2019 (9) TMI 182 - AT - Insolvency and Bankruptcy

Tribunal: Promoters can settle under Section 12A without ineligibility. Seizure of assets possible if linked to crime.

The Tribunal clarified that Section 29A does not apply to Section 12A applications, allowing promoters/shareholders to settle under Section 12A without ... Maintainability of application - Section 12A of the Insolvency and Bankruptcy Code, 2016 - rejection of application on the ground that the ‘Promoter’ not eligible to file the ‘resolution plan’ under Section 29A cannot file the application under Section 12A of the ‘I&B Code’ - proceeds of crime - whether Section 29A of the ‘I&B Code’ is applicable to the applicant, if he intends to withdraw the petition under Section 7 or 9, if the Committee of Creditor, approves a proposal with 90% voting share, in terms of Section 12A? HELD THAT:- If any person, including the ‘Promoter’/ ‘Director’ is ineligible in terms of any one or more clauses of Section 29A, he/she is not entitled to file any ‘resolution plan’ individually or jointly or in concert with another. 10. In so far Section 12A is concerned, it relates to withdrawal of the application filed by an “applicant” under Section 7 or Section 9 of the I&B Code, if the ‘Committee of Creditors’ with more than 90% voting share approves the proposal as is apparent from Section 12A. From Section 12A and the decision of the Hon’ble Supreme Court in SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. [2019 (1) TMI 1508 - SUPREME COURT] it is clear that the Promoters/Shareholders are entitled to settle the matter in terms of Section 12A and in such case, it is always open to an applicant to withdraw the application under Section 9 of the ‘I&B Code’ on the basis of which the ‘Corporate Insolvency Resolution Process’ was initiated. 13. In view of the aforesaid provisions of law, we hold that Section 29A is not applicable for entertaining/considering an application under Section 12A as the Applicants are not entitled to file application under Section 29A as ‘resolution applicant’. In the present case, the ‘Corporate Insolvency Resolution Process’ was initiated pursuant to an application under Section 7 filed by the ‘Andhra Bank’ (Appellant herein). The application under Section 12A having been approved by the ‘Committee of Creditors’ more than 90% of the voting share, it was not open to the Adjudicating Authority to reject the same and that too on a ground of ineligibility under Section 29A, which is not applicable. Assets of the ‘Corporate Debtor’ - HELD THAT:- So far the assets of the ‘Corporate Debtor’ is concerned, if it is based on the proceeds of crime, it is always open to the ‘Enforcement Directorate’ to seize the assets of the ‘Corporate Debtor’ and act in accordance with the ‘Prevention of Money Laundering Act, 2002’ - However, it will not come in the way of the individual such as ‘Promoter’ or ‘Shareholder’ or ‘Director’, if he pays not from the proceeds of crime but in his individual capacity the amount from his account and not from the account/assets of the ‘Corporate Debtor’ and satisfies all the stakeholders, including the ‘Financial Creditors’ and the ‘Operational Creditors’. There is nothing on the record to suggest that the individual property of the ‘Promoter’ / ‘Shareholder’/ ‘Director’ who proposed to pay the amount has been subjected to restraint by the ‘Enforcement Directorate’. Therefore, even if the asset of the ‘Corporate Debtor’ is held to be proceeds of crime, the Adjudicating Authority cannot reject the prayer for withdrawal of application under Section 7, if the ‘Promoter’ / ‘Director’ or ‘Shareholder’ in their individual capacity satisfy the creditors. The order of ‘Liquidation’ was uncalled for - Appeal allowed. Issues Involved:1. Applicability of Section 29A of the Insolvency and Bankruptcy Code (I&B Code) to Section 12A applications.2. Eligibility of promoters to file applications under Section 12A.3. Role of the Enforcement Directorate and other authorities in relation to the assets of the Corporate Debtor.4. Observations against the Resolution Professional.5. Determination and payment of fees and resolution costs.6. Management of the Corporate Debtor until compliance with Section 12A terms.Detailed Analysis:1. Applicability of Section 29A to Section 12A Applications:The core issue was whether Section 29A, which deals with the ineligibility of a 'resolution applicant,' applies to applications for withdrawal under Section 12A. The judgment clarified that Section 29A is not applicable when considering an application under Section 12A. The Tribunal noted that Section 29A pertains to the eligibility criteria for submitting a resolution plan and does not extend to withdrawal applications approved by the Committee of Creditors (CoC) with more than 90% voting share.2. Eligibility of Promoters to File Applications under Section 12A:The Tribunal held that promoters/shareholders are entitled to settle the matter under Section 12A and can withdraw the application under Section 7 or 9 if approved by the CoC. The ineligibility criteria under Section 29A do not apply to such withdrawal applications. The Tribunal emphasized that the Adjudicating Authority (NCLT) erred in rejecting the application on the grounds of ineligibility under Section 29A, as the provision is not relevant for Section 12A applications.3. Role of the Enforcement Directorate and Other Authorities:The Tribunal acknowledged the submissions from the Enforcement Directorate (ED) and other authorities investigating the Corporate Debtor and its promoters. It was noted that if the assets of the Corporate Debtor are based on the proceeds of crime, the ED can seize such assets under the Prevention of Money Laundering Act, 2002 (PMLA). However, this does not prevent promoters from paying creditors from their individual assets, provided these assets are not subject to restraint by the ED.4. Observations Against the Resolution Professional:The Tribunal expunged all observations made against Mr. Sundaresh Bhat, the Resolution Professional, in the impugned order dated 8th May 2019. This decision was in line with setting aside the order of liquidation, thereby removing any adverse remarks against the Resolution Professional.5. Determination and Payment of Fees and Resolution Costs:The Tribunal directed the CoC to determine the fees and resolution costs of the Resolution Professional/Liquidator, which would be paid by Andhra Bank on behalf of the CoC. Andhra Bank may adjust these costs with other CoC members.6. Management of the Corporate Debtor Until Compliance with Section 12A Terms:The Tribunal ordered that until the terms and conditions under Section 12A are complied with, the Resolution Professional will manage the company, ensuring it remains a going concern and its assets are protected.Conclusion:The Tribunal set aside the order of liquidation and allowed the withdrawal of the application under Section 7 by Andhra Bank, subject to the payment of amounts by the promoters/shareholders to all stakeholders. The proceedings under PMLA and actions by other authorities will continue unaffected by this settlement. The appeals were disposed of with the aforementioned observations and directions.