TaxTMI 
TaxTMI 
2018 (10) TMI 312
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.... Forty Five Thousand Crores). Shri Satish Kumar Gupta was appointed as the Interim Resolution Professional and confirmed as such on 4.9.2017. Consequently, the Resolution Professional published an advertisement dated 6.10.2017, seeking expression of interest from potential resolution applicants who wished to submit resolution plans for the revival of ESIL. In terms of the advertisement, the last date for submission of an expression of interest was 23.10.2017. Pursuant to this advertisement, one 'ArcelorMittal India Private Limited' (hereinafter referred to as "AMIPL") submitted an expression of interest on 11.10.2017. An entity called Numetal Limited (hereinafter referred to as "Numetal"), also submitted an expression of interest on 20.10.2017. On 24.12.2017, the Resolution Professional published a 'request for proposal', in which it was stated that the last date for submission of resolution plans would be 29.1.2018. On a request made by the Committee of Creditors, the NCLT extended the duration of the corporate insolvency resolution process by 90 days beyond the initial period of 180 days, i.e., upto 29.4.2018. The Resolution Professional therefore issued the first addendum to the....
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....he Stock Exchange Approvals relating to declassification as a promoter of Uttam Galva and) continued to be classified as a promoter of Uttam Galva. 4. In light of the above, AM India is ineligible under theprovisions of Section 29A(c) of the IBC and pursuant to paragraph 4.11.2(a) of the RPP, the Resolution Plan is hereby rejected and will not be placed before the Committee of Creditors." 3. Similarly, holding Numetal to be ineligible, the Resolution Professional, on the same date, found: "2.1. as on the date of submission of its expression of interest (EOI) on 20 October 2017 by Numetal, it relied on Essar Communications Limited (ECL), one of its shareholders to comply with the eligibility requirement relating to its 'tangible net worth' (TNW) (as stipulated in the section titled 'Eligibility Criteria' in the EOI); 2.2. as on the Plan Submission Date, Numetal relied on Crinium Bay, its shareholder to comply with the eligibility requirement relating to its TNW (as stipulated in Section 6.7 of the Resolution Plan); 2.3. Numetal was incorporated 7 days before submission of the EOI; and 2.4. Numetal is a newly incorporated joint venture between Aurora Enterprises Lim....
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....investment vehicle through which its shareholders are submitting the Resolution Plan) was not eligible under Section 29A of the IBC. 7. Accordingly and for the reasons set out inparagraphs 5 and 6 above, please note that pursuant to paragraph 4.11.2(a) of the RFP, the Resolution Plan is hereby rejected and will not be placed before the Committee of Creditors." 4. On 26.3.2018, AMIPL filed I.A. No. 110 of 2018 before the Adjudicating Authority, challenging "the order" of the Resolution Professional dated 23.03.2018. Numetal did likewise vide I.A. No. 111 of 2018. 5. On 2.4.2018, pursuant to the Resolution Professional's invitation, fresh resolution plans were submitted (as both the resolution plans before this were found to be ineligible) by AMIPL, Numetal, and one other entity, namely 'Vedanta Resources Ltd.'. On this very date, the NCLT directed that the bids of the resolution applicants, submitted pursuant to the revised request for proposal, should not be opened pending adjudication of I.A. No. 98 of 2018 filed by Numetal. 6. On 19.4.2018, the Adjudicating Authority, being the NCLT, passed its order in all the I.A.s, in which it first held: "21. As per the matter ....
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....roposed change its shareholding of ESIL in terms of RET and also are required under the other provisions of the Law. It has been also emphasised that the Numetal Ltd., is not a SPV brought into existence merely for the purpose of submitting the resolution plan in respect of the corporate debtor ESIL as it has recently entered into an agreement to acquire majority stock in Odisha Slurry Pipeline Infrastructure Ltd., by an independent contract from the Resolution Plan. Thus, it cannot be presumed that the applicant is such a corporate entity which is brought into the existence only for the purpose of putting forth resolution plan for the ESIL. Since, there is difference in the legal opinions among the Learned Luminaries and law firms and more than one views are possible in the present case to be acted upon then, it cannot be said that there is patently illegality in the conclusion of the RP or it acted arbitrarily or mala fidely in rejecting the resolution plan by relying on the legal opinion received and believed to be true by him and which were placed before the CoC. Moreover, the RP under the provision of the Code it is expected to make scrutiny of a resolution plan in conformi....
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....argest shareholder having significant shareholding of 29.05 % in Uttam Galva. 21. On perusal of the record it is found that connectedperson of the applicant are the promoter of KSS Petron Pvt. Ltd., a company incorporated under the Companies Act, 1956, having registered office at Swastik Chamber, 6th Floor, Sion Trombay Road, Chembur, Mumbai has been NPA for more than a year and CIRP has been initiated against the KSS Petron vide order dated 01.08.2017 by Mumbai Bench of the National Company Law Tribunal. 22. It is also pertinent to mention herein that, in theminutes of the meeting of the committee of creditors which reproduces the decision of the RP pursuant to the opinions received by the RP from Cyril Amarchand Mangaldas and Mr. Khambatta. Cyril Amarchand Mangaldas had opined that AM Netherlands exercised positive control over Uttam Galva and merely divesting the shareholding prior to the submission of the resolution plan could not remove the disqualification under section 29A(c) of the Code, unless cured by payment. 23. It is an admitted position that AM Netherlands is anindirect 100% subsidiary of ArcelorMittal Societe Anonyme (AMSA) which is a listed company incor....
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.... in the management or in the control of the business of the corporate debtor and in default is ineligible. Person connected to ArcelorMittal India Pvt. Ltd., who are either promoter or in the management with KSS Petron and Uttam Galva Steels Ltd., are ineligible. Mere sale of shares and declassification as promoter after the companies have gone into default cannot be absolved them responsibility. In order to become eligible, overdue amounts to lenders in both the cases of KSS Petron and Uttam Galva Steels Ltd., should be paid by ArcelorMittal before being eligible to bid, as provided in Section 29A itself." 8. Having said this, it then remanded the matter to the Committee of Creditors as follows:- "27. Further, we are of the view that RP ought to have produced both the resolution plan before the CoC, along with his comments of eligibility of both the resolution applicants for consideration of the CoC and to follow the provision of section 29A(c) read with section 30(4) for the purpose of affording the opportunity to the resolution applicants before declaring them ineligible. In our view, such procedure has not been followed hence, it vitiate the proceeding of the CoC and henc....
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.... Galva for Overdue Amounts of Uttam Galva, another payment to the lenders of KSS Petron constituting Overdue Amounts in KSS Petron and Overdue Amounts of such other companies which are classified as NPAs and where Arcelor Mittal Group is a promoter. Such payments will have to be made by AMIL or its constituents / connected persons no later than 15th May, 2018, especially since the law actually requires that this curative payment of overdue amounts, interests and charges should be made by the corporate resolution intending applicant / resolution applicant before the Resolution Plan is filed. This concession by the CoC is without prejudice to the CoC's right to strictly enforce the law and provisions of Section 29A(c) of the IBC. The proof of such payment in form of a No Overdue Amounts letter (indicative format set out in Annex) shall be submitted to the RP (with notification to the CoC) by 6:00 P.M. IST on 15 th May 2018. As we have limited time available under the CIR process of ESIL, AMIL is requested to adhere to these timelines." 10. By another order of the same date, the Committee of Creditors disqualified Numetal as follows: "44. Numetal and AEL are related as an associ....
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.... notification to CoC) by 6:00 P.M. IST on 15 th May 2018, As we have limited time available under the CIR process of ESIL, Numetal is requested to adhere to these timelines." 11. In the appeals that were filed before it, the Appellate Authority, insofar as Numetal's Resolution plan was concerned, vide an order dated 7.9.2018 held as follows:- "44. On behalf of 'AM India Ltd.', it was submitted that 'VTB Bank' one of the shareholders of 'Numetal Ltd.' is ineligible in view of Article 5(c) of the EU Regulations of 2014. Though such submission has been made, no order or evidence has been placed on record to suggest that any order of prohibition was imposed by the European Union against the 'VTB Bank'. Neither the date of order nor order passed by any competent authority or court of law has been placed on record. 45. On the other hand, it will be evident that Council of European Union adopted Council Regulation (EU) No. 833/2014 concerning Restricting measures in view of Russia action. In fact, in view of situation in Ukraine, the European Union Regulation was adopted. Apart from the aforesaid fact, that 'AM India Ltd.' has not brought on record any penal order passed by any c....
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....r, 2017 and by 'Numetal Ltd.' on 20th October, 2017, both prior to 23rd November, 2017 i.e. the date Section 29A was inserted by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 but the 'Resolution Plans' were submitted by both 'AM India Ltd.' and 'Numetal Ltd.' on 12th February, 2018. 108. The question arises for consideration is as to whatwill be the position if, on the basis of 'Information Memorandum' the 'Expression of Interest' is submitted by the 'Resolution Applicants' prior to 23rd November, 2017 and whether they are eligible to take advantage of 2nd proviso to sub-section (4) of Section 30.? 109. Section 29A came into force on 23rd November,2017. Those who submitted 'Resolution Plan' prior to the said date and if covered by clause (c) of Section 29A are entitled to derive benefit of second proviso to sub-section (4) of Section 30. Under 'I&B Code' there is no provision to submit 'Expression of Interest' prior to 'Resolution Plan'. What we find from the invitation seeking 'Expression of Interest' to submit a 'Resolution Plan' for 'Essar Steel Limited' published on 6th October, 2017 is the first stage of 'Resolution Plan'. Therefore, we hold that 'Expres....
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.... (4) of Section 30also stipulates, as follows: "30. Submission of resolution plan.─ (4) xxx xxx xxx Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of section 29A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29A" 116. From both the aforesaid provisions, it is clear thatexcept in the manner the 'Resolution Applicants' can make it eligible and get rid of ineligibility under clause (c) of Section 29A that is by making payment of all overdue amounts in accordance with the proviso to clause (c) of Section 29A, no other manner a person, who is otherwise ineligible under clause (c) of Section 29A, can become eligible. There is no provision in the 'I&B Code' which permits an ineligible person to become eligible by selling or transferring its shares of the Company whose accounts have been declared as NPA in accordance with the guidelines of Reserve Bank of India. 117. Admittedly, 'AM Netherlands' is related party of 'AM India Ltd.'. 'AM Netherlan....
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....) Regulations, 1997' for the acquisition of shares of 'Petron Engineering' inter alia by 'KSS Global BV' and 'Fraseli'. Therefore, we hold that Mr. L.N. Mittal Group, a connected person of 'AM India Ltd.' being the promoter and in the control and management of 'KSS Petron' since 2011 and 'KSS Petron' having classified as 'NPA' by multiple banks, the stigma attached to it cannot be cleared by 'KSS Global' by divesting its shares in 'KSS Petron' on 9th February, 2018 and the stigma will continue for the purpose of ineligibility under clause (c) Section 29A, till the payment of all overdue amount with interest thereon and charges relating to NPA account of 'KSS Petron'. 122. Admittedly, there are three nominee Directors of'AM India Ltd.' in 'KSS Petron', one of the NPA Company. The nominee Directors of the Appellant- 'AM India Ltd.' had also resigned on 9th February, 2018 i.e. three days' before the submission of the 'Resolution Plan'. Therefore, it is clear that the 'AM India Ltd.' had complete control over the 'KSS Petron'. 123. It is informed that after impugned order passed bythe Adjudicating Authority, the 'AM India Ltd.' had made conditional deposit of Rs. 7,000 Crores in ....
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.... today (7th September, 2018) for the purpose of counting the total period of 270 days. The impugned order dated 19th April, 2018 passed by the Adjudicating Authority so far as it relates to eligibility of 'Numetal Ltd.' as on the date of the submission of the 'Resolution Plan' dated 29th March, 2018 is set aside. The impugned judgment/order in respect to 'AM India Ltd.' is affirmed with conditions as mentioned in the preceding paragraphs. All the appeals are disposed of with aforesaid observations and directions. The parties will bear their respective cost." 13. This is how both AMIPL and Numetal are before us in appeals from the Appellate Authority's order dated 7.9.2018. 14. Shri Harish N. Salve, learned Senior Advocate appearing on behalf of AMIPL, argued that Section 29A, as originally enacted, disqualified a person who has an account of a corporate debtor under the management or control of such person, or of whom such person is a promoter, which account was declared as a nonperforming asset. The further condition is that one year should have elapsed from the date of such declaration till the date of commencement of the corporate insolvency resolution process of the corpo....
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....18 to one 'Sainath Trading Company Private Limited', which was a Miglani Group Company, for Re.1 per share (having purchased the shares at Rs. 120 per share). The depository participant account of AMNLBV ceased to show the said shares with effect from 7.2.2018. The Co-Promotion Agreement dated 4.9.2009, pursuant to which the status of "promoter" had been conferred on AMNLBV, stood automatically terminated vide clause 21.6 thereof on 7.2.2018. In order to put the matter beyond any doubt, the parties also executed a Co-Promotion Termination Agreement on 7.2.2018. On 8.2.2018, Uttam Galva filed the necessary forms with the Registrar of Companies and made the necessary disclosures with the National Stock Exchange and Bombay Stock Exchange to declassify AMNLBV as a promoter of Uttam Galva. This was accordingly done on 21.3.2018 and 23.3.2018 before the NSE and BSE respectively. Such declassification, being a ministerial act, is relatable to the date of sale of shares, i.e., 7.2.2009, and considered effective from the said date. Inasmuch as AMNLBV therefore ceased to be a promoter in Uttam Galva prior to 12.2.2018, the resolution plan is not hit by Section 29A(c). Similarly, according to....
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.... Rewant Ruia, who was a former director of the corporate debtor, i.e. ESIL. On 18.10.2017, a few weeks before Section 29A was introduced, AEL transferred 26.1% of its shares in Numetal to one 'Essar Communications Limited' (hereinafter referred to as "ECL"), a group company of the corporate debtor. On 19.10.2017 Shri Rewant Ruia settled an irrevocable discretionary trust, called the 'Crescent Trust', which purchased the shares of AHL at par value. On 20.10.2017, when Numetal submitted its expression of interest, it had two share holders, i.e., AEL (holding 73.9%) and ECL (holding 26.1%). On 22.11.2017, when the Finance Minister made a statement that the Code would be amended in order to prevent unscrupulous persons from submitting resolution plans, AEL transferred 13.9% of its shareholding in Numetal, and ECL its entire 26.1% shareholding, to one 'Crinium Bay Holdings Limited' (hereinafter referred to as "Crinium Bay"), a 100% indirectly held subsidiary of one 'VTB Bank', which in turn was a Russian company, the majority of whose shares were held by the Russian Government. Crinium Bay thus became the owner of 40% of the shareholding of Numetal. AEL subsequently transferred 25.1% of....
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....he arguments of Shri Salve. According to him, Section 29A(c) always had the application of the resolution plan date as the relevant date, given the in praesenti "has" which is also there in clauses (h) and (j), and is similar to the expression "is" which is to be found in clauses (a), (b), (e) and (f), as contrasted with the expression "has been" used in clauses (d) and (g), of Section 29A. According to him, the amendment made in 2018 is in any case clarificatory in nature. He supported the attack of Shri Salve on the Appellate Authority's judgment, stating that so far as Uttam Galva is concerned, it is well established that the sale of shares is complete once they move out of the demat account of the seller, which in this case took place five days before 12.2.2008. For this he cited certain judgments. He also supported Shri Salve's argument by stating that Numetal is clearly disqualified under several clauses of Section 29A. 17. On the other hand, Shri Mukul Rohatgi, learned Senior Advocate, appearing on behalf of Numetal, stated that Numetal was a company which was therefore a separate person in law from its shareholders. He contended that on the date of submission of the reso....
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....f Explanation 1, and since Shri Rewant Ruia is neither a promoter of nor in the management or control of the resolution applicant Numetal, he would fall outside of sub-clause (iii) of Explanation 1. According to Shri Rohatgi, the Appellate Authority was absolutely correct in saying that Numetal would not be ineligible under Section 29A. He strongly attacked Shri Salve's argument that VTB Bank, the holding company of Crinium Bay, was barred from accessing the securities market by either the European Union or the United States. He took us to the original orders and argued that the document of the European Union, being Council Regulation 833 of 2014 dated 31.7.2014, pursuant to Article 215 of the Treaty on the Functioning of the European Union, was owing to restrictive measures taken in view of Russia's actions destabilizing the situation in Ukraine. Because Russia had illegally annexed Crimea, political sanctions were imposed by this document, which cannot possibly be said to be sanctions imposed by an authority equivalent to SEBI in India. The sanctions also did not relate in any manner to the securities market. Equally, insofar as the two orders of the United States are concerned, ....
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.... in fact a promoter. Equally, leaving a blank in the form against the column which required disclosure of non-disposal undertakings, is a fraud played on SEBI, and on the shareholders of Uttam Galva; as otherwise, in the public offer that would have had to be made, the shares of Uttam Galva would have had to be purchased at the higher price that is mentioned in the said Regulations. Incidentally, according to Shri Rohatgi, in any case, getting out of Uttam Galva by paying a price of Re.1 per share when the market value on that date was Rs. 19.50 per share is again a fraudulent transaction, which cannot possibly pass muster under Section 29A. Further, insofar as KSS Petron is concerned, it is clear that Fraseli's holding of 32.22% in KSS Global would certainly amount to de facto control, if not de jure control, of KSS Petron, its wholly owned subsidiary, as defined under Section 2(27) of the Companies Act, 2013. The transfer of Fraseli's shareholding on 9.2.2018, before submission of the resolution plan on 12.2.2018, is again a dubious and fraudulent act squarely hit by Section 29A. Shri Rohatgi further argued that Shri Pramod Mittal, brother of Shri L.N. Mittal, is a connected pers....
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....ction 29A. He cited a number of judgments on how this provision should be construed in accordance with the object sought to be achieved by the said provision, which should never be stultified or defeated, so as to get to the real state of affairs of the facts of every given case. Therefore, it is very important to remember that phrases such as "persons acting in concert" and "control" are meant not only to pierce the corporate veil, but also to get to the real persons who present resolution plans. On the facts of each case, according to Shri Subramanium, both resolution plans were correctly rejected by the Resolution Professional and the Committee of Creditors, as they were both hit by the provisions of Section 29A. Any circular method, by which payment of debts of an NPA of a person acting jointly or in concert under the proviso to Section 29A(c) is sought to be avoided, should be interdicted. According to the learned Senior Advocate, both resolution plans are hit by Section 29A(c), and the only way out is for both resolution applicants to pay up the debts of the respective NPAs of the corporate debtors who are associated with them. 20. Shri K.V. Viswanathan, learned Senior Adv....
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....mounts with interest thereon and charges relating to nonperforming asset before submission of the resolution plan; (d) Has been convicted for any offence punishable withimprisonment for two years or more; or (e) Has been disqualified to act as a director under theCompanies Act, 2013 (18 of 2013); (f) Has been prohibited by the Securities andExchange Board of India from trading in securities or accessing the securities markets; (g) Has indulged in preferential transaction orundervalued transaction or fraudulent transaction in respect of which an order has been made by the Adjudicating Authority under this Code; (h) Has executed an enforceable guarantee in favourof a creditor, in respect of a corporate debtor under insolvency resolution process or liquidation under this Code; (i) Where any connected person in respect of suchperson meets any of the criteria specified in clauses (a) to (h). Explanation - For the purposes of this clause, the expression "connected person" means- (i) any person who is promoter or in themanagement or control of the resolution applicant; or (ii) any person who shall be the promoter or inmanagement or control of t....
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.... a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code; (i) has been subject to any disability, corresponding toclauses (a) to (h), under any law in a jurisdiction outside India; or (j) has a connected person not eligible under clauses (a) to (i). Explanation.- For the purposes of this clause, the expression "connected person" means- (i) any person who is the promoter or in themanagement or control of the resolution applicant; or (ii) any person who shall be the promoter or inmanagement 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 registeredwith the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); or (C) an Al....
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....uch person or of whom such person is a promoter, classified as non-performing asset and such account was acquired pursuant to a prior resolution plan approved under this Code, then, the provisions of this clause shall not apply to such resolution applicant for a period of three years from the date of approval of such resolution plan by the Adjudicating Authority under this Code; (d) has been convicted for any offence punishable withimprisonment- (i) for two years or more under any Act specifiedunder the Twelfth Schedule; or (ii) for seven years or more under any other lawfor the time being in force: Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment: Provided further that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I; (e) is disqualified to act as a director under theCompanies Act, 2013 (18 of 2013): Provided that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I; (f) is prohibited by the Securities and Exchange Boardof India from trading i....
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....bt into equity shares or instruments convertible into equity shares, prior to the insolvency commencement date; Explanation II.-For the purposes of this section, "financial entity" shall mean the following entities which meet such criteria or conditions as the Central Government may, in consultation with the financial sector regulator, notify in this behalf, namely- (a) a scheduled bank; (b) any entity regulated by a foreign central bankor a securities market regulator or other financial sector regulator of a jurisdiction outside India which jurisdiction is compliant with the Financial Action Task Force Standards and is a signatory to the International Organisation of Securities Commissions Multilateral Memorandum of Understanding; (c) any investment vehicle, registered foreigninstitutional investor, registered foreign portfolio investor or a foreign venture capital investor, where the terms shall have the meaning assigned to them in regulation 2 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 made under the Foreign Exchange Management Act, 1999 (42 of 1999); (d) an asset ....
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....om submitting a resolution plan or participating in the acquisition process of the assets of the 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 the 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." (emphasis supplied) 26. It is in this background that the section has to be construed. In Ms. Eera Through Dr. Manjula Krippendorf v. State (Govt. of NCT of Delhi) & Anr., (2017) 15 SCC 133, this Court, after referring to the golden rule of literal construction, and its older counterpart the "object rule" in Heydon's case....
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....in 1584 in Heydon case [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637], which was then waylaid by the literal interpretation rule laid down by the Privy Council and the House of Lords in the mid-1800s, and has come back to restate the rule somewhat in terms of what was most felicitously put over 400 years ago in Heydon case [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637]." 27. A purposive interpretation of Section 29A, depending both on the text and the context in which the provision was enacted, must, therefore, inform our interpretation of the same. We are concerned in the present matter with sub-clauses (c), (f), (i) and (j) thereof. 28. It will be noticed that the opening lines of Section 29A contained in the Ordinance of 2017 are different from the opening lines of Section 29A as contained in the Amendment Act of 2017. What is important to note is that the phrase "persons acting in concert" is conspicuous by its absence in the Ordinance of 2017. The concepts of "promoter", "management" and "control" which were contained in the opening lines of Section 29A under the Ordinance have now been transferred to sub-clause (c) in the Amendment Act of 2017. It is, therefore, important....
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.... Indian nationality/origin. Our attention was drawn to the picturesque pronouncement of Lord Denning M.R. in Wallersteiner v. Moir [(1974) 3 All ER 217] and the decisions of this Court in Tata Engineering and Locomotive Co. Ltd. v. State of Bihar [(1964) 6 SCR 885], CIT v. Sri Meenakshi Mills Ltd. [(1967) 1 SCR 934] and Workmen v. Associated Rubber Industry Ltd. [(1985) 4 SCC 114]. While it is firmly established ever since Salomon v. A. Salomon & Co. Ltd. [1897 AC 22] was decided that a company has an independent and legal personality distinct from the individuals who are its members, it has since been held that the corporate veil may be lifted, the corporate personality may be ignored and the individual members recognised for who they are in certain exceptional circumstances Pennington in his Company Law (4th Edn.) states: "Four inroads have been made by the law on the principle of the separate legal personality of companies. By far the most extensive of these has been made by legislation imposing taxation. The government, naturally enough, does not willingly suffer schemes for the avoidance of taxation which depend for their success on the employment of the principle of ....
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....icent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc." (Emphasis supplied.) 31. This statement of the law was followed in Union of India v. ABN Amro Bank and others, (2013) 16 SCC 490, at paragraphs 43 and 44 as follows: "43. We are of the view that in a given situation the authorities functioning under FERA find that there are attempts to overreach the provision of Section 29(1) (a), the authority can always lift the veil and examine whether the parties have entered into any fraudulent, sham, circuitous device so as to overcome statutory provisions like Section 29(1)(a). It is trite law that any approval/permission obtained by non-disclosure of all necessary information or making a false representation tantamount to approval/permission obtained by p....
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....en Hashem v. Ali Shayif [Ben Hashem v. Ali Shayif, 2008 EWHC 2380 (Fam)]. The six principles, as found at paras 159-64 of the case are as follows: (i) Ownership and control of a company were notenough to justify piercing the corporate veil; (ii) The court cannot pierce the corporate veil,even in the absence of third-party interests in the company, merely because it is thought to be necessary in the interests of justice; (iii) The corporate veil can be pierced only ifthere is some impropriety; (iv) The impropriety in question must be linked tothe use of the company structure to avoid or conceal liability; (v) To justify piercing the corporate veil, theremust be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing; and (vi) The company may be a "façade" even thoughit was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The court would, however, pierce the corporate veil only so far as it was necessary in order to....
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..... Salomon & Co. Ltd. [1897 AC 22] the House of Lords had observed, "the company is at law a different person altogether from the subscribers ...; and, though it may be that after incorporation the business is precisely the same as it was before, the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by that Act." Since then, however, the courts have come to recognise several exceptions to the said rule. While it is not necessary to refer to all of them, the one relevant to us is "when the corporate personality is being blatantly used as a cloak for fraud or improper conduct". [Gower: Modern Company Law - 4th Edn. (1979) at p. 137.] Pennington ( Company Law - 5th Edn. 1985 at p. 53) also states that "where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law", the court will disregard the corporate veil. A Professor of Law, S. Ottolenghi in his article "From peeping behind the Corporat....
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....approved by this Court in TELCO v. State of Bihar [(1964) 6 SCR 885]. The following passage from the decision is apposite: "... Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But, it would not be possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions and the shareholders are held to be the persons who actually work for the corporation." 27. In DHN Food Distributors Ltd. v. London Borough of Tower Hamlets [(1976) 3 All ER 462] the court of appeal dealt with a group of companies. Lord Denning quoted with approval the statement in Gower's Company Law that "there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group". The learned Master of Rolls observed that "this group is virtually the same as a partne....
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....xpressions used but not defined in the Code but defined inter alia by the SEBI Act, 1992, and the Companies Act, 2013, shall have the meanings respectively assigned to them in those Acts. In exercise of powers conferred by Sections 11 and 30 of the SEBI Act, 1992, the 2011 Takeover Regulations have been promulgated by SEBI. 36. Originally, the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994, defined "persons acting in concert" as follows: "(d) "person acting in concert" comprises persons who, pursuant to an agreement or understanding acquires or agrees to acquire shares in a company for a common objective o purpose of substantial acquisition of shares and includes: i. a company, its holding company, or subsidiaries ofsuch companies or companies under the same management either individually or all with each other. ii. a company with any of its directors, or any personentrusted with the management of the funds of the company; iii. directors of companies, referred to in clause (i) andhis associates; and iv. mutual fund, financial institution, merchant banker, portfolio manager and any investment company in which any person has an interest as ....
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....ion of being persons in concert with burden of proof cast on them will be raised against these persons. The Committee was of the view that while the net of presumption should be cast to include all such persons, it should not be cast too widely so as to impinge on the freedom of any person to carry on his normal business activities. In other words, there should be well defined bounds of presumption. xxx xxx xxx 2.23 Burden of proof on 'persons acting in concert' The Committee further noted that in the existing Regulations, there is no burden of proof on the 'persons acting in concert'. Once the burden of proof is cast on the persons presumed to be acting in concert, it would be important to ensure that the persons are grouped in categories such that the persons may be presumed to be acting in concert only with another person belonging to the same category. A general reading of the existing provisions implies that a person belonging to any one of the categories mentioned in sub-clauses (i) to (iv) of clause (d) of regulation 2 could be presumed to be acting in concert with a person belonging to any other category. Thus, a company could be presumed to be acting in concert wi....
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....irectly co-operate for acquisition of shares or voting rights in, or exercise of control over the target company. (2) Without prejudice to the generality of the foregoing,the persons falling within the following categories shall be deemed to be persons acting in concert with other persons within the same category, unless the contrary is established,- (i) a company, its holding company, subsidiarycompany and any company under the same management or control; (ii) a company, its directors, and any personentrusted with the management of the company; (iii) directors of companies referred to in item (i) and (ii) of this sub-clause and associates of such directors; (iv) promoters and members of the promotergroup; (v) immediate relatives; (vi) a mutual fund, its sponsor, trustees, trusteecompany, and asset management company; (vii) a collective investment scheme and itscollective investment management company, trustees and trustee company; (viii) a venture capital fund and its sponsor,trustees, trustee company and asset management company; (viiia) an alternative investment fund and its sponsor, trustees, tr....
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....the explanation to Regulation 2(1)(q)(2), which subsumes not merely immediate relatives but other forms in which a person can be associated with another - which includes the form of trust, partnership firm and HUF. What is of great importance is that wherever persons act jointly or in concert with the "person" who submits a resolution plan, all such persons are covered by Section 29A. It is interesting to note that the report of the Insolvency Law Committee of March, 2018, wanted to curtail the wide definition of persons acting jointly or in concert as follows: "14.3The term 'person acting jointly or in concert' has not been defined in the Code and using the definition provided in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 results in inclusion of an extremely wide gamut of person within the scope of section 29A. In practice, it is unclear whether the term 'connected person' in clause (j) applies to only the resolution applicant or even 'persons acting jointly or in concert with such person'. If the latter interpretation is taken, this provision would be applicable to multiple layers of persons who are related to the resol....
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....rmally difficult to obtain, and is not insisted upon" [CIT v. East Coast Commercial Co. Ltd., (1967) 1 SCR 821]. (SCR p. 829 H) 55. While deciding whether a company was one in which the public were substantially interested within the meaning of Section 23-A of the Income Tax Act, 1922 this Court said: "The test is not whether they have actually acted in concert but whether the circumstances are such that human experience tells us that it can safely be taken that they must be acting together. It is not necessary to state the kind of evidence that will prove such concerted actings. Each case must necessarily be decided on its own facts." [CIT v. Jubilee Mills Ltd., (1963) 48 ITR 9 (SC), p. 20] 56. In Guinness PLC and Distillers Co. PLC [Guinness PLC and Distillers Company PLC (Panel hearing on 25-8-1987 and 2-9-1987 at p. 10052 - Reasons for decisions of the Panel.)] the question before the Takeover Panel was whether Guinness had acted in concert with Pipetec when Pipetec purchased shares in Distillers Company PLC. Various factors were taken into consideration to conclude that Guinness had acted in concert with Pipetec to get control over Distillers Company. The Panel said: ....
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....mmon objective or purpose may be in pursuance of an agreement or an understanding, formal or informal; the acquisition of shares, etc. may be direct or indirect or the persons acting in concert may cooperate in actual acquisition of shares, etc. or they may agree to cooperate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of "persons acting in concert" to come into being." (emphasis supplied) When coming to the presumption created by the provision, this Court held that the deeming provision is left open to rebuttal as indicated by the words "unless the contrary is established" (see paragraph 54 of Daiichi (supra.)). Finally, this Court held that whether a person is or is not acting in concert would depend upon the facts of each case. (see paragraph 57 of Daiichi (supra.)). 42. When we come to sub-clause (c) of Section 29A, the first thing that was argued, at which the parties were at loggerheads, was the time at which sub-clause (c) can be said to operate. According to Shri Rohatgi, in the original sub-clause (c), preamendment, the time must necessarily be the date of commencement of the corpora....
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....urpose of applying this sub-section, any one of three things, which are disjunctive, needs to be established. The corporate debtor may be under the management of the person referred to in Section 29A, the corporate debtor may be a person under the control of such person, or the corporate debtor may be a person of whom such person is a promoter. 45. The expression "management" would refer to the de jure management of a corporate debtor. The de jure management of a corporate debtor would ordinarily vest in a Board of Directors, and would include, in accord with the definitions of "manager", "managing director" and "officer" in Sections 2(53), 2(54) and 2(59) respectively of the Companies Act, 2013, the persons mentioned therein. 46. The expression "control" is defined in Section 2(27) of the Companies Act, 2013 as follows:- "(27) "control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;" ....
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....by virtue of shareholding or management rights or shareholders agreement or voting agreements or in any other manner. This definition appears to be similar to the one as given in Black's Law Dictionary (Eighth Edition) at page 353 where this term has been defined as under: "Control - The direct or indirect power to direct the management and policies of a person or entity, whether through ownership of voting securities, by contract, or otherwise; the power or authority to manage, direct, or oversee." Control, according to the definition, is a proactive and not a reactive power. It is a power by which an acquirer can command the target company to do what he wants it to do. Control really means creating or controlling a situation by taking the initiative. Power by which an acquirer can only prevent a company from doing what the latter wants to do is by itself not control. In that event, the acquirer is only reacting rather than taking the initiative. It is a positive power and not a negative power. In a board managed company, it is the board of directors that is in control. If an acquirer were to have power to appoint majority of directors, it is obvious that he would ....
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....gulations, held on facts that an executive director, on a fixed monthly salary, post resignation, cannot be held to be a person exercising "control" within the meaning of the SEBI regulations. This Court referred to with approval the following test laid down in Securities and Exchange Board of India v. Kishore R. Ajmera, (2016) 6 SCC 368:- "26. It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled. While direct evidence is a more certain basis to come to a conclusion, yet, in the absence thereof the Courts cannot be helpless. It is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion." (emp....
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.... only be removed if the person submitting a resolution plan makes payment of all overdue amounts with interest thereon and charges relating to the non-performing asset in question before submission of a resolution plan. The position in law is thus clear. Any person who wishes to submit a resolution plan acting jointly or in concert with other persons, any of whom may either manage, control or be a promoter of a corporate debtor classified as a non-performing asset in the period abovementioned, must first pay off the debt of the said corporate debtor classified as a non-performing asset in order to become eligible under Section 29A(c). 55. However, Messrs Salve and Singhvi have argued that the expression "before submission of resolution plan" contained in the proviso must be read in a commercially sensible manner. The provision must, therefore, be interpreted to make it workable, and create a situation so that banks can recover the maximum possible amounts from the NPAs generally, and not merely from the NPAs of the corporate debtor in respect of which it is receiving resolution plans. In this context, therefore, if there is a system by which a person who presents a resolution pl....
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....h would have the opposite effect. 56. Since Section 29A(c) is a see-through provision, great care must be taken to ensure that persons who are in charge of the corporate debtor for whom such resolution plan is made, do not come back in some other form to regain control of the company without first paying off its debts. The Code has bifurcated such persons into two groups, as a perusal of sub-clauses (c) and (g) of Section 29A shows. If a person has been a promoter, or in the management, or control, of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place, and in respect of which an order has been made by the Adjudicating Authority under the Code, such person is ineligible to present a resolution plan under Section 29A(g). This ineligibility cannot be cured by paying off the debts of the corporate debtor. Therefore, it is only such persons who do not fall foul of sub-clause (g), who are eligible to submit resolution plans under sub-clause (c) of Section 29A, if they happen to be persons who were in the erstwhile management or control of the corporate debtor. 57. It is important....
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.... any other law or contract a tenant shall not be evicted, whether in execution of a decree or otherwise except in accordance with the provisions of this Act: Provided...." Sub-section (4)(i) of Section 11 however gave the landlord a right to apply for eviction and for an order directing him to be put in possession of the building: "if the tenant has without the consent of the landlord transferred his right under the lease or sub-let the entire building or any portion thereof, if the lease does not confer on him any right to do so, or the landlord has not consented to such sub-letting;" We find ourselves unable to accept Mr Daphtary's argument that the above quoted provision of Section 11 of the Act of 1959 was not "a corresponding provision" within the meaning of the proviso to subsection (1) of Section 34 of the Act of 1965. To correspond means to "be in harmony with or be similar, analogous to". It does not mean to "be identical with" and therefore the relevant provisions of Section 34 (1) of the Act of 1965 must be held to be a provision corresponding to Section 11(4) of the Act of 1959." 59. In the light thereof, it is clear that if a person is prohib....
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....al Companies (Special Provisions) Act, 1985 as has been pointed out earlier, has been severely undermined by reason of the enormous delays involved in the disposal of cases by BIFR. (See Paras 5.8, 5.9 and 5.15 of the Report.) Consequently, the Committee recommended that the Sick Industrial Companies (Special Provisions) Act, 1985 be repealed and the provisions thereunder for revival and rehabilitation should be telescoped into the structure of the Companies Act, 1956 itself. 41. Pursuant to the Eradi Committee Report, the Companies Act was amended in 2002 by providing for the constitution of a National Company Law Tribunal as a substitute for the Company Law Board, the High Court, BIFR and AAIFR. The Eradi Committee Report was further given effect to by inserting Sections 424-A to 424-H into the Companies Act, 1956 which, with a few changes, mirrored the provisions of Sections 15 to 21 of the Sick Industrial Companies (Special Provisions) Act, 1985. Interestingly, the Companies Amendment Act, 2002 omitted a provision similar to Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985. Consequently, creditors were given liberty to file suits or initiate othe....
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.... ended 30-6-2012 submitted by Reserve Bank of India to the Central Government in terms of Section 36(2) of the Banking Regulation Act, 1949. In Table IV.14 the Report provides statistics regarding trends in non-performing assets bank-wise, group-wise. As per the said Table, the opening balance of non-performing assets in public sector banks for the year 2011-2012 was Rs. 746 billion but the closing balance for 20112012 was Rs. 1172 billion only. The total amount recovered through the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 during 2011-2012 registered a decline compared to the previous year, but, even then, the amounts recovered under the said Act constituted 70% of the total amount recovered. The amounts recovered under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 constituted only 28%. All this would go to show that the amounts that public sector banks and financial institutions have to recover are in staggering figures and at long last at least one statutory measure has proved to be of some efficacy. This Court would be loathe to give such an interpretation as would thwart the recovery process ....
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....he Committee then chose certain principles within which the new Insolvency and Bankruptcy Code would work. One of them is that the Code will ensure a time bound process, which will not be extended, to better preserve the economic value of the asset (see Principle No.8 set out at page 427 of Innoventive Industries (supra.)). 67. After setting out the Scheme of the Code, this Court further went on to hold: "31. The rest of the insolvency resolution process is also very important. The entire process is to be completed within a period of 180 days from the date of admission of the application under Section 12 and can only be extended beyond 180 days for a further period of not exceeding 90 days if the committee of creditors by a voting of 75% of voting shares so decides. It can be seen that time is of essence in seeing whether the corporate body can be put back on its feet, so as to stave off liquidation." xxx xxx xxx 33. Under Section 30, any person who is interested in putting the corporate body back on its feet may submit a resolution plan to the resolution professional, which is prepared on the basis of an information memorandum. This plan must provide for payment of ins....
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....d ending on one hundred and eightieth day; xxx xxx xxx (25) "resolution applicant" means a person, who individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to the invitation made under clause (h) of sub-section (2) of Section 25; (26) "resolution plan" means a plan proposed by resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II; (27) "resolution professional", for the purposes of this Part, means an insolvency professional appointed to conduct the corporate insolvency resolution process and includes an interim resolution professional; xxx xxx xxx 7. Initiation of corporate insolvency resolution process by financial creditor.-(1) A financial creditor either by itself or jointly with other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government, may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.-For the purposes of this sub-section, a default inc....
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....dred and eighty days from the date of admission of the application to initiate such process. (2) The resolution professional shall file an applicationto the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of sixty-six per cent of the voting shares. (3) On receipt of an application under sub-section (2),if the Adjudicating Authority is satisfied that the subjectmatter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days: Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once. xxx xxx xxx 30. Submission of resolution plan.-(1) A resolution applicant may submit a resolution plan along with an affidavit stating that he is eligible under Section 29-A to the resolution professional prepared on....
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....verdue amounts in accordance with the proviso to clause (c) of Section 29-A: Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to sub-section (3) of Section 12, and the corporate insolvency resolution process shall be completed within the period specified in that subsection. Provided also that the eligibility criteria in Section 29-A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ord. 6 of 2018) shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018. (5) The resolution applicant may attend the meeting ofthe committee of creditors in which the resolution plan of the applicant is considered: Provided that the resolution applicant shall not have a right to vote at the meeting of the committee of creditors unless such resolution applicant is also a financial creditor. (6) The resolution professional shall submit theresolution plan as approved by the committee of creditors to the Adjudicating Authority. 31. Approval of resolution plan.-(1) If the Ad....
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.... 56, as the case may be, does not receive a resolution plan under sub-section (6) of Section 30; or (b) rejects the resolution plan under Section 31 for thenon-compliance of the requirements specified therein, it shall- (i) pass an order requiring the corporate debtor to beliquidated in the manner as laid down in this Chapter; (ii) issue a public announcement stating that thecorporate debtor is in liquidation; and (iii) require such order to be sent to the authority withwhich the corporate debtor is registered. (2) Where the resolution professional, at any timeduring the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors approved by not less than sixty-six per cent of the voting share to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (3) Where the resolution plan approved by theAdjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially....
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....l stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such corporate debtor. (4) The National Company Law Tribunal shall bevested with all the powers of the Debts Recovery Tribunal as contemplated under Part III of this Code for the purpose of sub-section (2). (5) Notwithstanding anything to the contrary containedin any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of- (a) any application or proceeding by or against thecorporate debtor or corporate person; (b) any claim made by or against the corporate debtoror corporate person, including claims by or against any of its subsidiaries situated in India; and (c) any question of priorities or any question of law orfacts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code. (6) Notwithstanding anything contained in the Limitation Act, 1963 (36 of 1963) or in any other law for the time being in force, in computing the period of limitation specified for any suit or application by or again....
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....ithin the period specified in this Code, the National Company Law Tribunal or the National Company Law Appellate Tribunal, as the case may be, shall record the reasons for not doing so within the period so specified; and the President of the National Company Law Tribunal or the Chairperson of the National Company Law Appellate Tribunal, as the case may be, may, after taking into account the reasons so recorded, extend the period specified in the Act but not exceeding ten days. (2) No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the National Company Law Tribunal or the National Company Law Appellate Tribunal under this Code." 69. Since the present case deals, on facts, with financial creditors, we may set out how the corporate insolvency resolution process is to work from the inception. Before admission of an application under Section 7 by a financial creditor, the Adjudicating Authority is, under Section 7(4), to first ascertain the existence of a default within 14 days of receipt of the application, as specified in Section 7(4). Upon satisfaction that such default has oc....
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.... the light of the object sought to be achieved by the Code, and in the light of the consequence provided by Section 33, therefore, makes it clear that the periods previously mentioned are mandatory and cannot be extended. 72. In fact, even the literal language of Section 12(1) makes it clear that the provision must read as being mandatory. The expression "shall be completed" is used. Further, sub-section (3) makes it clear that the duration of 180 days may be extended further "but not exceeding 90 days", making it clear that a maximum of 270 days is laid down statutorily. Also, the proviso to Section 12 makes it clear that the extension "shall not be granted more than once". 73. After admission of the application under Section 7 by the Adjudicating Authority, the scheme of the Code is as follows: (i) Under Sections 13 to 15, a moratorium is declared; a public announcement of the initiation of the corporate insolvency resolution process and call for submission of claims is made; and an Interim Resolution Professional is to be appointed under Section 16 of the Code. This action is to be completed by the Adjudicating Authority within a period of 14 days from the insolvency co....
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....erim Resolution Professional to continue to function as the Resolution Professional until such time as the IBBI confirms the appointment of the Resolution Professional. (vi) It is this Resolution Professional who is then to conduct the corporate insolvency resolution process, which really begins at this stage (see Section 23). Section 25 then lays down some of the duties of this Resolution Professional, which are to continue the business operations of the corporate debtor, subject to the prior approval of the Committee of Creditors over the matters stated in Section 28. One of the important duties of the Resolution Professional under Section 25 is to invite prospective resolution applicants to submit resolution plans. (vii) Under Section 29, the Resolution Professional is to prepare an information memorandum giving relevant information, as may be specified by the IBBI, to persons interested in formulating a resolution plan. (viii) Section 30 is an important provision in that a resolution applicant may submit a resolution plan to the Resolution Professional, who is then to examine the said plan to see that it conforms to the requirements of Section 30(2). Once this plan con....
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....ocess and the time available is hundred and eighty days: Section/Regulation Description of Activity Norm Latest Timeline Section 16(1) Commencement of CIRP and appointment of IRP .... T Regulation 6(1) Public announcement inviting claims Within 3 Days of Appointment of IRP T+3 Section 15(1) (c)/Regulations 6(2) (c) and 12 (1) Submission of claims For 14 Days from Appointment of IRP T+14 Regulation 12(2) Submission of claims Up to 90th day of commencement T+90 Regulation 13(1) Verification of claims received under regulation 12(1) Within 7 days from the receipt of the claim T+21 Regulation 13(2) Verification of claims received under regulation 12(2) T+97 Section 21(6A) (b)/Regulation 16A Application for appointment of AR Within 2 days from verification of claims received under regulation 12(1) T+23 Regulation 17(1) Report certifying constitution of CoC T+23 Section 22(1)/Regulation 19(1) 1st meeting of the CoC Within 7 days of the constitution of the CoC, but with seven days' notice T+30 Section 22(2) Resolution to appoint RP by the CoC In the first meeting of t....
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....nt; RP: Resolution Professional; RFRP: Request for Resolution Plan." It is of utmost importance for all authorities concerned to follow this model timeline as closely as possible. 75. What has now to be determined is whether any challenge can be made at various stages of the corporate insolvency resolution process. Suppose a resolution plan is turned down at the threshold by a Resolution Professional under Section 30(2). At this stage is it open to the concerned resolution applicant to challenge the Resolution Professional's rejection? It is settled law that a statute is designed to be workable, and the interpretation thereof should be designed to make it so workable. In Commissioner of Income Tax, Delhi v. S. Teja Singh, [1959] Supp. 1 S.C.R. 394, this Court said, at page 403: "We must now refer to an aspect of the question, which strongly reinforces the conclusion stated above. On the construction contended for by the respondent, S.18A(9)(b) would become wholly nugatory, as ss.22(1) and 22(2) can have no application to advance estimates to be furnished under s.18-A(3), and if we accede to this contention, we must hold that though the legislature enacted s.18-A(9)(b) with....
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....ection 25(2)(i), and with the second proviso to Section 30(4), which provides that where a resolution applicant is found to be ineligible under Section 29A(c), the resolution applicant shall be allowed by the Committee of Creditors such period, not exceeding 30 days, to make payment of overdue amounts in accordance with the proviso to Section 29A(c). A conspectus of all these provisions would show that the Resolution Professional is required to examine that the resolution plan submitted by various applicants is complete in all respects, before submitting it to the Committee of Creditors. The Resolution Professional is not required to take any decision, but merely to ensure that the resolution plans submitted are complete in all respects before they are placed before the Committee of Creditors, who may or may not approve it. The fact that the Resolution Professional is also to confirm that a resolution plan does not contravene any of the provisions of law for the time-being in force, including Section 29A of the Code, only means that his prima facie opinion is to be given to the Committee of Creditors that a law has or has not been contravened. Section 30(2)(e) does not empower the ....
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....ing its feasibility and viability, as the requisite vote of not less than 66% of the voting share of the financial creditors is not obtained. As has been mentioned hereinabove, the first proviso to Section 30(4) furnishes the answer, which is that all that can happen at this stage is to require the Resolution Professional to invite a fresh resolution plan within the time limits specified where no other resolution plan is available with him. It is clear that at this stage again no application before the Adjudicating Authority could be entertained as there is no vested right or fundamental right in the resolution applicant to have its resolution plan approved, and as no adjudication has yet taken place. 80. It is the Committee of Creditors which will approve or disapprove a resolution plan, given the statutory parameters of Section 30. Under Regulation 39 of the CIRP Regulations, subclause (3) thereof provides:- "(3) The committee shall evaluate the resolution plans received under sub-regulation (1) strictly as per the evaluation matrix to identify the best resolution plan and may approve it with such modifications as it deems fit: Provided that the committee shall record th....
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.... This order of the Appellate Authority, setting aside the order of the Adjudicating Authority, would then be the order which rejects the resolution plan for the purposes of Section 33. The same would apply to an ultimate order of rejection by the Supreme Court under Section 62. This is on the principle that, as stated in Lachmeshwar Prasad Shukul & Ors. v. Keshwar Lal Chaudhuri & Ors. AIR 1941 FC 5 and followed in a number of our judgments, an appeal is a continuation of the original proceedings. 83. Given the fact that both the NCLT and NCLAT are to decidematters arising under the Code as soon as possible, we cannot shut our eyes to the fact that a large volume of litigation has now to be handled by both the aforesaid Tribunals. What happens in a case where the NCLT or the NCLAT decide a matter arising out of Section 31 of the Code beyond the time limit of 180 days or the extended time limit of 270 days? Actus curiae neminem gravabit - the act of the Court shall harm no man - is a maxim firmly rooted in our jurisprudence (see Jang Singh v. Brijlal & Ors. [1964] 2 S.C.R. 146 at page 149, and A.S. Antulay v. R.S. Nayak & Ors. [1988] Supp. 1 S.C.R. 1 at page 71). It is also true t....
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....rred its shareholding of 26.1% in Numetal to a group company, viz., ECL. This group company is ultimately owned by 'Virgo Trust' and 'Triton Trust', the beneficiaries of which are companies owned by Shri Ravi Ruia, his brother Shri Shashikant Ruia and their immediate family members. The object of including ECL, as stated in the relevant extract from Numetal's expression of interest is as follows: "The Company satisfies the minimum tangible net worth requirement of INR 30 Billion considering ECL, as a group company that holds 26.1% (Twenty Six point one Percent) shares in the Company, has net worth of USD 2,974 million (US Dollars Two Thousand Nine Hundred Seventy Four million) or INR 192.8 Billion (Rupees One Hundred Ninety Two Point Eight Billion) as on 31st March 201 (immediately preceding completed financial year). Please refer Annexure I for the certificate of Chartered Accountant of the Company certifying satisfaction of the minimum tangible net worth requirement in terms of the Eligibility Criteria which includes A, a certificate of Chartered Accountant certifying ECL's tangible net worth. It is pertinent to note that in case the company is considered as a consortium poten....
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....iscretionary trust, which demonstrates that the trustee was under the complete control of Shri Rewant Ruia. This in turn indicates that Prisma Trust is one more smokescreen in the chain of control, which would conceal the fact that the actual control over AEL is by none other than Shri Rewant Ruia himself. 89. "Curiouser and Curiouser" was the expression of Alice, in Lewis Carroll's Alice in Wonderland. In this wonderland of Shri Rewant Ruia, one day later on 22.11.2017, the trustees of the Prisma Trust now acquired 100% of the shareholding of AHL for a par value of approximately USD 10,000 from the trustees of the Crescent Trust. On this very date, merely one day before the Ordinance bringing into force Section 29A was promulgated, ECL transferred its shareholding of 26.1% of the share capital of Numetal to Crinium Bay, an indirect wholly owned subsidiary of VTB Bank, whose shares in turn are held by the Russian Government. AEL also transferred shares representing 13.9% of the share capital of Numetal to Crinium Bay, thus making Crinium Bay's total holding in Numetal 40%. On the same date, AEL also transferred shares representing 25.1% of the share capital of Numetal to Indo, a....
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....d shareholders who bring deep expertise from different industries covering Finance, Steel, Oil and Gas, Metal Mining, Trading expertise across geographies. Crinium Bay Holdings Limited ("Crinium Bay") an indirect wholly owned subsidiary of VTB Bank PJSC ("VTB Bank"). VTB Bank is one of the largest emerging market groups listed on Moscow Exchange ("MOEX") and London Stock Exchange ("LSE") with current market capitalization of approximately US$ 12.3bn (approximately INR 79,000 Crores) and total assets in excess of approximately US$ 220bn (approximately INR 14,08,000). xxx xxx xxx VTB Banks support to provide financing, credit assistance to the Resolution Applicant is set out in Annexure 2 and is subject to the terms of the letter provided therein. The other shareholders in Numetal also have material businesses with international operations focused on the steel, materials and resources sector- (a) Tyazhpromexport JSC ("TPE") a leadingengineering agency in Russia in ferrous and non ferrous metallurgy project operations and construction with experience with over 60 years and wholly owned by Russian State corporation, Rostec; (b) Indo International Trading FZCO ("Indo" or ....
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....g into consideration the financial of entities controlling or controlled by or under common control with the potential resolution applicant. It is evident from the foregoing that Numetal took advantage of this provision and relied upon the financial wherewithal of its constituents/ shareholders. Numetal has not submitted or relied upon its stand-alone financials to satisfy the eligibility criteria. It is submitted that having taken advantage of this provision it is not open to Numetal to contend that this Respondent cannot look at its constituents/ shareholders when determining the issue of eligibility under Section 29A of the Code. Further, it is submitted that even though the RFP document does not allow a resolution applicant to look at its constituents/ shareholders for the purposes of demonstrating its experience, it is clear from the foregoing that Numetal has extensively relied on the experience of its constituents/shareholders to demonstrate its experience. It is submitted that having relied on the experience of its constituents/shareholders it is not open to Numetal to contend that this Respondent cannot look at its constituents/shareholders when determining the issue of el....
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....l could successfully present a resolution plan would be to first pay off the debts of ESIL, as well as those of such other corporate debtors of the Ruia group of companies, which were declared as NPAs prior to the aforesaid period of one year, before submitting its resolution plan. However, if the date of the second resolution plan is to be seen, Shri Rewant Ruia appears to have disappeared from the scene altogether, as the three entities left are stated to be independent entities in the form of two Russian entities and one UAE entity. Viewed on 2.4.2018, therefore, could it be said that Shri Rewant Ruia had disappeared from the scene altogether, so as to obviate the application of Section 29A(c)? The obvious answer is no. This is for two reasons. First, as has been stated earlier, the Rs. 500 crores that has been deposited towards submission of earnest money continues to remain deposited by AEL even post 2.4.2018, showing thereby that Shri Rewant Ruia continues to be present, insofar as Numetal's second resolution plan is concerned. Further, having regard to the reasonably proximate state of affairs before submission of the resolution plan on 2.4.2018, beginning with Numetal's ini....
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....ls of the Government of the Russian Federation; against persons operating in the arms or related materiel sector of the Russian Federation; and against individuals and entities operating in the Crimea region of Ukraine. E.O. 13662 also authorizes the imposition of sanctions on certain entities operating in specified sectors of the Russian Federation economy. Finally, E.O. 13685 also prohibits the importation or exportation of goods, services, or technology to or from the Crimea region of Ukraine, as well as new investment in the Crimea region of Ukraine by a United States person, wherever located." 98. The Office of Foreign Assets Control thereafter issued Directive Number 1 under Executive Order 13662, stating:- "DIRECTIVE 1 (AS AMENDED ON SEPTEMBER 29, 2017) UNDER EXECUTIVE ORDER 13662 Pursuant to sections 1(a)(i), 1(b), and 8 of Executive Order 13662 of March 20, 2014, "Blocking Property of Additional Persons Contributing to the Situation in Ukraine" (the Order) and 31 C.F.R. § 589.802, taking appropriate account of the Countering Russian Influence in Europe and Eurasia Act of 2017, and following the Secretary of the Treasury's determination under section 1(a)(i) of t....
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....st', published by the Office of Foreign Assets Control. A perusal of this list shows that VTB Bank is listed therein, along with various entities affiliated to it. 100. Similarly, under EU Council Regulation 833 of 2014 dated 31.7.2014, certain restrictive measures in view of Russian actions destabilizing the situation in Ukraine were taken against certain Russian entities, of which VTB Bank was one. These measures included: "(5) It is also appropriate to apply restrictions on access to the capital market for certain financial institutions, excluding Russia-based institutions with international status established by intergovernmental agreements with Russia as one of the shareholders. Other financial services such as deposit business, payment services and loans to or from the institutions covered by this Regulation, other than those referred to in Article 5, are not covered by this Regulation." Under Article I of this regulation, 'transferable securities' was defined as : "(f) 'transferable securities' means those classes of securities which are negotiable on the capital market, with the exception of instruments of payment, such as: (i) shares in companies and o....
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.... of the European Union are not on account of any misconduct on the part of VTB Bank. Rather, they have been imposed politically, because of the conduct of a particular country, i.e. Russia, which has sought to undermine Ukraine's territorial integrity, sovereignty and independence, by illegally annexing Crimea and Sevastopol. We are of the view that Shri Rohatgi is right, inasmuch as VTB Bank cannot be said to have been prohibited by an authority outside India from trading in securities or accessing the securities markets, due to any fraudulent and/or unfair trade practices relating to the securities market generally. A prohibitory sanction by an authority situate outside India for political reasons would thus not be covered by sub-clause (i). However, Shri Salve pointed to an order dated 19.9.2017 of the US Commodity Futures Trading Commission, which held: "A. Respondents Violated Section 4c(a)(1) and (2) of the Act Respondents' RUB/USD block trades constituted unlawful fictitious sales and caused prices to be reported or recorded that were not true and bona fide prices. Section 4c(a)(1) and (2) of the Act makes it unlawful "for any person to offer to enter into, enter i....
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....s offered by the respondents, the respondents further agreed, in the said Order dated 19.9.2017 as follows:- "3. Respondents further agree that they shall comply with the following additional undertakings: a. Respondents shall not enter into privately negotiated futures, options or combination transactions with one another on or through any U.S.-based futures exchange for a period of two years from the date of this Order;" 105. A reading of this order makes it clear that, even assuming that the Commodity Futures Trading Commission is an authority which corresponds with SEBI (Shri Rohatgi has argued that in the United States the Securities Exchange Commission is the authority which corresponds with SEBI in India), it is clear that there is no prohibition by the Commodity Futures Trading Commission of the United States interdicting VTB Bank from trading in securities or accessing the securities market. All that VTB Bank has done is consent to a cease and desist order; consent to pay a monetary penalty in the amount of USD five million; and further consent to not enter into privately negotiated futures options with a particular subsidiary, viz. VTB Capital, on or throug....
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....res of the face value of Rs. 10, representing 25.76% of the share capital of Uttam Galva. In this letter, it was disclosed to the public at large that AMNLBV was becoming a promoter of this company, with significant affirmative voting rights. On 20.9.2011, a Non Disposal Undertaking was provided by AMNLBV, as promoter of Uttam Galva, to the lender banks of Uttam Galva, which included the State Bank of India. On 31.3.2016, Canara Bank and Punjab National Bank declared Uttam Galva's accounts as NPA. It is important to note that, in all the annual returns of Uttam Galva till date, AMNLBV's shareholding has been shown as 'promoter's shareholding.' All the annual reports, upto 2017, contained a list of promoters, which included AMNLBV as one such, holding 29.05%% of the share capital of the company, and having significant influence over the company. Shri Salve's argument that, in point of fact, no control was actually exercised as AMNLBV never appointed any directors or exercised its voting rights, cannot be accepted as that makes no difference to the de jure position of AMNLBV being a "promoter" as defined in Section 2(69)(a) of the Companies Act, 2013. 108. On 7.2.2018, a few days ....
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.... est, does not absolve AMNLBV from having failed to first obtain their consent before selling off its shares in Uttam Galva. Such sale is directly contrary to the Non Disposal Undertaking given to the lenders. Quite apart from this, it is also clear that shares worth Rs. 19.50 each were sold at a distress value of Re.1 each, so as to overcome the provisions of Section 29A(c) and the proviso thereto. It is clear therefore that the Uttam Galva transaction clearly renders AMIPL ineligible under Section 29A(c) of the Code. 110. Insofar as the transaction with regard to KSS Petron is concerned, the facts are as follows:- on 3.3.2011, Fraseli, an entity registered and incorporated in Luxemburg, which is managed and controlled by Shri L.N. Mittal, held 32.22% of the shareholding of KSS Global, a company domiciled in the Netherlands. On 19.5.2011, by a Shareholders Agreement entered into between KSS Holding, KSS Infra EALQ, Fraseli and KSS Global, the first three companies were each given a right to appoint an equal number of directors on the board of directors of KSS Global, which in turn held 100% of the share capital of KSS Petron, a company incorporated in India. Fraseli was also gr....
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....held shares in two other companies which were declared to be NPAs more than one year prior to the date of commencement of the corporate insolvency resolution process of ESIL. We have been informed by Shri Salve that Shri Pramod Mittal parted company with Shri L.N. Mittal as far back as 1994, and cannot therefore be regarded as a person acting in concert with Shri L.N. Mittal. Since this aspect of the case has not been argued before the authorities below, though raised in an I.A. by Numetal before the Appellate Authority, we will not countenance such an argument for the first time before this Court. 113. Since it is clear that both sets of resolution plans that were submitted to the Resolution Professional, even on 2.4.2018, are hit by Section 29A(c), and since the proviso to Section 29A(c) will not apply as the corporate debtors related to AMIPL and Numetal have not paid off their respective NPAs, ordinarily, these appeals would have been disposed of by merely declaring both resolution applicants to be ineligible under Section 29A(c). Shri Subramanium, on behalf of the Committee of Creditors, requested us to give one more opportunity to the parties before us to pay off their cor....
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....n the ordinary course of business, acts on the advice, directions or instructions of the individual; (g) a limited liability partnership or a partnership firm whose partners oremployees in the ordinary course of business, act on the advice, directions or instructions of the individual; (h) a person on whose advice, directions or instructions, the individual isaccustomed to act; (i) a company, where the individual or the individual along with its relatedparty, own more than fifty per cent. of the share capital of the company or controls the appointment of the board of directors of the company. Explanation.-For the purposes of this clause,- (a) "relative", with reference to any person, means anyone who is related to another, in the following manner, namely:- (i) members of a Hindu Undivided Family, (ii) husband, (iii) wife, (iv) father, (v) mother, (vi) son, (vii) daughter, (viii) son's daughter and son, (ix) daughter's daughter and son,(x) grandson's daughter and son, (xi) granddaughter's daughter and son, (xii) brother, (xiii) sister, ....