2018 (5) TMI 695 - Tri - Insolvency and Bankruptcy

Tribunal rules Numetal and Arcelor Mittal ineligible under Section 29A, emphasizes fair insolvency process

Numetal Limited Versus Mr. Satish Kumar Gupta, State Bank of India, Arcelormittal India private Limited, Standard Chartered Bank Limited, Essar Steel India Limited

Numetal Limited Versus Mr. Satish Kumar Gupta, State Bank of India, Arcelormittal India private Limited, Standard Chartered Bank Limited, Essar Steel ... Issues Involved:1. Eligibility of M/s. Numetal Limited as a Resolution Applicant.2. Eligibility of M/s. Arcelor Mittal India Private Limited (AM) as a Resolution Applicant.3. Compliance with Section 29A of the Insolvency and Bankruptcy Code (IBC).4. Procedural adherence by the Resolution Professional (RP) and Committee of Creditors (CoC).5. Remedial actions and directions for reconsideration.Detailed Analysis:1. Eligibility of M/s. Numetal Limited as a Resolution Applicant:- Facts and Arguments: M/s. Numetal Limited sought a declaration of eligibility to submit a Resolution Plan for Essar Steel India Limited (ESSAR) under the IBC. The RP declared Numetal ineligible based on the introduction of Section 29A, which prohibits certain persons from submitting resolution plans. Numetal argued it did not suffer from ineligibility under Section 29A, providing a clause-wise analysis to support its claim.- RP's Decision: The RP found Numetal ineligible under Section 29A(c) and (h) due to its connection with Ravi Ruia, who was deemed to be acting in concert with Rewant Ruia, a shareholder of Numetal. Ravi Ruia was a promoter of an entity classified as an NPA and had executed guarantees in favor of creditors.- Tribunal's Observation: The Tribunal noted that the RP acted prudently based on legal opinions and found no patent illegality in the RP's decision. However, it emphasized that the CoC should have considered the Resolution Plan and provided an opportunity to cure the ineligibility under Section 29A(c).2. Eligibility of M/s. Arcelor Mittal India Private Limited (AM) as a Resolution Applicant:- Facts and Arguments: AM challenged the RP's decision declaring it ineligible under Section 29A(c) due to its connection with Uttam Galva and KSS Petron, both classified as NPAs. AM argued that it had divested its shareholding in Uttam Galva before submitting the Resolution Plan and should not be disqualified.- RP's Decision: The RP found AM ineligible as AM Netherlands, a connected person, was a promoter of Uttam Galva, and LN Mittal had control over KSS Petron, both classified as NPAs. The RP relied on legal opinions that divesting shareholding did not remove the disqualification unless overdue amounts were paid.- Tribunal's Observation: The Tribunal agreed with the RP's determination of ineligibility but highlighted the procedural lapse by the CoC in not providing an opportunity to cure the ineligibility under Section 29A(c).3. Compliance with Section 29A of the Insolvency and Bankruptcy Code (IBC):- Section 29A(c): Prohibits persons with NPAs for more than a year from submitting a Resolution Plan unless overdue amounts are paid before submission.- Tribunal's Interpretation: The Tribunal emphasized the need to follow the statutory provisions of Section 29A(c) and the proviso to Section 30(4), which allows curing the ineligibility by paying overdue amounts within 30 days.4. Procedural Adherence by the Resolution Professional (RP) and Committee of Creditors (CoC):- Tribunal's Findings: The Tribunal found that the RP and CoC did not follow the mandatory provisions of Section 30(3) and (4) of the IBC. The RP should have presented the Resolution Plans to the CoC along with comments on eligibility and allowed an opportunity to cure ineligibility under Section 29A(c).5. Remedial Actions and Directions for Reconsideration:- Tribunal's Order: The Tribunal remanded the matter back to the RP and CoC for reconsideration. It directed the RP to present all Resolution Plans to the CoC and follow the provisions of Section 29A(c) read with Section 30(4). The CoC was instructed to provide an opportunity to cure ineligibility by paying overdue amounts within 30 days.- Exclusion of Time: The Tribunal excluded the period from the date of filing the application (20.03.2018) to the date of pronouncement of the order from the CIRP timeline, in line with the decision of the NCLAT in Quantum Ltd. v. Indus Finance Corpn. Ltd.Conclusion:The Tribunal's judgment emphasized the importance of adhering to statutory provisions and procedural fairness in the insolvency resolution process. Both M/s. Numetal Limited and AM were given an opportunity to cure their ineligibility under Section 29A(c) by paying overdue amounts, ensuring a fair and transparent process in the best interest of the Corporate Debtor.