TaxTMI 
TaxTMI 
2018 (8) TMI 1038
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.... Mr. L. Vishwanathan, Mr. Gaurav Gupte, Mr. Bishwajit Dubey, Ms. Surabhi Khattar, Ms. Srideepa Bhattacharyya, Mr. Tushar Bhardwaj and Mr. Naveen Hegde, Advocates for R-4. Mr. Jayant Mehta, Mr. Sajal Jain and Mr. Ashish Rana, Advocates for (Suspended) Board of Directors. JUDGMENT SUDHANSU JYOTI MUKHOPADHAYA, J. In all the appeals as common question of law is involved and one of the Resolution Applicants- 'Tata Steel Limited' is common, though they were heard separately but with a view to notice the submissions made by learned counsel for the parties in two separate sets of the appeals, the appeals are disposed of by this common judgment. For proper appreciation of the case, we have referred different sets of appeals as appeal arising out of 'Resolution Process' against 'Electrosteels Steels Limited' and 'Resolution Process' initiated against 'Bhushan Steel Ltd.' as the case may be. Appeals arising out of "Electrosteels Steels Limited"- 2. Pursuant to an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "I&B Code") filed by the State Bank of India- ('Financial Creditor'), 'Corporate Insolvency Resolution ....
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....th May, 2018 has been challenged by 'Larsen & Toubro Limited'- ('Operational Creditor') in Company Appeal (AT) (Insolvency) No. 233 of 2018 in so far it relates to allocation made in the 'Resolution Plan' in respect of 'Operational Creditor's'. 9. Mr. Brij Bhushan Singal, a Shareholder along with Others, have also challenged the order dated 15th May, 2018 in Company Appeal (AT) (Insolvency) No. 357 of 2018 raising grievance against the approved 'Resolution Plan'. 10. The Divisional Forest Officer, Bokaro Forest Division, Department of Forests & Environment, Government of Jharkhand, Bokaro, filed an application CA (IB) No. 307/KB/2018 for its substitution as a party to the proceedings of 'Bhushan Steel Ltd.' so as to protect the 'forest lands' allegedly in the illegal possession of 'Bhushan Steel Ltd.'- ('Corporate Debtor'). 11. Upon hearing the argument of the learned counsel and considering the contentions, the Adjudicating Authority held that remedy available to the Applicant- 'Divisional Forest Officer, Bokaro Forest Division', seems to have already initiated and pending against the 'Corporate Debtor'. Allowing or rejecting the 'Resolution Plan' in the case in hand will....
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....d (3) of the Environmental Protection and Pollution Control Act No. 12 of 1990 Cap 204 of the Laws of Zambia; and IV. Failure to comply with the requirements for discharge of effluent contrary to Regulation 12(b) of the Environmental Protection and Pollution Control [Water Pollution (Effluent and wastewater)] Regulation Statutory Instrument No. 172 of 1993. 16. Subordinate Court of First Class for the Chingola District Holden at Chingola, Zambia (Criminal Jurisdiction), by order dated 25th November, 2010, held the 'KCM' guilty of all four charges and imposed a monetary fine on 'KCM'. 17. Further case of the Appellant is that one of the charges for which penalty has been inflicted upon 'KCM' by Subordinate Court of First Class of Chingola was failure to comply with the requirements for discharging of effluent contrary to Regulation 12(b) of the 'Environmental protection and Pollution Control [Water Pollution (Effluent and wastewater)] Regulation Statutory Instrument No. 172 of 1993'. 18. The sentence imposed on 'KCM' by proceeding dated 25th November, 2010 by the Subordinate Court of First Class for the Chingola District Holden at Chingola, Zambia (Criminal Jurisdi....
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....d five hundred penalty units. (3) Where an offence under this Act is committed by a body of persons- (a) in the case of a body corporate, every director or similar officer of the body shall be guilty of the offence; or (b) in the case of a partnership, every partner shall be guilty of an offence. (4) A person shall not be guilty of an offence under subsection (3), if he proves to the satisfaction of the court that the act constituting the offence was done without his knowledge, consent or connivance and that he did his part to prevent the commission of the offence having regard to all the circumstances of the case." 20. Referring to Section 29A (d) of the 'I&B Code', it was submitted that 'KCM' being a 'related party' and a 'connected party' of 'Vedanta Limited' having convicted for the offence under Sections 24, 86 & 91(1) of the Zambia Act, which includes punishment and imprisonment of three years (Section 91(1)), the 'Vedanta Limited' is also ineligible in terms of Section 29A (d). 21. It was further submitted that phrase 'punishable' with imprisonment for two years or more used in clause (d) of Section 29A of the 'I&B Code' do not connote that for incurr....
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....ttee of Creditors' 26. Mr. Tushar Mehta, learned Senior Counsel appearing on behalf of the State Bank of India- 'Committee of Creditors', referring to Section 29A(d) submitted that 'Literal Interpretation' of the term 'imprisonment' would only apply to natural persons and not to juristic persons, but to apply the provision of Section 29A(d) the other conditions will be required to be found in existence. Referring to term 'punishable' as defined in the Black's Law Dictionary and the 'punishable range' under the relevant penal law, he submitted that it has no relevance with the 'actual punishment imposed'. 'Bhushan Steel Limited' Stand of the Counsel for 'Mr. Neeraj Singhal' 27. The case of the Appellant- 'Mr. Neeraj Singhal' is that 'Tata Steel Ltd.' - 'Resolution Applicant' is a 'connected person' of 'Tata Steel UK'. The aforesaid 'connected person' has been found guilty on two counts under the 'Health and Safety at Work Act, 1974, UK' (hereinafter referred to as "U.K Act") vide an order dated 2nd February, 2018 for failing to discharge its duties under Section 2(1) of the 'U.K Act'. The objection raised is that since 'Tata Steel UK' has been convicted by order dated 2n....
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....entence of imprisonment on a Company and thereby the only available penalty is that of a fine which has actually been done. 35. It was further submitted that a Court can impose a fine and/or a custodial sentence on a Director of the Company and if the Director is being prosecuted with punishment of imprisonment in addition to the Company, the matter would have been different but it is not the position in the present case. 36. Referring to Section 33(1) of the 'U.K Act' and Section 29A (d) of the 'I&B Code', it was contended that the Indian Law only talks of imposition of punishment of imprisonment of two years or more in order to attract disability, whereas under the English Law both have been provided. It has accordingly been argued that where 'imprisonment or fine' are envisaged the Courts have the discretion to impose fine and where the imprisonment is the only punishment, a company cannot even be prosecuted as imposition of custodial sentence is a legal impossibility. In support of his submissions, reliance has been placed on the decisions of the Hon'ble Supreme Court which we will refer at appropriate stage. Provisions of law 37. Section 29A prescribes 'ineligibili....
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....trol of the resolution applicant; or (ii) (ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or (iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii): Provided that nothing in clause (iii) of this Explanation shall apply to- (A) a scheduled bank; or (B) an asset reconstruction company registered with the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; or (C) an Alternate Investment Fund registered with the Securities and Exchange Board of India." 38. The substantive provision of Section 29A of the 'I&B Code' suggests that not only a person is ineligible to submit a 'Resolution Plan', but also a person with any other person acting jointly or in concert with such person, attracts any one or other ineligibility clause mentioned in clauses (a) to (i) is ineligible. In terms of clause (j) of Section 29A, if the 'connected person' is not eligible under clauses (....
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.... than 'natural persons'. Section 29A will, thus, read as under: "29A. A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person─ xxx xxx xxx (d) has been convicted for any offence punishable with imprisonment for two years or more;" 44. The term "punishable" as defined in the Black's Law Dictionary specifically denotes the element of capability to it. The said definition is as under: "Deserving of or capable or liable to punishment; capable of being punished by law or right" Thus, the word "punishable" denotes the "punishable range" under the relevant penal law and ha....
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....0 of 2017) in Lok Sabha (ultimately passed as Act 8 of 2018), seeking the abovesaid amendment stated as under: "2. The provisions for insolvency resolution and liquidation of a corporate person in the Code did not restrict or bar any person from submitting a resolution plan or participating in the acquisition process of the assets of a company at the time of liquidation. Concerns have been raised that persons who, with their misconduct contributed to defaults of companies or are otherwise undesirable, may misuse this situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process, and gain or regain control of the corporate debtor. This may undermine the processes laid down in the Code as the unscrupulous person would be seen to be rewarded at the expense of creditors. In addition, in order to check that the undesirable persons who may have submitted their resolution plans in the absence of such a provision, responsibility is also being entrusted on the committee of creditors to give a reasonable period to repay overdue amounts and become eligible. 50. To illustrate the object of the Act, it may be pointed that suppose a corp....
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.... or in concert" [viz an individual natural person acting on behalf of the corporate person (proposed resolution applicant)] is "convicted with imprisonment"- while acting on behalf of the company- for two years or more, the corporate/juristic person would get hit by the embargo under Section 29A (d). 53. It is, therefore, for the 'Resolution Professional' while discharging his duty under Section 30(3) and by the 'Committee of Creditors' while discharging its duty under Section 30(4) and thereafter by the Adjudicating Authority under Section 31 that each case will have to be examined whether Section 29A (d) is attracted or not based upon the above referred interpretation depending upon the facts of each case. Therefore, it may not serve the ends of justice and may defeat the object of the 'I&B Code' by completely excluding corporate entities from Section 29A (d) of the 'I&B Code'. 54. The Hon'ble Supreme Court in "Sube Singh and Ors. Vs. State of Haryana and Ors. ─ (1989) 1 SCC 235" held: "8. In Bouvier's Law Dictionary, the meaning of the word "punishable" has been given as "liable to punishment". In Words and Phrases - Permanent Edition, the following m....
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....nishable' and not 'punished', therefore, the word 'punishable' is a link between the offence and the penalty prescribed by law depending on the gravity of the offence but in no way is an indicator of the viability or feasibility of the implementation of the punishment of the convicted. The offence so much so that if anyone is convicted of that offence and is punishable for the sentence prescribed by way of imprisonment, the disqualification, debarment and/or ineligibility stemming from such conviction would be attracted, irrespective of the actual punishment awarded by the Court. Eligibility/Ineligibility of 'Vedanta Limited' 56. 'Vedanta Limited' is a subsidiary of 'Vedanta Resources PLC' which holds 50.13% equity in 'Vedanta Limited' as per the Annual Report of 'Vedanta Resources PLC' for the year 2017. 57. 'Vedanta Resource PLC' has another subsidiary, 'KCM', which was/ is undertaking mining operations in Zambia's Copper belt and Central Provinces. 'Vedanta Resource PLC' holds equity of 79.4% in KCM as per the Annual Report of 'Vedanta Resources PLC', therefore, it can be safely stated that 'Vedanta Limited' is a 'connected person' of 'KCM'. 58. It is not in dispute ....
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.... whatever the interpretation, it must be uniformly applied to all situations. If the conjunction "and" is read disjunctively as "or", then the intention of Parliament would definitely be defeated as the mandatory term of imprisonment would not be available even in the case of a natural person. We have not been shown any authority for the proposition that it is open to the court to put an interpretation on a statute which could vary with the factual matrix. 64. Secondly, when a statute says the court shall impose a term of "imprisonment and a fine", there is no option left in the court to say that under certain circumstances it would not impose the mandatory term of imprisonment. It is trite principle that punishment must follow the conviction. 66. Thirdly, if on the words used by the legislature it is impossible to effectuate the intention of the legislation, namely, to punish a company to imprisonment, it is not possible to read the section in any other manner to impose any other punishment on the offender. "[W]e cannot aid the legislature's defective phrasing of the statute; we cannot add, and mend, and, by construction, make up deficiencies which are left t....
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....; xxx (6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974) - (a) any offence which is punishable under this Act, with imprisonment or fine, or with imprisonment or fine or with both, shall be compoundable with the permission of the Special Court, in accordance with the procedure laid down in that Act for compounding of offences; (b) any offence which is punishable under this Act with imprisonment only or with imprisonment and also with fine shall not be compoundable." 65. From sub-section (6) of Section 441 of the Companies Act, 2013, it is clear that the offence which is punishable under the said Act, with imprisonment or fine, or with imprisonment or fine or with both, has not been treated to be similar to any offence which is punishable under the said Act with imprisonment only or with imprisonment and fine. While the offence which is punishable with imprisonment or fine, or with imprisonment or fine or with both have been made compoundable by the Tribunal with the permission of the Special Court, the offence which is punishable with imprisonment only or with....
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.... Section 29A (d) is not attracted directly to the 'corporate person' (juristic person). 72. 'Vedanta Resources PLC' was convicted for the offence punishable under Section 91(1) of Zambia Act with a fine not exceeding fifteen thousand penalty units or to imprisonment for a term not exceeding three years or to both. Though we hold that the offence for which the aforesaid punishment prescribed is not corresponding to clause (d) of Section 29 A, it is to be seen whether 'connected person', if an individual (natural person) has been punished or not. But no such allegation has been made that any of the Director of 'Vedanta Resources PLC' was convicted for the offence punishable with imprisonment of two years or more. 73. For the said reasons, we hold that 'Vedanta Resources PLC', who is a 'connected person' of 'Vedanta Limited' is not covered by clause (d) of Section 29A of the 'I&B Code'. 74. In view of the aforesaid findings, we hold that 'Vedanta Limited' is eligible and clause (d) of Section 29A of the 'I&B Code' is not attracted in its case. 'Tata Steel Limited'/ 'Tata Steel UK' 75. 'Tata Steel UK' is the 'connected person' who has been found guilty on two counts unde....
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....ble as per Section 29A (d) being severe, as no such alternative punishment can be imposed. Therefore, we hold that Section 33(1) (a) of the 'U.K Act' is not similar nor corresponding to clause (d) of Section 29A of the 'I&B Code'. 80. For the said reason, we hold that 'Tata Steel UK', which is the 'connected person' of 'Tata Steel Limited', does not attract the disability under Section 29A of the 'I&B Code' and for the said reason, we also hold that 'Tata Steel Limited' is eligible to file the 'Resolution Plan'. Claim of 'Larsen and Toubro Limited'- ('Operational Creditor') 81. The Appellant- 'Larsen and Toubro Limited'- ('Operational Creditor') (hereinafter referred to as "L&T") has also challenged the order dated 15th May, 2018, challenging the cost of Rs. 1,00,000/- (Rupees One Lakh Only) imposed by the Adjudicating Authority on the Appellant- 'L&T'. 82. Learned counsel appearing on behalf of the Appellant submitted that the Adjudicating Authority failed to appreciate that the Successful 'Resolution Applicants' ('Tata Steel Limited') cannot exercise any discretion over allocation of the amounts Rs. 1200 crores to be paid to the 'Operational Creditors'. Reliance has b....
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....s informed that as per the 'Resolution Plan', the claim of the 'Operational Creditors' will be settled to the extent of Rs. 1,200 Crores within a period of twelve months. 89. It is stated that the 'Tate Steel Limited' verily believes that the aforesaid amount subsequently increased to Rs. 1,422 Crores is the substantial amount offered towards meeting 'Operational Creditors' claims, as long as they meet the requirements of the 'Resolution Plan'. 90. It is informed that Rs. 1,200 crores will be payable to 'Operational Creditors' within 12 months from the closing date i.e. 18th May, 2018 excluding employees and workmen. The said amount will be distributed in the following manner: a) Rs. 200 cores will be paid on a pro rata basis to the 'Operational Creditors' other than employees and workmen and related party 'Operational Creditors'; and b) Rs. 1,000 crores will be paid to capital and sundry creditors based on the criticality vis-à-vis the continued business viability of 'Bhushan Steel Limited' at discretion of the 'Resolution Applicant', to be exercised based on the criteria specified in the 'Resolution Plan'. 91. It is stated that Rs. 1,000 crores i....
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....ompanies Act, 2013 is to be complied, it can be complied only after the approval of the 'Resolution Plan'. Before the approval of the 'Resolution Plan' is approved by the Adjudicating Authority, the 'Resolution Plan' being mere a proposal, the question of following Section 55 of the Companies Act, 2013 does not arise. 99. For the reasons aforesaid, we are not inclined to interfere with the impugned order dated 15th May, 2018. Application filed by the Divisional Forest Officer, Bokaro Forest Division, Department of Forests & Environment, Government of Jharkhand, Bokaro. 100. The Government of Jharkhand has taken plea that part of the land shown in the 'Resolution Plan' do not belong to 'Bhushan Steel Limited'- ('Corporate Debtor'). Forest land, as was notified by the Government of India, 1958, is in illegal possession of the 'Bhushan Steel Limited', which has also been reflected in the 'Resolution Plan'. 101. It is not in dispute that the Government of Jharkhand and its Officers have already initiated recovery proceedings against the 'Corporate Debtor' for recovering the alleged forest lands alleged to have been encroached by the 'Corporate Debtor'; litigations are pendi....