2018 (8) TMI 1038 - AT - Insolvency and Bankruptcy

Tribunal Upheld Eligibility of Vedanta & Tata Steel under I&B Code, Shareholders Not Creditors

Renaissance Steel India Pvt. Ltd., Neeraj Singal, Larsen & Toubro Ltd., Bhushan Energy Ltd. Through its Resolution Professional And Brij Bhushan Singal Versus Electrosteels Steel India Ltd., Bhushan Steel Ltd. And Ors. And State Bank of India And Ors.

Renaissance Steel India Pvt. Ltd., Neeraj Singal, Larsen & Toubro Ltd., Bhushan Energy Ltd. Through its Resolution Professional And Brij Bhushan Singal ... Issues Involved:1. Eligibility of Vedanta Limited under Section 29A(d) of the I&B Code.2. Eligibility of Tata Steel Limited under Section 29A(d) of the I&B Code.3. Allocation of amounts to Operational Creditors by Tata Steel Limited.4. Grievance of preference shareholders regarding the Resolution Plan.5. Claim of the Divisional Forest Officer, Bokaro Forest Division.Issue-wise Detailed Analysis:Issue 1: Eligibility of Vedanta Limited under Section 29A(d) of the I&B CodeArguments by Appellant:- Vedanta Limited is a subsidiary of Vedanta Resources PLC, which holds 50.13% equity in Vedanta Limited.- Vedanta Resources PLC has another subsidiary, Konkola Copper Mines (KCM), which was convicted for environmental pollution in Zambia.- KCM was fined and found guilty of offences under the Environmental Protection and Pollution Control Act of Zambia, which includes potential imprisonment for up to three years.- Appellant contends that Vedanta Limited is ineligible under Section 29A(d) due to KCM's conviction.Arguments by Vedanta Limited:- The term 'punishable' means capable of being punished by imprisonment, and since KCM is a corporate entity, it cannot be imprisoned.- Section 29A(d) should apply only to natural persons who can be imprisoned.- The conviction of KCM does not translate to ineligibility of Vedanta Limited under Section 29A(d).Tribunal's Decision:- The term 'punishable' in Section 29A(d) refers to the capability of the offence to attract imprisonment, not the actual punishment imposed.- The Zambian Act under which KCM was convicted does not correspond to Section 29A(d) of the I&B Code as it includes alternative penalties of fine.- Vedanta Limited is eligible under Section 29A(d) as the conviction of KCM does not make Vedanta Limited ineligible.Issue 2: Eligibility of Tata Steel Limited under Section 29A(d) of the I&B CodeArguments by Appellant:- Tata Steel UK, a connected person to Tata Steel Limited, was convicted under the Health and Safety at Work Act, 1974, UK.- The conviction under the UK Act includes penalties of imprisonment for up to two years or fine or both.- Appellant contends that Tata Steel Limited is ineligible under Section 29A(d) due to Tata Steel UK's conviction.Arguments by Tata Steel Limited:- The UK Act provides for alternative penalties of fine, and the term 'punishable' in Section 29A(d) should be interpreted as mandatory imprisonment for two years or more.- The conviction of Tata Steel UK does not make Tata Steel Limited ineligible under Section 29A(d).Tribunal's Decision:- The severity of the offence under Section 29A(d) is higher as it does not provide for alternative penalties like fine.- Tata Steel UK’s conviction under the UK Act does not correspond to Section 29A(d) of the I&B Code.- Tata Steel Limited is eligible under Section 29A(d) as the conviction of Tata Steel UK does not make Tata Steel Limited ineligible.Issue 3: Allocation of amounts to Operational Creditors by Tata Steel LimitedArguments by Appellant (Larsen and Toubro Limited):- The allocation of Rs. 1200 crores to Operational Creditors by Tata Steel Limited is discretionary and not permissible.- Section 55(4)(b) of the Transfer of Property Act, 1883, creates a statutory charge in favor of the appellant, which cannot be extinguished by the Resolution Applicant.Tribunal's Decision:- The allocation of amounts to Operational Creditors is to be done as per the I&B Code and the regulations framed thereunder.- The Resolution Plan submitted by Tata Steel Limited is fair and equitable to all creditors, including Operational Creditors.- No interference is called for in the allocation made by Tata Steel Limited.Issue 4: Grievance of preference shareholders regarding the Resolution PlanArguments by Appellant (Brij Bhushan Singal):- The Resolution Plan unilaterally transfers the preference shares of Bhushan Steel Limited for a fixed consideration of Rs. 100 as against Rs. 2269 crores.- The implementation of the Resolution Plan has led to automatic redemption and cancellation of the preferential shares.- The Resolution Plan is violative of Section 55 of the Companies Act, 2013.Tribunal's Decision:- Shareholders are not treated as creditors under the I&B Code.- The Resolution Plan, once approved, is binding on all stakeholders, including shareholders.- Section 55 of the Companies Act, 2013, can be complied with only after the approval of the Resolution Plan.- No interference is called for in the approval of the Resolution Plan.Issue 5: Claim of the Divisional Forest Officer, Bokaro Forest DivisionArguments by Appellant (Government of Jharkhand):- Part of the land shown in the Resolution Plan belongs to the forest land and is in illegal possession of Bhushan Steel Limited.- Recovery proceedings have already been initiated against Bhushan Steel Limited for the alleged forest lands.Tribunal's Decision:- The Resolution Applicant is aware of the pending proceedings regarding the disputed land.- Allowing or rejecting the Resolution Plan will not affect the legal remedy available to the State of Jharkhand.- No interference is called for in the impugned order regarding the claim of the Divisional Forest Officer.Conclusion:The Tribunal dismissed the appeals and upheld the eligibility of Vedanta Limited and Tata Steel Limited under Section 29A(d) of the I&B Code. The allocation of amounts to Operational Creditors by Tata Steel Limited was found to be fair and equitable. The grievances of preference shareholders and the claim of the Divisional Forest Officer were also dismissed.