TaxTMI 
TaxTMI 
TaxTMI 
2018 (8) TMI 1038
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....e, 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 Process' was initiated against 'Electrosteels ....
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....d'- ('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 not affect the legal remedy, if any available to the Applicant- ....
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.... 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 Jurisdiction) is as follows: "SENTENCE I have taken into consideration the mitigation of the accused. I have taken into consideratio....
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....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 incurring the resultant disqualification or ineligibility, the sentence to be awarded has to be obligatorily one for imprisonment for two years or more. If a person, including a 'Corporate Person' is convicte....
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....e 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 2nd February, 2018 passed by the Crown Court at Kingston Upon Hull of an offence punishable with imprisonment for two years or more it attracted disqualification under Section 29A (d) of the 'I&B Code'. 28. Mr. S. Ganes....
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....f 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 'ineligibility to be 'Resolution Applicant', as quoted below: "29A. Persons not eligible to be resolution applicant.─ 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 perso....
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....nd (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 (a) to (i), then also the person who submits the 'Resolution Plan' is not eligible. 39. The expression 'connected person' has been provided in explanation below Section 29A, which includes the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) to (ii) of explanation and reads as follows: "Explanation.....
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....nbsp; 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 has no relevance with the "actual punishment imposed" in a given case. 45. In this context, the definition provisions contained in Section 3(23) needs to be examined, which reads as under: "3. In this Code, unless the context otherwise requires, ─ xxx xxx xxx (23) "person" includes a) an individual; b) a Hindu Undivided Family; c) a company; d) a trust; e) a partnership; f) a limited liability partnership; and g) any other entity....
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....ibition 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 corporate entity is found to be indulging in an offence punishable under Prevention of Corruption Act and material has emerged showing payment of illegal gratification by a corporate entity leading to an offence under Prevention of Corruption Act, would such a corporate entity be held eligible to be a resolution applicant merely because it is not a 'natural person'? This may defeat the very object of the Act. 51. The concept of vicarious liability and lifting of corporate veil is, now not an alien concept even in criminal jurisprudence. A corporate entity alw....
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....hether 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 meaning has been given: "The word 'punishable' in a statute stating that a crime is punishable by a designated penalty or term of years in the State prison limits the penalty or term of years to the amount or term of years stated in the statute." 9. The word "punishable" is ordinarily defined as deserving of or capable or liable to punishment, punishable within statute providing that defendant may have ten (sic) peremptory challenges if offences charged is "punishable" with death or by life imprisonment; means deserving of or liable to punishment; capable of being punished by law or right, may....
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....a 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 that the 'KCM' has been held guilty with regard to four offences relating to pollution on 25th November, 2010 by the Subordinate Court of First Class for the Chingola District Holden at Chingola, Zambia (Criminal Jurisdiction), for which three counts fine has been imposed. 59. Section 91(1) of the Zambia Act, for which 'KCM' has been held guilty, which reads as follows: "91. (1) A person who pollutes the environment or contravenes any provision of this Act for which no penalty is provided shall be guilty of an offence and liable upon conviction to a fine not exceeding fifteen thousand penalty units or to imprisonment for a term not exceeding th....
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....risonment. 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 there", said the Judicial Committee in Crawford v. Spooner, MIA at p. 187. In other words, the language of Acts of Parliament and more especially of the modern Acts, must neither be extended beyond its natural and proper limits, in order to supply omissions or defects, nor strained to meet the justice of an individual case." 62. In "S.P.K. Dhamodhar Vs. Narayanasamy─ 2010 (5) CTC 734" , the Hon'ble High Court of Madras was considering the provisions of Section 33-A(1)(i) of the Representation of the People Act, 1951, therein distinction between the provision of Sections 499 and 500 of the Indian Penal Code, 1860 was noticed. The punishment for defamation, prescribed under Sect....
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....h 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 imprisonment with fine cannot be compounded by the Tribunal, being severe punishment. 66. Severity of punishment is dependent on the gravity of offence. Therefore, to find out the similarity between the punishment, it is required to notice whether severity of one or other punishment is similar or not. 67. The Zambia Act do not use the word "offence punishable" as used in Section 29A (d) on conviction. For the offence prescribed under Section 91(1) of the Zambia Act punishment prescribed is that the person "liable upon conviction to a fine not exceeding fifteen thousand penalty units or to imprisonment for a term not exceeding three years or to both". 68. The word 'punishable' having not used in Section 91(1) of the Zambi....
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....s, 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 under the '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' convicted under Section 33 (1) (a) of the 'U.K Act'. 76. Schedule 3A of the 'U.K Act' provides mode of trial and maximum penalty, relevant of which reads as follows: "The mode of trial and maximum penalty applicable to each offence listed in the first column of the following table are as set out opposite that offence in the subsequent columns of the table. Offence Mode of trial Penalty on summary conviction Penalty on conviction on indictment An offence under section 33(1) (a) consisting of a failure to discharge a duty to which a person is subject by virtue of sections 2 to 6. Summarily or on indictment. Impri....
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....e 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 been placed on Section 55(4)(b) of the Transfer of Property Act, 1883 and submitted that the said provision creates a statutory charge in favour of the Appellant, which cannot be extinguished by the 'Resolution Applicant' taking recourse of the 'I&B Code'. 83. However, such submission cannot be accepted as the 'Resolution Applicant' is to file 'Resolution Plan' in the manner as prescribed under the 'I&B Code' and the Regulations framed thereunder. 84. Section 30(2) of the 'I&B Code' mandates the 'Resolution Professional' to examine each 'Resolution Plan' received by him. The 'Resolution Professional' is required to ensure that the 'Resolution Plan' confirm payment of insolvency resolution process costs in a manner specified by the Board in priority to the repayment of other debts of the 'C....
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....ed 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 is based on cogent, commercial and intelligible criteria and any 'Operational Creditor' falling within the said criteria will be treated equally. 92. On hearing counsel for the parties and taking into consideration the submissions made by the counsel for the Appellant- 'Operational Creditor' and the Respondents, we hold that the 'Resolution Plan' submitted by 'Tata Steel Limited' is fair and equitable to all the Creditors, including the 'Operational Creditors', therefore, no interference is called for. Brij Bhushan Singal 93. The grievance of the Appellant- 'Mr. Brij Bhushan Singal' is against the 'Resolution Plan' submitted by the 'Tata Steel Limited' as approved by the Adjudicating Authority. 94. It was submitted that the approval of the 'Resolution Plan' is illegal as it purports to transfer the 'preference shares'....