Undischarged insolvency and connectedness: control at plan submission determines Section 29A disqualification; admitted CCDs treated as financial debt.

Whether a resolution applicant is disqualified as an undischarged insolvent under Section 29A(a) and as a connected person under Section 29A(j): the tribunal applied the statutory meaning of undischarged insolvent (limited to individuals/partnerships under the Code) and held that disqualification requires that status and control/management to exist at the time of plan submission, finding the 3rd respondent lacked both then and so was not ineligible. Whether the plan unlawfully discriminated by paying a company for compulsorily convertible debentures while excluding a shareholder: the tribunal treated admitted CCD claims as financial debt, affirmed separate corporate personality, and held the plan lawfully paid admitted financial creditors, not shareholders.

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Issues: (i) Whether the 3rd respondent (Arcelor Mittal India Private Limited) was ineligible under Section 29A(a) read with Section 29A(j) of the Insolvency and Bankruptcy Code, 2016 (including Explanation I(iii)) to submit the resolution plan for the corporate debtor; (ii) Whether the approved resolution plan discriminated between similarly situated shareholders by paying Essar (ESIL) for compulsorily convertible debentures while making no payment to the appellant shareholder.

Issue (i): Whether the 3rd respondent was ineligible under Section 29A(a) read with Section 29A(j) of the Insolvency and Bankruptcy Code, 2016.

Analysis: The Tribunal examined Section 29A and Section 79(3) and observed that the concept of "undischarged insolvent" under Section 29A(a) pertains to individuals and partnership firms under Part III of the Code. The Tribunal noted factual timeline: the 3rd respondent submitted its resolution plan and obtained 100% COC approval prior to acquiring management and control of ESIL; the actual takeover of ESIL occurred after disposal of appeals and on 16.12.2019. On these facts, the Tribunal held that the 3rd respondent was not an undischarged insolvent nor in management/control of ESIL at the time of submission of the plan, and therefore could not be treated as a connected person under Section 29A(j) for the purpose of disqualification.

Conclusion: The 3rd respondent is not ineligible under Section 29A(a) read with Section 29A(j) of the Insolvency and Bankruptcy Code, 2016. This conclusion is against the appellant.

Issue (ii): Whether the approved resolution plan discriminated between the appellant and ESIL by paying ESIL for compulsorily convertible debentures while not providing any return to the appellant shareholder.

Analysis: The Tribunal analysed the nature of claims and the admitted creditor list. It observed that ESIL's claims arising from compulsorily convertible debentures were admitted by the resolution professional as financial debt and were paid in full under the approved plan. The Tribunal applied the principle that a company and its shareholders are separate legal entities and that the Code does not entitle equity shareholders to returns under a resolution plan. The plan provided for equal treatment of admitted financial creditors by paying 100% of admitted principal to each financial creditor as per the creditor list.

Conclusion: The resolution plan did not discriminate unlawfully between similarly situated creditors or shareholders; payment to ESIL was in its capacity as an admitted financial creditor for CCDs and not as an equity shareholder. This conclusion is against the appellant.

Final Conclusion: All contested issues were decided against the appellant; the appeal is without merit and is dismissed.

Ratio Decidendi: A resolution applicant cannot be disqualified under Section 29A(a) as an "undischarged insolvent" unless that status applies to it at the relevant time (and the statutory concept of undischarged insolvent under Section 79(3) pertains to individuals/partnerships); connectedness under Section 29A(j) requires control/management at the time of submission of the resolution plan, and admitted financial claims (including claims arising from compulsorily convertible debentures when admitted as financial debt) are to be treated and paid as financial creditor claims under an approved resolution plan.

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