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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs.9402-9405 OF 2018

ARCELORMITTAL INDIA PRIVATE LIMITED     …APPELLANT

VERSUS

SATISH KUMAR GUPTA & ORS. ...RESPONDENTS

WITH

CIVIL APPEAL NO.9582 OF 2018

CIVIL APPEAL NO._______ OF 2018 DIARY NO.35253 OF 2018

CIVIL APPEAL NO._______ OF 2018 DIARY NO.33971 OF 2018  

J U D G M E N T  R.F. Nariman, J.

1. The facts of the present case revolve around the ineligibility

of  resolution  applicants  to  submit  resolution  plans  after  the

introduction of  Section  29A into  the Insolvency and  Bankruptcy

Code, 2016 (hereinafter referred to as “the Code”), with effect from

23.11.2017.  

2. On  2.8.2017,  the  Adjudicating  Authority,  being  the  NCLT,

Ahmedabad Bench, passed an order under Section 7 of the Code

at the behest of financial creditors, being the State Bank of India

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and the Standard Chartered Bank, admitting a petition filed under

the Code for financial debts owed to them by the corporate debtor

Essar Steel India Limited (hereinafter referred to as “ESIL”), in the

sum  of  roughly  Rs.45,000,00,00,000  (Rupees  Forty  Five

Thousand Crores).  Shri Satish Kumar Gupta was appointed as

the  Interim  Resolution  Professional  and  confirmed  as  such  on

4.9.2017.  Consequently, the Resolution Professional published an

advertisement  dated  6.10.2017,  seeking  expression  of  interest

from  potential  resolution  applicants  who  wished  to  submit

resolution  plans  for  the  revival  of  ESIL.   In  terms  of  the

advertisement,  the last  date for  submission of  an expression of

interest  was  23.10.2017.  Pursuant  to  this  advertisement,  one

‘ArcelorMittal  India  Private  Limited’  (hereinafter  referred  to  as

“AMIPL”) submitted an expression of interest on 11.10.2017.  An

entity  called  Numetal  Limited  (hereinafter  referred  to  as

“Numetal”),  also  submitted  an  expression  of  interest  on

20.10.2017.   On  24.12.2017,  the  Resolution  Professional

published a ‘request for proposal’, in which it was stated that the

last date for submission of resolution plans would be 29.1.2018.

On  a  request  made  by  the  Committee  of  Creditors,  the  NCLT

extended  the  duration  of  the  corporate  insolvency  resolution

process by 90 days beyond the initial period of 180 days, i.e., upto

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29.4.2018.  The Resolution Professional therefore issued the first

addendum  to  the  request  for  proposal,  extending  the  date  for

submission  of  resolution  plans  to  12.2.2018.   Given  this,  both

AMIPL and Numetal submitted their resolution plans on this date.

On  20.3.2018,  apprehending  that  the  Resolution  Professional

would recommend that it be declared ineligible, Numetal filed I.A.

No.  98  of  2018  before  the  NCLT  inter  alia seeking  that  it  be

declared  eligible  as  a  resolution  applicant.   On  23.3.2018,

however,  the  Resolution  Professional  found  both  AMIPL  and

Numetal to be ineligible under Section 29A.  Insofar as AMIPL is

concerned, the Resolution Professional found thus:  

“2. Please note that during the course of the evaluation of the Resolution Plan, I became aware of the fact that ArcelorMittal  Netherlands  B.V.  (AM  Netherlands) (which  is  mentioned as  a  ‘connected  person’ of  AM India in the Resolution Plan) has been disclosed as the ‘promoter’  of  Uttam  Galva  Steels  Limited  (Uttam Galva)  pursuant  to  which my Advisor  had requested certain  clarifications  from  AM  India  on  26  February 2018 (Request  for  Clarification  1)  and  on  14  March 2018  (Request  for  Clarification  2).  Further  to  the responses  received  from  AM  India  on  28  February 2018 and 17  March  2018 (collectively  the  AM India Responses)  on  the  aforementioned  requests  for clarifications, I understand that:

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

2.2. AM Netherlands had entered into a ‘co-promoter’ agreement  dated  4  September  2009  with  the  other

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promoters  of  Uttam Galva  (Co-Promoter  Agreement) under  which  AM  Netherlands  had  various  rights (including certain rights which can be considered as participative in nature and not merely protective);

2.3.  Uttam Galva’s account was classified as a ‘non- performing asset’ (NPA) on 31 March 2016 by Canara Bank and Punjab National  Bank (which classification has continued for more 1 year till 02 August 2017);

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

2.5. AM Netherlands has applied to the National Stock Exchange  Limited  and  the  BSE Limited,  each  on  8 February 2018 for  declassification as a ‘promoter’ of Uttam Galva under Regulation 31A(2) of the Securities and Exchange Board of India

3. Further,  as  on  the  Plan  Submission  Date,  AM Netherlands  (had  not  obtained  the  Stock  Exchange Approvals relating to declassification as a promoter of Uttam  Galva  and)  continued  to  be  classified  as  a promoter of Uttam Galva.

4. In light of the above, AM India is ineligible under the provisions of Section 29A(c) of the IBC and pursuant to paragraph 4.11.2(a) of the RPP, the Resolution Plan is hereby  rejected  and  will  not  be  placed  before  the Committee of Creditors.”

3. Similarly,  holding  Numetal  to  be  ineligible,  the  Resolution

Professional, on the same date, found:

“2.1. as on the date of submission of its expression of interest (EOI) on 20 October 2017 by Numetal, it relied on Essar  Communications  Limited  (ECL),  one  of  its shareholders to comply with the eligibility requirement relating to its ‘tangible net worth’ (TNW) (as stipulated in the section titled ‘Eligibility Criteria’ in the EOI); 2.2. as on the Plan Submission Date, Numetal relied

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on  Crinium  Bay,  its  shareholder  to  comply  with  the eligibility requirement relating to its TNW (as stipulated in Section 6.7 of the Resolution Plan);

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

2.4. Numetal  is  a  newly  incorporated  joint  venture between Aurora Enterprises Limited, Crinium Bay, Indo International Limited and Tyazhpromexport.

3. Since  Numetal  has  at  all  stages  relied  on  its shareholders to comply with the eligibility requirements relating to submission of a resolution plan in respect of ESIL,  for  the  purposes  of  ensuring  compliance  with Section 29A of the Insolvency and Bankruptcy Code, 2016  (IBC),  I  have  considered  each  of  the shareholders of Numetal as joint venture partners to be acting  jointly  for  the  purposes  of  submission  of  the Resolution Plan. Whilst considering the eligibility of the shareholders  of  Numetal,  since  Aurora  Enterprises Limited  (AEL)  is  held  completely  by  Rewant  Ruia (through  various  companies  and  a  trust),  I  have considered  Rewant  Ruia,  Crinium  Bay,  Indo International Limited and Tyazhpromexport for scrutiny under Section 29A of the IBC.

4. Further, pursuant to Regulation 2(q) of the Securities and Exchange Board of India (Substantial Acquisition of  Shares  and  Takeovers)  Regulations,  2011 (SAST Regulations), a person is deemed to acting in concert with amongst others, his (or her) ‘immediate relatives’, which term (as defined under  Regulation 2(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  way of  a  merger  of  ESIL with  a  wholly owned subsidiary of Numetal), Rewant Ruia is deemed to be acting in concert with his father Ravi Ruia.

5. Further, as on the Plan Submission Date:

(a)* Ravi Ruia (who Rewant Ruia is deemed to be acting in  concert  with)  was the promoter  of

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ESIL whose account was classified as an NPA for more than 1 year, prior to the commencement of  corporate-insolvency  resolution  process (CIRP) of ESIL on 2 August 2017; and (b) Ravi Ruia (who Rewant Ruia is deemed to be acting in concert with) has executed a guarantee in  favour of  SBI  (for  itself  and a consortium of lenders)  and the CIRP application filed  by SBI has been admitted by the National Company Law Tribunal on 2 August 2017.

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

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

4. On 26.3.2018, AMIPL filed I.A. No. 110 of 2018 before the

Adjudicating  Authority,  challenging  “the  order”  of  the  Resolution

Professional dated 23.03.2018.  Numetal did likewise vide I.A. No.

111 of 2018.  

5. On  2.4.2018,  pursuant  to  the  Resolution  Professional’s

invitation,  fresh  resolution  plans  were  submitted  (as  both  the

resolution plans before this were found to be ineligible) by AMIPL,

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Numetal, and one other entity, namely ‘Vedanta Resources Ltd.’.

On this very date, the NCLT directed that the bids of the resolution

applicants, submitted pursuant to the revised request for proposal,

should not be opened pending adjudication of I.A. No. 98 of 2018

filed by Numetal.  

6. On 19.4.2018,  the  Adjudicating Authority,  being  the NCLT,

passed its order in all the I.A.s, in which it first held:

“21. As per the matter available on the record, a third party contestant, Arcelor Mittal India Pvt. Ltd., by filing Additional Application No. P-7 of 2018 has also sought for impleading itself in Intervention Application No. IA 98/2018 the Numetal has filed a Reply opposing such relief  as  being  sought  for  by  the  present  Applicant, Numetal Ltd., and in the present IA and also sought a declaration in its favour to be declared as eligible for filing a valid resolution plan as on 12.2.2018 thus,  it has  opposed  the  application  alleging disability/ineligibility on the part of M/s. Numetal Ltd., to file a valid and proper resolution plan as on date of 12.2.2018.  Since  we  have  not  decided  the Impleadment Application in favour of  ArcelorMittal  by formally impleading it as party in the present I.A. No. 98 of 2018 and only audience were given to its learned counsel in support of its resolution plan, therefore, we find it appropriate to confine the issue of determination of eligibility mainly on the reason which formed a basis for  the  RP  and  CoC  for  not  founding  eligible  for submission  of  resolution  plan  by  the  resolution applicant,  M/s.  Numetal  Ltd.,  and  not  on  additional ground as put forth by the ArcelorMittal. However, the oral  submissions  advanced  by  learned  counsel  for parties  including  the  ArcelorMittal  duly  supported  by their  Written  Submissions  are  being  taken  into consideration  for  deciding  the  issue  involved  in  the present application.

For arriving at such findings/conclusion of the RP has

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obtained legal opinion and its such findings is based on such opinion which were 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 the hon'ble Supreme Court) and from former learned Law Officer of the GOI which are placed on record along with the present IA also in support of their case in this opinion it  is  expressed the Numetal  Ltd.  (Resolution Applicant) is a single and independent corporate entity and  it  cannot  be  termed  as  a  consortium  of  its shareholders not it intend to implement the resolution plan jointly with another person hence, in view of this the  amended  clause  4.11.2(1)  to  the  RFP  would neither be applicable nor binding upon the resolution applicant and thus, it is not required at all to seek an approval  from  the  RP  or  the  CoC.  In  respect  of proposed change its shareholding of ESIL in terms of RET and also are required under the other provisions of  the  Law.  It  has  been  also  emphasised  that  the Numetal  Ltd.,  is  not  a  SPV  brought  into  existence merely for the purpose of submitting the resolution plan in  respect  of  the  corporate  debtor  ESIL  as  it  has recently entered into an agreement to acquire majority stock in Odisha Slurry Pipeline Infrastructure Ltd., by an  independent  contract  from  the  Resolution  Plan. Thus, it cannot be presumed that the applicant is such a corporate entity which is brought into the existence only for the purpose of putting forth resolution plan for the ESIL.

Since, there is difference in the legal opinions among the Learned Luminaries and law firms and more than one views are possible in the present case to be acted upon  then,  it  cannot  be  said  that  there  is  patently illegality  in  the  conclusion  of  the  RP  or  it  acted arbitrarily or mala fidely in rejecting the resolution plan by relying on the legal opinion received and believed to be true by him and which were placed before the CoC. Moreover, the RP under the provision of the Code it is expected  to  make  scrutiny  of  a  resolution  plan  in conformity with the law of the land and to take such a prudent  decision  which  a  common  man  in  normal course may arrive and think just and proper. This court being the Adjudicating Authority under the Code is not

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expected to substitute its view upon the discretion and wisdom of  the RP and CoC to opt  for  only which a particular view until and unless it is the case of patent illegality or arbitrariness.

Therefore, for the aforesaid reason in our prima facie view we do not find any patent illegality in the decision of the RP for declaring ineligible to applicants which is a prudent decision where there is possibility of more than one legal view then this court at this stage is not expected to substitute its view and to interfere with the conclusion of the RP.”

7. It then went on to hold:

“19. Thus,  the  date  on  which  a  person  stands disqualified would be the date of commencement of the  Corporate  Insolvency  Resolution  Process  of the  Corporate  Debtor,  i.e.,  ESIL.  This  date  is 02.08.2017 on which date, ArcelorMittal India Pvt. Ltd., is  disqualified  in  view of  the  fact  that  its  connected persons  of  AM  Netherland  and  L.N.  Mittal  are disqualified as they have an account or an account of the  corporate  debtor  under  their  management  and control or of whom they are a promoter classified as NPA under the guidelines of the Reserve Bank of India and at least a period of one year has lapsed from the date  of  such  classification  till  the  date  of commencement  of  corporate  insolvency  resolution process  of  the  corporate  debtor.  The  said disqualification  starts  from  02.08.2017  can  only  be remedied  in  the  manner  provided  in  the  proviso  to clause  (c)  of  section  29A  read  with  section  30(4) proviso and in  no other  manner.  The disqualification commenced on  02.08.2017 continues  till  12.02.2018 and the  same disqualification  cannot  be  relieved  by merely ceasing to be the promoter or by selling shares in  the companies whose accounts  are  NPA such as Uttam Galva or KSS Petron.

20. On  perusal  of  annexure  R/4,  i.e.,  shareholding pattern annexed with the reply  of  Numetal  Ltd.,  it  is found that ArcelorMittal is a publicly known promoter of Uttam Galva and its shareholding is classified under "promoter and promoter group" in the filings made in the  Stock  Exchange  of  India.  As  per  shareholding

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pattern  of  Uttam  Galva  disclosed  in  the  stock exchange as on December, 2017 ArcelorMittal was a single  largest  shareholder  having  significant shareholding of 29.05 % in Uttam Galva.

21. On perusal of the record it is found that connected person of the applicant are the promoter of KSS Petron Pvt.  Ltd.,  a  company  incorporated  under  the Companies  Act,  1956,  having  registered  office  at Swastik  Chamber,  6th  Floor,  Sion  Trombay  Road, Chembur, Mumbai has been NPA for more than a year and CIRP has been initiated against the KSS Petron vide order dated 01.08.2017 by Mumbai Bench of the National Company Law Tribunal.

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

Cyril  Amarchand  Mangaldas  had  opined  that  AM Netherlands  exercised  positive  control  over  Uttam Galva and merely divesting the shareholding prior to the submission of the resolution plan could not remove the disqualification under section 29A(c) of the Code, unless cured by payment.

23. It is an admitted position that AM Netherlands is an indirect  100%  subsidiary  of  ArcelorMittal  Societe Anonyme  (AMSA)  which  is  a  listed  company incorporated  in  Luxemburg.  On  the  other  hand,  AM India is also an indirect subsidiary (99.99%) of AMSA. Accordingly, AMSA is promoter, in management and in control  of  AM India,  the resolution applicant and AM Netherlands  is  a  subsidiary  company/associate company of  AMSA in view of  which AM Netherlands becomes  a  connected  person  and  such  connected person  has  an  account  of  corporate  debtor  Uttam Galva under its management, control or of whom such connected  person,  namely,  AM  Netherlands  is  a promoter is classified as NPA for more than one year before 02.082017. Consequently, AM India shall not be eligible to submit a resolution plan as on 12.02.2018.

24. It is an admitted position that Laxminarayan Mittal is controlling AM India being an indirect subsidiary of

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AMSA.  Accordingly,  LN  Mittal/AMSA is  promoter  in management and in control of AM India, the resolution applicant,  and LN Mittal  is  also in  management  and control  of  KSS Global  BV in  view of  what  is  stated above and KSS Petron which is a 100% subsidiary of KSS Global BV is also under management and control of LN Mittal. KSS Petron has a NPA for more than one year and consequently, LN Mittal being a promoter/in control of KSS Global BV/KSS Petron Pvt.  Ltd.,  is a connected  person  whose  account  is  classified  non- performing.  Consequently,  AM  India  shall  not  be eligible to submit a resolution plan.

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

PROVIDED that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue  amounts  with  interest  thereon  and  charges relating  to  non-performing  asset  accounts  before submission of resolution plan.

Section 29A does not distinguish between positive and negative control. Any person who is either promoter or in the management or in the control of the business of the corporate debtor and in default is ineligible. Person connected  to  ArcelorMittal  India  Pvt.  Ltd.,  who  are either promoter or in the management with KSS Petron and Uttam Galva Steels Ltd., are ineligible. Mere sale of  shares  and  declassification  as  promoter  after  the companies have gone into default cannot be absolved them  responsibility.  In  order  to  become  eligible, overdue amounts to lenders in both the cases of KSS Petron and Uttam Galva Steels Ltd., should be paid by ArcelorMittal before being eligible to bid, as provided in

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Section 29A itself.”

8. Having  said  this,  it  then  remanded  the  matter  to  the

Committee of Creditors as follows:-

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

9. Appeals  were  filed  by  both  Numetal  and  AMIPL,  on

26.4.2018  and  27.4.2018  respectively,  before  the  Appellate

Authority,  being  the  NCLAT.   Before  these  appeals  could  be

decided, in compliance with the order passed by the Adjudicating

Authority,  the Committee of  Creditors, after  hearing both AMIPL

and Numetal, disqualified AMIPL by an order dated 8.5.2018 as

follows:

“48. In  wrapping up  this  post-decisional  hearing,  we reiterate that AMIL 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 connected person of AMIL) and Arcelor  Mittal  Group in  attempting to avoid their obligations  to  make  payment  as  provided  under Section  29A(c)  of  mc  (sic)  with  reference  to  Uttam Galva and KSS Petron.  Their  unwillingness to make

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payment in the Uttam Galva matter or the KSS Petron matter by their actions of 7th of February, 2018 and 9th

of  February,  2018  as  stated  above  is  an  avoidance device.

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

50. The same conduct of Arcelor Mittal Group acting through  Fraselli  and  KSS  Global  in  terminating  the shareholders  agreement  in  KSS  Global,  the  holding company of KSS Petron, a device has been to avoid payment  of  the  Overdue  Amounts  of  KSS  Petron before filing the Resolution Plan for ESIL.  The close proximity of this action on 9th February, 2018, one day before  the  plan  submission  date  is  a  telling  act  of avoidance.  

51. Since the CoC have not  by themselves filed  an appeal  over  the  Ld.  Adjudicating  Authority’s  order dated 19th April, 2018, the concession granted by the Ld. Adjudicating Authority to give an opportunity to cure the ineligibility, we are indicating to AMIL, its connected persona and persons in concert to cure their disability under Section 29A(c) of IBC by making a payment to the lenders of  Uttam Galva for  Overdue Amounts of Uttam Galva, another payment to the lenders of KSS Petron constituting Overdue Amounts in  KSS Petron and Overdue Amounts of such other companies which are classified as NPAs and where Arcelor Mittal Group is a promoter. Such payments will have to be made by AMIL or its constituents / connected persons no later than 15  th   May, 2018, especially since the law actually requires  that  this  curative  payment  of  overdue amounts, interests and charges should be made by the corporate  resolution  intending  applicant  /  resolution applicant  before  the  Resolution  Plan  is  filed.  This concession  by  the  CoC  is  without  prejudice  to  the CoC’s right to strictly enforce the law and provisions of

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Section 29A(c) of the IBC. The proof of such payment in  form  of  a  No  Overdue  Amounts  letter  (indicative format set out in Annex) shall be submitted to the RP (with notification to the CoC) by 6:00 P.M. IST on 15  th May 2018. As we have limited time available under the CIR process of ESIL, AMIL is requested to adhere to these timelines.”

 10. By  another  order  of  the  same  date,  the  Committee  of

Creditors disqualified Numetal as follows:

“44. Numetal  and  AEL are  related  as  an  associate company,  on  account  of  the  fact  that  AEL  (alias Rewant Ruia)  has significant  influence over Numetal pursuant to its control of at least 20% of the total voting power  of  Numetal.  Since  an  associate  company  is considered as a related party to a resolution applicant where such resolution applicant and other persons are acting jointly or in concert, Numetal is clearly said to be acting  jointly  and  in  concert  with  AEL.  This  in  turn means Numetal is acting in concert with Mr. Rewant Ruia and hence with Mr. Ravi Ruia, the promoter and guarantor of ESIL (a non-performing asset since 2016). This inflicts a disability and ineligibility upon Numetal / its consortium and constituent shareholders.”

xxx xxx xxx

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

58. Since the CoC have not  by themselves filed  an appeal  over  the  Ld.  Adjudicating  Authority’s  Order dated 19th April, 2018, the concession granted by the Ld. Adjudicating Authority to give an opportunity to cure the  ineligibility,  we  are  indicating  to  the  resolution applicant, i.e. Numetal and the consortium of Crinium Bay, Indo, TPE and AEL as persons acting in concert with Numetal, that they would be eligible only if  they

15

make payment of (i) the Overdue Amounts constituting NPA in ESIL as on 30th April, 2018 aggregating to Rs. 37,558.65  crores  in  principal  and  interest  and  Rs. 1,688.27  crores  in  penal  interest  and  other  charges and  such  other  additional  Overdue  Amounts  which have  accrued  till  the  date  of  payment;  and  (ii)  the Overdue Amounts of such other companies which are classified  as  NPAs  and  where  Mr.  Ravi  Ruia  /  Mr. Rewant Ruia are promoters. Such payments will have to be made by Numetal or its constituents / consortium no later than 15  th   May, 2018, especially since the law actually requires that this curative payment should be made  before  the  resolution  plan  is  filed.  This concession is without prejudice to the CoC’s right to strictly enforce the law and the provisions of Sections 29A(c) and 29A(h) of IBC. The proof of such payment in  form  of  a  no-Overdues  Amounts  letter  (indicative format set out in Annex 3) shall be submitted to the RP (with notification to CoC) by 6:00 P.M. IST on 15  th   May 2018, As we have limited time available under the CIR process of  ESIL,  Numetal  is  requested to adhere to these timelines.”

11. In  the  appeals  that  were  filed  before  it,  the  Appellate

Authority,  insofar  as  Numetal’s  Resolution plan  was concerned,

vide an order dated 7.9.2018 held as follows:-

“44. On behalf of ‘AM India Ltd.’, it was submitted that ‘VTB Bank’ one of the shareholders of ‘Numetal Ltd.’ is ineligible in view of Article 5(c) of the EU Regulations of 2014. Though such submission has been made, no order  or  evidence  has  been  placed  on  record  to suggest that any order of prohibition was imposed by the European Union against  the ‘VTB Bank’.  Neither the date of order nor order passed by any competent authority or court of law has been placed on record. 45. On the other hand, it will be evident that Council of European Union adopted Council Regulation (EU) No. 833/2014 concerning Restricting measures in view of Russia action. In fact, in view of situation in Ukraine, the  European  Union  Regulation  was  adopted.  Apart

16

from the aforesaid  fact,  that  ‘AM India  Ltd.’ has not brought on record any penal order passed by any court of  law  relating  to  disability,  if  any,  which  is corresponding to any of the disability shown in clauses (a) to (h) of Section 29A. Therefore, the stand taken by the ‘AM India Ltd.’ with regard to ineligibility  of ‘VTB Bank’ is fit to be rejected.

xxx xxx xxx

Resolution Plan submitted by the ‘Numetal Ltd.’ on 12  th   February, 2018

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

(i) ‘Crinium Bay’ : 40% (ii) ‘Indo’ : 25.1% (iii) ‘TPE’ : 9.9% (iv) ‘AEL’ : 25%

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

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

Position of ‘Numetal Ltd.’ as on 29  th   March, 2018 when  the  subsequent  ‘Resolution  Plan’   was submitted by ‘Numetal Ltd.’.

63. The  ‘Committee  of  Creditors’  had  extended  the period for  submitted a  fresh ‘Resolution Plan’ by  2nd

April, 2018. ‘Numetal Ltd.’ filed fresh ‘Resolution Plan’ on 29th March,  2018. On the said date the ‘Numetal Ltd.’ consisted of the three shareholders: -  

(a) ‘Crinium Bay’ (‘VTB’) : 40% (b) ‘Indo’ : 34.1% (c) ‘TPE’ : 25.9%

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64. As on 29th March, 2018, as the ‘AEL’ was not the shareholder  of  ‘Numetal  Ltd.’  and  all  the  three shareholders  aforesaid  being  eligible,  we  hold  that ‘Numetal Ltd.’ in respect of the ‘Resolution Plan’ dated 29th March,  2018,  is  eligible  and  the  provision  of Section 29A, as on 29th 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 29th March,  2018 is required to be considered by the ‘Committee of Creditors’ to find out its viability, feasibility and financial matrix.”

12. In the same order, insofar as AMIPL’s resolution plan was

concerned, the Appellate Authority held as follows:

“107. In the present case, the ‘Expression of Interest’ was  submitted  by  ‘AM  India  Ltd.’  on  11th  October, 2017 and by ‘Numetal Ltd.’ on 20th October, 2017, both prior to 23rd November, 2017 i.e. the date Section 29A was inserted by the Insolvency and Bankruptcy Code (Amendment)  Ordinance,  2017  but  the  ‘Resolution Plans’  were  submitted  by  both  ‘AM  India  Ltd.’  and ‘Numetal Ltd.’ on 12th February, 2018.  108. The question arises for consideration is as to what will  be  the  position  if,  on  the  basis  of  ‘Information Memorandum’ the ‘Expression of Interest’ is submitted by the ‘Resolution Applicants’ prior to 23rd November, 2017 and whether they are eligible to take advantage of 2nd proviso to sub-section (4) of Section 30.?

109. Section 29A came into force on 23rd November, 2017. Those who submitted ‘Resolution Plan’ prior to the said date and if covered by clause (c) of Section 29A are entitled to derive benefit of second proviso to sub-section (4) of Section 30. Under ‘I&B Code’ there is no provision to submit ‘Expression of Interest’ prior to ‘Resolution Plan’. What we find from the invitation seeking ‘Expression of Interest’ to submit a ‘Resolution Plan’  for  ‘Essar  Steel  Limited’  published  on  6th October,  2017 is  the first  stage of  ‘Resolution Plan’. Therefore, we hold that ‘Expression of Interest’ is part of the ‘Resolution Plan’, which follows the ‘Resolution Plan’.  In  such  case,  the  date  of  submission  of  the

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‘Expression  of  Interest’  should  be  treated  to  be  the date  of  submission  of  the  ‘Resolution  Plan’.  In  this background, we hold that the date of submissions of the  1st  ‘Resolution  Plan(s)’  of  ‘AM  India  Ltd.’  and ‘Numetal  Ltd.’  will  be  deemed  to  be  11th  October, 2017/12th February, 2018 and 20th October, 2017/12th February, 2018 respectively.

110. If the aforesaid proposition is not accepted, it will deprive  the  ‘Resolution  Applicants’  from  deriving advantage  of  second  proviso  to  sub-section  (4)  of Section  30  inserted  on  23rd  November,  2017,  even though they acted to submit the ‘Resolution Plan’ by submitting  the  ‘Expression  of  Interest’ of  ‘Resolution Plan’.

111. In view of the aforesaid finding, we hold that the Adjudicating Authority  rightly  held  that  the Appellant- ‘AM India Ltd.’ should have 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 ‘AM Netherlands’ is eligible, having transferred its entire shareholding of ‘Uttam Galva’ on 7th February, 2018 and by transferring of its entire shareholding of ‘Fraseli’ in ‘KSS Global’ on 9th February, 2018 i.e. two to four days prior to the submission of ‘Expression of 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 a resolution plan if  such person makes payment of  all overdue  amounts  with  interest  thereon  and  charges relating  to  non-performing  asset  accounts  before submission of resolution plan”

114. The aforesaid proviso to clause (c) makes it clear that the person shall be eligible to submit a ‘Resolution Plan’ if  such  person  makes  payment  of  all  overdue amounts with interest thereon and charges relating to non-performing  asset  accounts  before  submission  of ‘Resolution Plan’. It does not stipulate any other mode to become eligible and thereby does not prescribe any other mode to become ineligible, including by selling the  shares  thereby  existing  as  a  member  of  the

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Company whose account has been classified as non- performing  asset  accounts  in  accordance  with  the guidelines of the Reserve Bank of India.

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

“30. Submission of resolution plan.─

(4) xxx xxx xxx

Provided  further  that  where  the  resolution  applicant referred to in the first proviso is ineligible under clause (c)  of  section  29A,  the  resolution  applicant  shall  be allowed by the committee of creditors such period, not exceeding  thirty  days,  to  make payment  of  overdue amounts in accordance with the proviso to clause (c) of section 29A”

116. From both the aforesaid provisions, it is clear that except in the manner the ‘Resolution Applicants’ can make it eligible and get rid of ineligibility under clause (c)  of  Section 29A that  is  by  making payment  of  all overdue  amounts  in  accordance  with  the  proviso  to clause (c) of Section 29A, no other manner a person, who is otherwise ineligible under clause (c) of Section 29A, can become eligible. There is no provision in the ‘I&B  Code’  which  permits  an  ineligible  person  to become eligible by selling or transferring its shares of the Company whose accounts have been declared as NPA in  accordance  with  the  guidelines  of  Reserve Bank of India.

117. Admittedly,  ‘AM Netherlands’ is  related party  of ‘AM India Ltd.’. ‘AM Netherlands’ was the promoter of ‘Uttam  Galva’  on  the  date  when  the  ‘Uttam  Galva’ classified as NPA in accordance with the guidelines of Reserve Bank of India and a period of one year has elapsed from the date of such classification, at the time of 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’,  even  after  sale  of  shares  by  ‘AM Netherlands’  it  may  ceased  to  be  a  member  or promoter  of  the  ‘Uttam  Galva’,  but  stigma  as  was attached  with  it  will  continue  for  the  purpose  of

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ineligibility under clause (c) of Section 29A, till payment of  all  overdue  amount  with  interest  and  charges relating to NPA account of the ‘Uttam Galva’ is paid.

119. ‘AM Netherlands’ is 100% subsidiary of  ‘AMSA’ which is a listed company incorporated in Luxemburg. ‘AM India Ltd.’ is also a subsidiary of ‘AMSA’ having 99.99% shareholding in it. Accordingly, ‘AMSA’ is also a promoter, in the management and in control of ‘AM India Ltd.’. ‘Fraseli’ is a company owned and controlled by a company called by ‘Mittal Investments’ acquired about one third of the share capital of ‘KSS Global BV’. Pursuant to such acquisition, ‘Fraseli’ acquired control over  ‘KSS  Global  BV’  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 Global BV’ which is 100% owner of  ‘KSS Petron’ (a Company whose account has been declared as NPA). ‘AM India Ltd.’ has its control  over it  will  be evident from the fact that it has nominee Directors, who also resigned  on  9th February,  2018  i.e.  3  days  before submission  of  the  ‘Expression  of  Interest’  of ‘Resolution Plan’ by ‘AM India Ltd.’ This will  be also clear from the fact that the ‘AM India Ltd.’ was nothing that an entity controlling and managing in ‘KSS Global BV’ (which  is  100% owner  of  ‘KSS Petron’ an  NPA Company) divested its shareholding in ‘KSS Global BV’ on 9th February, 2018 i.e. 3 days before submission of the ‘Expression of Interest’ of ‘Resolution Plan’.

121. We have also noticed that  consequent  to  such acquisition of control by ‘Fraseli’, on 23rd May, 2011 a public  announcement  was  made  under  ‘SEBI (Substantial  Acquisition  of  Shares  and  Takeover) Regulations,  1997’  for  the  acquisition  of  shares  of ‘Petron Engineering’ inter alia by ‘KSS Global BV’ and ‘Fraseli’. Therefore, we hold that Mr. L.N. Mittal Group, a  connected  person  of  ‘AM  India  Ltd.’  being  the promoter and in the control and management of ‘KSS Petron’ since 2011 and ‘KSS Petron’ having classified as ‘NPA’ by multiple banks, the stigma attached to it cannot  be  cleared  by  ‘KSS  Global’  by  divesting  its shares in ‘KSS Petron’ on 9th February, 2018 and the

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stigma  will  continue  for  the  purpose  of  ineligibility under  clause (c)  Section 29A,  till  the payment  of  all overdue  amount  with  interest  thereon  and  charges relating to NPA account of ‘KSS Petron’.

122. Admittedly, there are three nominee Directors of ‘AM  India  Ltd.’  in  ‘KSS  Petron’,  one  of  the  NPA Company. The nominee Directors of the Appellant- ‘AM India Ltd.’ had also resigned on 9th February, 2018 i.e. three days’ before the submission of  the ‘Resolution Plan’. Therefore, it is clear that the ‘AM India Ltd.’ had complete control over the ‘KSS Petron’.

123. It is informed that after impugned order passed by the Adjudicating Authority, the ‘AM India Ltd.’ had made conditional  deposit  of  Rs.  7,000  Crores  in  its  own current account (Escrow Account).  Such depositation of  the  amount  in  its  own  Escrow  Account  does  not qualify as a payment of overdue amounts in terms of proviso to clause (c) of Section 29A. A conditional offer to pay the over dues amount cannot be accepted till it is  complied  in  the  light  of  proviso  to  clause  (c)  of Section 29A unconditionally.

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

125. As we hold that ‘AM India Ltd.’ is also entitled to the  benefit  of  second  proviso  to  sub-section  (4)  of Section 30, we give one opportunity to the ‘Resolution Applicant’-  ‘AM  India  Ltd.’  to  make  payment  of  all overdue  amount  with  interest  thereon  and  charges relating to Non Performing Accounts of both the ‘Uttam Galva’  and  the  ‘KSS  Petron’  in  their  respective accounts  within  three  days  i.e.  by  11th  September, 2018. If such amount is deposited in the accounts of both  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

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‘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 by the ‘Committee  of  Creditors’  and  on  approval  of  the ‘Resolution  Plan’,  the  ‘Resolution  Professional’  will place  the  same immediately  before  the  Adjudicating Authority who in its turn will pass order under Section 31 in accordance with law. The ‘Successful Resolution Applicant’ will take steps for execution of its ‘Resolution Plan’ and  deposit  the upfront  money if  proposed,  in terms of the ‘Resolution Plan’.

126. Taking  into  consideration  the  fact  that  a  long period has taken due to pendency of the case before the  Adjudicating  Authority  and  thereafter,  before  this Appellate Tribunal, we direct the Adjudicating Authority to exclude the period the appeal was pending before this  Appellate  Tribunal  i.e.  from  26th  April,  2018  till today  (7th  September,  2018)  for  the  purpose  of counting the total period of 270 days. The impugned order  dated  19th  April,  2018  passed  by  the Adjudicating Authority so far as it relates to eligibility of ‘Numetal Ltd.’ as on the date of the submission of the ‘Resolution Plan’ dated 29th March, 2018 is set aside. The impugned judgment/order in respect to ‘AM India Ltd.’ is  affirmed with  conditions as mentioned in  the preceding paragraphs. All the appeals are disposed of with aforesaid observations and directions. The parties will bear their respective cost.”

13. This  is  how  both  AMIPL  and  Numetal  are  before  us  in

appeals from the Appellate Authority’s order dated 7.9.2018.  

14. Shri Harish N. Salve, learned Senior Advocate appearing on

behalf of AMIPL, argued that Section 29A, as originally enacted,

disqualified a person who has an account of a corporate debtor

under the management or control of such person, or of whom such

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person  is  a  promoter,  which  account  was  declared  as  a  non-

performing asset.  The further condition is that one year should

have elapsed from the date  of  such declaration till  the date  of

commencement of the corporate insolvency resolution process of

the  corporate  debtor.   Thus,  a  plain  reading  of  the  same

establishes that the ineligibility under Section 29A is in relation to

the  submission  of  a  resolution  plan,  which  must  consist  of  the

elements  set  out  in  Section  30.  Responding  to  preliminary

enquiries,  i.e., an expression of interest, is not the subject matter

of a resolution plan, and therefore, the relevant time is the time of

submission  of  a  resolution  plan.   He  further  argued  that  the

amendment made to Section 29A in June, 2018, expressly stating

that the relevant time was the time of submission of a resolution

plan,  is  clarificatory  in  nature.   Once  this  becomes  clear,

everything  on  facts  falls  into  place.   According  to  the  learned

Senior  Advocate,  AMIPL  is  an  indirect  subsidiary  of  one

‘ArcelorMittal  Societe  Anonyme’  (hereinafter  referred  to  as

“AMSA”), which is a listed company in Luxemburg.  AMSA holds

100% shares in  one ‘ArcelorMittal  Belvel  & Differdange Societe

Anonyme’  (hereinafter  referred  to  as  “AMBD”),  a  company

incorporated  in  Luxemburg,  which  in  turn  holds  100%  in  one

‘Oakey Holding BV’, a company incorporated in the Netherlands,

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which  in  turn  holds  99.99%  shares  in  AMIPL.   ArcelorMittal

Netherlands BV (hereinafter referred to as “AMNLBV”), which is a

member of the L.N. Mittal Group incorporated in the Netherlands,

is 100% held by AMSA (the Chairman and CEO of AMSA being

Shri L.N. Mittal). AMNLBV held 29.05% in one ‘Uttam Galva Steels

Limited’  (hereinafter  referred  to  as  “Uttam  Galva”)  which  is  an

Indian company, listed in India. Uttam Galva was declared as a

non-performing  asset  on  31.3.2016,  with  a  debt  of  around  Rs.

6000  crores.   According  to  Shri  Salve,  Uttam Galva,  though  it

entered  into  a  Co-Promotion  Agreement  with  AMNLBV  on

4.9.2009,  was  really  promoted  by  the  Miglani  Group  of

businessmen who are Indian citizens residing in Mumbai. The Co-

Promotion Agreement conferred on AMNLBV the right to appoint

50% of  the non-independent  directors on the board,  as well  as

certain affirmative voting rights. This required that the Articles of

Association be amended, which was never in fact done.  In 2015

itself, AMNLBV had written off the investment in Uttam Galva from

its books, seeking an exit from Uttam Galva at this time.  AMNLBV

never  appointed  any  director  or  exercised  any  voting  rights  in

Uttam Galva.  What is important to note is that it had transferred its

entire shareholding in Uttam Galva on 7.2.2018 to one ‘Sainath

Trading  Company  Private  Limited’,  which  was  a  Miglani  Group

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Company,  for  Re.1  per  share  (having  purchased the  shares  at

Rs.120 per share).  The depository participant account of AMNLBV

ceased to show the said shares with effect from 7.2.2018.  The

Co-Promotion Agreement dated 4.9.2009, pursuant to which the

status  of  “promoter”  had  been  conferred  on  AMNLBV,  stood

automatically terminated vide clause 21.6 thereof on 7.2.2018.  In

order  to  put  the  matter  beyond  any  doubt,  the  parties  also

executed  a  Co-Promotion  Termination  Agreement  on  7.2.2018.

On  8.2.2018,  Uttam  Galva  filed  the  necessary  forms  with  the

Registrar of Companies and made the necessary disclosures with

the  National  Stock  Exchange  and  Bombay  Stock  Exchange  to

declassify  AMNLBV as  a  promoter  of  Uttam Galva.   This  was

accordingly done on 21.3.2018 and 23.3.2018 before the NSE and

BSE respectively. Such declassification, being a ministerial act, is

relatable  to  the  date  of  sale  of  shares,  i.e.,  7.2.2009,  and

considered effective from the said date.  Inasmuch as AMNLBV

therefore  ceased  to  be  a  promoter  in  Uttam  Galva  prior  to

12.2.2018,  the  resolution  plan  is  not  hit  by  Section  29A(c).

Similarly,  according  to  the  learned  Senior  Advocate,  insofar  as

KSS  Petron  Private  Limited  (hereinafter  referred  to  as  “KSS

Petron”)  is  concerned,  it  is  an  admitted  case  that  ‘Fraseli

Investments  Sarl’  (hereinafter  referred  to  as  “Fraseli”)  is  a

26

company owned and controlled by one ‘Mittal Investments Sarl,’

which in turn is owned and controlled by the L.N. Mittal Group, the

promoters  of  AMIPL.   Fraseli  held  32.22%  in  one  ‘KazStroy

Service Global  BV’ (hereinafter  referred to  as “KSS Global”),  a

company incorporated in the Netherlands which in turn held 100%

of KSS Petron, an Indian company. The shareholders agreement

entered into between Fraseli and KSS Global permitted Fraseli to

appoint  two  out  of  six  nominee  directors  in  KSS  Global,  and

provided for  an affirmative vote of  shareholders with respect  to

certain matters. According to the learned Senior Advocate, if the

definition of “control” in Section 2(27) of the Companies Act, 2013

is applied, the relationship of KSS Global with KSS Petron would

not constitute “control” over the wholly owned subsidiary in India.

In any case, the entire shareholding of Fraseli in KSS Global was

transferred back to the promoters of KSS Global on 9.2.2018, i.e.,

3 days before submission of the resolution plan.  KSS Petron has

been classified as a non-performing asset by multiple banks, and

the corporate insolvency resolution process was initiated against it

on 1.8.2017 before the NCLT. It may be added that KSS Petron

was declared a non-performing asset on 30.9.2015 with a debt of

around Rs. 1000 crores. The learned Senior Advocate therefore

attacked the finding of the Appellate Authority on this score, and

27

stated  that,  as  Section  29A was  not  attracted,  the  question  of

paying off the debts of Uttam Galva and KSS Petron would not

arise.  

15. When  it  came  to  Numetal’s  resolution  plan,  the  learned

Senior  Advocate  argued  that  it  is  important  to  remember  that

Numetal  was incorporated on 13.10.2017 by Shri  Rewant Ruia,

son of Shri Ravi Ruia (who was a promoter of the corporate debtor

of ESIL), with the specific objective of trying to acquire ESIL.  At

the  time  of  its  incorporation,  one  ‘Aurora  Enterprises  Limited’

(hereinafter referred to as “AEL”), a Ruia Group Company, held

100% shareholding of Numetal.  In turn AEL’s 100% shareholding

was held by one ‘Aurora Holdings Limited’ (hereinafter referred to

as “AHL”), 100% of whose shareholding was held by Shri Rewant

Ruia, who was a former director of the corporate debtor, i.e. ESIL.

On 18.10.2017, a few weeks before Section 29A was introduced,

AEL transferred  26.1% of  its  shares  in  Numetal  to  one  ‘Essar

Communications  Limited’  (hereinafter  referred  to  as  “ECL”),  a

group  company  of  the  corporate  debtor.   On  19.10.2017  Shri

Rewant Ruia settled an irrevocable discretionary trust, called the

‘Crescent Trust’, which purchased the shares of AHL at par value.

On 20.10.2017, when Numetal submitted its expression of interest,

it  had  two  share  holders,  i.e.,  AEL (holding  73.9%)  and  ECL

28

(holding 26.1%). On 22.11.2017, when the Finance Minister made

a statement that the Code would be amended in order to prevent

unscrupulous  persons  from  submitting  resolution  plans,  AEL

transferred  13.9% of  its  shareholding  in  Numetal,  and  ECL its

entire 26.1% shareholding, to one ‘Crinium Bay Holdings Limited’

(hereinafter referred to as “Crinium Bay”), a 100% indirectly held

subsidiary  of  one  ‘VTB  Bank’,  which  in  turn  was  a  Russian

company, the majority of whose shares were held by the Russian

Government.  Crinium Bay thus became the owner of 40% of the

shareholding of Numetal. AEL subsequently transferred 25.1% of

the  shareholding  in  Numetal  to  one  ‘Indo  International  Trading

FZCO’ (hereinafter referred to as “Indo”), a Dubai company, and

9.9%  of  the  shareholding  to  one  ‘JSC  VO  Tyazhpromexport’

(hereinafter referred to as “TPE”), a Russian company.  AEL was

left with only a 25% shareholding in Numetal.  Even this holding in

Numetal  was  ultimately  divested on  29.3.2018,  so  that  Crinium

Bay held 40%, TPE held 25.9% and Indo held 34.1% in Numetal,

with  AEL’s  holding  becoming  ‘Nil’.   Shri  Salve  has  argued that

Numetal is hit by Section 29A(i) of the Code, as VTB Bank, the

parent  of  Crinium  Bay,  stands  prohibited  from  accessing  the

securities  markets  in  the European Union pursuant  to  an order

dated 31.7.2004, and in the United States by two orders.   This

29

being the case, Numetal is directly hit by sub-section (f) read with

sub-section (i) of Section 29A. It is also hit by Section 29A(j) as

Crinium  Bay,  being  a  subsidiary  of  VTB  Bank,  becomes  a

“connected person”  as defined under sub-clauses (i)  and (iii)  of

Explanation 1 to Section 29A(j).  One very important fact that was

stressed by him was that an amount of Rs. 500 crores was given

by AEL to Numetal so that it could deposit the requisite earnest

money  that  had  to  be  made  along  with  the  resolution  plan

furnished by Numetal.  This amount, that was admittedly furnished

by AEL, continues to remain with the Resolution Professional, and

has till date not been withdrawn by AEL, showing that Shri Rewant

Ruia  continues  to  be  vitally  interested  and  linked  with  the

resolution plan of Numetal, even after the complete exit of AEL as

its shareholder.  He therefore submitted that,  given these facts,

whereas AMIPL should  have been held  eligible,  it  was wrongly

held to be ineligible by the Appellate Authority; and that Numetal,

being clearly hit by several provisions of Section 29A, was wrongly

held  to  be  eligible.   He  stressed the  fact  that  one  of  the  core

objectives of Section 29A was to ensure that the promoter of the

corporate debtor should not through or by circular means come

back in order to regain the company that he himself had run to the

ground.  For this purpose, he relied upon the Finance Minister’s

30

statement on 29.12.2017, while introducing the Bill to amend the

Code by introducing Section 29A, together with the Statements of

Objects and Reasons appended to the said Bill.   

16. Dr.  A.M.  Singhvi,  learned  Senior  Advocate,  supported  the

arguments of Shri Salve.  According to him, Section 29A(c) always

had the application of the resolution plan date as the relevant date,

given the in praesenti “has” which is also there in clauses (h) and

(j),  and is similar to the expression “is”  which is to be found in

clauses (a), (b), (e) and (f), as contrasted with the expression “has

been” used in clauses (d) and (g), of Section 29A.  According to

him, the amendment made in 2018 is in any case clarificatory in

nature.  He supported the attack of  Shri  Salve on the Appellate

Authority’s  judgment,  stating  that  so  far  as  Uttam  Galva  is

concerned, it is well established that the sale of shares is complete

once they move out of the demat account of the seller, which in

this case took place five days before 12.2.2008.  For this he cited

certain judgments.  He also supported Shri  Salve’s argument by

stating that Numetal is clearly disqualified under several clauses of

Section 29A.  

17. On  the  other  hand,  Shri  Mukul  Rohatgi,  learned  Senior

Advocate,  appearing on behalf  of  Numetal,  stated that  Numetal

31

was a company which was therefore a separate person in law from

its shareholders.  He contended that on the date of submission of

the resolution plan (i.e.,  12.2.2018),  AEL held  only  25%,  which

would be below the figure of  26% mentioned in the request for

proposal dated 24.12.2017, wherein “control” has been defined as

a person holding more than 26% of the voting share capital in the

company.   According to  him,  in  any case by 2.4.2018,  when it

submitted a fresh resolution plan, AEL had walked out completely,

leaving behind two Russian companies holding 40% and 25.9%

respectively  of  Numetal,  and  Indo,  a  Dubai  Company,  holding

34.1%.  According to the learned Senior Advocate, Numetal cannot

possibly be described as a joint venture of its shareholders, and

for this purpose he cited some of  our judgments.  According to

him, a joint venture is a contractual arrangement whereby two or

more parties undertake an economic activity which is subject to

joint control, which is missing in the present case as a shareholder

in a company is distinct from the company itself.  He added that

Section 29A(c) requires that Numetal as a person, together with

any  other  person  acting  jointly  or  in  concert,  has  to  have  an

account of a corporate debtor under its management or control, or

of whom such person is a promoter (which is classified as a non-

performing asset for a period of at least one year before the date

32

of commencement of the corporate insolvency resolution process

of  the  corporate  debtor).   According  to  the  learned  Senior

Advocate,  Shri  Rewant  Ruia  would  not  fall  within  any  of  these

categories, on a 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 Companies Act, 2013, which define “manager” and “managing

director”  respectively.   He emphatically  argued that  though Shri

Rewant Ruia is the son of Shri Ravi Ruia, who is a promoter of the

corporate debtor, and though he may be deemed to be a “person

acting in concert” within the definition contained in Regulation 2(1)

(q) of the SEBI (Substantial Acquisition of Shares and Takeovers)

Regulations, 2011 (hereinafter referred to as the “2011 Takeover

Regulations”), yet, he cannot be considered to be a “connected

person” under Section 29A(j) of the Code.  This is for the reason

that  under  Explanation  1  to  Section  29A(j),  the  expression

“connected person” can only mean a related party or a person who

is referred to in sub-clauses (i) and (ii) of Explanation 1, and since

Shri Rewant Ruia is neither a promoter of nor in the management

or control of the resolution applicant Numetal, he would fall outside

of sub-clause (iii) of Explanation 1.  According to Shri Rohatgi, the

Appellate Authority was absolutely correct in saying that Numetal

33

would not be ineligible under Section 29A.  He strongly attacked

Shri  Salve’s  argument  that  VTB Bank,  the  holding  company of

Crinium Bay, was barred from accessing the securities market by

either the European Union or the United States.  He took us to the

original  orders  and  argued that  the  document  of  the  European

Union,  being  Council  Regulation  833  of  2014 dated  31.7.2014,

pursuant  to  Article  215 of  the Treaty  on the Functioning of  the

European Union, was owing to restrictive measures taken in view

of Russia’s actions destabilizing the situation in Ukraine.  Because

Russia  had  illegally  annexed  Crimea,  political  sanctions  were

imposed by this document, which cannot possibly be said to be

sanctions imposed by  an  authority  equivalent  to  SEBI  in  India.

The sanctions also did not relate in any manner to the securities

market.  Equally, insofar as the two orders of the United States are

concerned,  they  were  also  political  sanctions  imposed  against

Russian companies for the same reason by the Office of Foreign

Assets  Control  by  a  Presidential  Order.   He  even  argued  that

insofar as the European Union is concerned, the corresponding

“authority”  to  SEBI  is  the  ‘European  Securities  and  Market

Authority’, whereas in the United States it would be the ‘Securities

Exchange Commission,’ neither of whom has issued any sanctions

which would interdict VTB Bank from accessing or trading in the

34

securities market.  He also countered Shri Salve’s submission that

the  Rs.  500  crores  that  was  advanced  by  AEL and  given  as

earnest  money  for  the  resolution  plan  was  not  yet  withdrawn,

contending that this was so because the validity of the first bid by

Numetal continues to be sub judice.  

18. Shri  Rohatgi  then  attacked  AMIPL by  stating  that  even  a

literal reading of  Section 29A(c) would make it  clear that  in the

case of Uttam Galva, AMNLBV, which is admittedly an L.N. Mittal

Group Company, was directly covered by sub-clause (c) as it had

been shown as a “promoter” in the annual reports of Uttam Galva,

and would  therefore  fit  the definition of  “promoter”  contained in

Section  2(69)  of  the  Companies  Act,  2013.   What  is  of  great

importance,  and  what  is  in  fact  not  disclosed,  is  that  a  Non-

Disposal Undertaking was issued to the State Bank of India, the

secured  creditor  of  Uttam  Galva,  on  12.7.2011  by  AMNLBV,

agreeing that it would not sell, transfer or dispose of any shares

held  by  it  without  the  consent  of  the  lenders  of  Uttam Galva.

According to Shri Rohatgi, therefore, the transfer of these shares,

the  recognition  of  such  transfer  by  Uttam  Galva,  and  the

consequent application to the Stock Exchanges for declassification

as promoter, without obtaining the consent of the State Bank of

India, is invalid in law and a fraud played by AMNLBV.  Further, in

35

the  disclosures  that  were  made  under  the  2011  Takeover

Regulations,  the  column relatable  to  the  existence  of  any  non-

disposal undertakings was left blank. In addition, since a sale of

shares  between  co-promoters  inter  se is  exempted  from  the

requirement of making a public offer under Regulation 3(1) read

with Regulation 10(1)(a)(2) of the 2011 Takeover Regulations, it is

clear that on the one hand promoter status is claimed in order to

avail of the regulation, whereas, in the present case, it is argued

that,  in  substance,  AMNLBV is  not  in  fact  a  promoter.  Equally,

leaving  a  blank  in  the  form against  the  column which  required

disclosure  of  non-disposal  undertakings,  is  a  fraud  played  on

SEBI, and on the shareholders of Uttam Galva; as otherwise, in

the public offer that would have had to be made, the shares of

Uttam Galva would have had to be purchased at the higher price

that is mentioned in the said Regulations.  Incidentally, according

to Shri Rohatgi, in any case, getting out of Uttam Galva by paying

a price of Re.1 per share when the market value on that date was

Rs.19.50 per share is again a fraudulent transaction, which cannot

possibly pass muster under Section 29A.  Further, insofar as KSS

Petron is concerned, it is clear that Fraseli’s holding of 32.22% in

KSS Global would certainly amount to  de facto control, if not  de

jure control, of KSS Petron, its wholly owned subsidiary, as defined

36

under Section 2(27) of the Companies Act, 2013. The transfer of

Fraseli’s  shareholding  on  9.2.2018,  before  submission  of  the

resolution plan on 12.2.2018, is again a dubious and fraudulent act

squarely hit by Section 29A. Shri Rohatgi further argued that Shri

Pramod Mittal, brother of Shri L.N. Mittal, is a connected person,

which  would  trigger  Section  29A(j).   Shri  Pramod  Mittal  is  a

promoter and director of one ‘Gontermann Piepers (India) Limited’,

which has also been declared an NPA, rendering Shri L.N. Mittal

ineligible  under  Section  29A(j).  Equally,  Shri  L.N.  Mittal,  Shri

Pramod  Mittal  and  other  members  of  the  Mittal  family  are

promoters of one ‘Ispat Profiles India 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 a

related party of Shri Pramod Mittal, would render AMIPL ineligible

under sub-clause (c) read with sub-clause (j) of Section 29A of the

Code.

 19. Shri  Gopal  Subramanium,  learned  Senior  Advocate

appearing on behalf  of  the Committee of  Creditors,  has placed

before  us  the  Insolvency  and  Bankruptcy  Code  (Amendment)

Ordinance, 2017, introducing Section 29A, and commented on the

difference  between the  opening  lines  of  the  said  Ordinance  as

compared  with  those  of  the  Amendment  Act  of  2017.   The

37

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 to us in

copious detail.   He also referred to  some of  our  judgments  on

tearing  the  corporate  veil,  and  on  persons  acting  in  concert.

According  to  him,  there  should  be  no  interference  by  the

appropriate authority at the behest of a resolution applicant at the

stage  of  a  Resolution  Professional  processing  resolution

applications,  and  the  subsequent  stage  of  a  Committee  of

Creditors disapproving a resolution plan.   According to him, the

period of 270 days is a watertight compartment, within which either

a  resolution  plan  will  be  approved,  or  the  corporate  debtor  be

wound  up.   According  to  him,  the  practice  of  interlocutory

applications  being  filed  at  anterior  stages  of  the  proceedings

before  the  Adjudicating  Authority,  and  orders  of  remand  to  the

Committee of Creditors,  should be stopped.  However,  the time

taken by the Adjudicating Authority and the Appellate Authority in

deciding disputes that may arise before them should be excluded

from the computation of 270 days as aforesaid.  According to the

learned  Senior  Advocate,  the  expressions  “persons  acting  in

concert”  and “control”  are broad enough to bring all  associated

38

persons within the dragnet of Section 29A.  He cited a number of

judgments  on  how  this  provision  should  be  construed  in

accordance  with  the  object  sought  to  be  achieved  by  the  said

provision, which should never 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 remember that phrases such as

“persons acting in  concert”  and “control”  are meant  not  only to

pierce the corporate veil, but also to get to the real persons who

present resolution plans.  On the facts of each case, according to

Shri Subramanium, both resolution plans were correctly rejected

by the Resolution Professional and the Committee of Creditors, as

they were both hit by the provisions of Section 29A.  Any circular

method, by which payment of debts of an NPA of a person acting

jointly or in concert under the proviso to Section 29A(c) is sought

to be avoided,  should be interdicted.   According to the learned

Senior Advocate, both resolution plans are hit by Section 29A(c),

and the only way out is for both resolution applicants to pay up the

debts of  the respective NPAs of  the corporate debtors who are

associated with them.   

20. Shri K.V. Viswanathan, learned Senior Advocate, appearing

on behalf of the Resolution Professional, drew our attention to the

Insolvency and Bankruptcy Board of India (Insolvency Resolution

39

Process  for  Corporate  Persons)  Regulations,  2016  (hereinafter

referred to as the “CIRP Regulations”), and stated that the role of

the Resolution Professional is essentially to do a due diligence on

each resolution plan submitted before it.  It is only after such due

diligence is done that this plan is to be forwarded to the Committee

of Creditors. According to him, even if it is found that the resolution

plan in question contravenes any law, such finding would only be a

tentative opinion formed by the Resolution Professional, who has

to  submit  the  plan  to  the  Committee  of  Creditors  once  it  is

complete in all respects. According to him, a conjoint reading of

Section  25(2)(i)  of  the  Code,  read  with  Section  30(3)  and  the

second 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 a sociis  with the 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 its

various  forms:  as  first  introduced  by  the  Insolvency  and

Bankruptcy  Code  (Amendment)  Ordinance,  2017  and  the

Insolvency  and  Bankruptcy  Code  (Amendment)  Act,  2017,

together  with  the  amendment  made  by  the  Insolvency  and

40

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.A  person  shall  not  be  eligible  to  submit  a resolution  plan,  if  such person,  or  any other  person acting jointly with such person, or any person who is a promoter  or  in  the  management  or  control  of  such person,-

(a) is an undischarged insolvent;

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

(c)  Whose  account  is  classified  as  non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) and period of one year or more has lapsed from the date of  such classification and who has failed to make the payment of all overdue amounts with  interest  thereon  and  charges  relating  to  non- performing asset before submission of  the resolution plan;

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

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

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

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

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

41

(i)  Where  any  connected  person  in  respect  of  such person meets any of the criteria specified in clauses (a) to (h).

Explanation –  For  the purposes of  this  clause, the expression “connected person” means-

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

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

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

(j) Has been subject to any disability, corresponding to  clauses  (a)  to  (i),  under  any  law in  a  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 force with retrospective effect from 23.11.2017. Section 29A,

as contained therein, reads as follows:

“29A. Persons  not  eligible  to  be  resolution applicant. -  A person shall not be eligible to submit a resolution  plan,  if  such person,  or  any other  person acting jointly or in concert with such person—  (a) is an undischarged insolvent;  

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

(c) has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is  a promoter,  classified as non- performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) and at least a period

42

of  one  year  has  lapsed  from  the  date  of  such classification  till  the  date  of  commencement  of  the corporate  insolvency  resolution  process  of  the corporate debtor:  

Provided that the person shall be eligible to submit a resolution plan if  such person makes payment  of  all overdue  amounts  with  interest  thereon  and  charges relating  to  non-performing  asset  accounts  before submission of resolution plan;  

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

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

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

(g)  has  been  a  promoter  or  in  the  management  or control  of  a  corporate  debtor  in  which a  preferential transaction,  undervalued  transaction,  extortionate credit  transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code;  

(h) has executed an enforceable guarantee in favour of a  creditor  in  respect  of  a  corporate  debtor  against which an application for insolvency resolution made by such creditor has been admitted under this Code;  

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

(j) has a 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  control  of  the  resolution applicant; or  

(ii) any person who shall be the promoter or in management  or  control  of  the  business  of  the corporate  debtor  during  the  implementation  of

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the resolution plan; or  

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

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

(A) a scheduled bank; or  

(B) an asset reconstruction company registered with the Reserve Bank of India under section 3 of the  Securitisation  and  Reconstruction  of Financial  Assets  and  Enforcement  of  Security Interest Act, 2002 (54 of 2002); or  

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

23. Finally,  the  Insolvency  and  Bankruptcy  Code  (Second

Amendment) Act, 2018, received the assent of the President on

17.8.2018,  but  came  into  force  with  retrospective  effect  from

6.6.2018. The said amendment  inter alia amended Section 29A,

which now reads as follows:

“29A.  Persons  not  eligible  to  be  resolution applicant.—A person shall not be eligible to submit a resolution  plan,  if  such person,  or  any other  person acting jointly or in concert with such person— (a) is an undischarged insolvent;

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

(c)  at the time of submission of the resolution plan has an account, or an account of a corporate debtor under the management or control of such person or of whom such  person  is  a  promoter,  classified  as  non- performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) or the guidelines of

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a financial sector regulator issued under any other law for the time being in force, and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor:

Provided that the person shall be eligible to submit a resolution plan if  such person makes payment  of  all overdue  amounts  with  interest  thereon  and  charges relating  to  non-performing  asset  accounts  before submission of resolution plan:

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

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

Explanation II.—For the purposes of this clause, where a resolution applicant has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset and such account was  acquired  pursuant  to  a  prior  resolution  plan approved under this Code, then, the provisions of this clause shall not apply to such resolution applicant for a period of three years from the date of approval of such resolution plan by the Adjudicating Authority under this Code;

(d) has been convicted for any offence punishable with imprisonment—

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

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

Provided that this clause shall not apply to a person after the expiry of a period of two years from the date

45

of his release from imprisonment:

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

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

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

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

(g)  has  been  a  promoter  or  in  the  management  or control  of  a  corporate  debtor  in  which a  preferential transaction,  undervalued  transaction,  extortionate credit  transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code:

Provided  that  this  clause  shall  not  apply  if  a preferential  transaction,  undervalued  transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the corporate debtor  by  the  resolution  applicant  pursuant  to  a resolution plan approved under this Code or pursuant to  a  scheme or  plan approved by a  financial  sector regulator or a court, and such resolution applicant has not  otherwise  contributed  to  the  preferential transaction,  undervalued  transaction,  extortionate credit transaction or fraudulent transaction;

(h) has executed a guarantee in favour of a creditor in respect  of  a  corporate  debtor  against  which  an application  for  insolvency  resolution  made  by  such creditor has been admitted under this Code and such guarantee  has  been  invoked  by  the  creditor  and remains unpaid in full or part;

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

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

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

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

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

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

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

Provided  further  that  the  expression  “related  party” shall  not  include  a  financial  entity,  regulated  by  a financial sector regulator, if it is a financial creditor of the  corporate  debtor  and  is  a  related  party  of  the corporate  debtor  solely  on  account  of  conversion  or substitution of debt into equity shares or instruments convertible into 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  or  conditions  as  the  Central Government  may,  in  consultation  with  the  financial sector regulator, notify in this behalf, namely—

(a) a scheduled bank;

(b) any entity regulated by a foreign central bank or a securities market regulator or other financial sector  regulator  of  a  jurisdiction  outside  India which jurisdiction is compliant with the Financial Action Task Force Standards and is a signatory to  the  International  Organisation  of  Securities Commissions  Multilateral  Memorandum  of Understanding;

(c)  any  investment  vehicle,  registered  foreign institutional  investor,  registered  foreign  portfolio

47

investor  or  a  foreign  venture  capital  investor, where  the  terms  shall  have  the  meaning assigned to them in regulation 2 of the Foreign Exchange  Management  (Transfer  or  Issue  of Security  by  a  Person  Resident  Outside  India) Regulations,  2017  made  under  the  Foreign Exchange Management Act, 1999 (42 of 1999);

(d)  an asset reconstruction company registered with the Reserve Bank of India under Section 3 of  the  Securitisation  and  Reconstruction  of Financial  Assets  and  Enforcement  of  Security Interest Act, 2002 (54 of 2002);

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

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

24. The  Hon’ble Minister of Finance and Minister of Corporate

Affairs,  Shri  Arun  Jaitley,  while  moving  the  Insolvency  and

Bankruptcy Code (Amendment) Bill, 2017, stated on 29.12.2017:

“The  core  and  soul  of  this  new  Ordinance  is  really Clause 5,  which is Section 29A of  the original  Bill.  I may just explain that once a company goes into the resolution process, then applications would be invited with regard to the potential resolution proposals as far as  the  company  is  concerned  or  the  enterprise  is concerned. Now a number of ineligibility clauses were not there in the original Act and, therefore, Clause 29A introduces  those  who  are  not  eligible  to  apply.  For instance  there  is  a  clause  with  regard  to  an undischarged insolvent who is not eligible to apply; a person  who  has  been  disqualifies  under  the Companies  Act  as  a  director  cannot  apply  and  a person who is prohibited under the SEBI Act cannot apply.  So  these  are  statutory  disqualifications.  And there is also a disqualification in Clause (c) with regard to those who are corporate debtors and who as on the date  of  the  application  making  a  bid  do  not operationalise the account by paying the interest itself

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i.e.  you  cannot  say  that  I  have  an  NPA.  I  am  not making  the  account  operational.  The  accounts  will continue to be NPAs and yet I am going to apply for this.  Effectively this clause will  mean that  those who are  in  management  and  on  account  of  whom  this insolvent or non-performing asset has arisen will now try and say. I do not discharge any of the outstanding debts in terms of making the accounts operational and yet I would like to apply and set the enterprise back at a  discount  value,  for  this  is  not  the  object  of  this particular Act,  So clause 5 has been brought in with that purpose in mind.” (emphasis supplied)

25. The Statement of Objects and Reasons of the aforesaid Bill

lays down:

“2. The  provisions  for  insolvency  resolution  and liquidation of a corporate person in the Code did not restrict or bar any person from submitting a resolution plan or participating in the acquisition process of the assets  of  the  company  at  the  time  of  liquidation. Concerns  have  been  raised  that  persons  who,  with their misconduct contributed to defaults of companies or are otherwise undesirable, may misuse this situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process, and gain or regain control  of  the corporate debtor. This may undermine the  processes  laid  down  in  the  Code  as  the unscrupulous person would be seen to be rewarded at the expense of  the creditors.  In  addition,  in order to check  that  the  undesirable  persons  who  may  have submitted their resolution plans in the absence of such a provision,  responsibility  is  also being entrusted on the committee of creditors to give a reasonable period to  repay  overdue  amounts  and  become  eligible.” (emphasis supplied)

26. It is in this background that the section has to be construed.

In Ms. Eera Through Dr. Manjula Krippendorf v. State (Govt. of

49

NCT  of  Delhi)  &  Anr.,  (2017)  15  SCC  133,  this  Court,  after

referring  to  the golden  rule  of  literal  construction,  and its  older

counterpart  the  “object  rule”  in  Heydon’s  case,  referred  to  the

theory of creative interpretation as follows:-

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

“28.  It  is,  however,  becoming  increasingly fashionable to start with some theory of what is basic to a provision or a chapter or in a statute or even to our Constitution in order to interpret and determine the meaning of a particular provision or  rule  made  to  subserve  an  assumed “basic” requirement.  I  think  that  this  novel  method  of construction puts, if I may say so, the cart before the horse. It is apt to seriously mislead us unless the tendency to use such a mode of construction is  checked or  corrected by this  Court.  What  is basic for  a section or  a chapter in a statute is provided: firstly, by the words used in the statute itself;  secondly,  by  the  context  in  which  a provision occurs, or, in other words, by reading the statute as a whole; thirdly, by the Preamble which could supply the “key” to the meaning of the statute in cases of uncertainty or doubt; and, fourthly, where some further aid to construction may still be needed to resolve an uncertainty, by the legislative history which discloses the wider context or perspective in which a provision was made to meet a particular  need or to satisfy a particular  purpose.  The  last  mentioned method consists of an application of the mischief rule laid down in Heydon case [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637] long ago.”

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xxx xxx xxx

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

27. A purposive interpretation of Section 29A, depending both on

the text and the context in which the provision was enacted, must,

therefore,  inform  our  interpretation  of  the  same.   We  are

concerned in the present matter with sub-clauses (c), (f), (i) and (j)

thereof.

28. It  will  be  noticed  that  the  opening  lines  of  Section  29A

contained in the Ordinance of 2017 are different from the opening

lines of Section 29A as contained in the Amendment Act of 2017.

What is  important  to note is that  the phrase “persons acting in

concert” is conspicuous by its absence in the Ordinance of 2017.

The concepts  of  “promoter”,  “management”  and  “control”  which

51

were  contained  in  the  opening  lines  of  Section  29A under  the

Ordinance  have  now been  transferred  to  sub-clause  (c)  in  the

Amendment Act of 2017.  It is, therefore, important to note that the

Amendment Act of 2017 opens with language which is of wider

import than that contained in the Ordinance of 2017, evincing an

intention to rope in all persons who may be acting in concert with

the person submitting a resolution plan.  

29. The opening lines of Section 29A of the Amendment Act refer

to  a  de facto as  opposed to  a  de jure position of  the persons

mentioned therein.  This is a typical instance of a “see through

provision”, so that one is able to arrive at persons who are actually

in “control”,  whether jointly,  or  in concert,  with other persons. A

wooden, literal, interpretation would obviously not permit a tearing

of the corporate veil when it comes to the “person” whose eligibility

is  to  be  gone  into.   However,  a  purposeful  and  contextual

interpretation, such as is the felt necessity of interpretation of such

a provision as Section 29A, alone governs.  For example, it is well

settled  that  a  shareholder  is  a  separate  legal  entity  from  the

company in which he holds shares.  This may be true generally

speaking, but when it comes to a corporate vehicle that is set up

for the purpose of submission of a resolution plan, it is not only

permissible but imperative for the competent authority to find out

52

as  to  who  are  the  constituent  elements  that  make  up  such  a

company.  In such cases, the principle laid down in Salomon v. A

Salomon and Co.  Ltd. [1897]  AC 22  will  not  apply.   For  it  is

important  to  discover  in  such  cases  as  to  who  are  the  real

individuals or entities who are acting jointly or in concert, and who

have  set  up  such  a  corporate  vehicle  for  the  purpose  of

submission of a resolution plan.   

30. The doctrine of piercing the corporate veil is as well settled

as  the  Salomon  (supra.) principle  itself.  In  Life  Insurance

Corporation of India v. Escorts Ltd. & Ors., (1986) 1 SCC 264,

this Court held:

“90. It  was  submitted  that  the  thirteen  Caparo companies were thirteen companies in name only; they were but one and that one was an individual, Mr Swraj Paul.  One  had  only  to  pierce  the  corporate  veil  to discover  Mr  Swraj  Paul  lurking  behind.  It  was submitted  that  thirteen  applications  were  made  on behalf of thirteen companies in order to circumvent the scheme which prescribed a ceiling of one per cent on behalf  of  each  non-resident  of  Indian  nationality  or origin, or each company 60 per cent of whose shares were  owned  by  non-residents  of  Indian nationality/origin.  Our  attention  was  drawn  to  the picturesque  pronouncement  of  Lord  Denning  M.R. in Wallersteiner v. Moir [(1974)  3 All  ER 217]  and the decisions  of  this  Court  in Tata  Engineering  and Locomotive Co.  Ltd.  v. State of  Bihar [(1964)  6 SCR 885], CIT v. Sri  Meenakshi  Mills  Ltd. [(1967)  1  SCR 934]  and Workmen v. Associated  Rubber  Industry Ltd. [(1985) 4 SCC 114]. While it is firmly established ever since Salomon v. A. Salomon & Co. Ltd. [1897 AC 22] was decided that a company has an independent

53

and legal personality distinct from the individuals who are  its  members,  it  has  since  been  held  that  the corporate veil may be lifted, the corporate personality may  be  ignored  and  the  individual  members recognised  for  who  they  are  in  certain  exceptional circumstances  Pennington  in  his Company  Law (4th Edn.) states:

“Four inroads have been made by the law on the principle  of  the  separate  legal  personality  of companies.  By far  the most extensive of  these has been made by legislation imposing taxation. The  government,  naturally  enough,  does  not willingly  suffer  schemes  for  the  avoidance  of taxation which depend for their  success on the employment  of  the  principle  of  separate  legal personality, and in fact legislation has gone so far that  in  certain  circumstances  taxation  can  be heavier  if  companies  are  employed  by  the taxpayer in an attempt to minimise his tax liability than if he uses other means to give effect to his wishes.  Taxation  of  companies  is  a  complex subject,  and is  outside the scope of  this  book. The reader who wishes to pursue the subject is referred  to  the  many  standard  text  books  on corporation tax, income tax, capital gains tax and capital transfer tax.

The other  inroads  on  the  principle  of  separate corporate  personality  have  been  made  by  two sections of the Companies Act, 1948, by judicial disregard of the principle where the protection of public  interest  is  of  paramount  importance,  or where the company has been formed to evade obligations imposed by the law, and by the courts implying in certain cases that a company is an agent or trustee for its members.”

In Palmer's  Company  Law (23rd  Edn.),  the  present position in England is stated and the occasions when the corporate veil may be lifted have been enumerated and  classified  into  fourteen  categories.  Similarly in Gower's  Company  Law (4th  Edn.),  a  chapter  is devoted to ‘lifting the veil’ and the various occasions when  that  may  be  done  are  discussed.  In Tata Engineering and Locomotive Co.  Ltd. [(1964)  6 SCR

54

885] the company wanted the corporate veil to be lifted so as to sustain the maintainability of the petition, filed by the company under Article 32 of the Constitution, by treating  it  as  one  filed  by  the  shareholders  of  the company.  The  request  of  the  company  was  turned down on the ground that it was not possible to treat the company as a citizen for  the purposes of  Article 19. In CIT v. Sri Meenakshi Mills Ltd. [(1967) 1 SCR 934] the corporate veil was lifted and evasion of income tax prevented by paying regard to the economic realities behind  the  legal  facade.  In Workmen v. Associated Rubber  Industry  Ltd. [(1985)  4  SCC 114]  resort  was had to the principle of lifting the veil to prevent devices to  avoid  welfare  legislation.  It  was  emphasised  that regard must be had to substance and not the form of a transaction.  Generally and broadly speaking, we may say  that  the  corporate  veil  may  be  lifted  where  a statute itself  contemplates lifting the veil,  or  fraud or improper  conduct  is  intended  to  be  prevented,  or  a taxing statute or a beneficent statute is sought to be evaded  or  where  associated  companies  are inextricably connected as to be, in reality, part of one concern.  It  is  neither  necessary  nor  desirable  to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to  be  achieved,  the  impugned  conduct,  the involvement of the element of the public interest, the effect on parties 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

43 and 44 as follows:  

“43. We are of  the view that  in a given situation the authorities functioning under FERA find that there are attempts to overreach the provision of  Section 29(1) (a), the authority can always lift the veil and examine whether the parties have entered into any fraudulent, sham, circuitous device so as to overcome statutory

55

provisions like Section 29(1)(a). It is trite law that any approval/permission obtained by non-disclosure of all necessary information or making a false representation tantamount  to  approval/permission  obtained  by practising fraud and hence a nullity. Reference may be made  to  the  judgment  of  this  Court  in Union  of India v. Ramesh Gandhi [(2012) 1 SCC 476]. 44. Even  in Escorts  case [(1986)  1  SCC  264],  this Court has taken the view that it  is neither necessary nor desirable to enumerate the classes of cases where lifting  the  veil  is  permissible,  since  that  must necessarily depend on the relevant statutory or other provisions,  the  object  sought  to  be  achieved,  the impugned conduct, the involvement of the element of the public interest,  the effect on parties who may be affected, etc. In Escorts case [(1986) 1 SCC 264], this Court held as follows: (SCC pp. 335-36, para 90)

“90. … Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or  a  taxing  statute  or  a  beneficent  statute  is sought  to  be  evaded  or  where  associated companies are inextricably connected as to be, in reality, part of one concern.””

32. Similarly in Balwant Rai Saluja & Anr. etc. etc. v. Air India

Ltd. & Ors., (2014) 9 SCC 407, this Court in following  Escorts

Ltd. (supra.), held:

“70. The doctrine of “piercing the corporate veil” stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders with  its  own legal  rights and obligations.  It  seeks to disregard the separate personality of the company and attribute  the  acts  of  the  company  to  those  who are allegedly in direct control of its operation. The starting point of this doctrine was discussed in the celebrated case of Salomon v. Salomon & Co. Ltd. [1897 AC 22] Lord  Halsbury  LC,  negating  the  applicability  of  this doctrine to the facts of the case, stated that: (AC pp.

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30 & 31) “[a  company]  must  be  treated  like  any  other independent person with its rights and liabilities [legally]  appropriate  to  itself  …  whatever  may have been the ideas or schemes of those who brought 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  the  company  was  a  “sham”  or  a  “façade”. However,  there  was  yet  to  be  any  clarity  on applicability of the said doctrine.

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

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

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

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

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

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

(vi) The company may be a “façade” even though it  was  not  originally  incorporated  with  any deceptive intent, provided that it is being used for the  purpose  of  deception  at  the  time  of  the relevant transactions. The court would, however, pierce  the corporate  veil  only  so  far  as  it  was necessary in order to provide a remedy for the particular  wrong  which  those  controlling  the company had done

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72. The  principles  laid  down  by Ben  Hashem case [Ben  Hashem v. Ali  Shayif,  2008  EWHC  2380 (Fam)] have been reiterated by the UK Supreme Court by  Lord  Neuberger  in Prest v. Petrodel  Resources Ltd. [(2013)  2  AC  415],  UKSC  at  para  64.  Lord Sumption,  in Prest  case [(2013)  2  AC  415],  finally observed as follows: (AC p. 488, para 35)

“35. I conclude that there is a limited principle of English  law  which  applies  when  a  person  is under  an  existing  legal  obligation or  liability  or subject to an existing legal restriction which he deliberately  evades  or  whose  enforcement  he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose,  of  depriving  the  company  or  its controller  of  the  advantage  that  they  would otherwise  have  obtained  by  the  company's separate  legal  personality.  The  principle  is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between  the  company  and  its  controller  which will make it unnecessary to pierce the corporate veil.”

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

“90. … Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or  a  taxing  statute  or  a  beneficent  statute  is sought  to  be  evaded  or  where  associated companies are inextricably connected as to be, in  reality,  part  of  one  concern.  It  is  neither necessary  nor  desirable  to  enumerate  the classes  of  cases  where  lifting  the  veil  is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object  sought  to  be  achieved,  the  impugned

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conduct,  the involvement of  the element of  the public interest, the effect on parties who may be affected, etc.””

33. Similarly  in  Delhi  Development  Authority v.  Skipper

Construction Company (P) Ltd. & Another, (1996) 4 SCC 622,

this Court held:

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

“the  company  is  at  law  a  different  person altogether from the subscribers …; and, though it may be that  after  incorporation the business is precisely the same as it  was before,  the same persons  are  managers,  and  the  same  hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are  the  subscribers  as  members  liable,  in  any shape or form, except to the extent  and in the manner provided by that Act.”

Since  then,  however,  the  courts  have  come  to recognise several exceptions to the said rule. While it is not necessary to refer to all of them, the one relevant to  us  is  “when  the  corporate  personality  is  being blatantly  used  as  a  cloak  for  fraud  or  improper conduct”.  [Gower: Modern Company Law — 4th Edn. (1979)  at  p.  137.]  Pennington (  Company Law     — 5th Edn.  1985  at  p.  53)  also  states  that  “where  the protection  of  public  interests  is  of  paramount importance or where the company has been formed to evade obligations imposed by the law”, the court will disregard  the  corporate  veil.  A Professor  of  Law,  S. Ottolenghi  in  his  article  “From  peeping  behind  the Corporate Veil, to ignoring it completely” says

“the concept  of  ‘piercing the veil’ in  the United States is much more developed than in the UK. The motto, which was laid down by Sanborn, J. and cited since then as the law, is that ‘when the notion  of  legal  entity  is  used  to  defeat  public convenience,  justify  wrong,  protect  fraud,  or

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defend crime, the law will regard the corporation as an association of persons’. The same can be seen in various European jurisdictions.”  [(1990) 53 Modern Law Review 338]

Indeed,  as  far  back  as  1912,  another  American Professor L. Maurice Wormser examined the American decisions on the subject  in a brilliantly written article “Piercing  the  veil  of  corporate  entity”  [published  in (1912)  XII Columbia  Law  Review  496]  and summarised  their  central  holding  in  the  following words:

“The various classes of cases where the concept of corporate entity should be ignored and the veil drawn  aside  have  now  been  briefly  reviewed. What general rule, if any, can be laid down? The nearest  approximation  to  generalisation  which the present state of the authorities would warrant is this: When the conception of corporate entity is employed  to  defraud  creditors,  to  evade  an existing  obligation,  to  circumvent  a  statute,  to achieve  or  perpetuate  monopoly,  or  to  protect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and-doing, men and women shareholders, and will do justice between real persons.”

25. In Palmer's Company Law, this topic is discussed in Part II of Vol. I. Several situations where the court will disregard the corporate veil are set out. It would be sufficient  for  our  purposes  to  quote  the  eighth exception. It runs:

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

Similar  views  have  been  expressed  by  all  the

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commentators on the Company Law which we do not think necessary to refer to.

26. The law as stated by Palmer and Gower has been approved  by  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  the  veil  of  a  corporate  body  has been  lifted.  But,  it  would  not  be  possible  to evolve  a  rational,  consistent  and  inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should  be  lifted  or  not.  Broadly  stated,  where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions and the shareholders  are  held  to  be  the  persons  who actually work for the corporation.”

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

“there  is  evidence  of  a  general  tendency  to ignore  the  separate  legal  entities  of  various companies within a group, and to look instead at the economic entity of the whole group”.

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

28. The  concept  of  corporate  entity  was  evolved  to encourage and promote trade and commerce but not to  commit  illegalities  or  to  defraud  people.  Where, therefore, the corporate character is employed for the purpose  of  committing  illegality  or  for  defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate  bodies  does  not  prevent  this  Court  from

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treating  all  of  them  as  one  entity  belonging  to  and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks  Tejwant  Singh  and/or  members  of  his family and that the device of incorporation was really a ploy  adopted  for  committing  illegalities  and/or  to defraud people.” (emphasis supplied)

34. It is thus clear that, where a statute itself lifts the corporate

veil,  or  where  protection  of  public  interest  is  of  paramount

importance,  or  where  a  company  has  been  formed  to  evade

obligations  imposed  by  the  law,  the  court  will  disregard  the

corporate  veil.  Further,  this  principle  is  applied  even  to  group

companies, so that one is able to look at the economic entity of the

group as a whole.  

35. The expression “acting jointly”  in  the opening sentence of

Section 29A cannot be confused with “joint venture agreements”,

as was sought to be argued by Shri  Rohatgi.  He cited various

judgments including Faqir Chand Gulati v. Uppal Agencies Pvt.

Ltd. & Anr., (2008) 10 SCC 345, and Laurel Energetics Private

Limited v. Securities and Exchange Board of India,  (2017) 8

SCC  541,  to  buttress  his  submission  that  a  joint  venture  is  a

contractually agreed sharing of control over an economic activity.

We are afraid that these judgments are wholly inapplicable.  All

that  is  to  be seen by the expression “acting jointly”  is  whether

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certain persons have got together and are acting “jointly” in the

sense of acting together.  If this is made out on the facts, no super

added element of “joint venture” as is understood in law is to be

seen.  The other important phrase is “in concert”.  By Section 3(37)

of the Code, words and expressions used but not defined in the

Code  but  defined  inter  alia by  the  SEBI  Act,  1992,  and  the

Companies  Act,  2013,  shall  have  the  meanings  respectively

assigned to them in those Acts. In exercise of powers conferred by

Sections 11 and 30 of  the SEBI  Act,  1992,  the 2011 Takeover

Regulations have been promulgated by SEBI.   

36. Originally,  the SEBI (Substantial  Acquisition of  Shares and

Takeovers) Regulations, 1994, defined “persons acting in concert”

as follows:

“(d) “person  acting  in  concert”  comprises  persons who,  pursuant  to  an  agreement  or  understanding acquires or agrees to acquire shares in a company for a  common  objective  o  purpose  of  substantial acquisition of shares and includes: i.  a company, its holding company, or subsidiaries of such  companies  or  companies  under  the  same management either individually or all with each other.

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

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

iv. mutual fund, financial institution, merchant banker, portfolio  manager  and  any  investment  company  in which  any  person  has  an  interest  as  director,  fund

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manager, trustee, or as a shareholder having not less than 2% of the paid-up capital of that company.

Explanation –  For  the  purposes  of  this  clause “associate” means:-

A. Any relative of that person within the meaning of  section 6 of  the Companies Act,  1956 (1 of 1956);

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

This was replaced in 1997 by the Regulations of 1997,  and then

further by the 2011 Takeover Regulations.  

37. The Justice P.N. Bhagwati Committee Report on Takeovers,

1997,  pursuant  to  which the Regulations of  1997 were framed,

stated as follows:

“2.22  Definition of ‘Persons acting in concert’ “Persons acting in concert” have particular relevance to  public  offers,  for  often  an  acquirer  can  acquire shares or voting rights in a company “in concert” with any  other  person  in  a  manner  that  the  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  to  define  “persons  acting  in concert”. To be acting in concert with an acquirer, persons must fulfil  certain  “bright  line”  tests.  They  must  have commonality  of  objectives  and  a  community  of interests which could be acquisition of shares or voting rights  beyond  the  threshold  limit,  or  gaining  control over the company and their act of acquiring the shares or voting rights in a company must serve this common objective.  Implicit  in  the  concerted  action  of  these persons must be an element of  cooperation.  And as has  been  observed,  this  cooperation  could  be

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extended  in  several  ways,  directly  or  indirectly,  or through  an  agreement  –  formal  or  informal.  The committee was of the view that the present definition of “persons  acting  in  concert”  in  sub-clause  (d)  of regulation  2  needed  to  be  strengthened  by incorporating  all  the  ingredients  discussed  in  the foregoing paragraph to bring out clearly the import of acting in concert.  Any  person  fulfilling  the  “bright  line”  tests  would  be acting  in  concert.  But  there  could  also  be  certain persons who, by their position 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,  a  rebuttable presumption of being persons in concert with burden of proof  cast  on  them  will  be  raised  against  these persons. The Committee was of the view that while the net of presumption should be cast to include all such persons,  it  should  not  be  cast  too  widely  so  as  to impinge on the freedom of any person to carry on his normal business activities. In other words, there should be well defined bounds of presumption. xxx xxx xxx 2.23 Burden  of  proof  on  ‘persons  acting  in concert’ The  Committee  further  noted  that  in  the  existing Regulations,  there  is  no  burden  of  proof  on  the ‘persons acting in concert’. Once the burden of proof is cast on the persons presumed to be acting in concert, it  would be important to ensure that the persons are grouped in categories such that the persons may be presumed to  be  acting  in  concert  only  with  another person  belonging  to  the  same  category.  A  general reading of the existing provisions implies that a person belonging to any one of the categories mentioned in sub-clauses (i) to (iv) of clause (d) of regulation 2 could be  presumed to  be  acting  in  concert  with  a  person belonging  to  any  other  category.  Thus,  a  company could  be  presumed  to  be  acting  in  concert  with  a merchant banker, mutual fund, or any other body even though they may all be distinctly independent entities without any connection whatsoever. Such irrebuttable presumption of a common motive amongst unrelated parties  would  be  illogical  and  not  legally  tenable.  A

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distinction must be made between persons who could be presumed to be acting in concert unless proved to the contrary and others who may be acting in concert even  though  such  a  presumption  cannot  be  raised against them. In this context, it may be noted that the UK City Code of Takeovers and Mergers, for this very reason, has divided the persons acting in concert into groups in such a manner that these persons would in the natural course of affairs be presumed to be acting in concert only with another person in the same group. This  served  to  set  the  pattern  for  raising  rebuttable presumptions. The Committee recommends that  .In  the  definition  of  persons  acting  in  concert,  the

persons be grouped in such a manner in the same group or category that they bear such relationship amongst  themselves  as  could  justify  raising  of  a presumption  in  the  normal  course  of  affairs  that they are acting in concert.  For example, a sponsor of a mutual fund could be presumed to be acting in concert  with  the  trustee  company  or  asset management  company  of  the  same mutual  fund; similarly a merchant banker may be presumed to be acting in concert with his client as acquirer. But no presumption may be made that persons in one group are acting in concert with persons in another group. It has to be proved by evidence that they are acting in concert. (Reference: Part II of the Report – sub-clause (e)  of sub-regulation (1)  of regulation 2) .

The  definition  of  the  persons  acting  in  concert  as defined above would imply a rebuttable presumption. The question which arises is who would rule whether the presumption has been rebutted. The responsibility of ruling will lie with SEBI and over a period of time, 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:-

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

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

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

(i)  a  company,  its  holding  company,  subsidiary company  and  any  company  under  the  same management or control;  

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

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

(iv)  promoters  and  members  of  the  promoter group;  

(v) immediate relatives;  

(vi) a mutual fund, its sponsor, trustees, trustee company, and asset management company;  

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

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

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

(ix) [***]  

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

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(xi) a 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  a holding  company or  subsidiary  of  the  acquirer, and where the acquirer  is  an individual,  of  the immediate relative of such individual:  

Provided that this sub-clause shall not apply to a bank whose sole role is that of providing normal commercial  banking  services  or  activities  in relation to an open offer under these regulations;  

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

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

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

(a) any immediate relative of such person;  

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

(c) partnership firm in which such person or his immediate relative is a partner; and

(d) members of Hindu undivided families of which such person is a coparcener;”

39. It  will  be  seen  from  the  wide  language  used,  that  any

understanding, even if it is informal, and even if it is to indirectly

cooperate to exercise control over a target company, is included.

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Under sub-clause (2) of clause (q), a deeming fiction is enacted,

by which a presumption is raised in the categories mentioned, that

a  person falling  within  one category  is  deemed to  be acting in

concert  with  another  person  mentioned  in  the  same  category,

unless the contrary is established. The corporate veil is not merely

torn but is left in tatters by sub-clauses (i) to (iv) of Regulation 2(1)

(q)(2).  What is also important to note is that “ immediate relatives”

are also covered by sub-clause (v) – i.e., father and son, brothers,

etc.  Also  of  importance  is  the  definition  of  “associate”  in  the

explanation to Regulation 2(1)(q)(2), which subsumes not merely

immediate  relatives  but  other  forms  in  which  a  person  can  be

associated  with  another  -  which  includes  the  form  of  trust,

partnership  firm and HUF.  What  is  of  great  importance is  that

wherever persons act jointly or in concert with the “person” who

submits a resolution plan, all such persons are covered by Section

29A. It is interesting to note that the report of the Insolvency Law

Committee of March, 2018, wanted to curtail the wide definition of

persons acting jointly or in concert as follows:

“14.3 The term 'person acting jointly or in concert' has not been defined 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 person within the scope of section 29A. In practice,  it  is  unclear whether the term 'connected person' in clause (j) applies to only the resolution applicant or even 'persons acting jointly or in

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concert with such person'. If the latter interpretation is taken,  this  provision  would  be  applicable  to  multiple layers  of  persons  who  are  related  to  the  resolution applicant  even  remotely.  Further,  ARCs,  banks  and alternate  investment  funds  which  are  specifically excluded  from  the  definition  of  'connected  person' provided in  section 29A may be caught  by the term 'person acting jointly or in concert with such person'. The Committee felt that section 29A was introduced to disqualify  only  those  who  had  contributed  in  the downfall of the corporate debtor or were unsuitable to run the company because of their antecedents whether directly  or  indirectly.  Therefore,  extending  the disqualification  to  a  resolution  application  owing to infirmities in persons remotely related may have adverse consequences. Such interpretation of this provision  may  shrink  the  pool  of  resolution applicants. Accordingly, the Committee felt that the words,  “…,  if  such  person,  or  any  other  person acting jointly or in concert with such person" in the first  line  of  section  29A  must  be  deleted.  This would clarify that section 29A is applicable to the resolution applicant and its connected person only. Further, in order to ensure that anyone who acts with a common objective along with the resolution applicant  to  acquire  shares,  voting  rights  or control of the corporate debtor is required to pass the test laid down in section 29A, the Committee felt  that  the  following  clause  must  be  added  as clause (iv) to the definition of connected person in the explanation to clause (j), "(iv) any persons who along with the resolution applicant, with a common objective  or  purpose of  acquisition  of  shares  or voting  rights  in,  or  exercising  control  over  a corporate  debtor,  pursuant  to  an  agreement  or understanding,  formal  or  informal,  directly  or indirectly co-operate for  acquisition of  shares or voting  rights  in,  or  exercise  of  control  over  the corporate debtor."”

This part of the report has not been accepted by the legislature, as

none of the suggested changes in the law have been made.  

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40. In Technip SA v. SMS Holding (Pvt.) Ltd. & Ors., (2005) 5

SCC 465,  this  Court  after  referring  to  the  Bhagwati  Committee

Report of 1997, stated as follows:-

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

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

55. While  deciding  whether  a  company  was  one  in which  the  public  were  substantially  interested  within the meaning of  Section 23-A of  the Income Tax Act, 1922 this Court said:

“The test is not whether they have actually acted in  concert  but  whether  the  circumstances  are such that human experience tells us that it can safely be taken that they must be acting together. It is not necessary to state the kind of evidence that will prove such concerted actings. Each case must necessarily  be 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 PLC and  Distillers  Company  PLC (Panel  hearing  on 25-8-1987 and 2-9-1987 at p. 10052 — Reasons for decisions  of  the  Panel.)]  the  question  before  the Takeover Panel  was whether Guinness had acted in concert with Pipetec when Pipetec purchased shares in Distillers Company PLC. Various factors were taken into consideration to conclude that Guinness had acted in  concert  with  Pipetec  to  get  control  over  Distillers Company. The Panel said:

“The nature of acting in concert requires that the definition be drawn in deliberately wide terms. It covers  an  understanding  as  well  as  an agreement, and an informal as well as a formal arrangement,  which  leads  to  cooperation  to

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purchase shares to acquire control of a company. This  is  necessary,  as  such  arrangements  are often informal, and the understanding may arise from a hint. The understanding may be tacit, and the definition covers situations where the parties act on the basis of a ‘nod or a wink’….  Unless persons  declare  this  agreement  or understanding, there is rarely direct evidence of action in concert, and the Panel must draw on its experience  and  common  sense  to  determine whether  those  involved  in  any  dealings  have some form of  understanding  and  are  acting  in cooperation  with  each  other.”  [Guinness  PLC and Distillers  Company PLC (Panel  hearing  on 25-8-1987 and 2-9-1987 at p. 10052 — Reasons for decisions of  the Panel.)]”         (emphasis supplied)

41. In  M/s.  Daiichi  Sankyo  Company  Ltd.  v.  Jayaram

Chigurupati & Ors., (2010) 7 SCC 449, this Court referred to the

concept of “persons acting in concert” and held that there must be

a shared common objective for substantial acquisition of shares of

a  target  company  under  the  SEBI  regulations.   A  fortuitous

relationship coming into existence by accident or chance obviously

cannot amount to “persons acting in concert”.  This Court held:-

“49. The  other  limb  of  the  concept  requires  two  or more persons joining together with the shared common objective  and  purpose  of  substantial  acquisition  of shares, etc. of a certain target company. There can be no “persons acting in concert” unless there is a shared common  objective  or  purpose between  two  or  more persons of substantial acquisition of shares, etc. of the target company. For, dehors the element of the shared common  objective  or  purpose the  idea  of  “person acting  in  concert”  is  as  meaningless  as  a  criminal conspiracy without any agreement to commit a criminal

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offence. The idea of “persons acting in concert” is not about a fortuitous relationship coming into existence by accident  or  chance.  The  relationship  can  come  into being only by design,  by meeting of  minds between two or more persons leading to the shared common objective  or  purpose  of  acquisition  or  substantial acquisition of shares, etc. of the target company.  It is another matter that the common objective or purpose may  be  in  pursuance  of  an  agreement  or  an understanding,  formal  or  informal;  the  acquisition  of shares, etc. may be direct or indirect or the persons acting in concert may cooperate in actual acquisition of shares, etc. or they may agree to cooperate in such acquisition.  Nonetheless,  the  element  of  the  shared common objective or purpose is the sine qua non for the relationship of “persons acting in concert” to come into being.” (emphasis supplied)

When coming to the presumption created by the provision,  this

Court held that the deeming provision is left open to rebuttal as

indicated by the words “unless the contrary is established” (see

paragraph  54  of  Daiichi  (supra.)).  Finally,  this  Court  held  that

whether a person is or is not acting in concert would depend upon

the facts of each case. (see paragraph 57 of Daiichi (supra.)).

42. When we come to sub-clause (c) of Section 29A, the first

thing that was argued, at which the parties were at loggerheads,

was  the  time  at  which  sub-clause  (c)  can  be  said  to  operate.

According  to  Shri  Rohatgi,  in  the  original  sub-clause  (c),  pre-

amendment,  the  time  must  necessarily  be  the  date  of

commencement of the corporate insolvency resolution process, as

is mentioned by the Section itself.  According to Messrs Salve and

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Singhvi,  it  is  clear that  since submission of  a resolution plan is

spoken of, it is the time of submission of such plan and not any

anterior stage.   

43. According to us, it is clear that the opening words of Section

29A furnish a clue as to the time at  which sub-clause (c)  is  to

operate. The opening words of Section 29A state: “a person shall

not be eligible to submit a resolution plan…”.  It is clear therefore

that the stage of ineligibility attaches when the resolution plan is

submitted by a resolution applicant.  The contrary view expressed

by  Shri  Rohatgi  is  obviously  incorrect,  as  the  date  of

commencement of the corporate insolvency resolution process is

only relevant for the purpose of calculating whether one year has

lapsed  from  the  date  of  classification  of  a  person  as  a  non-

performing asset.  Further, the expression used is “has”, which as

Dr.  Singhvi  has  correctly  argued,  is  in  praesenti.  This  is  to  be

contrasted with the expression “has been”, which is used in sub-

clauses  (d)  and  (g),  which  refers  to  an  anterior  point  of  time.

Consequently, the amendment of 2018 introducing the words “at

the time of submission of the resolution plan” is clarificatory, as this

was always the correct  interpretation as to the point  of  time at

which  the  disqualification  in  sub-clause  (c)  of  Section  29A will

attach.   In  fact,  the  amendment  was  made  pursuant  to  the

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Insolvency Law Committee Report of March, 2018.  That report

clearly stated:

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

44. The ingredients of sub-clause (c) are that, the ineligibility to

submit a resolution plan attaches if any person, as is referred to in

the opening lines of Section 29A, either itself has an account, or is

a promoter of,  or in the management or control  of,  a corporate

debtor which has an account, which account has been classified

as a non-performing asset, for a period of at least one year from

the date of such classification till the 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 debtor may be

under the management of the person referred to in Section 29A,

the corporate debtor may be a person under the control of such

person, or the corporate debtor may be a person of whom such

person is a promoter.  

45. The  expression  “management”  would  refer  to  the  de  jure

management of a corporate debtor.  The de jure management of a

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corporate debtor would ordinarily vest in a 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 of the Companies Act, 2013, the persons mentioned

therein.  

46. The expression “control”  is defined in Section 2(27) of the

Companies Act, 2013 as follows:-

“(27) “control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or  voting agreements or in any other manner;”

47. The expression “control”  is  therefore  defined in  two parts.

The first part refers to  de jure control, which includes the right to

appoint a majority of the directors of a company.  The second part

refers to de facto control.  So long as a person or persons acting in

concert,  directly  or  indirectly,  can  positively  influence,  in  any

manner, management or policy decisions, they could be said to be

“in control”.  A management decision is a decision to be taken as

to how the corporate body is to be run in its day to day affairs. A

policy decision would be a decision that would be beyond running

day  to  day  affairs,  i.e.,  long  term  decisions.   So  long  as

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management or policy decisions can be, or are in fact, taken by

virtue  of  shareholding,  management  rights,  shareholders

agreements, voting agreements or otherwise, control can be said

to exist.  

48. Thus,  the expression “control”,  in  Section 29A(c),  denotes

only positive control, which means that the mere power to block

special  resolutions  of  a  company  cannot  amount  to  control.

“Control” here, as contrasted with “management”, means de facto

control of actual management or policy decisions that can be or

are in fact taken.  A judgment 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 following observations qua “control” under

the  SEBI  (Substantial  Acquisition  of  Shares  and  Takeover)

Regulations, 1997, wherein “control” is defined in Regulation 2(1)

(e)  in  similar  terms as  in  Section  2(27)  of  the  Companies  Act,

2013. The Securities Appellate Tribunal held:

“6. …The term control has been defined in Regulation 2(1)(c)  of  the  takeover  code to  "include  the  right  to appoint  majority  of  the  directors  or  to  control  the management  or  policy  decisions  exercisable  by  a person  or  persons  acting  individually  or  in  concert, directly  or  indirectly,  including  by  virtue  of  their shareholding  or  management  rights  or  shareholders agreements  or  voting  agreements  or  in  any  other manner."  This  definition  is  an  inclusive  one  and not

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exhaustive  and  it  has  two  distinct  and  separate features: i) the right to appoint majority of directors or, ii)  the  ability  to  control  the  management  or  policy decisions  by  various  means  referred  to  in  the definition.  This  control  of  management  or  policy decisions  could  be  by  virtue  of  shareholding  or management  rights  or  shareholders  agreement  or voting  agreements  or  in  any  other  manner.  This definition appears to be similar to the one as given in Black's  Law Dictionary  (Eighth  Edition)  at  page  353 where this term has been defined as under:

“Control - The direct or indirect power to direct the  management  and  policies  of  a  person  or entity,  whether  through  ownership  of  voting securities, by contract, or otherwise; the power or authority to manage, direct, or oversee.”

Control, according to the definition, is a proactive and not a reactive power. It is a power by which an acquirer can command the target company to do what he wants it to do. Control really means creating or controlling a situation by taking the initiative.  Power  by  which  an acquirer can only prevent a company from doing what 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 a positive power and not a negative power. In a board managed company, it is the board of directors that is in control. If an acquirer were to have power to appoint majority of directors, it is obvious that he would be in control of the company but that is not the only way to be in control.  If  an acquirer were to control  the  management  or  policy  decisions  of  a company, he would be in control. This could happen by virtue of his shareholding or management rights or by reason  of  shareholders  agreements  or  voting agreements or in any other manner. The test really is whether the acquirer is in the driving seat. To extend the metaphor further, the question would be whether he controls the steering, accelerator, the gears and the brakes.  If  the  answer  to  these  questions  is  in  the affirmative,  then alone would he be in control  of  the company. In other words, the question to be asked in each case would be whether the acquirer is the driving force behind the company and whether he is the one

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providing motion to the organization.  If  yes,  he is  in control  but  not  otherwise.  In  short  control  means effective control.”

49. We think that these observations are apposite, and apply to

the expression “control” in Section 29A(c).  

50. Section  29A(c)  speaks  of  a  corporate  debtor  “under the

management or control of such person”. The expression “under”

would seem to suggest positive or proactive control, as opposed to

mere  negative  or  reactive  control.   This  becomes even clearer

when  sub-clause  (g)  of  Section  29A  is  read,  wherein  the

expression used is “in the management or control of a corporate

debtor”. Under sub-clause (g), only a person who is in proactive or

positive  control  of  a  corporate  debtor  can  take  the  proactive

decisions  mentioned  in  sub-clause  (g),  such  as,  entering  into

preferential,  undervalued,  extortionate  credit,  or  fraudulent

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 a sociis must also be held to apply.

Thus viewed, what is referred to in sub-clauses (c) and (g) is  de

jure or  de  facto proactive  or  positive  control,  and  not  mere

negative control which may flow from an expansive reading of the

definition of the word “control” contained in Section 2(27) of the

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Companies  Act,  2013,  which is  inclusive  and not  exhaustive  in

nature.  

51. In a recent judgment delivered by one of us (Nariman, J.) in

Chintalapati Srinivasa Raju v. Securities and Exchange Board

of  India,  (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  a  fixed  monthly  salary,  post  resignation,

cannot  be  held  to  be  a  person  exercising  “control”  within  the

meaning  of  the  SEBI  regulations.   This  Court  referred  to  with

approval the  following  test  laid  down  in  Securities  and

Exchange Board of India v. Kishore R. Ajmera, (2016) 6 SCC

368:-

“26. It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct  substantive evidence or,  as in many cases, such  proof  may  have  to  be  inferred  by  a  logical process of reasoning from the totality of the attending facts  and  circumstances  surrounding  the allegations/charges  made  and  levelled.  While  direct evidence  is  a  more  certain  basis  to  come  to  a conclusion,  yet,  in  the  absence  thereof  the  Courts cannot be helpless. It is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding  the  events  on  which  the charges/allegations  are  founded  and  to  reach  what would  appear  to  the  Court  to  be  a  reasonable conclusion therefrom. The test  would always be that what inferential process that a reasonable/prudent man would  adopt  to  arrive  at  a  conclusion.”  (emphasis supplied)

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52. The third concept is that of a promoter.  “Promoter” is defined

by Section 2(69) of the Companies Act, 2013 as follows:

“(69) “promoter” means a person— (a) who has been named as such in a prospectus or  is  identified  by  the  company  in  the  annual return referred to in Section 92; or (b)  who  has  control  over  the  affairs  of  the company,  directly  or  indirectly  whether  as  a shareholder, director or otherwise; or

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

Provided that nothing in sub-clause (c) shall apply to a person  who  is  acting  merely  in  a  professional capacity;”

53. Here  again,  sub-clause  (a)  refers  to  a  de  jure position,

namely, where a person is expressly named in a prospectus or

identified by the company in an annual return as a promoter.  Sub-

clauses (b) and (c) speak of a de facto position.  Under sub-clause

(b),  so  long  as  a  person  has  “control”  over  the  affairs  of  a

company, directly or indirectly, in any manner, he could be said to

be  a  promoter  of  such  company.  Under  sub-clause  (c),  such

person  need  not  be  a  member  of  the  Board  of  Directors  of  a

company,  but  can  be  a  person  who in  fact  advises,  directs  or

instructs the Board to act.  Under the proviso, only a person who

acts in a professional capacity is excluded from the talons of sub-

clause (c).

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54. The interpretation of Section 29A(c) now becomes clear. Any

person who wishes to submit a resolution plan, if he or it does so

acting jointly,  or  in concert  with other persons, which person or

other persons happen to either manage or control or be promoters

of a corporate debtor, who is classified as a non-performing asset

and whose debts have not been paid off for a period of at least

one  year  before  commencement  of  the  corporate  insolvency

resolution process, becomes ineligible to submit a resolution plan.

This provision therefore ensures that if a person wishes to submit

a resolution plan, and if such person or any person acting jointly or

any  person  in  concert  with  such  person,  happens  to  either

manage, control, or be promoter of a corporate debtor declared as

a non-performing asset one year before the corporate insolvency

resolution process begins, is ineligible to submit a resolution plan.

The  first  proviso  to  sub-clause  (c)  makes  it  clear  that  the

ineligibility  can  only  be  removed  if  the  person  submitting  a

resolution  plan  makes  payment  of  all  overdue  amounts  with

interest thereon and charges relating to the non-performing asset

in question before submission of a resolution plan. The position in

law is thus clear.  Any person who wishes to submit a resolution

plan acting jointly or in concert with other persons, any of whom

may either manage, control or be a promoter of a corporate debtor

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classified  as  a  non-performing  asset  in  the  period

abovementioned, must first pay off the debt of the said corporate

debtor classified as a non-performing asset in order to become

eligible under Section 29A(c).  

55. However,  Messrs Salve and Singhvi  have argued that  the

expression “before submission of resolution plan” contained in the

proviso must  be read in  a commercially  sensible manner.   The

provision must, therefore, be interpreted to make it workable, and

create a situation so that banks can recover the maximum possible

amounts from the NPAs generally, and not merely from the NPAs

of the corporate debtor in respect of which it is receiving resolution

plans.  In this context, therefore, if there is a system by which a

person  who  presents  a  resolution  plan  can  pay  off  the  entire

amount  of  the  NPAs  as  a  part  of  its  resolution  plan,  to  be

appropriated  before  the  resolution  plan  is  accepted  and

implemented, it would fully subserve the object of both the proviso

and  the  statute  generally.   According  to  them,  the  words  of  a

statute can be altered suitably to avoid hardship or absurdity.  We

are afraid that we cannot accept the aforesaid submission.  The

plain language of the proviso makes it clear, that ineligibility can

only  be  removed  if  the  necessary  payment  is  made  before

submission of a resolution plan. It is not possible to accede to the

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argument  that,  commercially  speaking,  no  person  would  ever

make  a  speculative  bid,  where  he  would  pay  off  the  debt  of

another  related  corporate  debtor,  classified  as an NPA,  without

being certain that his resolution plan would be accepted, as this

would narrow the pool of resolution applicants to nil, and therefore

stultify the object sought to be achieved by the proviso to Section

29A(c). First, it is clear that there may be persons who may submit

resolution plans, either by themselves, or in concert, or jointly with

other persons who do not have debts which are declared as NPAs.

Also, it is very difficult to say that in no circumstance whatsoever

would a person submitting a resolution plan pay off the NPA dues

of another person, with whom it is acting in concert or jointly. The

dues may be such that it may be worth the while of the person,

together with the persons with whom he is acting in concert  or

jointly, to first pay off the dues of the concerned corporate debtor

whose account has been declared to be an NPA, as such dues

may be negligible when compared with the gaining of control of the

corporate debtor that is sought to be run as a going concern as per

a resolution plan submitted.  It is, therefore, impossible to say that

the plain,  literal,  meaning of  the language used by the proviso

leads to absurdity or hardship.  This interpretation is also in line

with the object sought to be achieved, namely, that other corporate

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debtors who are declared as NPAs, whose debts may never be

cleared in full, are required to be cleared as a condition precedent

to  submission  of  a  resolution  plan  under  the  Code.  In  order,

therefore,  to  make  the  statute  “workable”,  as  is  suggested  by

Messrs Salve and Singhvi, we cannot disregard the plain language

of the proviso and substitute words which would have the opposite

effect.

 56. Since Section 29A(c) is a see-through provision, great care

must be taken to ensure that persons who are in charge of the

corporate debtor for whom such resolution plan is made, do not

come back in some other form to regain control of the company

without first paying off its debts.  The Code has bifurcated such

persons into two groups, as a perusal of sub-clauses (c) and (g) of

Section 29A shows.  If a person has been a promoter, or in the

management,  or  control,  of  a  corporate  debtor  in  which  a

preferential  transaction,  undervalued  transaction,  extortionate

credit transaction or fraudulent transaction has taken place, and in

respect  of  which  an  order  has  been made by  the  Adjudicating

Authority under the Code, such person is ineligible to present a

resolution plan under Section 29A(g).  This ineligibility cannot be

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

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eligible to submit resolution plans under sub-clause (c) of Section

29A,  if  they  happen  to  be  persons  who  were  in  the  erstwhile

management or control of the corporate debtor.

57. It  is  important  for  the  competent  authority  to  see  that

persons, who are otherwise ineligible and hit by sub-clause (c), do

not wriggle out of the proviso to sub-clause (c) by other means, so

as to avoid the consequences of the proviso.  For this purpose,

despite the fact that the relevant time for the ineligibility under sub-

clause (c) to attach is the time of submission of the resolution plan,

antecedent facts reasonably proximate to this point  of  time can

always be seen, to determine whether the persons referred to in

Section 29A are, in substance, seeking to avoid the consequences

of the proviso to sub-clause (c) before submitting a resolution plan.

If it is shown, on facts, that, at a reasonably proximate point of time

before  the  submission  of  the  resolution  plan,  the  affairs  of  the

persons referred to in Section 29A are so arranged, as to avoid

paying off the debts of the non-performing asset concerned, such

persons must be held to be ineligible to submit a resolution plan,

or otherwise both 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.

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58. When we come to sub-clause (f), it is clear that, if any of the

persons  mentioned  in  Section  29A is  prohibited  by  SEBI  from

either  trading in  securities or  accessing the securities market  –

again,  ineligibility  of  the  person  submitting  the  resolution  plan

attaches.   Under  sub-clause  (i),  if  a  person  situate  abroad  is

subject to any disability which corresponds to sub-clause (f), such

person  also  gets  interdicted.   In  E.V.  Mathai  v.  Subordinate

Judge,  Kottayam  &  Ors.,  (1969)  2  SCC  194,  the  expression

“corresponding to” was explained as follows:-

“It was argued by Mr Daphtary that Section 4 was not applicable because a different intention appeared from Section 34(1)  of  the Act  of  1965.  We find ourselves unable  to  accept  this  contention.  The  proviso  to Section 34(1) lays down that a legal proceeding which could  have  been  instituted,  continued  or  enforced under the repealed Act of 1959 may be instituted under the  corresponding  provisions  of  the  new  Act.  Mr Daphtary tried to meet this by urging that Section 11(4) of the Act of 1959 did not contain any corresponding provision. Sub-section (1) of Section 11 of the 1959 Act laid down that:

“Notwithstanding  anything  to  the  contrary contained in any other law or contract a tenant shall  not  be evicted,  whether in execution of  a decree or  otherwise except  in  accordance with the provisions of this Act:

Provided....”

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

“if  the  tenant  has  without  the  consent  of  the landlord transferred his right under the lease or sub-let the entire building or any portion thereof,

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if the lease does not confer on him any right to do so, or the landlord has not consented to such sub-letting;”

We  find  ourselves  unable  to  accept  Mr  Daphtary’s argument that the above quoted provision of Section 11  of  the  Act  of  1959  was  not  “a  corresponding provision”  within  the meaning of  the proviso to  sub- section  (1)  of  Section  34  of  the  Act  of  1965.  To correspond means to “be in harmony with or be similar, analogous to”. It does not mean to “be identical with” and therefore the relevant provisions of Section 34 (1) of  the  Act  of  1965  must  be  held  to  be  a  provision corresponding to Section 11(4) of the Act of 1959.”

59. In the light thereof, it is clear that if a person is prohibited by

a  regulator  of  the  securities  market  in  a  foreign  country  from

trading  in  securities  or  accessing  the  securities  market,  the

disability under sub-clause (i) would then attach.   

60. When we come to sub-clause (j),  a “connected person”  is

defined as meaning the three categories of persons mentioned in

the three sub-clauses therein.  The first sub-clause of Explanation

1 again takes us back to the same three definitions of “promoter”,

“management”  and  “control”  of  the  resolution  applicant.   Under

sub-clause (ii),  again,  a “connected person”  is  a person who is

either the promoter, or in management or control, of the business

of  the  corporate  debtor  during  implementation  of  the  resolution

plan.   And under sub-clause (iii),  holding companies,  subsidiary

companies  and  associate  companies  as  defined  under  the

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Companies Act, 2013, or related parties of persons referred to in

clauses (1) and (2) also become connected persons1.

61. We now come to the equally important  question as to the

timelines within which the insolvency process is to be completed.  

62. Previous legislation, namely, the Sick Industrial Companies 1 By the Insolvency and Bankruptcy Code (Second Amendment) Act of 2018 a new  definition of “related party” has been inserted with effect from 6.6.2018, as section 5(24-A)  of the Code, as follows:-  

“(24-A) “related party”, in relation to an individual, means— (a) a person who is a relative of the individual or a relative of the spouse of the individual; (b) a partner of a limited liability partnership, or a limited liability partnership or a partnership firm, in which the individual is a partner; (c) a person who is a trustee of a trust in which the beneficiary of the trust includes the individual, or the terms of the trust confers a power on the trustee which may be exercised for the benefit of the individual; (d) a private company in which the individual is a director and holds along with his relatives, more than two per cent. of its share capital; (e) a public company in which the individual is a director and holds along with relatives, more than two per cent. of its paid-up share capital; (f) a body corporate whose board of directors, managing director or manager, in  the  ordinary  course  of  business,  acts  on  the  advice,  directions  or instructions of the individual; (g)  a  limited  liability  partnership  or  a  partnership  firm  whose  partners  or employees in the ordinary course of business, act on the advice, directions or instructions of the individual; (h)  a  person on whose advice,  directions  or  instructions,  the  individual  is accustomed to act; (i)  a company,  where the individual  or the individual  along with its related party, own more than fifty per cent. of the share capital of the company or controls the appointment of 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, in the following manner, namely:—

(i) members of a 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) granddaughter's daughter and son,

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(Special Provisions) Act, 1985, and the Recovery of Debts Due to

Banks and Financial Institutions Act, 1993, which made provision

for rehabilitation of sick companies and repayment of loans availed

by them, were found to have completely failed.  This was taken

note of by our judgment in  Madras Petrochem Ltd. and Anr. v.

Board for Industrial  and Financial  Reconstruction and Ors.,

(2016) 4 SCC 1:

“40. An interesting pointer to the direction Parliament has  taken  after  enactment  of  the  Securitisation  and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is also of some relevance in this  context.  The Eradi  Committee Report  relating to insolvency and winding up of companies dated 31-7- 2000,  observed  that  out  of  3068  cases  referred  to BIFR from 1987 to 2000 all but 1062 cases have been disposed of. Out of the cases disposed of, 264 cases were  revived,  375  cases  were  under  negotiation  for revival  process,  741  cases  were  recommended  for winding  up,  and  626  cases  were  dismissed  as  not maintainable.  These  facts  and  figures  speak  for themselves and place a big question mark on the utility of the Sick Industrial Companies (Special Provisions) Act,  1985.  The  Committee  further  pointed  out  that effectiveness of the Sick Industrial Companies (Special Provisions) Act, 1985 as has been pointed out earlier, has  been  severely  undermined  by  reason  of  the enormous delays involved in the disposal of cases by BIFR.  (See Paras  5.8,  5.9  and  5.15  of  the  Report.)

(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 a son, daughter, sister or brother, their spouses shall also be included;”

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Consequently,  the Committee recommended that  the Sick  Industrial  Companies  (Special  Provisions)  Act, 1985 be  repealed  and  the  provisions  thereunder  for revival and rehabilitation should be telescoped into the structure of the Companies Act, 1956 itself.

41. Pursuant  to  the  Eradi  Committee  Report,  the Companies Act was amended in 2002 by providing for the constitution of a National Company Law Tribunal as a substitute for the Company Law Board, the High Court,  BIFR and AAIFR.  The Eradi Committee Report was further given effect to by inserting Sections 424-A to 424-H into the Companies Act, 1956 which, with a few changes, mirrored the provisions of Sections 15 to 21  of  the  Sick  Industrial  Companies  (Special Provisions)  Act,  1985.  Interestingly,  the  Companies Amendment  Act,  2002 omitted a  provision  similar  to Section  22(1)  of  the  Sick  Industrial  Companies (Special Provisions) Act, 1985. Consequently, creditors were  given  liberty  to  file  suits  or  initiate  other proceedings for recovery of dues despite pendency of proceedings  for  the  revival  or  rehabilitation  of  sick companies before the National Company Law Tribunal.

42. This Amendment Act came under challenge, which challenge  culminated  in  the  Constitution  Bench decision  in Union  of  India  v.  R,  Gandhi,  President, Madras Bar Association, (2010) 11 SCC 10 by which the  amendments  were  upheld,  with  certain  changes recommended by the Constitution Bench of this Court.

43. Close on the heels of the amendment made to the Companies  Act  came the  Sick  Industrial  Companies (Special Provisions) Repeal Act, 2003. This particular Act was meant to repeal the Sick Industrial Companies (Special Provisions) Act, 1985 consequent to some of its  provisions  being  telescoped  into  the  Companies Act. Thus, the Companies Amendment Act, 2002 and the  SICA Repeal  Act  formed  part  of  one  legislative scheme, and neither has yet been brought into force. In fact, even the Companies Act, 2013, which repeals the  Companies  Act,  1956,  contains  Chapter  19 consisting of Sections 253 to 269 dealing with revival and rehabilitation of sick companies along the lines of Sections 424-A to 424-H of the amended Companies Act, 1956.  Conspicuous by its absence is a provision

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akin to Section 22(1) of the Sick Industrial Companies (Special  Provisions)  Act,  1985  in  the  2013  Act. However,  this Chapter is also yet  to be brought into force.  These  statutory  provisions,  though  not  yet brought into force, are also an important pointer to the fact that Section 22(1) of the Sick Industrial Companies (Special  Provisions)  Act,  1985  has  been  statutorily sought to be excluded, Parliament veering around from wanting  to  protect  sick  industrial  companies  and rehabilitate  them  to  giving  credence  to  the  public interest  contained  in  the  recovery  of  public  monies owing  to  banks  and  financial  institutions.  These provisions also show that the aforesaid construction of the provisions of the Securitisation and Reconstruction of  Financial  Assets  and  Enforcement  of  Security Interest  Act,  2002  vis-à-vis  the  Sick  Industrial Companies  (Special  Provisions)  Act,  1985,  leans  in favour  of  creditors  being  able  to  realise  their  debts outside  the  court  process  over  sick  industrial companies  being  revived  or  rehabilitated.  In  fact, another interesting document is the Report on Trend and Progress of  Banking in  India 2011-2012 for  the year ended 30-6-2012 submitted by Reserve Bank of India to the Central  Government  in terms of  Section 36(2)  of  the  Banking Regulation Act,  1949.  In  Table IV.14 the Report provides statistics regarding trends in non-performing assets bank-wise, group-wise. As per the said Table, the opening balance of non-performing assets in public sector banks for the year 2011-2012 was Rs 746 billion but the closing balance for 2011- 2012  was  Rs  1172  billion  only.  The  total  amount recovered  through  the  Securitisation  and Reconstruction of Financial Assets and Enforcement of Security  Interest  Act,  2002  during  2011-2012 registered  a  decline  compared  to  the  previous  year, but, even then, the amounts recovered under the said Act constituted 70% of the total amount recovered. The amounts recovered under the Recovery of Debts Due to  Banks  and  Financial  Institutions  Act,  1993 constituted only 28%. All this would go to show that the amounts  that  public  sector  banks  and  financial institutions have to recover  are in  staggering figures and at  long last  at  least  one statutory measure has proved to  be of  some efficacy.  This  Court  would  be

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loathe to give such an interpretation as would thwart the  recovery  process  under  the  Securitisation  and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 which Act alone seems to have  worked  to  some  extent  at  least.”  (emphasis supplied)

63. These two enactments were followed by the Securitization

and  Reconstruction  of  Financial  Assets  and  Enforcement  of

Securities  Interest  Act,  2002.  As  has  been  noted  hereinabove,

amounts recovered under the said Act recorded improvement over

the  previous  two  enactments,  but  this  was  yet  found  to  be

inadequate.

64. The Code was passed after great deliberation and pursuant

to various Committee Reports, as has been held in  Innoventive

Industries  Ltd.  v.  ICICI  Bank  &  Anr.  (2018)  1  SCC  407  at

paragraph 12.  The Statement of Objects and Reasons, which is

reproduced in the said paragraph, makes it clear that the existing

framework for insolvency and bankruptcy was not only inadequate

and ineffective, but resulted in undue delays in resolution.  One of

the  primary  objects  of  the  Code,  therefore,  is  to  resolve  such

matters in a time bound manner.  This would not only support the

development of credit  markets and encourage entrepreneurship,

but would also improve ease of doing business and facilitate more

investment, leading to higher economic growth and development.

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65. Paragraph 16 of  the said judgment  refers to the report  of

November, 2015 of the Bankruptcy Law Reforms Committee and

refers to speed being of essence as follows: “Speed is of essence Speed is of essence for the working of the bankruptcy code,  for  two reasons.  First,  while  the “calm period” can help keep an organisation 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, the more likely it is that liquidation will be the only answer. Second,  the liquidation value tends to  go down with time as many assets suffer from a high economic rate of depreciation.

From the viewpoint of creditors, a good realisation can generally  be  obtained  if  the  firm is  sold  as  a  going concern. Hence, when delays induce liquidation, there is  value  destruction.  Further,  even  in  liquidation,  the realisation  is  lower  when  there  are  delays.  Hence, delays cause value destruction. Thus, achieving a high recovery  rate  is  primarily  about  identifying  and combating the sources of delay.”

66. The Committee then chose certain  principles  within  which

the new Insolvency and Bankruptcy Code would work.   One of

them is that the Code will ensure a time bound process, which will

not  be extended,  to  better  preserve the economic value of  the

asset  (see  Principle  No.8  set  out  at  page  427  of  Innoventive

Industries (supra.)).   

67. After setting out the Scheme of the Code, this Court further

went on to hold:

“31. The  rest  of  the  insolvency  resolution  process  is also  very  important.  The  entire  process  is  to  be

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completed within a period of 180 days from the date of admission of the application under Section 12 and can only be extended beyond 180 days for a further period of not exceeding 90 days if the committee of creditors by a voting of 75% of voting shares so decides. It can be seen that time is of essence in seeing whether the corporate body can be put back on its feet, so as to stave off liquidation.”

xxx xxx xxx

33. Under Section 30, any person who is interested in putting the corporate body back on its feet may submit a resolution plan to the resolution professional, which is prepared on the basis of an information memorandum. This  plan  must  provide  for  payment  of  insolvency resolution process costs, management of the affairs of the  corporate  debtor  after  approval  of  the  plan,  and implementation and supervision of the plan. It is only when such plan is approved by a vote of not less than 75% of the voting share of the financial creditors and the adjudicating authority is satisfied that the plan, as approved, meets the statutory requirements mentioned in  Section  30,  that  it  ultimately  approves  such  plan, which is then binding on the corporate debtor as well as its employees, members, creditors, guarantors and other  stakeholders.  Importantly,  and  this  is  a  major departure from previous legislation on the subject, the moment  the  adjudicating  authority  approves  the resolution plan,  the moratorium order  passed by the authority under Section 14 shall cease to have effect. The  scheme  of  the  Code,  therefore,  is  to  make  an attempt, by divesting the erstwhile management of its powers  and  vesting  it  in  a  professional  agency,  to continue the business of the corporate body as a going concern until  a resolution plan is drawn up, in which event the management is handed over under the plan so that the corporate body is able to pay back its debts and get back on its feet. All this is to be done within a period  of  6  months  with  a  maximum  extension  of another 90 days or else the chopper comes down and the liquidation process begins.”

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68. It is in this backdrop that we must consider the provisions of

the Code, insofar as the Code requires either that the corporate

debtor be taken over by another management and run as a going

concern or, if that fails, go into liquidation.  Some of the relevant

provisions of the Code, insofar as this case is concerned, are set

out hereinbelow:

“5.  (12)  “insolvency commencement  date” means the  date  of  admission  of  an  application  for  initiating corporate  insolvency  resolution  process  by  the Adjudicating Authority under Sections 7, 9 or Section 10, as the case may be: Provided that where the interim resolution professional is  not  appointed  in  the  order  admitting  application under  Section  7,  9  or  Section  10,  the  insolvency commencement date shall be the date on which such interim  resolution  professional  is  appointed  by  the Adjudicating Authority;

xxx xxx xxx

(14) “insolvency resolution process period” means the period of one hundred and eighty days beginning from the insolvency commencement date and ending on one hundred and eightieth day;

xxx xxx xxx

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

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

(27)  “resolution  professional”,  for  the  purposes of this Part, means an insolvency professional appointed

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to conduct the corporate insolvency resolution process and includes an interim resolution professional;

xxx xxx xxx

7.  Initiation  of  corporate  insolvency  resolution process  by  financial  creditor.—(1)  A  financial creditor  either  by  itself  or  jointly  with other  financial creditors, or any other person on behalf of the financial creditor,  as  may  be  notified  by  the  Central Government,  may  file  an  application  for  initiating corporate  insolvency  resolution  process  against  a corporate  debtor  before  the  Adjudicating  Authority when a default has occurred.

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

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

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

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

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

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

(4)  The  Adjudicating  Authority  shall,  within  fourteen days of the receipt of the application under sub-section (2),  ascertain  the  existence  of  a  default  from  the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub- section (3).

(5) Where the Adjudicating Authority is satisfied that—

(a)  a default  has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution

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professional, it may, by order, admit such application; or

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

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

(6) The corporate insolvency resolution process shall commence  from  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 financial creditor and the corporate debtor;

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

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

xxx xxx xxx

12.  Time-limit  for  completion  of  insolvency resolution process.—(1)  Subject  to  sub-section (2), the  corporate  insolvency  resolution  process  shall  be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process.

(2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate  insolvency  resolution  process  beyond  one hundred and eighty days, if  instructed to do so by a resolution  passed at  a  meeting  of  the  committee  of creditors by a vote of sixty-six per cent of the voting shares.

(3) On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject- matter  of  the case is such that  corporate insolvency

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resolution  process  cannot  be  completed  within  one hundred and eighty days, it may by order extend the duration  of  such  process  beyond  one  hundred  and eighty days by such further period as it thinks fit, but not exceeding ninety days:

Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once.

xxx xxx xxx

30. Submission of resolution plan.—(1) A resolution applicant may submit a resolution plan along with an affidavit stating that he is eligible under Section 29-A to the resolution professional prepared on the basis of the information memorandum.

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

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

(b) provides for the payment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid  to  the  operational  creditors  in  the  event  of  a liquidation of the corporate debtor under Section 53;

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

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

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

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

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

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

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

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

Provided  that  the  committee  of  creditors  shall  not approve  a  resolution  plan,  submitted  before  the commencement  of  the  Insolvency  and  Bankruptcy Code (Amendment) Ordinance, 2017 (Ord. 7 of 2017), where  the  resolution  applicant  is  ineligible  under Section  29-A  and  may  require  the  resolution professional to invite a fresh resolution plan where no other resolution plan is available with it:

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

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

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

(5) The resolution applicant may attend the meeting of the committee of creditors in which the resolution plan

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of the applicant is considered:

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

(6)  The  resolution  professional  shall  submit  the resolution  plan  as  approved  by  the  committee  of creditors to the Adjudicating Authority.

31.  Approval  of  resolution  plan.—(1)  If  the Adjudicating  Authority  is  satisfied  that  the  resolution plan as approved by the committee of creditors under sub-section (4) of Section 30 meets the requirements as referred to in sub-section (2) of Section 30, it shall by  order  approve the resolution plan which shall  be binding  on  the  corporate  debtor  and  its  employees, members, creditors, guarantors and other stakeholders involved in the resolution plan:

Provided that  the Adjudicating Authority  shall,  before passing an order for approval of resolution plan under this  sub-section,  satisfy  that  the  resolution  plan  has provisions for its effective implementation.

(2)  Where the Adjudicating Authority  is  satisfied that the  resolution  plan  does  not  confirm  to  the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.

(3) After the order of approval under sub-section (1),—

(a)  the moratorium order passed by the Adjudicating Authority under Section 14 shall cease to have effect; and

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

(4)  The  resolution  applicant  shall,  pursuant  to  the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date  of  approval  of  the  resolution  plan  by  the Adjudicating Authority under sub-section (1) or within

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such period as provided for in such law, whichever is later:

Provided  that  where  the  resolution  plan  contains  a provision for combination, as referred to in Section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission  of  India  under  that  Act  prior  to  the approval of such resolution plan by the committee of creditors.

32. Appeal.—Any appeal from an order approving the resolution  plan  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 Adjudicating Authority,— (a)  before  the  expiry  of  the  insolvency  resolution process period or  the maximum period permitted for completion  of  the  corporate  insolvency  resolution process under Section 12 or the fast track corporate insolvency resolution process under Section 56, as the case may be, does not receive a 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 in the manner as laid down in this Chapter;

(ii)  issue  a  public  announcement  stating  that  the corporate debtor is in liquidation; and

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

(2)  Where  the  resolution  professional,  at  any  time during the corporate insolvency resolution process but before  confirmation  of  resolution  plan,  intimates  the Adjudicating Authority of the decision of the committee of creditors approved by not less than sixty-six per cent of  the voting share to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order

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as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

(3)  Where  the  resolution  plan  approved  by  the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor,  whose  interests  are  prejudicially  affected  by such contravention,  may make an  application  to  the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub- section (1).

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

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

Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor,  with  the  prior  approval  of  the  Adjudicating Authority.

(6) The provisions of sub-section (5) shall not apply to legal  proceedings in  relation to such transactions as may  be  notified  by  the  Central  Government  in consultation with any financial sector regulator.

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

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60. Adjudicating Authority for corporate persons.— (1) The Adjudicating Authority, in relation to insolvency resolution  and  liquidation  for  corporate  persons including  corporate  debtors  and  personal  guarantors thereof  shall  be the National  Company Law Tribunal having territorial jurisdiction over the place where the

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registered office of the corporate person is located.

(2)  Without  prejudice  to  sub-section  (1)  and notwithstanding anything to the contrary contained in this  Code,  where  a  corporate  insolvency  resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an  application  relating  to  the  insolvency  resolution or liquidation or bankruptcy of a corporate guarantor or personal  guarantor,  as  the  case  may  be,  of  such corporate  debtor  shall  be  filed  before  such  National Company Law Tribunal.

(3)  An insolvency resolution process or liquidation or bankruptcy  proceeding  of  a  corporate  guarantor  or personal  guarantor,  as  the  case  may  be,  of  the corporate debtor pending in any court or tribunal shall stand transferred to the Adjudicating Authority dealing with  insolvency  resolution  process  or  liquidation proceeding of such corporate debtor.

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

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

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

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

(c) any question of priorities or any question of law or facts,  arising  out  of  or  in  relation  to  the  insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.

(6)  Notwithstanding  anything  contained  in  the Limitation Act, 1963 (36 of 1963) or in any other law for the  time  being  in  force,  in  computing  the  period  of limitation  specified  for  any  suit  or  application  by  or against  a  corporate  debtor  for  which  an  order  of

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moratorium has been made under this Part, the period during  which  such  moratorium  is  in  place  shall  be excluded.

61.  Appeals  and  Appellate  Authority.  -  (1) Notwithstanding  anything  to  the  contrary  contained under the Companies Act, 2013, any person aggrieved by the order  of  the Adjudicating Authority  under  this part  may prefer  an appeal  to  the National  Company Law Appellate Tribunal.

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

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

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

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

(ii) there has been material irregularity in exercise of the powers by the resolution professional  during the corporate insolvency resolution period;

(iii)  the  debts  owed  to  operational  creditors  of  the corporate  debtor  have  not  been  provided  for  in  the resolution plan in the manner specified by the Board;

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

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

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

62.  Appeal  to  Supreme  Court.—(1)  Any  person

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aggrieved by an order of the National Company Law Appellate Tribunal may file an appeal to the Supreme Court on a question of law arising out of such order under this Code within forty-five days from the date of receipt of such order.

(2)  The  Supreme Court  may,  if  it  is  satisfied  that  a person was prevented by sufficient cause from filing an appeal  within forty-five days,  allow the appeal  to  be filed within a further period not exceeding fifteen days.

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

(2) No injunction shall be granted by any court, tribunal or  authority  in  respect  of  any action taken,  or  to  be taken,  in  pursuance  of  any  power  conferred  on  the National  Company  Law  Tribunal  or  the  National 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  to  work from the inception.   Before admission of  an

application under Section 7 by a financial creditor, the Adjudicating

Authority is, under Section 7(4), to first ascertain the existence of a

default within 14 days of receipt of the application, as specified in

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Section 7(4).  Upon satisfaction that such default has occurred, it

may then admit such application, subject to rectification of defects,

which the proviso in Section 7(5) says must be done within 7 days

of  receipt  of  such notice from the Adjudicating Authority  by  the

applicant.  The time frame within which ascertainment of default is

to take place, as well as the time within which the defect is to be

rectified, have both been held by a judgment of this Court to be

directory  in  nature,  the  reason  being  that  the  stage  of  these

provisions is before admission of the application (see  Surendra

Trading Co. v. Juggilal Kamlapat Jute Mills Company Ltd. &

Ors.  (2017) 16 SCC 143).   The corporate insolvency resolution

process commences from the date of admission of the application

vide Section  7(6).   Section  7(7)  makes  it  incumbent  upon  the

Adjudicating  Authority  to  communicate  the  order  accepting  or

rejecting the application to the financial creditor and the corporate

debtor within a period of 7 days of such admission or rejection.   

70. The  time  limit  for  completion  of  the  insolvency  resolution

process is laid down in Section 12.  A period of 180 days from the

date of  admission  of  the application  is  given by Section  12(1).

This is extendable by a maximum period of 90 days only if  the

Committee of Creditors, by a vote of 66%2,  votes to extend the 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 6th June, 2018, in so far as the requirement in certain sections of approval of 75% of the Committee of Creditors for various decisions was reduced to 51% in

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said period, and only if the Adjudicating Authority is satisfied that

such process cannot be completed within 180 days. The authority

may then,  by  order,  extend  the  duration  of  such  process  by  a

maximum period of 90 days (see Sections 12(2) and 12(3)).  What

is also of importance is the proviso to Section 12(3) which states

that  any  extension  of  the  period  under  Section  12  cannot  be

granted more than once.  This has to be read with the third proviso

to Section 30(4), which states that the maximum period of 30 days

mentioned in the second proviso is allowable as the only exception

to the extension of the aforesaid period not being granted more

than once.  

71. What is important to note is that a consequence is provided,

in the event that the said period ends either without receipt of a

resolution plan or after rejection of a resolution plan under Section

31.  This consequence is provided by Section 33, which makes it

clear  that  when  either  of  these  two  contingencies  occurs,  the

corporate debtor is required to 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

Section 21(8) (i.e. the minimum percentage of votes required for any decision of the Committee, where not otherwise provided for in the Code), and to 66% in Sections 12(2) (i.e. extension of time for completion of the process by 90 days), 22(2) (i.e. appointment  of  resolution  professional),  27(2)  (i.e.  replacement  of  resolution professional), 28(3) (i.e. approval for certain actions by the resolution professional), 30(4) (i.e. approval of resolution plan), and 33(2) (i.e. initiation of liquidation).

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that the periods previously mentioned are mandatory and cannot

be extended.

72. In fact, even the literal language of Section 12(1) makes it

clear  that  the  provision  must  read  as  being  mandatory.  The

expression “shall be completed” is used.  Further, sub-section (3)

makes it  clear  that  the duration of  180 days may be extended

further  “but  not  exceeding  90  days”,  making  it  clear  that  a

maximum of 270 days is laid down statutorily.  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 the

Adjudicating Authority, the scheme of the Code is as follows:

.(i) Under Sections 13 to 15, a moratorium is declared; a public

announcement of  the initiation of  the corporate insolvency

resolution process and call for submission of claims is made;

and an Interim Resolution Professional  is  to  be appointed

under Section 16 of the Code. This action is to be completed

by the Adjudicating Authority within a period of 14 days from

the  insolvency  commencement  date,  i.e.,  the  date  of

admission  of  the  application  under  Section  7  by  the

Adjudicating Authority. . .(ii)  Under  Section  17,  the  corporate  debtor’s  affairs  are  to  be

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managed  by  the  Interim  Resolution  Professional  so

appointed,  and  the  Board  of  Directors  of  the  corporate

debtor shall stand superseded.  The officers and managers

of  the  corporate  debtor  are  now  to  report  to  the  Interim

Resolution  Professional,  who  has  the  authority  to  act  on

behalf of the corporate debtor. . .(iii)  Under  Section  18(1),  some  of  the  important  duties  of  this

Interim  Resolution  Professional  are  set  out,  which  are  to

collect all information relating to the financial position of the

corporate  debtor  and,  most  importantly,  to  constitute  a

Committee of Creditors.  That this has to be done at the very

earliest, is clear from the scheme of the corporate insolvency

resolution process which, as has been stated earlier, cannot

exceed the maximum period of 270 days from the date of

admission of the financial creditors’ application. . .(iv)  Under Section 21,  the Interim Resolution Professional  is  to

constitute  this  Committee  of  Creditors  after  collating  all

claims  received  against  the  corporate  debtor  and  after

determination  of  the  financial  position  of  the  corporate

debtor, both of which need to be done at the very earliest.

This  Committee  of  Creditors  is  to  comprise  of  financial

creditors  of  the  corporate  debtor.   All  decisions  of  this

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Committee of Creditors are to be taken by a majority vote of

not  less  than  51%  of  the  voting  share  of  each  financial

creditor. . .(v)  Under  Section  22,  the  first  meeting  of  the  Committee  of

Creditors  is  to  be held within 7  days of  its  constitution in

order to appoint a Resolution Professional.  The Committee

of  Creditors  either  continues  the  Interim  Resolution

Professional or replaces the Interim Resolution Professional

by a majority vote of 66%.  The application to replace the

Interim  Resolution  Professional  is  then  to  be  sent  to  the

Adjudicating  Authority,  who is  to  forward  the  same to  the

Insolvency  and  Bankruptcy  Board  of  India  (hereinafter

referred  to  as  the  “IBBI”)  for  confirmation.   Upon  such

confirmation,  the  Adjudicating  Authority  then  appoints  the

Resolution Professional.  In case the IBBI does not confirm

the name of the proposed Resolution Professional within 10

days  of  receipt  of  the  same,  the  Adjudicating  Authority  is

then to direct the Interim Resolution Professional to continue

to function as the Resolution Professional until such time as

the  IBBI  confirms  the  appointment  of  the  Resolution

Professional. . .(vi) It is this Resolution Professional who is then to conduct the

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corporate insolvency resolution process, which really begins

at this stage (see Section 23).  Section 25 then lays down

some of the duties of this Resolution Professional, which are

to continue the business operations of the corporate debtor,

subject to the prior approval of the Committee of Creditors

over the matters stated in Section 28.  One of the important

duties of the Resolution Professional under Section 25 is to

invite prospective resolution applicants to submit resolution

plans. . .(vii) Under Section 29, the Resolution Professional is to prepare

an information memorandum giving relevant information, as

may  be  specified  by  the  IBBI,  to  persons  interested  in

formulating a resolution plan.  . .(viii)  Section  30  is  an  important  provision  in  that  a  resolution

applicant  may  submit  a  resolution  plan  to  the  Resolution

Professional, who is then to examine the said plan to see

that it conforms to the requirements of Section 30(2).  Once

this plan conforms to such requirements, the plan is then to

be presented to the Committee of Creditors for its approval

under  Section  30(3).   This  can  then  be  approved  by  the

Committee of Creditors by a vote of not less than 66% under

sub-section  (4).   What  is  important  to  note  is  that  the

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Committee of Creditors shall not approve a resolution plan

where  the  resolution  applicant  is  ineligible  under  Section

29A, and may require the Resolution Professional to invite a

fresh  resolution  plan  where  no  other  resolution  plan  is

available.  Once approved by the Committee of  Creditors,

the  resolution  plan  is  to  be  submitted  to  the  Adjudicating

Authority under Section 31 of the Code.  It is at this stage

that a judicial mind is applied by the Adjudicating Authority to

the  resolution  plan  so  submitted,  who  then,  after  being

satisfied  that  the  plan  meets  (or  does  not  meet)  the

requirements mentioned in Section 30, may either approve

or reject such plan. . .(ix) An appeal from an order approving such plan is only on the

limited grounds laid  down in  Section 61(3).   However,  an

appeal from an order rejecting a resolution plan would also

lie under Section 61. . .(x) As has been stated hereinbefore, the liquidation process gets

initiated under Section 33 if, (1) either no resolution plan is

submitted within the time specified under Section 12, or a

resolution  plan  has  been  rejected  by  the  Adjudicating

Authority;  (2)  where  the  Resolution  Professional,  before

confirmation of the resolution plan, intimates the Adjudicating

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Authority of  the decision of  the Committee of  Creditors to

liquidate the corporate  debtor;  or  (3)  where the resolution

plan approved by the Adjudicating Authority is contravened

by the concerned corporate debtor.  Any person other than

the  corporate  debtor  whose  interests  are  prejudicially

affected by such contravention may apply to the Adjudicating

Authority,  who may then pass a liquidation order  on such

application.

74. Regulation 40A of the CIRP Regulations presents a model

timeline  of  the  corporate  insolvency  resolution  process,  on  the

basis that the time available is 180 days.  It states as follows:-

“40A. Model time-line for corporate insolvency res- olution process.  

The following Table presents a model timeline of corpo- rate insolvency resolution process on the assumption that the interim resolution professional is appointed on the  date  of  commencement  of  the  process  and  the time available is hundred and eighty days:

Section/Regulation Description of Activity Norm Latest

Timeline

Section 16(1)

Commencement of CIRP and  appointment of  IRP

…. T

Regulation 6(1) Public  announcement  inviting claims

Within 3 Days of Appointment of  IRP

T+3

Section 15(1) (c)/Regulations 6(2) (c) and 12 (1)

Submission of  claims

For 14 Days  from  Appointment of  

T+14

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IRP

Regulation 12(2) Submission of claims Up to 90th day of commencement T+90

Regulation 13(1)

Verification of  claims received  under regulation 12(1) Within 7 days from the receipt  

of the claim

T+21

Regulation 13(2)

Verification of  claims received  under regulation 12(2)

T+97

Section 21(6A) (b)/Regulation 16A

Application for  appointment of  AR

Within 2 days  from verification of claims  received under  regulation 12(1)

T+23

Regulation 17(1) Report certifying constitution of  CoC

T+23

Section  22(1)/Regulation  19(1)

1st meeting of  the CoC

Within 7 days of the constitution  of the CoC, but  with seven days’ notice

T+30

Section 22(2) Resolution to  appoint RP by  the CoC

In the first  meeting of the  CoC

T+30

Section 16(5) Appointment of RP On approval by  the AA …..

Regulation 17(3)

IRP performs  the functions of  RP till the RP is  appointed.

If RP is not  appointed by  40th day of  commencement

T+40

Regulation 27 Appointment of valuer

Within 7 days of appointment of  RP, but not later than 40th day of  commencement

T+47

Section  12A/Regulation 30A

Submission of  application for  withdrawal of  application  admitted.

Before issue of  EoI

W

115

CoC to dispose  of the  application

Within 7 days of its receipt or 7  days of  constitution of  CoC, whichever is later.

W+7

Filing  application of  withdrawal, if  approved by  CoC with 90 %  majority voting,  by RP to AA

Within 3 days of approval by  CoC

W+10

Regulation 35A

RP to form an  opinion on  preferential and  other  transactions

Within 75 days  of the  commencement

T+75

RP to make a  determination  on preferential  and other  transactions

Within 115 days of  commencement

T+115

RP to file  applications to  AA for  appropriate  relief

Within 135 days to  commencement

T+135

Regulation 36(1) Submission of IM to CoC

Within 2 weeks  of appointment  of RP, but not  later than 54th  day of  commencement

T+54

Regulation 36A Publish Form G Within 75 days  of  commencement

T+75Invitation of EoI

Submission of  EoI

At least 15 days from issue of  EoI (Assume 15 days)

T+90

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Provisional List  of RAs by RP

Within 10 days  from the last  day of receipt of EoI

T+100

Submission of  objections to  provisional list

For 5 days from  the date of  provisional list

T+105

Final List of RAs by RP

Within 10 days  of the receipt of  objections

T+115

Regulation 36B

Issue of RFRP,  including  Evaluation  Matrix and IM

Within 5 days of the issue of the  provisional list

T+105

Receipt of  Resolution  Plans

At least 30 days from issue of  RFRP (Assume  30 days)

T+135

Regulation 39(4)

Submission of  CoC approved  Resolution Plan  to AA

As soon as  approved by the CoC

T+165

Section 31(1)  Approval of  resolution plan  by AA

T=180

AA:  Adjudicating  Authority;  AR:  Authorised Representative;  CIRP:  Corporate  Insolvency Resolution Process; CoC: Committee of Creditors; EoI: Expression of Interest; IM: Information Memorandum; IRP:  Interim Resolution Professional;  RA:  Resolution Applicant;  RP:  Resolution  Professional;  RFRP: Request for Resolution Plan.”

It is of utmost importance for all authorities concerned to follow this

model timeline as closely as possible.  

75. What has now to be determined is whether any challenge

can  be  made  at  various  stages  of  the  corporate  insolvency

resolution process.  Suppose a resolution plan is turned down at

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the threshold by a Resolution Professional under Section 30(2). At

this  stage  is  it  open  to  the  concerned  resolution  applicant  to

challenge the Resolution Professional’s rejection? It is settled law

that a statute is designed to be workable, and the interpretation

thereof  should  be  designed  to  make  it  so  workable.   In

Commissioner of Income Tax, Delhi v. S. Teja Singh, [1959]

Supp. 1 S.C.R. 394, this Court said, at page 403:

“We must now refer to an aspect of the question, which strongly reinforces the conclusion stated above. On the construction contended for  by  the  respondent,  S.18- A(9)(b) would become wholly nugatory, as ss.22(1) and 22(2) can have no application to advance estimates to be furnished under s.18-A(3), and if we accede to this contention,  we must  hold  that  though the legislature enacted  s.18-A(9)(b) with  the  very  object  of  bringing the failure to send estimates under s.18-A(3) within the operation of s.28, it signally failed to achieve its object. A construction which leads to such a result must, if that is possible, be avoided, on the principle expressed in the maxim,  "ut  res magis valeat  quam pereat".  Vide Curtis v.  Stovin [1889] 22 Q.B.D.513 and in particular the following observations of Fry, L. J., at page 519:

"The only alternative construction offered to us would lead to this result, that the plain intention of the legislature has entirely failed by reason of a  slight  inexactitude  in  the  language  of  the section. If we were to adopt this construction, we should be construing the Act in order to defeat its object rather than with a view to carry its object into effect".

Vide also Craies on Statute Law, p. 90 and Maxwell on The Interpretation of Statutes, Tenth Edn., pp. 236-237. "A  statute  is  designed",  observed  Lord  Dunedin  in Whitney v.  Commissioners of  Inland Revenue [1925] 10  Tax  Cas.88,  110,  "to  be  workable,  and  the interpretation thereof by a court  should be to secure

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that object,  unless crucial omission or clear direction makes that end unattainable".

76. Given the timeline referred to above, and given the fact that

a resolution applicant has no vested right that his resolution plan

be considered, it is clear that no challenge can be preferred to the

Adjudicating Authority at this stage.  A writ petition under Article

226 filed before a High Court would also be turned down on the

ground that no right, much less a fundamental right, is affected at

this stage.  This is also made clear by the first proviso to Section

30(4),  whereby a  Resolution Professional  may only  invite  fresh

resolution plans if no other resolution plan has passed muster.

77. However,  it  must  not  be  forgotten  that  a  Resolution

Professional  is  only  to  “examine”  and  “confirm”  that  each

resolution  plan  conforms to  what  is  provided  by  Section  30(2).

Under  Section  25(2)(i),  the  Resolution  Professional  shall

undertake to present all  resolution plans at  the meetings of  the

Committee of Creditors.  This is followed by Section 30(3), which

states  that  the  Resolution  Professional  shall  present  to  the

Committee  of  Creditors,  for  its  approval,  such  resolution  plans

which confirm the conditions referred to in sub-section (2).  This

provision has to be read in conjunction with Section 25(2)(i), and

with  the  second  proviso  to  Section  30(4),  which  provides  that

where a resolution applicant is found to be ineligible under Section

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29A(c), the resolution applicant shall be allowed by the Committee

of Creditors such period, not exceeding 30 days, to make payment

of  overdue  amounts  in  accordance with  the  proviso  to  Section

29A(c).  A conspectus of all these provisions would show that the

Resolution Professional is required to examine that the resolution

plan submitted by various applicants is complete in all respects,

before submitting it to the Committee of Creditors.  The Resolution

Professional  is  not  required to take any decision,  but  merely to

ensure  that  the  resolution  plans  submitted  are  complete  in  all

respects  before  they  are  placed  before  the  Committee  of

Creditors,  who  may  or  may  not  approve  it.   The  fact  that  the

Resolution Professional is also to confirm that  a resolution plan

does not contravene any of the provisions of law for the time-being

in force, including Section 29A of the Code, only means that his

prima facie  opinion is to be given to the Committee of Creditors

that  a law has or  has not  been contravened.   Section 30(2)(e)

does not empower the Resolution Professional to “decide” whether

the resolution plan does or does not contravene the provisions of

law. Regulation 36A of the CIRP Regulations specifically provides

as follows:-

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

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(a) the provisions of clause (h) of sub-section (2) of section 25;  

(b) the applicable provisions of section 29A, and  (c)  other  requirements,  as  specified  in  the invitation for expression of interest.

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

(10)  The  resolution  professional  shall  issue  a provisional  list  of  eligible  prospective  resolution applicants  within  ten  days  of  the  last  date  for submission of expression of interest to the committee and  to  all  prospective  resolution  applicants  who submitted the expression of interest.

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

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

78. Thus,  the  importance  of  the  Resolution  Professional  is  to

ensure that a resolution plan is complete in all  respects, and to

conduct  a due diligence in  order  to  report  to  the Committee of

Creditors  whether  or  not  it  is  in  order.  Even  though  it  is  not

necessary for the Resolution Professional to give reasons while

submitting a resolution plan to the Committee of Creditors, it would

be in the fitness of things if he appends the due diligence report

carried out  by him with respect  to  each of  the resolution plans

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under consideration, and to state briefly as to why it does or does

not conform to the law.

79. Take  the  next  stage  under  Section  30.   A  Resolution

Professional has presented a resolution plan to the Committee of

Creditors for its approval, but the Committee of Creditors does not

approve such plan after considering its feasibility and viability, as

the requisite vote of not less than 66% of the voting share of the

financial  creditors  is  not  obtained.   As  has  been  mentioned

hereinabove,  the  first  proviso  to  Section  30(4)  furnishes  the

answer, which is that all that can happen at this stage is to require

the Resolution Professional to invite a fresh resolution plan within

the time limits specified where no other resolution plan is available

with him.  It is clear that at this stage again no application before

the  Adjudicating  Authority  could  be  entertained  as  there  is  no

vested right or fundamental right in the resolution applicant to have

its resolution plan approved, and as no adjudication has yet taken

place.   

80. It  is  the  Committee  of  Creditors  which  will  approve  or

disapprove a  resolution  plan,  given  the statutory  parameters  of

Section 30.  Under Regulation 39 of the CIRP Regulations, sub-

clause (3) thereof provides:-  

“(3) The committee shall evaluate the resolution plans received  under  sub-regulation  (1)  strictly  as  per  the

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evaluation  matrix  to  identify  the  best  resolution  plan and  may  approve  it  with  such  modifications  as  it deems fit:  

Provided that the committee shall record the reasons for approving or rejecting a resolution plan.”

This regulation shows that  the disapproval  of  the Committee of

Creditors  on  the  ground  that  the  resolution  plan  violates  the

provisions of any law, including the ground that a 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 the provisions of any law, including

Section  29A  of  the  Code,  after  hearing  arguments  from  the

resolution applicant as well as the Committee of Creditors, after

which  an  appeal  can  be  preferred  from  the  decision  of  the

Adjudicating Authority to the Appellate Authority under Section 61.

81. If, on the other hand, a resolution plan has been approved by

the Committee of Creditors, and has passed muster before the Ad-

judicating Authority,  this determination can be challenged before

the Appellate Authority under Section 61, and may further be chal-

lenged before the Supreme Court under Section 62, if there is a

question of law arising out of such order, within the time specified

in Section 62.  Section 64 also makes it clear that the timelines

that are to be adhered to by the NCLT and NCLAT are of great im-

portance, and that reasons must be recorded by either the NCLT

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or NCLAT if the matter is not disposed of within the time limit spec-

ified. Section 60(5), when it speaks of the NCLT having jurisdiction

to  entertain  or  dispose  of  any  application  or  proceeding  by  or

against the corporate debtor or corporate person, does not invest

the NCLT with the jurisdiction to interfere at an applicant’s behest

at a stage before the quasi-judicial determination made by the Ad-

judicating Authority.  The non-obstante clause in Section 60(5) is

designed for a different purpose: to ensure that the NCLT alone

has jurisdiction when it comes to applications and proceedings by

or against a corporate debtor covered by the Code, making it clear

that no other forum has jurisdiction to entertain or dispose of such

applications or proceedings.  

82. One thing that must be made clear at this stage is that when

Section 33 speaks of  the “Adjudicating Authority”  in sub-section

(1), it is referring to both the Adjudicating Authority as well as the

Appellate  Authority.   An  Adjudicating  Authority  may  decide  in

favour of a resolution plan, which order may then be set aside by

the  Appellate  Authority.   This  order  of  the  Appellate  Authority,

setting aside the order of the Adjudicating Authority, would then be

the  order  which  rejects  the  resolution  plan  for  the  purposes  of

Section  33.   The  same  would  apply  to  an  ultimate  order  of

rejection by the Supreme Court under Section 62.  This is on the

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principle that, as stated in Lachmeshwar Prasad Shukul & Ors.

v. Keshwar Lal Chaudhuri & Ors. AIR 1941 FC 5 and followed in

a number of  our  judgments,  an appeal  is  a continuation of  the

original proceedings.    

83.  Given the fact that both the NCLT and NCLAT are to decide

matters arising under the Code as soon as possible, we cannot

shut our eyes to the fact that a large volume of litigation has now

to be handled by both the aforesaid Tribunals.  What happens in a

case where the NCLT or the NCLAT decide a matter arising out of

Section 31 of the Code beyond the time limit of 180 days or the

extended time limit of 270 days?  Actus curiae neminem gravabit

- the act of the Court shall harm no man - is a maxim firmly rooted

in our jurisprudence (see  Jang Singh 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 a Tribunal should not set at naught the time limits within

which  the  corporate  insolvency  resolution  process  must  take

place.  However, we cannot forget that the consequence of the

chopper  falling  is  corporate  death.   The  only  reasonable

construction of the Code is the balance to be maintained between

timely  completion  of the corporate insolvency resolution process,

and the corporate debtor otherwise being put into liquidation.  We

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must  not  forget  that  the  corporate  debtor  consists  of  several

employees and workmen whose daily bread is dependent on the

outcome of the corporate insolvency resolution process. If there is

a  resolution  applicant  who  can  continue  to  run  the  corporate

debtor as a going concern, every effort must be made to try and

see  that  this  is  made  possible.3  A reasonable  and  balanced

construction of this statute would therefore lead to the result that,

where a resolution plan is upheld by the Appellate Authority, either

by way of allowing or dismissing an appeal before it, the period of

time taken in litigation ought to be excluded.  This is not to say that

the NCLT and NCLAT will be tardy in decision making.  This is only

to say that in the event of the NCLT, or the NCLAT, or this Court

taking  time  to  decide  an  application  beyond  the  period  of  270

days,  the time taken  in  legal  proceedings to  decide the matter

cannot possibly be excluded, as otherwise a good resolution plan

may have  to  be  shelved, resulting  in  corporate  death, and  the

consequent displacement of employees and workers.   

84. Coming  to  the  facts  of  the  present  case,  let  us  first

examine the resolution plan presented by Numetal.  Numetal was

incorporated in Mauritius on 13.10.2017, expressly for the purpose

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 a going concern.

126

of submission of a resolution 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 of ESIL) held the entire

share capital of AHL, which in turn held the entire shareholding of

AEL, which in turn held the entire share capital of Numetal.  At this

stage there can be no doubt whatsoever that Shri Rewant Ruia,

being the son of Shri Ravi Ruia, would be deemed to be a person

acting  in  concert  with  the  corporate  debtor,  being  covered  by

Regulation 2(1)(q)(v) of the 2011 Takeover Regulations.

85. On 18.10.2017, AEL transferred its shareholding of 26.1%

in Numetal to a group company, viz., ECL.  This group company is

ultimately  owned  by  ‘Virgo  Trust’ and  ‘Triton  Trust’,  the

beneficiaries of which are companies owned by Shri Ravi Ruia, his

brother Shri Shashikant Ruia and their immediate family members.

The object of including ECL, as stated in the relevant extract from

Numetal’s expression of interest is as follows:  

“The  Company  satisfies  the  minimum  tangible  net worth requirement of INR 30 Billion considering ECL, as  a  group  company  that  holds  26.1% (Twenty  Six point  one  Percent)  shares  in  the  Company,  has  net worth of USD 2,974 million (US Dollars Two Thousand Nine  Hundred  Seventy  Four  million)  or  INR  192.8 Billion (Rupees One Hundred Ninety Two Point Eight Billion) as on 31st March 201 (immediately preceding completed financial year).  Please refer Annexure I for

127

the certificate of Chartered Accountant of the Company certifying  satisfaction  of  the  minimum  tangible  net worth  requirement  in  terms  of  the  Eligibility  Criteria which includes A, a certificate of Chartered Accountant certifying  ECL’s  tangible  net  worth.  It  is  pertinent  to note  that  in  case  the  company  is  considered  as  a consortium potential  resolution applicant,  it  continues to satisfy the minimum tangible net worth requirement since  the  total  tangible  net  worth  of  the  Company, computed  on  the  basis  of  the  weighted  average  of AEI’s  and  ECL’s  net  worth  proportionate  to  their respective shareholding in the Company, is INR 50.33 Billion, which is in excess of INR 30 Billion”.  

86. The  very  next  day,  Shri  Rewant  Ruia  settled  an

irrevocable and discretionary trust,  viz., the  ‘Crescent Trust’, and

settled the entire share capital of AHL into the Trust, at a par value

of  USD  10,000.   The  beneficiaries  of  this  Trust  were  general

charities,  as  well  as  entitles  owned  by  Shri  Shashikant  Ruia

(brother of Shri Ravi Ruia, promoter of the corporate debtor), and

entities owned by Shri Rewant Ruia himself.   

87. On 20.11.2017, Shri Rewant Ruia settled ‘Prisma Trust’,

another  irrevocable  and  discretionary  trust,  whose  beneficiaries

are  “general  charities”  and  one  ‘Solis  Enterprises  Limited’,  a

company incorporated in Bermuda, whose share capital is held by

Shri  Rewant Ruia.   Numetal,  vide a response dated 30.3.2018,

admitted that while the trust deed relating to Prisma Trust allowed

the  trustee  to  benefit  any  English  or  Bermuda  charity,  “no

128

particular charity is named at this stage”.  The Trustee of AEL is

one ‘Rhone Trustee’, Singapore.  What is important to note is that

Shri Rewant Ruia was the ultimate natural person who held the

beneficial  interest  in  AEL  through  Prisma  Trust,  through  Solis

Enterprises  Limited.   This  emerges  from  Section  6.7  of  the

resolution  plan  submitted  by  Numetal  to  the  Resolution

Professional.  Interestingly enough, in an affidavit dated 5.3.2018,

the Trustee of Prisma Trust submitted:

“that the Trustee (for itself and each person controlled by it), hereby confirm that AEL or Rewant Ruia neither are  nor  will,  following  the  implementation  of  the Resolution Plan, be a promoter of or have control over or have any management rights in the RA or ESIL (or the resultant company upon completion of the Merger) (including  without  limitation,  the  rights  to  appoint directors  on  the  board  of  the  RA or  ESIL,  or  any specific veto rights or the right to direct the policy or management of the RA or ESIL in any manner).”

88. The Resolution Professional, after looking at this affidavit,

correctly noted that statements of such a nature would not have

been made by a truly independent trustee of a discretionary trust,

which  demonstrates  that  the  trustee  was  under  the  complete

control of Shri  Rewant Ruia.  This in turn indicates that Prisma

Trust  is  one  more  smokescreen  in  the  chain  of  control,  which

would conceal the fact that the actual control over AEL is by none

other than Shri Rewant Ruia himself.

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89. “Curiouser and Curiouser” was the expression of Alice, in

Lewis Carroll’s Alice in Wonderland.  In this wonderland of  Shri

Rewant  Ruia,  one day later  on 22.11.2017,  the trustees of  the

Prisma Trust now acquired 100% of the shareholding of AHL for a

par value of approximately USD 10,000 from the trustees of the

Crescent  Trust.   On this  very  date,  merely  one day before  the

Ordinance bringing into force Section 29A was promulgated, ECL

transferred  its  shareholding  of  26.1%  of  the  share  capital  of

Numetal  to Crinium Bay, an indirect  wholly owned subsidiary of

VTB  Bank,  whose  shares  in  turn  are  held  by  the  Russian

Government.  AEL also transferred shares representing 13.9% of

the share capital of Numetal to Crinium Bay, thus making Crinium

Bay’s total holding in Numetal 40%.  On the same date, AEL also

transferred  shares  representing  25.1%  of  the  share  capital  of

Numetal to Indo, and also transferred shares representing 9.9% of

the share capital of Numetal to TPE.  These transfers are likely to

have taken place between 10.2.2018 and 12.2.2018.  At the time

of  submission  of  its  first  Resolution  Plan  dated  12.2.2018,  the

shareholding of Numetal was as follows:

Crinium Bay : 40% Indo : 25.1% TPE : 9.9% AEL : 25%

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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 which in turn controlled AEL, was very much on the scene,

holding through AEL 25% of the shareholding of Numetal.

91. One other extremely important fact needs to be noticed at

this  stage.   The earnest  money in  the form of  Rs.  500 crores,

credited to the account of the corporate debtor, has been provided

to Numetal by AEL as a shareholder of the resolution applicant,

viz.  Numetal.   It  is  important  to  note  that  this  earnest  money

deposit of Rs.500 crores made by AEL continues to remain with

the Resolution Professional till date, despite the fact that, by the

time  the  second  resolution  plan  was  submitted  by  Numetal  on

2.4.2018, AEL had exited as a shareholder of Numetal.  It is also

important  to  note  that  under  clause  4.4.4  of  the  request  for

proposal for submission of resolution plans for ESIL, the earnest

money deposit  stands to be forfeited if  any condition  thereof is

breached or the qualifications of the potential resolution applicant

are found to be untrue.  At this stage, it is important to reproduce

relevant extracts of the resolution plan first submitted by Numetal

in response to the request for proposal.  The same are as under:

“4. … the Resolution Applicant is a newly established company  that  has  been  incorporated  to  provide  a

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platform to create and sustain a leading Indian steel business  and  is  focused  on  the  acquisition  and turnaround of the Corporate Debtor.

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

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

xxx xxx xxx

5.2. …  (i)  Numetal  is  backed  by  seasoned  and experienced  shareholders  who  bring  deep  expertise from different  industries  covering  Finance,  Steel,  Oil and  Gas,  Metal  Mining,  Trading  expertise  across geographies. Crinium Bay Holdings Limited (“Crinium Bay”) an indirect wholly owned subsidiary of VTB Bank PJSC (“VTB Bank”).  VTB Bank is one of the largest emerging market groups listed on Moscow Exchange (“MOEX”)  and  London  Stock  Exchange  (“LSE”)  with current  market  capitalization  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  the  Resolution  Applicant  is  set  out  in Annexure 2 and is subject  to the terms of  the letter provided therein.   

The other shareholders in Numetal also have material businesses  with  international  operations  focused  on the steel, materials and resources sector-

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

(b) Indo International Trading FZCO (“Indo” or “IITF”), a

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leading commodity trading company; and

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

Numetals (sic) shareholders bring together a wealth of experience  in  technical  and  operational  capabilities, banking and finance, commodity trading and regional expertise  for  the  benefit  of  creating  long  term  steel business.

xxx xxx xxx

6.3. …The shareholders of Numetal bring to the table, considerable  experience  from  difference  industries covering finance, steel, oil and gas, metals and mining chemicals and other sectors across geographies. They have extensive experience in the field of management of  distressed  assets/situations,  restructuring  of  debt, turnaround  of  corporates  and  improvement  of strategies  for  cash  flows.   In  addition  these shareholders  have  a  good  understanding  of  Asian markets  having  dealt  with  large  corporates  in  these markets.  The above factors coupled with the financial strength of its shareholders, put Numetal in a strong position to implement the turnaround successfully.

xxx xxx xxx

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

The  beneficiaries  of  such  discretionary  trust  are general  charities  and  Solis  Enterprise  Limited,  a company incorporated in Bermuda, the share capital of which is held by Mr. Rewant  Ruia.

Mr. Rewant Ruia is the son of Ravi Ruia, who is one of the existing promoters of the Corporate Debtor.”

92. Clause 6.7 of Numetal’s resolution plan stipulated that it

satisfied the minimum tangible net worth requirement, as set out

under the request for proposal, because Crinium Bay held 40% of

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the shareholding of Numetal, and that VTB Bank, Crinium Bay’s

holding company had sufficient  net  worth,  as on 31.12.2016, to

comply with the requirement under the request for proposal.  The

Resolution  Professional,  in  its  affidavit  before  the  Adjudicating

Authority, took note of this plan and, therefore, stated:

“Under  Para  1  of  the  Eligibility  Criteria  for  Potential Resolution Applicants published by this Respondent on the  website  of  the  Corporate  Debtor,  potential resolution  applicants  were  given  the  option  of satisfying the minimum tangible net worth net owned funds requirement  at  a  “Group Level”  by  taking into consideration  the  financial  of  entities  controlling  or controlled  by  or  under  common  control  with  the potential  resolution applicant.   It  is  evident  from the foregoing  that  Numetal  took  advantage  of  this provision and relied 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 submitted that having taken  advantage  of  this  provision  it  is  not  open  to Numetal to contend that this Respondent cannot look at its constituents/ shareholders when determining the issue  of  eligibility  under  Section  29A of  the  Code. Further,  it  is  submitted  that  even  though  the  RFP document does not allow a resolution applicant to look at  its  constituents/  shareholders  for  the  purposes  of demonstrating  its  experience,  it  is  clear  from  the foregoing that  Numetal  has extensively relied on the experience  of  its  constituents/shareholders  to demonstrate its experience.  It is submitted that having relied  on  the  experience  of  its constituents/shareholders it is not open to Numetal to contend  that  this  Respondent  cannot  look  at  its constituents/shareholders when determining the issue of eligibility under Section 29A of the Code.”

93. The excerpted portions of Numetal’s resolution plan make

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it clear that, since Numetal itself was a newly incorporated entity,

with no financial or  experience credentials of its own, it therefore

relied  entirely  on  the  credentials  of  each  of  its  constituent

shareholders.   This  shows  that  Numetal  itself  revealed  in  its

resolution  plan that its corporate veil should be lifted, for without

lifting this veil, none of the parameters of the request for proposal

could have been met by Numetal itself.  It is thus clear that the four

shareholders of Numetal were persons “acting jointly” within the

meaning of Section 29A.  This being the case, it is clear that Shri

Salve’s argument that VTB Bank is a “connected person”, being

ineligible under sub-clause (j), would have to be rejected, as VTB

Bank is itself, through its wholly owned subsidiary of Crinium Bay,

a  person  acting  jointly  with  the  three  other  shareholders  of

Numetal, and would, therefore, fall within the first part of Section

29A itself.  This being so, it cannot be said that VTB Bank is a

person “connected to” any one of the persons acting jointly, as it is

itself a person acting jointly, and therefore covered by the first part

of Section 29A.

94. It is important to note that on 29.3.2018, AEL transferred

its  25% shareholding  in  Numetal  to  the  other  three  constituent

shareholders, thereby leaving its shareholding in Numetal as ‘Nil’.

In response to the Resolution Professional’s invitation, the second

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Resolution Plan, therefore, submitted by Numetal on 2.4.2018, did

not have AEL as a constituent of Numetal; instead, Crinium Bay

continued with 40% of the shareholding of  Numetal,  with TPE’s

holding now augmented to 29.5% and Indo’s to 34.1%.   

95. Given the fact that Shri Rewant Ruia is a person deemed

to be acting in concert with his father Shri Ravi Ruia  (who was a

promoter  of  the  corporate  debtor  ESIL),  there  is  no  doubt

whatsoever that Section 29A(c) would be attracted as on the date

of submission of the first  resolution  plan,  viz. 12.2.2018, as AEL

was  held  by  Prisma  Trust,  whose  ultimate  beneficiary  is  Shri

Rewant Ruia himself.  This would show that the NPA declared over

a  year  before  the  date  of  commencement  of  the  corporate

resolution process of  ESIL (i.e. in  2015)  would  render  Numetal

ineligible to submit a  resolution  plan.  The only manner in which

Numetal could successfully present a resolution plan would be to

first  pay off  the debts  of  ESIL,  as  well  as  those of  such  other

corporate debtors  of  the Ruia  group of  companies,  which were

declared as NPAs prior to the aforesaid period of one year, before

submitting its resolution plan.  However, if the date of the second

resolution plan is to be seen, Shri Rewant Ruia appears to have

disappeared from the scene altogether, as the three entities left

are stated to be independent entities in the form of two Russian

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entities and one UAE entity.  Viewed on 2.4.2018, therefore, could

it be said that Shri Rewant Ruia had disappeared from the scene

altogether, so as to obviate the application of Section 29A(c)?  The

obvious answer is no.  This is for two reasons.  First, as has been

stated earlier, the Rs.500 crores that has been deposited towards

submission of  earnest  money continues to  remain deposited by

AEL even post 2.4.2018, showing thereby that  Shri  Rewant Ruia

continues to be present, insofar as Numetal’s second resolution

plan  is  concerned.   Further,  having  regard  to  the  reasonably

proximate state of affairs before submission of the resolution plan

on 2.4.2018, beginning with Numetal’s initial corporate structure,

and continuing with the changes made till date, it is evident that,

the  object  of  all  the  transactions  that  have  taken  place after

Section  29A came  into  force  on  23.11.2017 is  undoubtedly  to

avoid the application of Section 29A(c), including its proviso.  We

therefore hold that, whether the first or second resolution plan is

taken into account, both would clearly be hit by Section 29A(c), as

the looming  presence of  Shri  Rewant  Ruia  has  been found all

along, from the date of incorporation of Numetal, till  the date of

submission of the second resolution plan.   

96. Another argument raised by Shri Salve is that VTB Bank

is ineligible to present a resolution plan, as the major constituent of

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Numetal, through its wholly owned subsidiary of Crinium Bay, as

VTB Bank is ineligible as sub-clause (f) read with sub-clause (i) of

Section 29A have been attracted.

97. In  February/March  2014,  the  Russian  Federation

annexed  the  Ukrainian  region  of  Crimea.  Consequently,  on

6.3.2014,  the  President  of  the  United  States  issued  Executive

Order 13660, pursuant to the International Emergency Economic

Powers  Act  and  the  National  Emergencies  Act.  The  said  order

sought to block the property of Russian entities contributing to the

situation in Ukraine. Summarizing the executive order issued by

the  President,  the  Department  of  Treasury’s  Office  of  Foreign

Assets Control commented:-

“The  Ukraine/Russia-related  sanctions  program implemented by the Office of Foreign Assets Control (OFAC) began on March 6, 2014, when the President, in Executive Order (E.O.) 13660, declared a national emergency to deal with the threat posed by the actions and policies of certain persons who had undermined democratic  processes  and  institutions  in  Ukraine; threatened  the  peace,  security,  stability,  sovereignty, and territorial  integrity of  Ukraine;  and contributed to the  misappropriation  of  Ukraine’s  assets.  In  further response to the actions and polices of the Government of  the  Russian  Federation,  including  the  purported annexation  of  the  Crimea  region  of  Ukraine,  the President  issued  three  subsequent  Executive  orders that  expanded the  scope of  the  national  emergency declared  in  E.O.  13660.  Together,  these  orders authorize,  among  other  things,  the  imposition  of sanctions against persons responsible for or complicit in  certain  activities  with  respect  to  Ukraine;  against

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officials of the Government of the Russian Federation; against  persons  operating  in  the  arms  or  related materiel sector of the Russian Federation; and against individuals and entities operating in the Crimea region of Ukraine. E.O. 13662 also authorizes the imposition of sanctions on certain entities operating in specified sectors  of  the  Russian  Federation  economy.  Finally, E.O.  13685  also  prohibits  the  importation  or exportation of goods, services, or technology to or from the  Crimea  region  of  Ukraine,  as  well  as  new investment in the Crimea region of Ukraine by a United States person, wherever located.”

98. The  Office  of  Foreign  Assets  Control  thereafter  issued

Directive 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 13662 of March 20, 2014, “Blocking Property of Additional  Persons  Contributing  to  the  Situation  in Ukraine” (the Order) and 31 C.F.R. § 589.802, taking appropriate  account  of  the  Countering  Russian Influence  in  Europe  and  Eurasia  Act  of  2017,  and following the Secretary of the Treasury’s determination under section 1(a)(i) of the Order with respect to the financial  services  sector  of  the  Russian  Federation economy, the Director of the Office of Foreign Assets Control  has  determined,  in  consultation  with  the Department of State, that the following activities by a U.S.  person  or  within  the  United  States  are prohibited…”

After  this,  the Office  of  Foreign Assets Control  issued Directive

Number 2, 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

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Order 13662 of March 20, 2014, “Blocking Property of Additional  Persons  Contributing  to  the  Situation  in Ukraine” (the Order) and 31 C.F.R. § 589.802, taking appropriate  account  of  the  Countering  Russian Influence  in  Europe  and  Eurasia  Act  of  2017,  and following the Secretary of the Treasury’s determination under section 1(a)(i) of the Order with respect to the energy sector of the Russian Federation economy, the Director  of  the  Office  of  Foreign  Assets  Control  has determined,  in  consultation  with  the  Department  of State, that the following activities by a U.S. person or within the United States are prohibited, except to the extent provided by law or unless licensed or otherwise authorized by the Office of Foreign Assets Control:

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

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

All other activities with these persons or involving their property  or  interests  in  property  are  permitted, provided  such  activities  are  not  otherwise  prohibited pursuant to Executive Orders 13660, 13661, 13662, or 13685 or any other sanctions program implemented by the Office of Foreign Assets Control.”

99. The names of persons determined to be subject to the

directives issued under Executive Order 13662 are published  in

the ‘Sectoral Sanctions Identification List’, published by the Office

of Foreign Assets Control. A perusal of this list shows that VTB

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Bank is listed therein, along with various entities affiliated to it.

100. Similarly, under EU Council Regulation 833 of 2014 dated

31.7.2014, certain restrictive measures in view of Russian actions

destabilizing the situation in Ukraine were taken against  certain

Russian entities, of which VTB Bank was one.  These measures

included:

“(5) It  is  also  appropriate  to  apply  restrictions  on access  to  the  capital  market  for  certain  financial institutions,  excluding  Russia-based  institutions  with international  status  established  by  intergovernmental agreements with Russia as one of  the shareholders. Other  financial  services  such  as  deposit  business, payment services and loans to or from the institutions covered by this Regulation, other than those referred to in Article 5, are not covered by this Regulation.”

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

defined as :

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

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

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

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

Article V thereto provided:-

“It shall be prohibited to directly or indirectly purchase,

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sell, provide brokering or assistance in the issuance of, or  otherwise  deal  with  transferable  securities  and money-market instruments with a maturity  exceeding 90 days, issued after 1 August 2014 by…”

Further,  Annexure  III  thereto  listed  VTB  Bank  as  one  of  the

institutions subject to the ‘restrictive measures’.  

101. What has been argued on behalf of Shri Rohatgi is that,

in order to be covered by sub-clause (f) read with sub-clause (i) of

Section  29A,  the  person  must  be  subject  to  a  disability,  which

corresponds  to  a  prohibition  by  SEBI  in  India  from  trading  in

securities or accessing the securities markets. Sub-clauses (f) and

(i) therefore refer to persons who, on account of their antecedents,

may adversely impact the credibility  of the processes under the

Code.  This is in fact stated in the Preamble of the Insolvency and

Bankruptcy  Code  (Amendment)  Ordinance,  2017,  dated

23.11.2017,  which  introduced  Section  29A  into  the  Code,  as

follows:

“AND  WHEREAS  in  order  to  strengthen  further  the insolvency resolution process,  it has been considered necessary to provide for prohibition of certain persons from submitting a Resolution Plan who, on account of their antecedents, may adversely impact the credibility of the processes under the Code.” (emphasis supplied)

102. What is stressed by Shri  Rohatgi is that, in his speech

while introducing the Amendment Bill  in Parliament, the Finance

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Minister stated:-

“and a 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 a

disability  which  corresponds  to  Section  29A(f)  in  view  of  the

antecedent  conduct  on  the  part  of  the  person  applying  as  a

resolution applicant in a jurisdiction outside India.

103. What will be noticed is that the sanctions that have been

imposed  by  the  authorities  of  both  the  United  States  and  the

Council  of  the  European  Union  are  not  on  account  of  any

misconduct  on the part  of  VTB Bank.   Rather,  they have been

imposed politically, because of the conduct of a particular country,

i.e. Russia,  which has sought  to  undermine  Ukraine’s  territorial

integrity,  sovereignty  and  independence,  by  illegally  annexing

Crimea and Sevastopol. We are of the view that Shri Rohatgi is

right,  inasmuch  as  VTB  Bank  cannot  be  said  to  have  been

prohibited by an authority outside India from trading in securities or

accessing  the  securities  markets,  due  to  any  fraudulent  and/or

unfair trade practices relating to the securities market generally.  A

prohibitory  sanction  by  an  authority  situate  outside  India  for

political  reasons  would  thus  not  be  covered  by  sub-clause  (i).

However, Shri Salve pointed to an order dated 19.9.2017 of the

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US Commodity Futures Trading Commission, which held:

“A. Respondents Violated Section 4c(a)(1) and (2) of the Act  

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

xxx xxx xxx

Respondents'  RUB/USD  block  trades  were  fictitious sales under the Act.  Respondents designed the block trades  to  accomplish through the  use  of  the  futures market that which was not otherwise possible for VTB to accomplish in the swaps market. Through the block trades, VTB was able to transfer its cross-currency risk to VTB Capital which could then hedge the risk in the swaps market. VTB obtained pricing from VTB Capital for these transactions that was more favorable than it admittedly could have obtained from third-parties in the futures  market.  With  this  structure,  Respondents,  as intended,  negated  market  risk  and  avoided  price competition.  Accordingly,  Respondents'  block  trades were  "fictitious  from  the  standpoint  of  reality  and substance" and in violation of Section 4c(a)(1) and (2) (A) of the Act. In re Goldwurm, 7 Agric. Dec. 265, 275 (providing  that  cotton  futures  trades  entered  for purpose of accomplishing income tax reporting goals were  "fictitious  from  the  standpoint  of  reality  and substance").  Further,  Respondents'  trades  caused prices to be reported to or recorded by the CME that were  not  true  and  bona  fide  prices  in  violation  of Section  4c(a)(2)(B)  of  the  Act.  See  In  re  Morgan Stanley & Co., [2012 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 32,218 (CFTC June 5, 2012) (settlement order)  (finding  violation  of  Section  4c(a)  where unlawfully  executed  exchanges  for  related  positions caused  non-bona  fide  prices  to  be  reported  or recorded).

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xxx xxx xxx

V.  

FINDINGS OF VIOLATION  

Based  on  the  foregoing,  the  Commission  finds  that, during  the  Relevant  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

Commodity  Futures  Trading  Commission,  in  which  it,  without

admitting or  denying the findings or  conclusions,  had offered to

cease and desist from violating the regulations aforementioned, to

pay a civil monetary penalty in the amount of USD five million, and

had ordered  its  successors  and  assigns  to  comply  with  the

conditions  consented to.  This  offer  was  accepted  by  the

Commission,  and  by  way  of  settlement,  apart  from  what  was

offered by the respondents, the respondents further agreed, in the

said Order dated 19.9.2017 as follows:-

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

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

105. A reading of this order makes it clear that, even assuming

that the Commodity Futures Trading Commission is an authority

which corresponds with SEBI (Shri Rohatgi has argued that in the

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United  States  the  Securities  Exchange  Commission  is  the

authority  which corresponds  with  SEBI in  India),  it  is  clear  that

there  is  no  prohibition  by  the  Commodity  Futures  Trading

Commission  of  the  United  States  interdicting VTB  Bank  from

trading in securities or accessing the securities market.  All  that

VTB  Bank  has  done  is  consent  to  a  cease  and  desist  order;

consent  to  pay a  monetary  penalty  in  the  amount  of  USD five

million; and further consent  to not enter into privately negotiated

futures options with a particular subsidiary, viz. VTB Capital, on or

through any US-based futures exchange for a period of two years

from  the  date  of  the  order.  Obviously,  a  prohibition  regarding

privately  negotiated  futures  options,  or  combination transactions

with one another, is not a prohibition from trading in securities or

accessing the securities market.  We thus agree with Shri Rohatgi

that Crinium Bay, being a wholly owned subsidiary of VTB Bank,

does not therefore incur any disqualification under sub-clause (f)

read with sub-clause (i) of Section 29A.  

106. This brings us to the Appellant,  i.e.,  AMIPL.  So far as

Uttam Galva is concerned, the corporate structure is as follows:-

AMSA is  a  listed company in  Luxemburg.  This company is  the

ultimate parent  company  of  the resolution applicant,  through its

wholly  owned  subsidiary  AMBD,  a  company  incorporated  in

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Luxemburg,  which  in  turn  holds  100% of  the  shares  in  Oakey

Holding BV, a company incorporated in the Netherlands, which in

turn holds 99.99% shares in AMIPL, a company incorporated in

India.   AMNLBV is a company incorporated in the Netherlands,

and is a 100% subsidiary of AMSA.  It is this group company of

Shri  L.N.  Mittal  that  held  29.05% of  the  shareholding  in  Uttam

Galva (as on 7.2.2018).   

107. On 4.9.2009, a Co-Promotion Agreement was executed

between AMNLBV and the Indian promoters of Uttam Galva, who

are stated to be the Miglani family, who are residents of Mumbai.

As per the Co-Promotion Agreement,  the foreign promoter,  viz.,

AMNLBV was entitled to nominate one half of the non-independent

directors  on the  board  of  Uttam  Galva,  the  other  half  being

nominated by the Miglanis.  Both of them were to jointly nominate

all of the independent directors.  Clause 16 of the said agreement,

read  with  Schedule  II  thereof, provides  a  list  of  matters  which

require the affirmative vote of AMNLBV.  It is important to notice

that  the  original  shareholding  of  AMNLBV in  Uttam Galva  was

32%.  This shareholding was reduced to 29.05% in the hands of

AMNLBV, the  Miglani  group holding  31.82%  as  of  December

2017.  The rest of the shares were held by the public.  This Co-

Promotion Agreement, therefore, not only names AMNLBV as the

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foreign  promoter  of  Uttam  Galva,  but  also  makes  it  clear  that

Uttam  Galva  would  be  jointly  managed  and  controlled  by the

foreign  and  Indian  promoters.   Pursuant  to  this  Co-Promotion

Agreement,  on  7.9.2009  AMNLBV  issued  a letter  of  offer to

acquire 35,226,233 fully paid shares of the face value of Rs.10,

representing 25.76% of the share capital of Uttam Galva. In this

letter,  it  was disclosed to the public at  large that  AMNLBV was

becoming a promoter of this  company, with significant affirmative

voting  rights.   On 20.9.2011,  a  Non Disposal  Undertaking  was

provided by AMNLBV, as promoter of Uttam Galva, to the lender

banks of Uttam Galva, which included the State Bank of India.  On

31.3.2016,  Canara  Bank  and  Punjab  National  Bank  declared

Uttam Galva’s accounts as NPA.  It is important to note that, in all

the  annual  returns of  Uttam  Galva  till  date,  AMNLBV’s

shareholding has been shown as ‘promoter’s shareholding.’ All the

annual  reports,  upto 2017,  contained a list  of  promoters,  which

included AMNLBV as one such,  holding 29.05%% of  the share

capital of the company, and having significant influence over the

company.   Shri Salve’s argument that, in point of fact, no control

was actually exercised as AMNLBV never appointed any directors

or exercised its voting rights, cannot be accepted as that makes no

difference to the de jure position of AMNLBV being a “promoter” as

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defined in Section 2(69)(a) of the Companies Act, 2013.

108. On 7.2.2018, a few days before AMIPL submitted its first

resolution  plan,  AMNLBV  sold  its  entire  shareholding  in  Uttam

Galva by way of an off market sale, to a company of the Indian co-

promoters,  viz., ‘Sainath  Trading  Company  Private  Limited’.

Shares that were purchased for Rs.120 each, were sold for Re.1

each, when the market value 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  offer  under  the  2011  Takeover

Regulations, on the basis that it was an inter se transfer of shares

between promoters, and therefore exempt from such requirement

under Regulation 10 of the said regulations.  Also, as a matter of

fact, the sale of the said shares was effected without taking the

consent  of  the  lenders  of  Uttam  Galva,  which  consent  was

necessary  as  per  the  Non  Disclosure  Undertaking  that  was

executed by AMNLBV.  On 7.2.2018, consequent to the aforesaid

inter  se transfer,  the  Co-Promotion  Agreement  is  said  to  have

stood automatically terminated.  By way of  abundant caution,  a

formal deed of termination was entered into.  AMNLBV addressed

letters to the NSE and the BSE to record the aforesaid  inter se

transfer,  who accordingly declassified AMNLBV as a promoter of

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Uttam Galva on 21.3.2018 and 23.3.2018 respectively.  

109. It  is  absolutely  clear  that  Shri  L.N.  Mittal,  who  is  the

ultimate  shareholder  of  the  resolution  applicant,  viz. AMIPL,  is

directly the ultimate shareholder of AMNLBV as well, which is an

L.N.  Mittal  Group  Company.   When  the  corporate  veil  of  the

various  companies  aforementioned  is  pierced,  both  AMIPL and

AMNLBV are found to be managed and controlled by Shri  L.N.

Mittal, and are therefore persons deemed to be acting in concert

as per Regulation 2(1)(q)(2)(i) of the 2011 Takeover Regulations.

That  AMNLBV is  a  promoter  of  Uttam Galva  is  clear  from the

aforementioned facts,  being  expressly  stated as  such  in  Uttam

Galva’s annual returns.  The reasonably proximate facts  prior  to

the submission of both resolution plans by AMIPL would show that

there  is  no  doubt  whatsoever  that  AMNLBV’s  shares  in  Uttam

Galva  were  sold  only  in  order  to  get  out  of  the  ineligibility

mentioned  by  Section  29A(c),  and  consequently  the  proviso

thereto.  The fact that the lenders with whom AMNLBV had a Non

Disposal  Undertaking  have  not  yet  moved  any  forum for  a

declaration that the sale of the shares, being without their consent,

is  non est, does not absolve AMNLBV from having failed to first

obtain their consent before selling off its shares in Uttam Galva.

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Such sale  is  directly  contrary  to  the  Non Disposal  Undertaking

given to the lenders.  Quite apart from this, it  is also clear that

shares worth Rs.19.50 each were sold at a distress value of Re.1

each, so as to overcome the provisions of Section 29A(c) and the

proviso  thereto.  It  is  clear  therefore  that  the  Uttam  Galva

transaction clearly renders AMIPL ineligible under Section 29A(c)

of the Code.  

110. Insofar as the transaction with regard to KSS Petron is

concerned, the facts are as follows:- on  3.3.2011, Fraseli,  an

entity  registered  and  incorporated  in  Luxemburg,  which  is

managed  and controlled  by Shri  L.N. Mittal, held 32.22%  of the

shareholding of KSS  Global,  a  company  domiciled  in  the

Netherlands.   On  19.5.2011, by  a  Shareholders  Agreement

entered into between KSS Holding, KSS Infra EALQ, Fraseli and

KSS Global, the first three companies were each given a right to

appoint an equal number of directors on the board of directors of

KSS Global, which in turn held 100% of the share capital of KSS

Petron, a company incorporated in India. Fraseli was also granted

affirmative voting rights on decisions regarding certain specified

matters, both at the board and the shareholder level, in respect of

KSS  Global  and  all  companies  controlled  by  it,  which  would

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include KSS Petron.  As has been stated hereinabove, KSS Petron

was declared as an NPA on 30.9.2015.  As in the case of Uttam

Galva,  Fraseli  divested  its  shareholding  in  KSS  Petron  on

9.2.2018,  i.e.,  only  three  days  before  AMIPL submitted  its  first

resolution plan.  On the same day, the directors nominated by Shri

L.N.  Mittal,  through  Fraseli,  resigned  from  the  board  of  KSS

Global.  

111. From the aforementioned facts,  there can be no doubt

whatsoever that Fraseli, being a company managed and controlled

by Shri L.N. Mittal, holding one third of the shares in KSS Global,

which in turn held 100% of the share capital in KSS Petron, was in

joint  control  of  KSS  Petron, if  the  corporate  veil  of  all  these

companies is disregarded.  Further, the Shareholders Agreement

of 19.5.2011 makes it  clear that the joint control of KSS Global

would  be  between  three  entities,  viz.,  KSS Holding,  KSS Infra

EALQ and Fraseli, each of whom had the right to appoint an equal

number of directors on the board of directors of KSS Global. Not

only this,  but Fraseli was also granted affirmative voting rights as

aforementioned,  on  certain  important  specified  matters.  There

would be no doubt whatsoever that, just before presentation of the

resolution  plan  of  12.2.2018,  AMIPL  would  be  hit  by  Section

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29A(c), as a group company of Shri L.N. Mittal exercised positive

control,  by  its  shareholding,  right  to  appoint  directors  and

affirmative voting rights, over KSS Global, which in turn held 100%

shareholding in KSS Petron.  Again, as in the case of Uttam Galva,

there  can  be  no  doubt  whatsoever  that  the  sale  of  Fraseli’s

shareholding in KSS Global, together with the resignation of the

Mittal  directors  from the board of  directors of  KSS Global,  is  a

transaction reasonably proximate to the date of submission of the

resolution  plan  by  AMIPL,  undertaken  with  the  sole  object  of

avoiding  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 this account as well.  

112. Shri  Rohatgi  also  argued  before  us  that  Shri  Pramod

Mittal, brother of Shri Laxmi Mittal, also held shares in two other

companies which were declared to be NPAs more than one year

prior  to  the date of  commencement of  the corporate insolvency

resolution process of ESIL.  We have been informed by Shri Salve

that Shri Pramod Mittal parted company with Shri L.N. Mittal as far

back  as  1994,  and  cannot  therefore  be  regarded  as  a  person

acting in concert with Shri  L.N. Mittal.   Since this aspect of the

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case has not  been  argued  before the authorities below,  though

raised in an I.A. by Numetal before the Appellate Authority, we will

not countenance such an argument for the first time before this

Court.   

113. Since it  is  clear  that  both sets  of  resolution plans that

were 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 and

Numetal have not paid off their respective NPAs, ordinarily,  these

appeals would have been disposed of by merely declaring both

resolution applicants to be ineligible under Section 29A(c).  Shri

Subramanium, on behalf of the Committee of Creditors, requested

us to give one more opportunity to the parties before us to pay off

their  corporate  debtors’  respective  debts  in  accordance  with

Section 29A, as the best resolution plan can then be selected by

the requisite  majority  of  the Committee of  Creditors,  so that  all

dues  could  be  cleared  as  soon  as  possible.  Acceding  to  this

request, in order to do complete justice under Article 142 of the

Constitution  of  India,  and  also  for  the  reason  that the  law  on

Section 29A has been laid down for the first time by this judgment,

we give one more opportunity to both resolution applicants to pay

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off the NPAs of  their  related corporate debtors within a period of

two weeks from the date of receipt of this judgment, in accordance

with  the proviso to  Section 29A(c).  If such payments  are  made

within the aforesaid period, both resolution applicants can resubmit

their  resolution  plans  dated  2.4.2018  to  the  Committee  of

Creditors, who are then given a period of 8 weeks from this date,

to accept, by the requisite majority, the best amongst the plans

submitted, including the resolution plan submitted by Vedanta.  We

make it  clear  that  in  the event  that no plan  is  found  worthy of

acceptance by the requisite majority of the Committee of Creditors,

the  corporate  debtor,  i.e. ESIL, shall  go  into  liquidation.  The

appeals are disposed of, accordingly.

…………………………..J. (R.F. Nariman)

…………………………..J. (Indu Malhotra)

New Delhi; October 4, 2018.