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2022 (1) TMI 811
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....shwajit Dubey, learned counsel appearing for the Appe1llant, and Shri. Ranjit Kumar and Shri. Parag P. Tripathi, learned senior counsels on behalf of Respondent Nos. 1 and 3, respectively. Perused the documents filed by both sides, and additionally, we had the benefit of going through the written arguments placed on record. A BRIEF JOURNEY: 3. M/s. MBL Infrastructures Limited (Respondent No.1) was set up by one, Mr. Anjanee Kumar Lakhotiya (Respondent No. 3) in the early 1990s. Loans/ credit facilities were obtained by the Respondent No.1 from the consortium of banks (State Bank of Mysore now State Bank of India as lead bank), some of who are also arrayed as respondents apart from the appellant. On the failure of the Respondent No.1 to act in tune with the terms of repayment, some of the respondents were forced to invoke the personal guarantees extended by the Respondent No.3 for the credit facilities availed by the Respondent No.1. 4. M/s. RBL Bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act' for short), after duly invoking the personal guarantee of the Respo....
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....nagement or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor: Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of resolution plan; xxx xxx xxx (h) has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor under insolvency resolution process or liquidation under this code." 9. The CoC held its meeting on 01.12.2017 to deliberate upon the impact of the amendment qua the eligibility of the Respondent No.3 in submitting a resolution plan in the CIRP proceedings. In view of the lingering doubt expressed, the Respondent No.3 filed an application bearing CA(IB) No.543/KB/2017 praying for a declaration that he was not disqual....
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.... the resolution plan submitted by the Respondent No.3 was put to vote by the Respondent No.2 in the 12th meeting of the CoC by way of e-voting, and the process was completed the next day. The plan received 68.50% vote share of the CoC. Six financial creditors voted against the plan, including Respondent No.10 (PNB) and RBL Bank. The extended 270 day period of CIRP expired on 25.12.2017. 13. RBL Bank filed an appeal against the order dated 18.12.2017 being Company Appeal (AT) (Insolvency) No.1 of 2018 wherein an order was passed upon hearing the parties on 11.01.2018 facilitating the adjudicating authority to proceed further but not to accept the resolution plan, without its prior approval. 14. The Respondent No.3 filed an application on 12.01.2018 invoking Section 60 of the Code bearing CA No.(IB) 50/KB/2018 seeking an appropriate direction to the dissenting and abstaining creditors to facilitate a possible change of mind by supporting the resolution plan, as modified. Thereafter, Bank of Maharashtra (Respondent No. 11), since impleaded by the order of this court dated 26.10.2021, sent a letter to Respondent No.2 dated 31.01.2018 setting forth its conditions for its approval ....
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....hat the appellant before us who incidentally filed the aforesaid application was not heard before the adjudicating authority. Suffice it is to state that the appellant did raise its objection to the withdrawal of appeal, presumably on the premise that it wanted to continue by substituting itself in place of the original appellants. 18. The resolution professional, the Respondent No.2 filed a report dated 12.02.2018 for recording the increase in voting share up to 78.50% together with the resolution plan stating that it was accordingly passed. Only on the aforesaid factual setting the pending appeal before the appellate tribunal was withdrawn on 27.02.2018. The adjudicating authority approved the resolution plan submitted by its order dated 18.04.2018 inter alia holding that there is a marked difference between extension and exclusion and therefore, the rigor of Section 12(1) of the Code would not get attracted on the facts of the case particularly when there were pending proceedings with interim orders. It was further held that the issue qua the eligibility under Section 29A(h) decided already, coupled with the resolution plan crossing the requisite threshold of approval by the ....
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.... or the CoC in the absence of any apparent discrimination. It is this decision of the appellate authority confirming the order passed by the adjudicating authority, which is tested before us. 23. Before we proceed with the submissions made at the Bar, we have to record one more fact, namely, Section 30 of the Code also underwent a change by the introduction of amendment dated 06.06.2018 by way of an ordinance followed by an Act through which the percentage required for approval of a resolution plan by the CoC has been brought down from 75% to 66% of the voting share of the CoC. SUBMISSIONS OF THE APPELLANT: 24. We will collectively consider the submissions of the learned counsel appearing for the appellant and the Respondent No.7, though the said respondent did not choose to file any appeal before us. 25. Section 29A has to be given a holistic interpretation as the objective is to weed out undesirable persons with the intention of promoting primacy of debt by disqualifying guarantors who have not fulfilled their co-extensive liability with the insolvent corporate debtor. The Respondent No.3 (who is a promoter of the corporate debtor) was ineligible to submit a resolutio....
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....he earlier one submitted by the Respondent No.3 and, therefore, there cannot be any grievance on that count. 29. The object of the Code has to be read with Section 29A(h). The appellant being aware of the decision of the adjudicating authority in the first instance ought to have taken it further, as such the appellant is estopped from questioning the eligibility of the Respondent No.3 to submit a resolution plan under Section 29A(h) of the Code. The provision has to be literally interpreted to the extent that a personal guarantor is barred from submitting a resolution plan only when the creditor invoking the jurisdiction of the adjudicating authority has invoked a personal guarantee executed in favour of said creditor by the resolution applicant. 30. No personal guarantee stood invoked by RBL Bank at the time of application to the adjudicating authority under Section 7 of the Code. It is further submitted that the invocation of the consortium guarantee by Allahabad Bank and State Bank of Bikaner and Jaipur under Section 13(2) of the SARFAESI Act, 2002 is ex facie illegal in terms of the inter-se agreement executed between the members of the consortium of banks. Even otherwise....
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....quate thought will have to be given to the nature of the statute and the provisions contained thereunder. The focus is on avoiding any interpretation which might cause an injury or destroy the intent behind the legislation. 35. Lord Denning in Seaford Court Estates Ltd. v. Asher, (1949) 2 KB 481 deals with the role required to be played by the Court even when there is a possible defect: "When a defect appears a Judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament and then he must supplement the written word so as to give 'force and life' to the intention of the legislature. A Judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out? He must then do as they would have done. A Judge must not alter the material of which the Act is woven, but he can and should iron out the creases." 36.MAXWELL ON INTERPRETATION OF STATUES, 11th Edition "It is said to be the duty of the judge to make such construction of a statute as shall suppress the mischief and advance....
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....know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place...." 41. Apropos the passage in the case of Union of India v. Elphinstone Spg. and Wvg. Co. Ltd., (2001) 4 SCC 139: "While examining a particular statute for finding out the legislative intent it is the attitude of Judges in arriving at a solution by striking a balance between the letter and spirit of the statute without acknowledging that they have in....
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....nisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme-workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximise their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases ....
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....ot be in a position to lend credence to the resolution process by virtue of their disqualification. 46. The then Hon'ble Minister of Finance and Corporate Affairs made this statement before Parliament on 29.12.2017 while moving the Insolvency and Bankruptcy Code (Amendment) Bill, 2017, which introduced Section 29A to the Code: "The core and soul of this new Ordinance is really Clause 5, which is Section 29-A of the original Bill. I may just explain that once a company goes into the resolution process, then applications would be invited with regard to the potential resolution proposals as far as the company is concerned or the enterprise is concerned. Now a number of ineligibility clauses were not there in the original Act and, therefore, Section 29-A introduces those who are not eligible to apply. For instance there is a clause with regard to an undischarged insolvent who is not eligible to apply; a person who has been disqualified under the Companies Act as a Director cannot apply and a person who is prohibited under the SEBI Act cannot apply. So these are statutory disqualifications. And there is also a disqualification in clause (c) with regard to those who are corpo....
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.... of law as central to the resolution of corporate insolvencies. Second, the IBC perceives corporate insolvency not as an isolated problem faced by individual business entities but places it in the context of a framework which is founded on public interest in facilitating economic growth by balancing diverse stakeholder interests. Third, the IBC attributes a primacy to the business decisions taken by creditors acting as a collective body, on the premise that the timely resolution of corporate insolvency is necessary to ensure the growth of credit markets and encourage investment. Fourth, in its diverse provisions, the IBC ensures that the interests of corporate enterprises are not conflated with the interests of their promoters; the economic value of corporate structures is broader in content than the partisan interests of their managements. These salutary objectives of the IBC can be achieved if the integrity of the resolution process is placed at the forefront. Primarily, the IBC is a legislation aimed at reorganisation and resolution of insolvencies. Liquidation is a matter of last resort. These objectives can be achieved only through a purposive interpretation which requires cou....
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....dermine the salutary object and purpose of the Act. It was in this background that Section 29-A has now specified a list of persons who are not eligible to be resolution applicants." (emphasis in original and supplied) 49. The Court held that "Section 29-A has been enacted in the larger public interest and to facilitate effective corporate governance". The Court further observed that "Parliament rectified a loophole in the Act which allowed backdoor entry to erstwhile managements in CIRP. xxx xxx xxx 52. While adverting to the earlier decision in Chitra Sharma [Chitra Sharma v. Union of India, (2018) 18 SCC 575] and ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] , which had elucidated the object underlying Section 29A, this Court in Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] held that the norm underlying Section 29-A "continues to permeate" Section 35(1)(f) "when it applies not merely to resolution applicants, but to liquidation also". Rejecting the plea that Section 35(1) (f) is ultra vires, this Court held : (Swiss Ribbons case [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC....
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....on 35(1)(f). More recent precedents of this Court continue to adopt a purposive interpretation of the provisions of the IBC. [See in this context the judgments in Phoenix ARC (P) Ltd. v. Spade Financial Services Ltd. [Phoenix ARC (P) Ltd. v. Spade Financial Services Ltd., (2021) 3 SCC 475 : (2021) 2 SCC (Civ) 1 at paras 103-104] , Ramesh Kymal v. Siemens Gamesa Renewable Power (P) Ltd. [Ramesh Kymal v. Siemens Gamesa Renewable Power (P) Ltd., (2021) 3 SCC 224 : (2021) 2 SCC (Civ) 65 at paras 23 and 25] and Jaypee Infratech Ltd. v. Axis Bank Ltd. [Jaypee Infratech Ltd. v. Axis Bank Ltd., (2020) 8 SCC 401 : (2021) 2 SCC (Civ) 334 at paras 28.4 and 28.5] ] Sustainable revival 54. The purpose of the ineligibility under Section 29-A is to achieve a sustainable revival and to ensure that a person who is the cause of the problem either by a design or a default cannot be a part of the process of solution. Section 29-A, it must be noted, encompasses not only conduct in relation to the corporate debtor but in relation to other companies as well. This is evident from clause (c) ("an account of a corporate debtor under the management or control of such person or of whom such ....
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.... of Statutory Interpretation [(1st Edn., Lexis Nexis 2015)], has stated that: "The intention of the legislature thus assimilates two aspects: In one aspect it carries the concept of "meaning" i.e. what the words mean and in another aspect, it conveys the concept of "purpose and object" or the "reason and spirit" pervading through the statute. The process of construction, therefore, combines both literal and purposive approaches. In other words the legislative intention i.e. the true or legal meaning of an enactment is derived by considering the meaning of the words used in the enactment in the light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed. This formulation later received the approval of the Supreme Court and was called the "cardinal principle of construction". 92. Justice G.P. Singh notes that certain enactments require a liberal construction to give effect to its objects and purpose: "A bare mechanical interpretation of the words and application of a legislative intent devoid of concept of purpose will reduce most of the remedial and beneficent legislation to futility. As state....
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....ent in each given case. But the effect of the application of the rule to a particular case, should not be confounded with the legitimacy of applying it." (emphasis supplied) 94. In this context, it would be useful to refer to an earlier decision of this Court in Abhay Singh Chautala v. CBI [(2011) 7 SCC 141], where the Court did not interpret the word "is" in praesenti because that would lead to an absurd result, defeating the purpose of the provision concerned. In that case this Court had to interpret Section 19(1) of the Prevention of Corruption Act, 1988, which provided: "19. Previous sanction necessary for prosecution.-(1) No court shall take cognizance of an offence punishable under Sections 7, 10, 11, 13 and 15 alleged to have been committed by a public servant, except with the previous sanction- (a) in the case of a person who is employed in connection with the affairs of the Union and is not removable from his office save by or with the sanction of the Central Government, of that Government; (b) in the case of a person who is employed in connection with the affairs of a State and is not removable from his office save by or with the san....
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.... on the date on which court proceeded to take cognizance of the offence committed by him as a Minister, would a sanction be necessary and that too of that authority competent to remove him from the office of the Municipal President. The answer was in affirmative. But the very illustration would show that such cannot be the law. Such an interpretation of Section 6 would render it as a shield to an unscrupulous public servant. Someone interested in protecting may shift him from one office of public servant to another and thereby defeat the process of law. One can legitimately envisage a situation wherein a person may hold a dozen different offices, each one clothing him with the status of a public servant under Section 21 IPC and even if he has abused only one office for which either there is a valid sanction to prosecute him or he has ceased to hold that office by the time court was called upon to take cognizance, yet on this assumption, sanction of 11 different competent authorities each of which was entitled to remove him from 11 different public offices would be necessary before the court can take cognizance of the offence committed by such public servant, while abusing one offic....
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....rspective in which a provision was made to meet a particular need or to satisfy a particular purpose. The last-mentioned method consists of an application of the Mischief Rule laid down in Heydon case (supra) long ago." * * * 127. It is thus clear on a reading of English, US, Australian and our own Supreme Court judgments that the "Lakshman Rekha" has in fact been extended to move away from the strictly literal rule of interpretation back to the rule of the old English case of Heydon (supra), where the Court must have recourse to the purpose, object, text and context of a particular provision before arriving at a judicial result. In fact, the wheel has turned full circle. It started out by the rule as stated in 1584 in Heydon case (supra), 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 (supra).' 30. A purposive interpretation of Section 29-A, depending both on the text and the context in which the provision was enacted, must, therefore, inform our inte....
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....ed, a party can approach NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule 11 of NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the parties concerned and considering all relevant factors on the facts of each case." 53. The word "such creditor" in Section 29A(h) has to be interpreted to mean similarly placed creditors after the application for insolvency application is admitted by the adjudicating authority. As a result, what is required to earn a disqualification under the said provision is a mere existence of a personal guarantee that stands invoked by a single creditor, notwithstanding the application being filed by any other creditor seeking initiation of insolvency resolution process. This is subject to further compliance of invocation of the said personal guarantee by any other creditor. We have already said that the concern of the Court is only from the point of view of two entities viz., corporate creditors and the corporate debtors. Any other interpretation would lead to an absurdity striking at the very objective of Section 29A, and hence, the Code. Ineligibility has ....
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....e is ineligibility which in turn prohibits the other stakeholders to proceed further and the amendment being in the nature of providing a better process, and that too in the interest of the creditors and the debtor, the same is required to be followed as against the provision that stood at an earlier point of time. Thus, a mere filing of the submission of a resolution plan has got no rationale, as it does not create any right in favour of a facilitator nor it can be extinguished. One cannot say, what is good today cannot be applied merely because an applicant was eligible to submit a resolution plan at an earlier point of time. It is only a part of procedural law. We quote with profit the decision in Ebix Singapore Pvt. Ltd. vs. COC of Educomp Solutions Ltd., 2021 SCC OnLine 707: "130. The CoC even with the requisite majority, while approving the Resolution Plan must consider the feasibility and viability of the Plan and the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53 of the IBC. The CoC cannot approve a Resolution Plan proposed by an applicant barred under Section 29A of....
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.... but also to other financial creditors in view of the import of Section 7 of the Code. In the case at hand, in pursuance to the invocation, an application invoking Section 7 indeed was filed by one such creditor. It was invoked even at the time of submitting a resolution plan by the Respondent No.3. Thus, in the touchstone of our interpretation of Section 29A(h), we hold that the plan submitted by the Respondent No.3 ought not to have been entertained. 59. The adjudicating authority and the appellate tribunal were not right in rejecting the contentions of the appellant on the ground that the earlier appeals having been withdrawn without liberty, the issue qua eligibility cannot be raised for the second time. Admittedly, the appellant was not a party to the decision of the adjudicating authority on the first occasion, in the appeal the appellant merely filed an application for impleadment. The appellate authority did not decide the matter on merit. In fact, the question of law is left open. The principle governing res judicata and issue estoppel would never get attracted in such a scenario. Thus, the reasoning rendered by the appellate tribunal to that extent cannot be sustained ....