TaxTMI 
TaxTMI 
2020 (1) TMI 1215
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.... which had made the Liquidator to file this Application seeking for the above noted reliefs. 3. As against the Corporate Debtor, based on the Petition filed by the Financial Creditor namely M/S. L & T Finance Limited seeking for initiation of Corporate Insolvency Resolution Process (CIR Process) in CP/541/1B/CB/2017, this Tribunal vide Order dated 09.02.2018 had admitted the same, and as a consequence, initiated the CIR Process in relation to the Corporate Debtor. 4. In the absence of any Resolution Plan being put forth by the Resolution Professional appointed by this Tribunal as approved by the Committee of Creditors (COC) of the Corporate Debtor, and in the alternative, the COC having passed a Resolution for Liquidation of the Corporate Debtor in the meeting of the COC held on 27007.2018, pursuant to which MA/ 344/2018 was filed by the Resolution Professional before this Tribunal seeking for the liquidation of the Corporate Debtor, the same was ordered on 20.09.2018. However, aggrieved by the said Order of Liquidation passed by this Tribunal, a Company Appeal (AT) (Insolvency) No. 118/2018 was filed before the Hon'ble NCLAT, which the Hon'ble NCLAT had chosen to dismiss on ....
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....iance, and it is stated in the Application by the Liquidator that the meeting was convened on 05.09.2019 at Pluto Hall, First Floor, Hotel Suba Galaxy, N.S. Phadke Road, Off Western Express Highway, Andheri, (East) Mumbai. In the meeting, both the Equity Shareholders as well as the Creditors of the Company in Liquidation have unanimously approved the Scheme as proposed by the promoters of the Company subject to certain modifications suggested by the creditors and equity shareholders of the Company which has also been annexed as an annexure to this Application. 8. It is stated that the chairman's report has been filed before this Tribunal on 12th September, 2019 along with annexure including scrutinizers report as well as rectifications/ modifications as suggested in the Scheme approved by the Equity Shareholders and the Creditors, and subsequently, this Application in CA/ 1026/ CAA/ 2019 had been moved and this Tribunal has directed as evident from the record of proceedings vide its Order dated 25.10.2019 to cause notice to be issued to the statutory and regulatory authorities as well as cause publication in newspapers notifying the date of hearing of the Petition in relation ....
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.... the disqualification as prescribed under Section 29 A of the I&B Code, 2016, may not be applicable in the instant case, as the amounts due to the Financial Creditors as reflected at the time of liquidation, has been fully settled and which has also been brought forth in the order of the Hon'ble NCLAT dated 07.03.2019 in relation to the Company under Liquidation filed by one of the shareholders of the Company. 14. In view of change in the legal position while the matter was pending before this Tribunal, an opportunity was given to both the parties to make their submissions in relation to the disqualification taking into consideration that the Financial Creditors of the company as on the date of liquidation having been fully settled by the Corporate Debtor which has not been disputed by the Liquidator, and this Tribunal has fixed the date of hearing as 05.12.2019 for the said purpose. 15. The detailed oral submissions of the Learned Counsel appearing for the Liquidator as well as Learned Counsel for the proponent of the Scheme were heard. The Learned Counsel for the Liquidator has only highlighted the aspects in relation to the judgement delivered by the Hon'ble NCLAT date....
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....s of Section 391 read with Section 394A of the Companies Act, 1956, the Liquidator is well within the power to obtain a Scheme under relevant provisions either from the members or creditors of the Company in Liquidation, and in the said circumstance, the Scheme cannot be shut out from being considered by this Tribunal. 17. Secondly, it is highlighted by the Learned Counsel for the Promoters that by virtue of settlement with the secured creditors of the Company in Liquidation, the proponent of the Scheme are also subrogated to the rights of the Secured Creditors, who have been fully discharged to their satisfaction. Thus, not only as the proponent of the Scheme in the capacity of the Promoters of the Company in liquidation but also in the capacity of Creditors of the Company as well in Liquidation have they filed the Scheme, and in the said circumstance, in the instant case, they are wearing dual hats one as a member and another as creditor of the Company in Liquidation. 18. Thirdly, it is highlighted by the Learned Counsel for the proponent of the Scheme that having discharged the secured Financial Creditors in full, and having stepped in to the shoes of the said Secured Financia....
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....R Process and thereby not entitled to file an Application for Compromise or Arrangement. 23. Prior to the decision dated 24.10.2019, it must be noted that an Appeal was filed before Hon'ble NCLAT against the decision of this Tribunal, ordering Liquidation in MA/ 344/2018 dated 20.09.2018 by shareholders of the Company in Liquidation and the Hon'ble NCLAT vide its Order dated 07.03.2019 taking note of the settlement of the amounts due to L&T Finance Limited as well as ARCIL, had in effect allowed the Promoters of the Company to file the Scheme before the Liquidator and the Liquidator to proceed in terms of Y. Shivram Prasad's case. 24. In this connection, looking to the provisions of Section 29A of I&B Code, 2016, which is extracted below for ready reference:- "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 person- (a) is an undischarged insolvent; (b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949); (c) at the time of submission....
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....t 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 the Companies 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 (f) is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets; (g) 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 this Code: Provided that this clause shall not apply if a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the corporate debtor by the resolution applicant pursuant to a resolution plan approved under this Code or pursuant to a scheme or plan approved by a financial sector regulator or a court, and such resolution applicant has not otherwise con....
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....tered 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 1 999); (d) 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 (54 of 2002); (e) an Alternate Investment Fund registered with Securities and Exchange Board of India; (f) such categories ofpersons as may be notified by the Central Govemment. ' 25. As can be seen from the above provisions of Section 29A, the Section yield itself to be bifurcated into two, namely the aspects in relation to the default committed by the promoters giving rise to the civil consequences/ liability and the other one in relation to the culpable aspect in view of criminality involved thereby attracting penal provisions under criminal law. In this regard, it can be noted for (e.g.) that disqualification in relation to Section 29 A (c) ar....
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....ted by this Tribunal or subsequently the Liquidator, has chosen to file any Application in relation to the preferential transactions, undervalued transactions, extortionate credit transactions or fraudulent transactions as covered under Sections 43, 45, 49 and 66 of the I&B Code, 2016, attracting clause (g) of the Section 29A, the answer to the said query by the Learned Liquidator was in the negative. In relation to disqualification specified under Section 29A(j) and Section 29A(i) being dependant on the earlier provisions, namely Section 29A(a) to 29A(h) the same is not reflected in the table, specifically. 26. The Learned Liquidator has also not filed any report in relation to the disability which is being suffered and it is also not pointed out by him of any specific provisions under Section 29 A of which the proponent of the Scheme suffers from disability or not eligible to file the Resolution Plan, if the same is under CIR Process. As already pointed out, the Hon'ble NCLAT had taken note of the payment which had been made by the Promoter of the Company in Liquidation to the Secured Financial Creditors of the amounts owed to the Secured Financial Creditors at the time of i....
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....to them in a phased manner ranging from 7 months to 67 months from the date of approval of the Scheme by the Hon'ble NCLT; d) The Operational Creditors shall be paid 100% of the liability within 6 months commencing from the 2nd month from the date of approval of the Scheme; e) The 100% of the Statutory due to Sales Tax Department (now GST) shall be paid within 2 years time by utilizing the benefits of the Schemes introduced by the Authority concerned; f) To ensure the proper implementation of the Scheme approved in the meeting of Creditors, the promoters of the Scheme shall infuse a sum of Rs. 3,50,00,000/- into the company in Liquidation in a phased manner on approval of the Scheme by the Hon'ble Bench; g) To generate revenue for prompt implementation of the scheme, the share capital structure of the Company is modified by reducing the face value of the share from Rs. 10/- share to Rs. 5/- share and by issuing 70,00,000 number of shares of Rs. 5/- each in addition to the existing shares. By this further sum of 000/- is infused to the company in liquidation which will be used for implementation of the Scheme. " 27. Further, the other reservation in relation to the Sche....
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....mounts 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). Para 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 plan can pay off the entire amount of the NPAs as a part of its resolution plan, to be a....
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....vision, great care must be taken to ensure that persons who are in charge of the corporate debtor [pr whom such resolution plan is made, do not come back in some other Lonn 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 subclause (c) of Section 29A, if. they happen to be persons who were in the erstwhile management or control of the corporate debtor. 29. Applying the same as applied by Hon'ble Supreme Court in relation to the submissions of the Res....
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....ion of the Hon'ble Supreme Court in 'Swiss Ribbons Pvt. Ltd. & Anr. (supra), it is clear that the Promoters / Shareholders are entitled to settle the matter in terrns of Section 12A and in such case, it is always open to an applicant to withdraw the application under Section 9 of the 'I&B Code' on the basis of which the 'Corporate Insolvency Resolution Process' was initiated. " 31. However, in relation to the Scheme filed under Section 230 of the Companies Act, 2013 in connection with I&B Code, 2016 proceedings, Section 29A of I&B Code, 2016 is made applicable, however in the instant case, taking into consideration the settlement of Financial Creditor pre-liquidation and in the absence of other disqualification being demonstrated, depriving the propounders of the Scheme will not be appropriate. 32. It is also further to be noted as pointed out by the Learned Counsel for the Promoter of the Company in Liquidation that in addition to the Company in Liquidation in the capacity as a Promoter, they are also Secured Creditors of the Company in Liquidation having satisfied the debts of the Secured Financial Creditors and thereby having stepped in to the shoes of the ....