2024 (9) TMI 184 - HC - Insolvency and Bankruptcy

Resolution applicant cleared under Section 29A after full disclosure, approved plan creates clean slate protection

ARYAN CONSTRUCTIONS THROUGH MR. AMIT SINGH YADAV (PROPRIETOR) Versus PUNJAB NATIONAL BANK LTD. THROUGH ITS CMD & ORS.

The HC dismissed a writ petition challenging an approved resolution plan under IBC. The court held that the resolution applicant made full disclosure and ... Maintainability of petiiton - Resolution Plan stands approved upto the Supreme Court - personal insolvency proceedings have been initiated against the promoters/directors of the CD - COC failed to ensure compliance of Section 29A read with Section 5(24) of the IBC - HELD THAT:- It is significant to note that the “Resolution Applicant” made full and truthful disclosure of its background learned NCLAT at the time of submission of “Resolution Plans” and it was after a detailed analysis that the learned NCLT arrived at the conclusion that the “Resolution Applicant” was not falling foul of the bar of Section 29A of the IBC - the plea that the “Resolution Applicant” was a “related party” has no merits as nothing is brought on the record so as to show its nexus or connection with the activities of the “CD”. It is well ordained in corporate law that once the CIRP proceedings are initiated and “Resolution Plans” are approved, the adjudication of the claim of the creditors could only be in accordance with the IBC. Needless to state that the COC, once constituted in accordance with the IBC, acts on behalf of all the creditors and the taskof the COC is to attain a balance between the twin goals of the CIRP process viz., maximization of the value of the assets of the CD and also a planned course for revival of the CD. These being the twin objectives, the decisions take by the COC, which have been approved by the NCLT are considered to be commercially viable and cannot be condemned on any counts by the petitioner. The effect that a “Resolution Plan” once approved would bring is to proceed on a “clean slate” with the successful resolution applicantrather than carrying the cargo of such debts which need to be satisfied to the extent required and then jettisoned, as stated by the Supreme Court in the case of JAYPEE KENSINGTON BOULEVARD APARTMENTS WELFARE ASSOCIATION & ORS. VERSUS NBCC (INDIA) LTD. & ORS. [2021 (3) TMI 1143 - SUPREME COURT]. There is no escape from the conclusion that once the “Resolution Plan” was approved, the assets of the CD in the hand of the “Resolution Applicant” stood shielded from the criminal prosecution and attachment. Section 32A of the IBC is merely clarificatory in nature. The petitioner has failed to make out a case for issuance of any prerogative writs by this Court. There is nothing as such to find any blemishes or flawed actions or inactions on the part of the respondent No.2 in any manner requiring interference by this Court. Hence, the present writ petition is dismissed with costs. Issues Involved:1. Maintainability of the writ petition.2. Compliance with Section 29A and Section 5(24) of the Insolvency and Bankruptcy Code (IBC).3. Applicability and interpretation of Section 32A of the IBC.4. Allegations of inaction by respondents regarding attachment of properties under the Prevention of Money Laundering Act (PMLA).Issue-wise Detailed Analysis:1. Maintainability of the Writ Petition:The court found that the writ petition is not legally sustainable and deserves to be dismissed. The counsel for the petitioner argued that the Committee of Creditors (COC) failed to ensure compliance with Section 29A read with Section 5(24) of the IBC. However, the court held that this aspect was already dealt with in detail by the National Company Law Appellate Tribunal (NCLAT) and found to be without merit.2. Compliance with Section 29A and Section 5(24) of the IBC:The petitioner contended that the Resolution Applicant was a 'related party' of the Corporate Debtor (CD) and thus ineligible to submit a 'Resolution Plan.' The court referred to the NCLAT judgment, which clarified that the Resolution Applicant, JSW Steel Limited, was not a related party. The NCLAT observed that JSW Steel Limited had applied for the allocation of the Rohne Coking Coal Block individually, and the joint venture was formed at the behest of the Ministry of Coal. The joint venture did not imply any control or say in the issuance of the notification. The court concluded that the Resolution Applicant was not falling foul of Section 29A of the IBC.3. Applicability and Interpretation of Section 32A of the IBC:The petitioner argued that Section 32A, which provides immunity to the corporate debtor and its property after the approval of the Resolution Plan, should not apply retrospectively. The court disagreed, referring to the Supreme Court's decisions in Essar Steel and Manish Kumar cases, which upheld the 'Clean Slate Theory.' The court emphasized that once a Resolution Plan is approved, it binds all stakeholders, and the corporate debtor starts afresh without any undecided claims.4. Allegations of Inaction by Respondents Regarding Attachment of Properties Under PMLA:The petitioner claimed that the respondents failed to take timely action to benefit the creditors by not pursuing the attachment of properties under PMLA. The court noted that the Central Bureau of Investigation (CBI) and Serious Fraud Investigation Office (SFIO) did not allege any act of money laundering against JSW Steel Limited. The court also referred to affidavits stating that the new management taking over the corporate debtor after the CIRP process cannot be held responsible for the previous management's actions. The court concluded that once the Resolution Plan is approved, the assets of the corporate debtor in the hands of the Resolution Applicant are shielded from criminal prosecution and attachment.Conclusion:The court dismissed the writ petition with costs of Rs. One lakh, finding no merit in the petitioner's claims and emphasizing that the actions of the respondents were in compliance with the IBC and did not warrant interference. The court also disposed of the pending applications.