Martin S.K. Golla vs Wig Associates Pvt. Ltd. & Anr

[Arising out of Orders dated 04.06.2018 passed by National Company Law Tribunal, Mumbai Bench, Mumbai in CP No.1214/IBC/NCLT/MB/ MAH/2017]

IN THE MATTER OF: Before NCLT Before NCLAT

Martin S.K.Golla ... Appellant Erstwhile Resolution Professional 1704, Tower-3, Raheja Tipco Heights, Rani Sati Marg, Malad (East), Mumbai - 400097 Maharastra

Vs.

1. Wig Associates Pvt. Applicant Respondent No.1 Ltd. 102, Amar Residency, Punjabwadi, Deonar Mumbai - 400088

2. Committee of Creditors .... Respondent No.2 Through Bank of Baroda, Meher Chambers, Ground Floor, Dr. Sunderlal Behl Marg, Opposite Petrol Pump, Balard Estate, Mumbai - 400001

3. Insolvency & Bankruptcy ... Respondent No.3 Board of India, Through its Secretary, 7th Floor, Mayur Bhawan, 2

Shankar Market, Connaught Circus, New Delhi, Delhi - 110001

For Appellant: Mr. Davesh Bhatia and Ms. Progoti Bose, Advocates Mr. Martin Golla (Party in person)

For Respondents: Mr. Rajendra Singhvi, Ms. Pooja Pandey and Ms. Ragini Singh, Advocates for R-1 Ms. Praveena Gautam and Mr. Pawan Shukla, Advocates for R-2, BOB Ms. Aishwarya Bhati, ASG, Mr. Vikas Mehta and Mr. Apoorv Khator, Advocates for R-3, IBBI

JUDGEMENT

(04th June, 2021) A.I.S. Cheema, J. :

1. The Appellant is Resolution Professional who has filed this Appeal

claiming that the same is filed in view of the Order dated 1st August,

2018 and Order dated 11th January, 2019 passed by this Tribunal in

Company Appeal (AT) (Ins) No.415 of 2018 vide which Order, this

Tribunal directed e-filing of the Appeal to clarify correct position of law.

2. The Appellant claims that he was Resolution Professional of "Wig

Associates Pvt. Ltd." - Corporate Debtor. The Adjudicating Authority

(National Company Law Tribunal, Mumbai Bench, Mumbai) had admitted

CP 1214/IBC/NCLT/MB/MAH/2017 under Section 10 of Insolvency and

Bankruptcy Code, 2016 (IBC - in short), on 24th August, 2017. The

Resolution Plan submitted by Mr. Mahendra Wig was approved by

Committee of Creditors (COC - in short) on 20.04.2018 and was placed

Company Appeal (AT) (Ins) No.121 of 2019 3

before the Adjudicating Authority for approval. The Adjudicating

Authority approved the Resolution Plan vide Impugned Order dated 4th

June, 2018 (Annexure - 1A - Page 39). The present Appeal is with regard

to such Impugned Order.

3. The Appellant claimed that after this Tribunal had given Orders

dated 1st August, 2018 he had sought clarification from IBBI (Insolvency

and Bankruptcy Board of India) and after the Orders were passed on 11 th

January, 2019, the present Appeal is filed in order to resolve the legal

controversy. The Appellant claims that the Impugned Order may be set

aside/affirmed.

4. It is stated that the earlier Appeal was filed by IBBI against the

Impugned Order dated 4th June, 2018 when this Tribunal passed Orders

dated 1st August, 2018 holding that the IBBI does not have locus to file

the Appeal and directed IBBI to ask the Resolution Professional to file the

Appeal. This Appeal has been filed claiming that the question of law is as

to whether Section 29A of IBC will be applicable with retrospective effect

in Section 10 proceedings which were initiated prior to Section 29A

coming into force and to decide the issue and any other question of law.

5. We have heard the parties to the Appeal. Before referring to the

submissions, a brief background needs to be kept in view.

It appears from the record that CP

1214/IBC/NCLT/MB/MAH/2017 was filed on 19th July, 2017 by the

Company Appeal (AT) (Ins) No.121 of 2019 4

Corporate Debtor - M/s. Wig Associates Pvt. Ltd. under Section 10 of IBC

against itself as there was debt of Rs.4,85,14,000 of Bank of Baroda. The

Petition was admitted on 24th August, 2017. After the CIRP started, there

was a COC comprising only of one Financial Creditor, that is, Bank of

Baroda. It appears that the sole Financial Creditor in third COC meeting

held on 6th April, 2018 informed the Resolution Professional that it had

sanctioned "One Time Settlement Offer" issued by Mr. Mahendra Wig.

The Bank asked the Resolution Professional the option of treating One

Time Settlement Offer as Resolution Plan. The Resolution Professional

had obtained Valuation Report stating average liquidation value as

Rs.87.60 Lakhs. The sole Financial Creditor had to recover Rs.1067.39

Lakhs. The Resolution Professional, it appears, placed such Resolution

Plan before COC on 20th April, 2018 and the Resolution Plan was

approved. With the approval of such Resolution Plan, it was placed before

the Adjudicating Authority which approved the same. The Order of the

Adjudicating Authority shows that there were some Operational Creditors

also which included sales tax and income tax authorities.

6. The Impugned Order shows that Adjudicating Authority was aware

of the Ordinance enacted by the Central Government on 23rd November,

2017 "The Insolvency and Bankruptcy Code (Amendment) Ordinance

2017 No.7 of 2017" (Ordinance - in short). The Ordinance inserted

Section 29A of IBC laying down law with regard to persons not eligible to

be Resolution Applicants. The Ordinance later on took shape of

Company Appeal (AT) (Ins) No.121 of 2019 5

Amendment in 2018 when "The Insolvency and Bankruptcy Code

(Amendment) Act, 2017 No.8 of 2018" (Amendment - in short) was

passed. The Adjudicating Authority was aware that the amendment

provided that the amended Act shall be deemed to have come into force

on 23rd November, 2017 (the date of the Ordinance). Impugned Order

shows that in spite of being aware of such Ordinance and Amendment,

the Adjudicating Authority went into an exercise of interpreting this

Section and went on to observe that Creditors/Stakeholders must be

aware of the Rules at the commencement of the game/proceedings. It

observed that "CIRP is a process and can be said to be that the process is

nothing but continuous of one proceeding, which commences from the

date of "Admission" of an Application Order either under Section 7, 9 or

10 and it ends till the Order is passed under Section 31 approving the

Resolution Plan or under Section 33 by initiating "Liquidation"." The

Adjudicating Authority recorded opinion that the CIRP had commenced

and Resolution Professional had invited expression of interest which

resulted into submission of Resolution Plan by the Resolution Applicant

and thus, according to Adjudicating Authority "the same is to be dealt

with as per the provisions which existed on the date when the petition

was "Admitted"." Adopting such reasonings, although the Adjudicating

Authority recorded that as per Section 29A, Mr. Wig would fall in the

category of "connected persons" under Section 29A of IBC, still

Adjudicating Authority went to examine the Resolution Plan which was

Company Appeal (AT) (Ins) No.121 of 2019 6

basically One Time Settlement and to accept the same. The Impugned

Order was passed accordingly.

7. The Appellant has filed the present Appeal in the background as

recorded earlier and the Appeal has sought that the Impugned Order may

be set aside or affirmed. It appears that Respondent No.3 - IBBI has

taken action against him and the Appellant has thus made averments in

Appeal and submissions so as to justify the actions taken by him in the

resolution process and is banking upon the fact that the Adjudicating

Authority did accept the Resolution Plan even in the face of Section 29A

of IBC. His arguments are on such basis.

8. The Respondent No.1 - Corporate Debtor - Wig Associates in view

of the acceptance of the Resolution Plan, has argued to support the

Orders passed by the Adjudicating Authority. According to the

Respondent No.1, the Appellant had published expression of interest on

4th April, 2018 in newspapers and nobody came forward except Mr.

Mahendra Wig who was guarantor of Respondent No.1. Mr. Mahendra

Wig is guarantor of Respondent No.1 and he is also father of Mr. Puneet

Wig and Mrs. Dolly Wig. In the third meeting of COC, it is claimed that

the COC considered previous efforts of the Corporate Debtor and the

guarantor of the Corporate Debtor to resolve the matter as per proposals

and counter proposals submitted by the parties from time to time and

the COC settled the whole matter of the bank qua Corporate Debtor for a

sum of Rs.3.55 Crores which, it is claimed, have been repaid to the Bank

Company Appeal (AT) (Ins) No.121 of 2019 7

long back i.e. on 29th June, 2018. It is also claimed by Respondent No.1

regarding dues of Unsecured Creditors that almost all dues have been

settled by the Corporate Debtor. The Respondent No.2 - Bank of Baroda

which constituted the Committee of Creditors, has issued No Dues

Certificate in favour of Corporate Debtor on 29th June, 2018. Thus,

according to Respondent No.1, it is a matter of fait accompli. The

Respondent No.1 has argued that it has received Certificate dated 21st

April, 2021 of being Small Scale Industries and thus Mr. Mahendra Wig

was entitled to file the Resolution Plan in view of Section 240A of IBC

which was brought into force with effect from 6th June, 2018 "while the

Impugned Order was passed on 4th June, 2018". The Respondent No.1 is

also arguing that acceptance of the Resolution Plan was discretion of the

COC and thus, the same cannot be interfered with.

9. The Respondent No.3 - IBBI has strongly opposed the process

adopted by the Appellant while conducting the CIRP. According to the

Respondent No.3, the Resolution Applicant - Mr. Mahendra Wig was

barred under Section 29A of the IBC to even propose Resolution Plan. It

is to be stated that the scheme of IBC does not contemplate treating One

Time Settlement offers as Resolution Plan and thus the OTS as offered by

Mr. Mahendra Wig could not have been accepted. According to the

Respondent No.3, the Appellant has conducted the CIRP against the

provisions of IBC and the Regulations and thus the Resolution Plan

deserves to be set aside.

Company Appeal (AT) (Ins) No.121 of 2019 8

10. Respondent No.3 claims that Mr. Mahendra Wig who proposed the

OTS was a personal guarantor for the loan taken by the Respondent No.1

Company. He was not eligible to be Resolution Applicant. According to

Respondent No.3, Section 29A needs to be read with Proviso below

Section 30(4) and the legislative intent becomes clear that the Resolution

Plan which is not approved before commencement of the Ordinance, if it

cannot pass the muster under Section 29A, the Resolution Professional

was required to invite fresh Resolution Plans. Section 29A was

introduced by way of amendment in the Code and in this regard the

Ordinance was promulgated on 23rd November, 2017 and was replaced

by the Act bringing into force the provision with effect from 23 rd

November, 2017. Respondent No.3 has referred to the objects and

reasons for introduction of such provision in law which is that the

promoters who are themselves responsible for the NPAs should not be

allowed to take advantage of the process under IBC. Section 29A has

been enacted in larger public interest. On the date of approval of the

Resolution Plan, Mr. Mahendra Wig was barred from being Resolution

Applicant and the Appellant allowed Mr. Wig to be Resolution Applicant

and also wrongly treated OTS as a Resolution Plan and placed the same

before the Adjudicating Authority. In the written arguments, Respondent

No.3 has submitted as under:-

"24. At this stage, it is pertinent to refer to the landmark judgement passed by the Hon'ble Supreme Court, in the case of Arcelormittal India (P) Ltd. v. Satish Kumar Gupta, (2019) 2

Company Appeal (AT) (Ins) No.121 of 2019 9

SCC 1, wherein the Hon'ble Supreme Court observed, "46....The opening words of Section 29-A state: "a person shall not be eligible to submit a resolution plan....". It is clear therefore that the stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant. The contrary view expressed by Shri Rohatgi is obviously incorrect, as the date of commencement of the corporate insolvency resolution process is only relevant for the purpose of calculating whether one year has lapsed from the date of classification of a person as a non-performing asset"

The view was reiterated by the Hon'ble Supreme Court in Swiss Ribbons vs. Union of India (2019) 4 SCC 17."

11. It is also argued by the Respondent No.3 that Section 240A was

enacted with effect from 6th June, 2018 and thus the Resolution

Applicant cannot take benefit of Section 240A to claim that it is MSME

when Impugned Order was passed on 4th June, 2018. It is argued that

OTS which was already approved by the Bank could not have been

converted into a Resolution Plan and thus the whole process was vitiated.

12. Section 29A deals with persons not eligible to be Resolution

Applicants. There is no dispute that earlier an Ordinance was issued on

23rd November, 2017 to stop such ineligible persons (as under Section

29A) from becoming Resolution Applicants and subsequently, the Act

came to be passed in this regard and 29A of IBC has become part of the

Code.

Company Appeal (AT) (Ins) No.121 of 2019 10

13. Annexure - 14 (Page - 240) Minutes of the third COC dated 5th

April, 2018, shows Mr. Mahendra Wig and Mr. Puneet Wig as

representing Corporate Debtor - Wig Associates. Item 7 of the Minutes

shows the Secured Financial Creditor - Bank of Baroda asking the

Appellant to explore possibility of treating OTS proposal (which it had

already accepted) as Resolution Plan. This was subsequent to the passing

of the Ordinance and even the Amendment Act which inserted Section

29A on 18th January, 2018. The Resolution Plan of Mr. Wig who was

undisputedly a related party, was accepted on 20.04.2018 in the 4 th COC

(Annexure - 16 - Page 248). Section 29A hits the eligibility of the persons

to submit a Resolution Plan if a person falls in any of the categories as

mentioned in the Section. Appellant informed the Meeting that based on

the OTS dated 27.03.2018, the Resolution Plan was being put up.

14. It is now settled law that ineligibility attaches at the time when the

Resolution Plan is submitted by Resolution Applicant. The Respondent

No.3 has rightly placed reliance on Judgement in the matter of

"Arcelormittal India (P) Ltd. v. Satish Kumar Gupta" (referred supra) and

Judgement in the matter of "Swiss Ribbons" (referred supra).

15. The Hon'ble Supreme Court in the matter of "Arcelormittal India

Private Limited vs. Satish Kumar Gupta and Others- (2019) 2 SCC 1"

observed in para 46, as under:-

"46. According to us, it is clear that the opening words of Section 29-A furnish a clue as to the time at

Company Appeal (AT) (Ins) No.121 of 2019 11

which sub-clause (c) is to operate. The opening words of Section 29A state: "a person shall not be eligible to submit a resolution plan...". It is clear therefore that the stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant. The contrary view expressed by Shri Rohatgi is obviously incorrect, as the date of commencement of the corporate insolvency resolution process is only relevant for the purpose of calculating whether one year has lapsed from the date of classification of a person as a non- performing asset. Further, the expression used is "has", which as Dr.Singhvi has correctly argued, is in praesenti. This is to be contrasted with the expression "has been", which is used in sub- clauses (d) and (g), which refers to an anterior point of time. Consequently, the amendment of 2018 introducing the words "at the time of submission of the resolution plan" is clarificatory, as this was always the correct interpretation as to the point of time at which the disqualification in sub- clause (c) of Section 29-A will attach. In fact, the amendment was made pursuant to the Insolvency Law Committee Report of March, 2018. That report clearly stated:

"In relation to applicability of section 29-A(c), the Committee also discussed that it must be clarified that the disqualification pursuant to section 29-A(c) shall be applicable if such NPA accounts are held by the resolution applicant or its connected persons at the time of submission of the resolution plan to the RP."

In the matter of "Swiss Ribbons Private Limited and Another vs.

Union of India and Others- (2019) 4 SCC 17", the Hon'ble Supreme

Court in the context of retrospectivity of Section 29A of the IBC observed

in para 98, as under:-

"98. This being the case, it is clear that no vested right is taken away by application of Section 29A. However, Shri Viswanathan pointed out the judgments in Ritesh Agarwal and Anr. v. SEBI and

Company Appeal (AT) (Ins) No.121 of 2019 12 Ors., (at paragraph 25), K.S. Paripoornan v. State of Kerala (at paragraphs 60-66),Darshan Singh v. Ram Pal Singh (at paragraph 35), Pyare Lal Sharma v. Jammu & Kashmir Industries Ltd. (at paragraph

21),P.D. Aggarwal v. State of U.P (at paragraph 18), and Govind Das v. CIT (at paragraphs 6 and 11), to argue that if a Section operates on an antecedent set of facts, but affects a vested right, it can be held to be retrospective, and unless the legislature clearly intends such retrospectivity, the Section should not be construed as such. Each of these judgments deals with different situations in which penal and other enactments interfere with vested rights, as a result of which, they were held to be prospective in nature.

However, in our judgment in ArcelorMittal, we have already held that resolution applicants have no vested right to be considered as such in the resolution process. Shri MukulRohatgi, however, argued that this judgment is distinguishable as no question of constitutional validity arose in this case, and no issue as to the vested right of a promoter fell for consideration. We are of the view that the observations made in ArcelorMittal directly arose on the facts of the case in order to oust the Ruias as promoters from the pale of consideration of their resolution plan, in which context, this Court held that they had no vested right to be considered as resolution applicants. Accordingly, we follow the aforesaid judgment. Since a resolution applicant who applies Under Section 29A(c) has no vested right to apply for being considered as a resolution applicant, this point is of no avail."

For reasons recorded by the Hon'ble Supreme Court in the above

Judgments, the reasons recorded by the Adjudicating Authority to

stretch the interpretations so as to hold that once CIRP is commenced,

provisions as existing on the day of admission of the Petition would

continue to apply even in the face of amendment brought about by way of

Section 29A, the reasons cannot be maintained. Even the Respondent

No.2 - Bank of Baroda in its arguments (Diary No.25967) accepts that

Company Appeal (AT) (Ins) No.121 of 2019 13 Section 29A of IBC was with effect from 23rd November, 2017 and the

Hon'ble Supreme Court in "Swiss Ribbons vs. Union of India" (referred

supra) has upheld the insertion of Section 29A with retrospective effect.

16. From the above discussion, there is no doubt that at the time when

Mr. Wig submitted the One Time Settlement to the Bank, which was

converted by Respondent No.2 with the help of Appellant as a Resolution

Plan, he could not have done so. The arguments of Respondent No.2

show that it had already approved the OTS of Mr. Wig on 27th March,

2018. It also appears that Mr. Wig had already paid Rs.103 Lakhs to the

Bank. This can be seen from the Impugned Order where it has referred to

the compliance with Regulation 38 of CIRP Regulations in Para 14.1 of

the Impugned Order. Thus, what appears is that the OTS was already

approved by the Respondent No.2 Bank, which was the only Financial

Creditor and thus the actions taken on 5th April, 2018 in third COC and

20th April, 2018 were only completion of formalities. The subsequent

introduction of Section 240A of IBC and subsequent taking of certificate

of being MSME will not cure the ineligibility at the time of submitting

OTS-cum-Resolution Plan which was not permissible.

17. Considering the provisions of law and the fact as appearing from

the record, we find that the said Resolution Plan submitted by Mr. Wig

could not have been acted upon and the Appellant erred in presenting

the same before COC.

Company Appeal (AT) (Ins) No.121 of 2019 14

18. For above reasons, the Impugned Order is required to be set aside.

We pass the following Order:-

ORDER

The Appeal is allowed. The Impugned Order

approving Resolution Plan is quashed and set

aside. The alleged Resolution Plan submitted by

Mr. Mahendra Wig is rejected.

The matter is remitted back to the

Adjudicating Authority. The Adjudicating Authority

is required to pass Orders of liquidation of the

Corporate Debtor under Section 33 of the IBC.

The Appeal is disposed accordingly. No

Orders as to costs.

[Justice A.I.S. Cheema] The Officiating Chairperson

[Kanthi Narahari] Member (Technical rs

Company Appeal (AT) (Ins) No.121 of 2019