected by the Adjudicating Authority; (2) where theResolution Professional, before confirmation of the resolution plan,intimates the Adjudicating Authority of the decision of theCommittee of Creditors to liquidate the corporate debtor; or (3)where the resolution plan approved by the Adjudicating Authorityis contravened by the concerned corporate debtor. Any personother than the corporate debtor whose interests are prejudiciallyaffected by such contravention may apply to the AdjudicatingAuthority, who may then pass liquidation order on such application.74. Regulation 40A of the CIRP Regulations presents modeltimeline of the corporate insolvency resolution process, on the basis thatthe time available is 180 days. It states as follows:-

“40A. Model time-line for corporate insolvency resolutionprocess.

The following Table presents model timeline of corporateinsolvency resolution process on the assumption that the interimresolution professional is appointed on the date of commencementof the process and the time available is hundred and eighty days:

ADescription of Latest Section/Regulation Norm Activity Timeline Commencement of Section 16(1) CIRP and …. T appointment of IRPBWithin 3 Days Public of Regulation 6(1) announcement T+3 Appointment inviting claims of IRP CFor 14 Days Section Submission of from 15(1)(c)/Regulations T+14 claims Appointment 6(2)(c) and 12 (1) of IRP Up to 90th day DSubmission of Regulation 12(2) of T+90 claims commencement Verification of claims received ERegulation 13(1) T+21 under regulation Within 7 days 12(1) from the receipt of the Verification of claim claims received Regulation 13(2) T+97 Funder regulation 12(2) Section Within 2 days Application for 21(6A)(b)/Regulation from T+23 appointment of AR 16A verification of Gclaims received under Report certifying Regulation 17(1) constitution of CoCregulation T+23 12(1)

468SUPREME COURT REPORTS[2018] 12 S.C.R.AW ithin 7 days of the Section 1[st] meetin of the constitution of 22 (1)/Regulation T +30 CoC the Co C, but 19 (1) with seven days’ notice BRes olution to In the first Section 22 (2) ap point RP y the meeting of th T +30 CoC CoC Ap pointment of On approval by Section 16 (5) ….. RP the CIRP performs the If RP is not fun ctions o RP appoin ted by Regulation 17(3) T +40 till the RP is 40[th] ay of ap pointed. commencementW ithin 7 days Dof appo intmen t Ap pointment of of RP, ut n ot Regulation 27 T +47 valu er later than 40[th]day of commencementSubmission of Eap plication fo r Before issue of withd rawal o W Eo I ap plication ad mitted. W ithin 7 days Fof its receipt or 7 days o Section CoC to ispose o constitution of W+7 12 A/Regulatio n the application CoC, 30 wh ich ever is later. GFiling app licatio n of with draw al, if W ithin 3 days ap pro ved y Co of approval by W+1 0 with 90 % CoC majo rity voting, by RP to

RP to form an AWithin 75 days opinion on of the T +75 preferential and commencementother transactions RP to make Within 115 determination on BRegulation 35A days of T+115 preferential and commencementother transactions RP to file Within 135 applications to AA days to T+135 for appropriate commencementCrelief Within 2 weeks of appointment Submission of IM of RP, but not Regulation 36(1) thT +54 to CoC later than 54Dday of commencementPublish Form Within 75 days of T +75 Invitation of EoI commencementEAt least 15 days from issue Submission of EoI T +90 of EoI (Assume 15 days) Within 10 days FProvisional List of from the last Regulation 36A T+100 RAs by RP day of receipt of EoI Fo r 5 days Submission of from the ate objections to T+105 Gof provisional provisional list list Within 10 days Final List of RAs of the receipt T+115 by RP of objections

AIssue of RFRP, Within 5 days including of the issue of T+105 Evaluation Matrix the provisional and IM list Regulation 36B At least 30 Bdays from issue Receipt of of RFRP T+135 Resolution Plans (Assume 30 days) CSubmission of As soon as CoC approved Regulation 39(4) approved by T+165 Resolution Plan to the CoC AA Approval of DSection 31(1) resolution plan by T=180 AA

AA: Adjudicating Authority; AR: Authorised Representative;ECIRP: Corporate Insolvency Resolution Process; CoC: Committeeof Creditors; EoI: Expression of Interest; IM: InformationMemorandum; IRP: Interim Resolution Professional; RA:Resolution Applicant; RP: Resolution Professional; RFRP: Requestfor Resolution Plan.”

FIt is of utmost importance for all authorities concerned to follow thismodel timeline as closely as possible.

75. What has now to be determined is whether any challenge canbe made at various stages of the corporate insolvency resolution process.Suppose resolution plan is turned down at the threshold by ResolutionGProfessional under Section 30(2). At this stage is it open to the concernedresolution applicant to challenge the Resolution Professional’s rejection?It is settled law that statute is designed to be workable, and theinterpretation thereof should be designed to make it so workable. InCommissioner of Income Tax, Delhi v. S. Teja Singh, [1959] Supp.H1 S.C.R. 394, this Court said, at page 403:

“We must now refer to an aspect of the question, which stronglyreinforces the conclusion stated above. On the constructioncontended for by the respondent, S.18-A(9)(b) would becomewholly nugatory, as ss.22(1) and 22(2) can have no application toadvance estimates to be furnished under s.18-A(3), and if weaccede to this contention, we must hold that though the legislatureenacted s.18-A(9)(b) with the very object of bringing the failureto send estimates under s.18-A(3) within the operation of s.28, itsignally failed to achieve its object. construction which leads tosuch result must, if that is possible, be avoided, on the principleexpressed in the maxim, “ut res magis valeat quam pereat”.Vide Curtis v. Stovin [1889] 22 Q.B.D.513 and in particular thefollowing observations of Fry, L. J., at page 519:

“The only alternative construction offered to us would lead tothis result, that the plain intention of the legislature has entirelyfailed by reason of slight inexactitude in the language of thesection. If we were to adopt this construction, we should beconstruing the Act in order to defeat its object rather than witha view to carry its object into effect”.

Vide also Craies on Statute Law, p. 90 and Maxwell on TheInterpretation of Statutes, Tenth Edn., pp. 236-237. “A statuteis 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 courtshould be to secure that object, unless crucial omission or cleardirection makes that end unattainable”.

76. Given the timeline referred to above, and given the fact that aresolution applicant has no vested right that his resolution plan beconsidered, it is clear that no challenge can be preferred to the AdjudicatingAuthority at this stage. writ petition under Article 226 filed before aHigh Court would also be turned down on the ground that no right, muchless fundamental right, is affected at this stage. This is also madeclear by the first proviso to Section 30(4), whereby ResolutionProfessional may only invite fresh resolution plans if no other resolutionplan has passed muster.

77. However, it must not be forgotten that Resolution Professionalis only to “examine” and “confirm” that each resolution plan conformsto what is provided by Section 30(2). Under Section 25(2)(i), the

AResolution Professional shall undertake to present all resolution plans atthe meetings of the Committee of Creditors. This is followed by Section30(3), which states that the Resolution Professional shall present to theCommittee of Creditors, for its approval, such resolution plans whichconfirm the conditions referred to in sub-section (2). This provision hasto be read in conjunction with Section 25(2)(i), and with the secondBproviso to Section 30(4), which provides that where resolution applicantis found to be ineligible under Section 29A(c), the resolution applicantshall be allowed by the Committee of Creditors such period, not exceeding30 days, to make payment of overdue amounts in accordance with theproviso to Section 29A(c). conspectus of all these provisions wouldCshow that the Resolution Professional is required to examine that theresolution plan submitted by various applicants is complete in all respects,before submitting it to the Committee of Creditors. The ResolutionProfessional is not required to take any decision, but merely to ensurethat the resolution plans submitted are complete in all respects before

they are placed before the Committee of Creditors, who may or may notDapprove it. The fact that the Resolution Professional is also to confirmthat resolution plan does not contravene any of the provisions of lawfor the time-being in force, including Section 29A of the Code, only meansthat his prima facie opinion is to be given to the Committee of Creditorsthat law has or has not been contravened. Section 30(2)(e) does notEempower the Resolution Professional to “decide” whether the resolutionplan does or does not contravene the provisions of law. Regulation 36Aof the CIRP Regulations specifically provides as follows:-

“(8) The resolution professional shall conduct due diligence basedon the material on record in order to satisfy that the prospectiveFresolution applicant complies with-

(a) the provisions of clause (h) of sub-section (2) of section25;

(b) the applicable provisions of section 29A,

andG

(c) other requirements, as specified in the invitation forexpression of interest.

(9) The resolution professional may seek any clarification oradditional information or document from the prospective resolutionHapplicant for conducting due diligence under sub-regulation (8).

(10) The resolution professional shall issue provisional list ofeligible prospective resolution applicants within ten days of thelast date for submission of expression of interest to the committeeand to all prospective resolution applicants who submitted theexpression of interest.

(11) Any objection to inclusion or exclusion of prospectiveresolution applicant in the provisional list referred to in sub-regulation (10) may be made with supporting documents withinfive days from the date of issue of the provisional list.

(12) On considering the objections received under sub-regulation(11), the resolution professional shall issue the final list ofprospective resolution applicants within ten days of the last datefor receipt of objections, to the committee.”

78. Thus, the importance of the Resolution Professional is to ensurethat resolution plan is complete in all respects, and to conduct duediligence in order to report to the Committee of Creditors whether or notit is in order. Even though it is not necessary for the ResolutionProfessional to give reasons while submitting resolution plan to theCommittee of Creditors, it would be in the fitness of things if he appendsthe due diligence report carried out by him with respect to each of theresolution plans under consideration, and to state briefly as to why itdoes or does not conform to the law.79. Take the next stage under Section 30. ResolutionProfessional has presented resolution plan to the Committee of Creditorsfor its approval, but the Committee of Creditors does not approve suchplan after considering its feasibility and viability, as the requisite vote ofnot less than 66% of the voting share of the financial creditors is notobtained. As has been mentioned hereinabove, the first proviso to Section30(4) furnishes the answer, which is that all that can happen at this stageis to require the Resolution Professional to invite fresh resolution planwithin the time limits specified where no other resolution plan is availablewith him. It is clear that at this stage again no application before theAdjudicating Authority could be entertained as there is no vested right orfundamental right in the resolution applicant to have its resolution planapproved, and as no adjudication has yet taken place.

80. It is the Committee of Creditors which will approve ordisapprove resolution plan, given the statutory parameters of Section 30.

AUnder Regulation 39 of the CIRP Regulations, sub-clause (3) thereofprovides:-

“(3) The committee shall evaluate the resolution plans receivedunder sub-regulation (1) strictly as per the evaluation matrix toidentify the best resolution plan and may approve it with suchBmodifications as it deems fit:

Provided that the committee shall record the reasons for approvingor rejecting resolution plan.”

This regulation shows that the disapproval of the Committee of Creditorson the ground that the resolution plan violates the provisions of any law,Cincluding the ground that resolution plan is ineligible under Section29A, is not final. The Adjudicating Authority, acting quasi-judicially, candetermine whether the resolution plan is violative of the provisions ofany law, including Section 29A of the Code, after hearing argumentsfrom the resolution applicant as well as the Committee of Creditors,Dafter which an appeal can be preferred from the decision of theAdjudicating Authority to the Appellate Authority under Section 61.

81. If, on the other hand, resolution plan has been approved bythe Committee of Creditors, and has passed muster before theAdjudicating Authority, this determination can be challenged before theEAppellate Authority under Section 61, and may further be challengedbefore the Supreme Court under Section 62, if there is question of lawarising out of such order, within the time specified in Section 62. Section64 also makes it clear that the timelines that are to be adhered to by theNCLT and NCLAT are of great importance, and that reasons must berecorded by either the NCLT or NCLAT if the matter is not disposed ofFwithin the time limit specified. Section 60(5), when it speaks of the NCLThaving jurisdiction to entertain or dispose of any application or proceedingby or against the corporate debtor or corporate person, does not investthe NCLT with the jurisdiction to interfere at an applicant’s behest at astage before the quasi-judicial determination made by the AdjudicatingGAuthority. The non-obstante clause in Section 60(5) is designed for adifferent purpose: to ensure that the NCLT alone has jurisdiction when itcomes to applications and proceedings by or against corporate debtorcovered by the Code, making it clear that no other forum has jurisdictionto entertain or dispose of such applications or proceedings.82. One thing that must be made clear at this stage is that whenSection 33 speaks of the “Adjudicating Authority” in sub-section (1), itis referring to both the Adjudicating Authority as well as the AppellateAuthority. An Adjudicating Authority may decide in favour of resolutionplan, which order may then be set aside by the Appellate Authority. Thisorder of the Appellate Authority, setting aside the order of the AdjudicatingAuthority, would then be the order which rejects the resolution plan forthe purposes of Section 33. The same would apply to an ultimate orderof rejection by the Supreme Court under Section 62. This is on theprinciple that, as stated in Lachmeshwar Prasad Shukul & Ors. v.Keshwar Lal Chaudhuri & Ors. AIR 1941 FC 5 and followed in anumber of our judgments, an appeal is continuation of the originalproceedings.

83. Given the fact that both the NCLT and NCLAT are to decidematters arising under the Code as soon as possible, we cannot shut oureyes to the fact that large volume of litigation has now to be handledby both the aforesaid Tribunals. What happens in case where theNCLT or the NCLAT decide matter arising out of Section 31 of theCode beyond the time limit of 180 days or the extended time limit of 270days? Actus curiae neminem gravabit - the act of the Court shallharm no man - is maxim firmly rooted in our jurisprudence (see JangSingh v. Brijlal & Ors. [1964] 2 S.C.R. 146 at page 149, and A.S.Antulay v. R.S. Nayak & Ors. [1988] Supp. 1 S.C.R. 1 at page 71).It is also true that the time taken by Tribunal should not set at naughtthe time limits within which the corporate insolvency resolution processmust take place. However, we cannot forget that the consequence ofthe chopper falling is corporate death. The only reasonable constructionof the Code is the balance to be maintained between timely completionof the corporate insolvency resolution process, and the corporate debtorotherwise being put into liquidation. We must not forget that the corporatedebtor consists of several employees and workmen whose daily bread isdependent on the outcome of the corporate insolvency resolution process.If there is resolution applicant who can continue to run the corporatedebtor as going concern, every effort must be made to try and see thatthis is made possible.[3] reasonable and balanced construction of this

3 Regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, states that the liquidator may also sell the corporate debtor as going concern.

Astatute would therefore lead to the result that, where resolution plan isupheld by the Appellate Authority, either by way of allowing or dismissingan appeal before it, the period of time taken in litigation ought to beexcluded. This is not to say that the NCLT and NCLAT will be tardy indecision making. This is only to say that in the event of the NCLT, or theNCLAT, or this Court taking time to decide an application beyond theBperiod of 270 days, the time taken in legal proceedings to decide thematter cannot possibly be excluded, as otherwise good resolution planmay have to be shelved, resulting in corporate death, and the consequentdisplacement of employees and workers.84. Coming to the facts of the present case, let us first examineCthe resolution plan presented by Numetal. Numetal was incorporated inMauritius on 13.10.2017, expressly for the purpose of submission of aresolution plan qua the corporate debtor, i.e., ESIL. Two other companies,viz., AHL and AEL, were also incorporated on the same day in Mauritius.Shri Rewant Ruia, son of Shri Ravi Ruia (who was the promoter ofDESIL) held the entire share capital of AHL, which in turn held the entireshareholding of AEL, which in turn held the entire share capital ofNumetal. At this stage there can be no doubt whatsoever that ShriRewant Ruia, being the son of Shri Ravi Ruia, would be deemed to be aperson acting in concert with the corporate debtor, being covered byRegulation 2(1)(q)(v) of the 2011 Takeover Regulations.E

85. On 18.10.2017, AEL transferred its shareholding of 26.1% inNumetal to group company, viz., ECL. This group company is ultimatelyowned by ‘Virgo Trust’ and ‘Triton Trust’, the beneficiaries of whichare companies owned by Shri Ravi Ruia, his brother Shri ShashikantRuia and their immediate family members. The object of including ECL,Fas stated in the relevant extract from Numetal’s expression of interest isas follows:

“The Company satisfies the minimum tangible net worthrequirement of INR 30 Billion considering ECL, as groupcompany that holds 26.1% (Twenty Six point one Percent) sharesGin the Company, has net worth of USD 2,974 million (US DollarsTwo Thousand Nine Hundred Seventy Four million) or INR 192.8Billion (Rupees One Hundred Ninety Two Point Eight Billion) ason 31[st] March 201 (immediately preceding completed financialyear). Please refer Annexure Ifor the certificate of Chartered

Accountant of the Company certifying satisfaction of the minimumtangible net worth requirement in terms of the Eligibility Criteriawhich includes A, certificate of Chartered Accountant certifyingECL’s tangible net worth. It is pertinent to note that in case thecompany is considered as consortium potential resolutionapplicant, it continues to satisfy the minimum tangible net worthrequirement since the total tangible net worth of the Company,computed on the basis of the weighted average of AEI’s andECL’s net worth proportionate to their respective shareholding inthe Company, is INR 50.33 Billion, which is in excess of INR 30Billion”.

86. The very next day, Shri Rewant Ruia settled an irrevocableand discretionary trust, viz., the ‘Crescent Trust’, and settled the entireshare capital of AHL into the Trust, at par value of USD 10,000. Thebeneficiaries of this Trust were general charities, as well as entitles ownedby Shri Shashikant Ruia (brother of Shri Ravi Ruia, promoter of thecorporate debtor), and entities owned by Shri Rewant Ruia himself.

87. On 20.11.2017, Shri Rewant Ruia settled ‘Prisma Trust’, anotherirrevocable and discretionary trust, whose beneficiaries are “generalcharities” and one ‘Solis Enterprises Limited’, company incorporatedin Bermuda, whose share capital is held by Shri Rewant Ruia. Numetal,vide response dated 30.3.2018, admitted that while the trust deedrelating to Prisma Trust allowed the trustee to benefit any English orBermuda charity, “no particular charity is named at this stage”. TheTrustee of AEL is one ‘Rhone Trustee’, Singapore. What is importantto note is that Shri Rewant Ruia was the ultimate natural person whoheld the beneficial interest in AEL through Prisma Trust, through SolisEnterprises Limited. This emerges from Section 6.7 of the resolutionplan submitted by Numetal to the Resolution Professional. Interestinglyenough, in an affidavit dated 5.3.2018, the Trustee of Prisma Trustsubmitted:

“that the Trustee (for itself and each person controlled by it), herebyconfirm that AEL or Rewant Ruia neither are nor will, followingthe implementation of the Resolution Plan, be promoter of orhave control over or have any management rights in the RA orESIL (or the resultant company upon completion of the Merger)(including without limitation, the rights to appoint directors on the

Aboard of the RA or ESIL, or any specific veto rights or the right todirect the policy or management of the RA or ESIL in anymanner).”

88. The Resolution Professional, after looking at this affidavit,correctly noted that statements of such nature would not have beenBmade by truly independent trustee of discretionary trust, whichdemonstrates that the trustee was under the complete control of ShriRewant Ruia. This in turn indicates that Prisma Trust is one moresmokescreen in the chain of control, which would conceal the fact thatthe actual control over AEL is by none other than Shri Rewant Ruiahimself.C

89. “Curiouser and Curiouser” was the expression of Alice, inLewis Carroll’s Alice in Wonderland. In this wonderland of Shri RewantRuia, one day later on 22.11.2017, the trustees of the Prisma Trust nowacquired 100% of the shareholding of AHL for par value ofapproximately USD 10,000 from the trustees of the Crescent Trust. OnDthis very date, merely one day before the Ordinance bringing into forceSection 29A was promulgated, ECL transferred its shareholding of 26.1%of the share capital of Numetal to Crinium Bay, an indirect wholly ownedsubsidiary of VTB Bank, whose shares in turn are held by the RussianGovernment. AEL also transferred shares representing 13.9% of theEshare capital of Numetal to Crinium Bay, thus making Crinium Bay’stotal holding in Numetal 40%. On the same date, AEL also transferredshares representing 25.1% of the share capital of Numetal to Indo, andalso transferred shares representing 9.9% of the share capital of Numetalto TPE. These transfers are likely to have taken place between 10.2.2018and 12.2.2018. At the time of submission of its first Resolution PlanFdated 12.2.2018, the shareholding of Numetal was as follows:

90. It is important to note that, as of this date, Shri Rewant Ruia,who is the ultimate beneficiary in the chain of control of the trusts whichin turn controlled AEL, was very much on the scene, holding throughAEL 25% of the shareholding of Numetal.H

91. One other extremely important fact needs to be noticed at thisstage. The earnest money in the form of Rs. 500 crores, credited to theaccount of the corporate debtor, has been provided to Numetal by AELas shareholder of the resolution applicant, viz. Numetal. It is importantto note that this earnest money deposit of Rs.500 crores made by AELcontinues to remain with the Resolution Professional till date, despite thefact that, by the time the second resolution plan was submitted by Numetalon 2.4.2018, AEL had exited as shareholder of Numetal. It is alsoimportant to note that under clause 4.4.4 of the request for proposal forsubmission of resolution plans for ESIL, the earnest money deposit standsto be forfeited if any condition thereof is breached or the qualificationsof the potential resolution applicant are found to be untrue. At this stage,it is important to reproduce relevant extracts of the resolution plan firstsubmitted by Numetal in response to the request for proposal. Thesame are as under:

“4. … the Resolution Applicant is newly established companythat has been incorporated to provide platform to create andsustain leading Indian steel business and is focused on theacquisition and turnaround of the Corporate Debtor.

Accordingly, to implement the Plan, Numetal believes that it hasaccess to the right mix and balance of the financial and technicalmarket experience which can be provided to the Corporate Debtor.

Numetal is held by four independent shareholders, who possesscomplementary skill-sets in financial, operational, trading andindustrial sectors together with regional expertise that will supportthe business in the medium and longer term.

xxx xxx xxx

5.2. … (i) Numetal is backed by seasoned and experiencedshareholders who bring deep expertise from different industriescovering Finance, Steel, Oil and Gas, Metal Mining, Tradingexpertise across geographies. Crinium Bay Holdings Limited(“Crinium Bay”) an indirect wholly owned subsidiary of VTBBank PJSC (“VTB Bank”). VTB Bank is one of the largestemerging market groups listed on Moscow Exchange (“MOEX”)and London Stock Exchange (“LSE”) with current marketcapitalization of approximately US$ 12.3bn (approximately INR

79,000 Crores) and total assets in excess of approximately US$220bn (approximately INR 14,08,000).

xxx xxx xxx

VTB Banks support to provide financing, credit assistance to theResolution Applicant is set out in Annexure 2 and is subject to theterms of the letter provided therein.

The other shareholders in Numetal also have material businesseswith international operations focused on the steel, materials andresources sector-

(a) Tyazhpromexport JSC (“TPE”) leading engineering agencyin Russia in ferrous and non ferrous metallurgy project operationsand construction with experience with over 60 years and whollyowned by Russian State corporation, Rostec;

(b) Indo International Trading FZCO (“Indo” or “IITF”), leadingcommodity trading company; and

(c) Aurora Enterprise Trading (sic) Limited (“AEL” or “Aurora”)a financial investor with regional expertise.

Numetals (sic) shareholders bring together wealth of experiencein technical and operational capabilities, banking and finance,commodity trading and regional expertise for the benefit of creatinglong term steel business.

xxx xxx xxx

6.3. …The shareholders of Numetal bring to the table, considerableexperience from difference industries covering finance, steel, oiland gas, metals and mining chemicals and other sectors acrossgeographies. They have extensive experience in the field ofmanagement of distressed assets/situations, restructuring of debt,turnaround of corporates and improvement of strategies for cashflows. In addition these shareholders have good understandingof Asian markets having dealt with large corporates in thesemarkets. The above factors coupled with the financial strengthof its shareholders, put Numetal in strong position to implementthe turnaround successfully.

xxx xxx xxx

(c) … Aurora Enterprises Limited (“AEL”) brings careful focuson financial returns and expertise of the Indian business andcommercial sector to Numetal. AEL is pure financial investor.

The beneficiaries of such discretionary trust are general charitiesand Solis Enterprise Limited, 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 existingpromoters of the Corporate Debtor.”

92. Clause 6.7 of Numetal’s resolution plan stipulated that itsatisfied the minimum tangible net worth requirement, as set out underthe request for proposal, because Crinium Bay held 40% of theshareholding of Numetal, and that VTB Bank, Crinium Bay’s holdingcompany had sufficient net worth, as on 31.12.2016, to comply with therequirement under the request for proposal. The Resolution Professional,in its affidavit before the Adjudicating Authority, took note of this planand, therefore, stated:

“Under Para 1 of the Eligibility Criteria for Potential ResolutionApplicants published by this Respondent on the website of theCorporate Debtor, potential resolution applicants were given theoption of satisfying the minimum tangible net worth net ownedfunds requirement at “Group Level” by taking into considerationthe financial of entities controlling or controlled by or under commoncontrol with the potential resolution applicant. It is evident fromthe foregoing that Numetal took advantage of this provision andrelied upon the financial wherewithal of its constituents/shareholders. Numetal has not submitted or relied upon its stand-alone financials to satisfy the eligibility criteria. It is submittedthat having taken advantage of this provision it is not open toNumetal to contend that this Respondent cannot look at itsconstituents/ shareholders when determining the issue of eligibilityunder Section 29A of the Code. Further, it is submitted that eventhough the RFP document does not allow resolution applicant tolook at its constituents/ shareholders for the purposes ofdemonstrating its experience, it is clear from the foregoing thatNumetal has extensively relied on the experience of its constituents/shareholders to demonstrate its experience. It is submitted thathaving relied on the experience of its constituents/shareholders it

482SUPREME COURT REPORTS

Ais not open to Numetal to contend that this Respondent cannotlook at its constituents/shareholders when determining the issueof eligibility under Section 29A of the Code.”

93. The excerpted portions of Numetal’s resolution plan make itclear that, since Numetal itself was newly incorporated entity, with noBfinancial or experience credentials of its own, it therefore relied entirelyon the credentials of each of its constituent shareholders. This showsthat Numetal itself revealed in its resolution plan that its corporate veilshould be lifted, for without lifting this veil, none of the parameters of therequest for proposal could have been met by Numetal itself. It is thusclear that the four shareholders of Numetal were persons “acting jointly”Cwithin the meaning of Section 29A. This being the case, it is clear thatShri Salve’s argument that VTB Bank is “connected person”, beingineligible under sub-clause (j), would have to be rejected, as VTB Bankis itself, through its wholly owned subsidiary of Crinium Bay, personacting jointly with the three other shareholders of Numetal, and would,Dtherefore, fall within the first part of Section 29A itself. This being so, itcannot be said that VTB Bank is person “connected to” any one ofthe persons acting jointly, as it is itself person acting jointly, and thereforecovered by the first part of Section 29A.

94. It is important to note that on 29.3.2018, AEL transferred itsE25% shareholding in Numetal to the other three constituent shareholders,thereby leaving its shareholding in Numetal as ‘Nil’. In response to theResolution Professional’s invitation, the second Resolution Plan, therefore,submitted by Numetal on 2.4.2018, did not have AEL as constituent ofNumetal; instead, Crinium Bay continued with 40% of the shareholdingof Numetal, with TPE’s holding now augmented to 29.5% and Indo’s toF34.1%.

95. Given the fact that Shri Rewant Ruia is person deemed tobe acting in concert with his father Shri Ravi Ruia (who was promoterof the corporate debtor ESIL), there is no doubt whatsoever that Section29A(c) would be attracted as on the date of submission of the firstGresolution plan, viz. 12.2.2018, as AEL was held by Prisma Trust, whoseultimate beneficiary is Shri Rewant Ruia himself. This would show thatthe NPA declared over year before the date of commencement of thecorporate resolution process of ESIL (i.e. in 2015) would render Numetalineligible to submit resolution plan. The only manner in which Numetal

could successfully present resolution plan would be to first pay off thedebts of ESIL, as well as those of such other corporate debtors of theRuia group of companies, which were declared as NPAs prior to theaforesaid period of one year, before submitting its resolution plan.However, if the date of the second resolution plan is to be seen, ShriRewant Ruia appears to have disappeared from the scene altogether, asthe three entities left are stated to be independent entities in the form oftwo Russian entities and one UAE entity. Viewed on 2.4.2018, therefore,could it be said that Shri Rewant Ruia had disappeared from the scenealtogether, so as to obviate the application of Section 29A(c)? The obviousanswer is no. This is for two reasons. First, as has been stated earlier,the Rs.500 crores that has been deposited towards submission of earnestmoney continues to remain deposited by AEL even post 2.4.2018, showingthereby that Shri Rewant Ruia continues to be present, insofar asNumetal’s second resolution plan is concerned. Further, having regardto the reasonably proximate state of affairs before submission of theresolution plan on 2.4.2018, beginning with Numetal’s initial corporatestructure, and continuing with the changes made till date, it is evidentthat, the object of all the transactions that have taken place after Section29A came into force on 23.11.2017 is undoubtedly to avoid the applicationof Section 29A(c), including its proviso. We therefore hold that, whetherthe first or second resolution plan is taken into account, both would clearlybe hit by Section 29A(c), as the looming presence of Shri Rewant Ruiahas been found all along, from the date of incorporation of Numetal, tillthe date of submission of the second resolution plan.

96. Another argument raised by Shri Salve is that VTB Bank isineligible to present resolution plan, as the major constituent of Numetal,through its wholly owned subsidiary of Crinium Bay, as VTB Bank isineligible as sub-clause (f) read with sub-clause (i) of Section 29A havebeen attracted.

97. In February/March 2014, the Russian Federation annexed theUkrainian region of Crimea. Consequently, on 6.3.2014, the President ofthe United States issued Executive Order 13660, pursuant to theInternational Emergency Economic Powers Act and the NationalEmergencies Act. The said order sought to block the property of Russianentities contributing to the situation in Ukraine. Summarizing the executiveorder issued by the President, the Department of Treasury’s Office ofForeign Assets Control commented:-

“The Ukraine/Russia-related sanctions program implemented bythe Office of Foreign Assets Control (OFAC) began on March 6,2014, when the President, in Executive Order (E.O.) 13660,declared national emergency to deal with the threat posed bythe actions and policies of certain persons who had undermineddemocratic processes and institutions in Ukraine; threatened thepeace, security, stability, sovereignty, and territorial integrity ofUkraine; and contributed to the misappropriation of Ukraine’sassets. In further response to the actions and polices of theGovernment of the Russian Federation, including the purportedannexation of the Crimea region of Ukraine, the President issuedthree subsequent Executive orders that expanded the scope ofthe national emergency declared in E.O. 13660. Together, theseorders authorize, among other things, the imposition of sanctionsagainst persons responsible for or complicit in certain activitieswith respect to Ukraine; against officials of the Government ofthe Russian Federation; against persons operating in the arms orrelated materiel sector of the Russian Federation; and againstindividuals and entities operating in the Crimea region of Ukraine.E.O. 13662 also authorizes the imposition of sanctions on certainentities operating in specified sectors of the Russian Federationeconomy. Finally, E.O. 13685 also prohibits the importation orexportation of goods, services, or technology to or from the Crimearegion of Ukraine, as well as new investment in the Crimea regionof Ukraine by United States person, wherever located.”

98. The Office of Foreign Assets Control thereafter issuedDirective Number 1 under Executive Order 13662, stating:-

“DIRECTIVE 1 (AS AMENDED ON SEPTEMBER 29, 2017)UNDER EXECUTIVE ORDER 13662

Pursuant to sections 1(a)(i), 1(b), and 8 of Executive Order 13662of March 20, 2014, “Blocking Property of Additional PersonsContributing to the Situation in Ukraine” (the Order) and 31 C.F.R.§ 589.802, taking appropriate account of the Countering RussianInfluence in Europe and Eurasia Act of 2017, and following theSecretary of the Treasury’s determination under section 1(a)(i)of the Order with respect to the financial services sector of theRussian Federation economy, the Director of the Office of Foreign

Assets Control has determined, in consultation with the Departmentof State, that the following activities by U.S. person or withinthe United States are prohibited…”

After this, the Office of Foreign Assets Control issued Directive Number2, under Executive Order 13662, stating:-

“DIRECTIVE 2 (AS AMENDED ON SEPTEMBER 29, 2017)UNDER EXECUTIVE ORDER 13662

Pursuant to sections 1(a)(i), 1(b), and 8 of Executive Order 13662of March 20, 2014, “Blocking Property of Additional PersonsContributing to the Situation in Ukraine” (the Order) and 31 C.F.R.§ 589.802, taking appropriate account of the Countering RussianInfluence in Europe and Eurasia Act of 2017, and following theSecretary of the Treasury’s determination under section 1(a)(i)of the Order with respect to the energy sector of the RussianFederation economy, the Director of the Office of Foreign AssetsControl has determined, in consultation with the Department ofState, that the following activities by U.S. person or within theUnited States are prohibited, except to the extent provided by lawor unless licensed or otherwise authorized by the Office of ForeignAssets Control:

(1) For new debt issued on or after July 16, 2014 and beforeNovember 28, 2017, all transactions in, provision of financing for,and other dealings in new debt of longer than 90 days maturity ofpersons determined to be subject to this Directive or any earlierversion thereof, their property, or their interests in property.

(2) For new debt issued on or after November 28, 2017, alltransactions in, provision of financing for, and other dealings innew debt of longer than 60 days maturity of persons determinedto be subject to this Directive or any earlier version thereof, theirproperty, or their interests in property.

All other activities with these persons or involving their propertyor interests in property are permitted, provided such activities arenot otherwise prohibited pursuant to Executive Orders 13660,13661, 13662, or 13685 or any other sanctions programimplemented by the Office of Foreign Assets Control.”

A99. The names of persons determined to be subject to the directivesissued under Executive Order 13662 are published in the ‘SectoralSanctions Identification List’, published by the Office of Foreign AssetsControl. perusal of this list shows that VTB Bank is listed therein,along with various entities affiliated to it.

B100. Similarly, under EU Council Regulation 833 of 2014 dated31.7.2014, certain restrictive measures in view of Russian actionsdestabilizing the situation in Ukraine were taken against certain Russianentities, of which VTB Bank was one. These measures included:

“(5) It is also appropriate to apply restrictions on access to theCcapital market for certain financial institutions, excluding Russia-based institutions with international status established byintergovernmental agreements with Russia as one of theshareholders. Other financial services such as deposit business,payment services and loans to or from the institutions covered bythis Regulation, other than those referred to in Article 5, are notDcovered by this Regulation.”

Under Article I of this regulation, ‘transferable securities’ was defined

“(f) ‘transferable securities’ means those classes of securitiesEwhich are negotiable on the capital market, with the exception ofinstruments of payment, such as:

(i) shares in companies and other securities equivalent to sharesin companies, partnerships or other entities, and depositaryreceipts in respect of shares,

F(ii) bonds or other forms of securitised debt, including depositaryreceipts in respect of such securities,

(iii) any other securities giving the right to acquire or sell anysuch transferable securities or giving rise to cash settlement;”

Article V thereto provided:-G

“It shall be prohibited to directly or indirectly purchase, sell, providebrokering or assistance in the issuance of, or otherwise deal withtransferable securities and money-market instruments with amaturity exceeding 90 days, issued after 1 August 2014 by…”

Further, Annexure III thereto listed VTB Bank as one of the institutionssubject to the ‘restrictive measures’.

101. What has been argued on behalf of Shri Rohatgi is that, inorder to be covered by sub-clause (f) read with sub-clause (i) of Section29A, the person must be subject to disability, which corresponds to aprohibition by SEBI in India from trading in securities or accessing thesecurities markets. Sub-clauses (f) and (i) therefore refer to personswho, on account of their antecedents, may adversely impact the credibilityof the processes under the Code. This is in fact stated in the Preambleof 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 insolvencyresolution process, it has been considered necessary to providefor prohibition of certain persons from submitting ResolutionPlan who, on account of their antecedents, may adverselyimpact the credibility of the processes under the Code.”(emphasis supplied)

102. What is stressed by Shri Rohatgi is that, in his speech whileintroducing the Amendment Bill in Parliament, the Finance Ministerstated:-

“and person who is prohibited under SEBI cannot apply.So these are statutory disqualifications.”

In the light of this object, Section 29A(i) will have to be read as disabilitywhich corresponds to Section 29A(f) in view of the antecedent conducton the part of the person applying as resolution applicant in jurisdictionoutside India.

103. What will be noticed is that the sanctions that have beenimposed by the authorities of both the United States and the Council ofthe European Union are not on account of any misconduct on the part ofVTB Bank. Rather, they have been imposed politically, because of theconduct of particular country, i.e. Russia, which has sought to undermineUkraine’s territorial integrity, sovereignty and independence, by illegallyannexing Crimea and Sevastopol. We are of the view that Shri Rohatgiis right, inasmuch as VTB Bank cannot be said to have been prohibitedby an authority outside India from trading in securities or accessing thesecurities markets, due to any fraudulent and/or unfair trade practices

488SUPREME COURT REPORTS

Arelating to the securities market generally. prohibitory sanction by anauthority situate outside India for political reasons would thus not becovered by sub-clause (i). However, Shri Salve pointed to an orderdated 19.9.2017 of the US Commodity Futures Trading Commission,which held:

B“A. Respondents Violated Section 4c(a)(1) and (2) of theAct

Respondents’ RUB/USD block trades constituted unlawfulfictitious sales and caused prices to be reported or recorded thatwere not true and bona fide prices. Section 4c(a)(1) and (2) ofthe Act makes it unlawful “for any person to offer to enter into,enter into, or confirm the execution of transaction that is ... afictitious sale” or that “is used to cause any price to be reported,registered, or recorded that is not true and bona fide price.”

xxx xxx xxx

Respondents’ RUB/USD block trades were fictitious sales underthe Act. Respondents designed the block trades to accomplishthrough the use of the futures market that which was not otherwisepossible for VTB to accomplish in the swaps market. Throughthe block trades, VTB was able to transfer its cross-currencyrisk to VTB Capital which could then hedge the risk in the swapsmarket. VTB obtained pricing from VTB Capital for thesetransactions that was more favorable than it admittedly could haveobtained from third-parties in the futures market. With thisstructure, Respondents, as intended, negated market risk andavoided price competition. Accordingly, Respondents’ block tradeswere “fictitious from the standpoint of reality and substance” andin violation of Section 4c(a)(1) and (2)(A) of the Act. In reGoldwurm, 7 Agric. Dec. 265, 275 (providing that cotton futurestrades entered for purpose of accomplishing income tax reportinggoals were “fictitious from the standpoint of reality andsubstance”). Further, Respondents’ trades caused prices to bereported to or recorded by the CME that were not true and bonafide prices in violation of Section 4c(a)(2)(B) of the Act. See Inre 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 bereported or recorded).

xxx xxx xxx

FINDINGS OF VIOLATION

Based on the foregoing, the Commission finds that, during theRelevant Period, VTB and VTB Capital violated Section 4c(a)(1)and (2) of the Act and Regulation 1.38(a).”

104. VTB Bank had submitted an offer before the US CommodityFutures Trading Commission, in which it, without admitting or denyingthe findings or conclusions, had offered to cease and desist from violatingthe regulations aforementioned, to pay civil monetary penalty in theamount of USD five million, and had ordered its successors and assignsto comply with the conditions consented to. This offer was accepted bythe Commission, and by way of settlement, apart from what was offeredby the respondents, the respondents further agreed, in the said Orderdated 19.9.2017 as follows:-

“3. Respondents further agree that they shall comply with thefollowing additional undertakings:

a. Respondents shall not enter into privately negotiated futures,options or combination transactions with one another on orthrough any U.S.-based futures exchange for period of twoyears from the date of this Order;”

105. reading of this order makes it clear that, even assumingthat the Commodity Futures Trading Commission is an authority whichcorresponds with SEBI (Shri Rohatgi has argued that in the United Statesthe Securities Exchange Commission is the authority which correspondswith SEBI in India), it is clear that there is no prohibition by the CommodityFutures Trading Commission of the United States interdicting VTB Bankfrom trading in securities or accessing the securities market. All thatVTB Bank has done is consent to cease and desist order; consent topay monetary penalty in the amount of USD five million; and furtherconsent to not enter into privately negotiated futures options with aparticular subsidiary, viz. VTB Capital, on or through any US-basedfutures exchange for period of two years from the date of the order.Obviously, prohibition regarding privately negotiated futures options,

Aor combination transactions with one another, is not prohibition fromtrading in securities or accessing the securities market. We thus agreewith Shri Rohatgi that Crinium Bay, being wholly owned subsidiary ofVTB Bank, does not therefore incur any disqualification under sub-clause(f) read with sub-clause (i) of Section 29A.

B106. This brings us to the Appellant, i.e., AMIPL. So far as UttamGalva is concerned, the corporate structure is as follows:- AMSA is alisted company in Luxemburg. This company is the ultimate parentcompany of the resolution applicant, through its wholly owned subsidiaryAMBD, company incorporated in Luxemburg, which in turn holds100% of the shares in Oakey Holding BV, company incorporated inCthe Netherlands, which in turn holds 99.99% shares in AMIPL, companyincorporated in India. AMNLBV is company incorporated in theNetherlands, and is 100% subsidiary of AMSA. It is this group companyof Shri L.N. Mittal that held 29.05% of the shareholding in Uttam Galva(as on 7.2.2018).

107. On 4.9.2009, Co-Promotion Agreement was executedbetween AMNLBV and the Indian promoters of Uttam Galva, who arestated to be the Miglani family, who are residents of Mumbai. As perthe Co-Promotion Agreement, the foreign promoter, viz., AMNLBV wasentitled to nominate one half of the non-independent directors on theEboard 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, providesa list of matters which require the affirmative vote of AMNLBV. It isimportant to notice that the original shareholding of AMNLBV in UttamGalva was 32%. This shareholding was reduced to 29.05% in the handsFof AMNLBV, the Miglani group holding 31.82% as of December 2017.The rest of the shares were held by the public. This Co-PromotionAgreement, therefore, not only names AMNLBV as the foreign promoterof Uttam Galva, but also makes it clear that Uttam Galva would bejointly managed and controlled by the foreign and Indian promoters.GPursuant to this Co-Promotion Agreement, on 7.9.2009 AMNLBV issueda letter of offer to acquire 35,226,233 fully paid shares of the face valueof Rs.10, representing 25.76% of the share capital of Uttam Galva. Inthis letter, it was disclosed to the public at large that AMNLBV wasbecoming promoter of this company, with significant affirmative voting

rights. On 20.9.2011, Non Disposal Undertaking was provided byAMNLBV, as promoter of Uttam Galva, to the lender banks of UttamGalva, which included the State Bank of India. On 31.3.2016, CanaraBank and Punjab National Bank declared Uttam Galva’s accounts asNPA. It is important to note that, in all the annual returns of UttamGalva till date, AMNLBV’s shareholding has been shown as ‘promoter’sshareholding.’ All the annual reports, upto 2017, contained list ofpromoters, which included AMNLBV as one such, holding 29.05%% ofthe share capital of the company, and having significant influence overthe company. Shri Salve’s argument that, in point of fact, no control wasactually exercised as AMNLBV never appointed any directors orexercised its voting rights, cannot be accepted as that makes no differenceto the de jure position of AMNLBV being “promoter” as defined inSection 2(69)(a) of the Companies Act, 2013.

108. On 7.2.2018, few days before AMIPL submitted its firstresolution plan, AMNLBV sold its entire shareholding in Uttam Galvaby way of an off market sale, to company of the Indian co-promoters,viz., ‘Sainath Trading Company Private Limited’. Shares that werepurchased for Rs.120 each, were sold for Re.1 each, when the marketvalue of the shares on the said date was admittedly Rs.19.50 per share.The aforesaid sale of shares was done without making an open offerunder the 2011 Takeover Regulations, on the basis that it was an interse transfer of shares between promoters, and therefore exempt fromsuch requirement under Regulation 10 of the said regulations. Also, as amatter of fact, the sale of the said shares was effected without takingthe consent of the lenders of Uttam Galva, which consent was necessaryas 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, formal deed of termination was enteredinto. AMNLBV addressed letters to the NSE and the BSE to recordthe aforesaid inter se transfer, who accordingly declassified AMNLBVas 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 ultimateshareholder of the resolution applicant, viz. AMIPL, is directly the ultimateshareholder of AMNLBV as well, which is an L.N. Mittal GroupCompany. When the corporate veil of the various companies

Aaforementioned is pierced, both AMIPL and AMNLBV are found to bemanaged and controlled by Shri L.N. Mittal, and are therefore personsdeemed to be acting in concert as per Regulation 2(1)(q)(2)(i) of the2011 Takeover Regulations. That AMNLBV is promoter of UttamGalva is clear from the aforementioned facts, being expressly stated assuch in Uttam Galva’s annual returns. The reasonably proximate factsBprior to the submission of both resolution plans by AMIPL would showthat there is no doubt whatsoever that AMNLBV’s shares in UttamGalva were sold only in order to get out of the ineligibility mentioned bySection 29A(c), and consequently the proviso thereto. The fact that thelenders with whom AMNLBV had Non Disposal Undertaking haveCnot yet moved any forum for declaration that the sale of the shares,being without their consent, is non est, does not absolve AMNLBVfrom having failed to first obtain their consent before selling off its sharesin Uttam Galva. Such sale is directly contrary to the Non DisposalUndertaking given to the lenders. Quite apart from this, it is also clearthat shares worth Rs.19.50 each were sold at distress value of Re.1Deach, so as to overcome the provisions of Section 29A(c) and the provisothereto. It is clear therefore that the Uttam Galva transaction clearlyrenders AMIPL ineligible under Section 29A(c) of the Code.

110. Insofar as the transaction with regard to KSS Petron isconcerned, the facts are as follows:- on 3.3.2011, Fraseli, an entityEregistered and incorporated in Luxemburg, which is managed andcontrolled by Shri L.N. Mittal, held 32.22% of the shareholding of KSSGlobal, company domiciled in the Netherlands. On 19.5.2011, by aShareholders Agreement entered into between KSS Holding, KSS InfraEALQ, Fraseli and KSS Global, the first three companies were eachFgiven right to appoint an equal number of directors on the board ofdirectors of KSS Global, which in turn held 100% of the share capital ofKSS Petron, company incorporated in India. Fraseli was also grantedaffirmative voting rights on decisions regarding certain specified matters,both at the board and the shareholder level, in respect of KSS Globaland all companies controlled by it, which would include KSS Petron. AsGhas been stated hereinabove, KSS Petron was declared as an NPA on30.9.2015. As in the case of Uttam Galva, Fraseli divested itsshareholding in KSS Petron on 9.2.2018, i.e., only three days beforeAMIPL submitted its first resolution plan. On the same day, the directorsnominated by Shri L.N. Mittal, through Fraseli, resigned from the boardHof KSS Global.111. From the aforementioned facts, there can be no doubtwhatsoever that Fraseli, being company managed and controlled byShri L.N. Mittal, holding one third of the shares in KSS Global, which inturn held 100% of the share capital in KSS Petron, was in joint control ofKSS Petron, if the corporate veil of all these companies is disregarded.Further, the Shareholders Agreement of 19.5.2011 makes it clear thatthe joint control of KSS Global would be between three entities, viz.,KSS Holding, KSS Infra EALQ and Fraseli, each of whom had the rightto appoint an equal number of directors on the board of directors of KSSGlobal. Not only this, but Fraseli was also granted affirmative votingrights as aforementioned, on certain important specified matters. Therewould be no doubt whatsoever that, just before presentation of theresolution plan of 12.2.2018, AMIPL would be hit by Section 29A(c), asa group company of Shri L.N. Mittal exercised positive control, by itsshareholding, right to appoint directors and affirmative voting rights, overKSS Global, which in turn held 100% shareholding in KSS Petron. Again,as in the case of Uttam Galva, there can be no doubt whatsoever thatthe sale of Fraseli’s shareholding in KSS Global, together with theresignation of the Mittal directors from the board of directors of KSSGlobal, is transaction reasonably proximate to the date of submissionof the resolution plan by AMIPL, undertaken with the sole object ofavoiding the consequence mentioned in the proviso to Section 29A(c).Having regard to the law laid down by us in this judgment, it is, therefore,clear that AMIPL is ineligible under Section 29A(c) of the Code, on thisaccount as well.

112. Shri Rohatgi also argued before us that Shri Pramod Mittal,brother of Shri Laxmi Mittal, also held shares in two other companieswhich were declared to be NPAs more than one year prior to the dateof commencement of the corporate insolvency resolution process ofESIL. We have been informed by Shri Salve that Shri Pramod Mittalparted company with Shri L.N. Mittal as far back as 1994, and cannottherefore be regarded as person acting in concert with Shri L.N. Mittal.Since this aspect of the case has not been argued before the authoritiesbelow, though raised in an I.A. by Numetal before the Appellate Authority,we will not countenance such an argument for the first time before thisCourt.

113. Since it is clear that both sets of resolution plans that weresubmitted to the Resolution Professional, even on 2.4.2018, are hit by

ASection 29A(c), and since the proviso to Section 29A(c) will not applyas the corporate debtors related to AMIPL and Numetal have not paidoff their respective NPAs, ordinarily, these appeals would have beendisposed of by merely declaring both resolution applicants to be ineligibleunder Section 29A(c). Shri Subramanium, on behalf of the Committeeof Creditors, requested us to give one more opportunity to the partiesBbefore us to pay off their corporate debtors’ respective debts inaccordance with Section 29A, as the best resolution plan can then beselected by the requisite majority of the Committee of Creditors, so thatall dues could be cleared as soon as possible. Acceding to this request, inorder to do complete justice under Article 142 of the Constitution ofCIndia, and also for the reason that the law on Section 29A has been laiddown for the first time by this judgment, we give one more opportunityto both resolution applicants to pay off the NPAs of their related corporatedebtors within period of two weeks from the date of receipt of thisjudgment, in accordance with the proviso to Section 29A(c). If suchpayments are made within the aforesaid period, both resolution applicantsDcan resubmit their resolution plans dated 2.4.2018 to the Committee ofCreditors, who are then given period of 8 weeks from this date, toaccept, by the requisite majority, the best amongst the plans submitted,including the resolution plan submitted by Vedanta. We make it clearthat in the event that no plan is found worthy of acceptance by theErequisite majority of the Committee of Creditors, the corporate debtor,i.e. ESIL, shall go into liquidation. The appeals are disposed of,accordingly.

Devika Gujral

Appeals disposed of.