Neeraj Singal & Anr vs Tatan Steel Lts & Anr

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No. 988 of 2021 (Arising out of Order dated 29.10.2021 passed by the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi in CA No.897(PB)/2018 in CP (IB)-201/2017)

IN THE MATTER OF:

1. Neeraj Singal, S/o Shri Brij Bhushan Singal, S-352, GF, Greater Kailash-II, New Delhi - 110048.

2. Brij Bhushan Singal, S/o Shri Kishori Lal, S-352, GF, Greater Kailash-II, New Delhi - 110048. .... Appellants

Vs

1. Tata Steel Limited Bombay House, 24, Homi Mody Street, Port, Mumbai - 400001.

2. Tata Steel BSL Ltd., Ground Floor, Mira Corporate Suites, Plot No.1 & 2, Ishwar Nagar, Mathura Road, New Delhi - 110065. ... Respondents

Present:

For Appellants: Mr. Kapil Sibal, Sr. Advocate with Mr. Niranjan Reddy, Sr. Advocate, Mr. Sahil and Ms. Aarushi Tiku, Advocate.

For Respondents: Mr. Ramji Srinivasan, Sr. Advocate with Ms. Anindita Roy, Ms. Simran Bhat, Mr. Rajshree Chaudhary and Ms. Vatsala Rai, Advocates for R-1.

Company Appeal (AT) (Insolvency) No. 988 of 2021 1 JUDGMENT

ASHOK BHUSHAN, J.

This Appeal has been filed by two Appellants - Neeraj Singal and Brij

Bhushan Singal, erstwhile Promoters of Bhushan Steel Limited,

challenging the order dated 29.10.2021 of the National Company Law

Tribunal, Principal Bench, New Delhi, by which order, the Adjudicating

Authority has directed the Appellants, who were Respondents in the

Application to strictly comply with the Resolution Plan forthwith. The

Adjudicating Authority held that erstwhile Promoter Group has to sell away

their shares to the Applicant @ INR 2/- per share. Aggrieved by the above

order passed by the Adjudicating Authority, this Appeal has been filed.

2. We need to notice certain facts and events to decide the issues raised

in this Appeal.

(i) M/s Bhushan Steel Limited owed a debt of Rs.59 thousand

crores to its creditors. On an Application filed by State Bank

of India, Corporate Insolvency Resolution Process (CIRP) begun

in the year 2017.

(ii) M/s. Tata Steel Limited (Respondent No.1) submitted a

Resolution Plan proposing an upfront payment of Rs.35

thousand crores. The Resolution Plan submitted by M/s. Tata

Steel Limited was approved by the Adjudicating Authority on

15.05.2018. M/s. Tata Steel Limited implemented the Plan on

18.05.2018 by making payment to the creditors and

appointing necessary managerial officials.

Company Appeal (AT) (Insolvency) No. 988 of 2021 2

(iii) On 18.05.2018, Bamnipal Steel Ltd., a subsidiary of M/s. Tata

Steel Limited wrote to the Promoters including the Appellants

to transfer all of their unpaid equity shares of the Company

held by them to Bamnipal Steel Ltd. for consideration @ INR

2/- per share. Details of dematerialized account were also set

out in the letter. The Appellants did not reply to letter nor sold

their shares as requested.

(iv) On 26.05.2018, a letter was written by Bhushan Steel Limited

to National Stock Exchange (NSE) and Bombay Stock

Exchange informing that pursuant to the approval of the

Resolution Plan by the Adjudicating Authority on 15.05.2018,

the same is being implemented and requesting National Stock

Exchange of India Limited as well as to Bombay Stock

Exchange Limited for Reclassification under Regulation 31A,

sub-clause (5) of SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015 (hereinafter referred to as

'Regulation 2015). Regulation 2015 came to be amended by

Amendment Regulation dated 2018 (dated 31st May, 2018) with

effect from 1st June, 2018. On 25th June, 2018, National Stock

Exchange and Bombay Stock Exchange communicated their

approval for Reclassification of Promoter under Regulation

2015 and the Appellants were reclassified.

(v) The suspended Director of the Bhushan Steel Limited

challenged the order dated 15.05.2018 by filing an Appeal

Company Appeal (AT) (Insolvency) No. 988 of 2021 3 before this Appellate tribunal, which Appeal being Company

Appeal (AT) (Insolvency) No.221 of 2018, Neeraj Singal vs.

Bhushan Steel Ltd. & Ors. was dismissed by judgment dated

10th August, 2018 of this Tribunal. Challenging the judgment

of this Appellate Tribunal dated 10th August, 2018 a Civil

Appeal was filed by Neeraj Singal & Ors. before the Hon'ble

Supreme Court. The Civil Appeal was dismissed as withdrawn

by order dated 22nd February, 2021 of the Hon'ble Supreme

Court granting leave to withdraw the appeal reserving the right

to pursue appropriate remedies with regard to other grievance

if any.

(vi) M/s Tata Steel Limited filed an IA No.897(PB)/2018 on

12.09.2018 seeking direction to Respondent Nos.1 and 2

(Appellant herein) to transfer 256,53,813 equity shares of the

Bhushan Steel Ltd. held by them in favour of Bamnipal Steels

Ltd. in compliance of Resolution Plan approved on 15.05.2018.

After hearing the parties, the Adjudicating Authority passed

order dated 29.10.2021 allowing the Application while holding

that Respondents to the Application (Appellants herein) have

to sell their shares to the Applicant @ INR 2/- per share.

Aggrieved by the said order of the Adjudicating Authority, this

Appeal has been filed by erstwhile Promoters of the Bhushan

Steel Ltd.

Company Appeal (AT) (Insolvency) No. 988 of 2021 4

3. We have heard Shri Kapil Sibal, learned senior Counsel, Shri S.

Niranjan Reddy, learned senior Counsel on behalf of the Appellants and

Shri Ramji Srinivasan, learned senior Counsel appearing on behalf of

Respondent No.1 - M/s Tata Steel Ltd.

4. Shri Kapil Sibal, learned senior Counsel submits that Adjudicating

Authority by issuing the impugned direction has virtually modified the

Resolution Plan approved on 15.05.2018. It is submitted that as per

Resolution Plan, Annexure-5 Para-3, the Tata Steel Ltd. was obliged to

subscribe to 89,70,44,238 equity shares of the Company at face value of

INR 2/- per share, whereas Tata Steel Ltd. has subscribed only

794,428,986 equity shares of the Company at a face value of INR 2/- and

has written to the Appellants to sell their equity shares held by Existing

Promoter Group i.e. 256,53,813 @ INR 2/- per share, which was not

permissible. It is submitted that eventuality of purchasing of equity shares

of Existing Promoter Group was to arise only when SEBI does not allow the

erstwhile Existing Promoter Group shareholding to be counted towards

public shareholding. In the present case on 26.05.2018, a letter has

already been written to National Stock Exchange and Bombay Stock

Exchange for reclassification under Regulation 31A of Regulation 2015,

which reclassification could ultimately be allowed on 25.06.2018. There

was no occasion to sell the equity shares by erstwhile Promoters Group. It

is submitted that closing date for the purposes of Resolution Plan is not

18.05.2018 as claimed by Tata Steel Ltd., rather it will be 25.06.2018, when

National Stock Exchange and Bombay Stock Exchange permitted

Company Appeal (AT) (Insolvency) No. 988 of 2021 5 reclassification of equity shares of erstwhile Promoter Group. On

25.06.2018 when approval was granted by SEBI for reclassification there

was no restraint in treating the erstwhile Promoter Group share into public

shareholding. The Appellants can very well continue with its public

shareholding, which cannot be compelled to be sold to Tata Steel as has

been directed in the impugned order.

5. Shri Sibal further submits that in the Application filed by Tata Steel

under Section 60, sub-section (5), there was no disclosure of the letter

dated 26.05.2018 written to National Stock Exchange and Bombay Stock

Exchange praying for reclassification. Clause 3 of Annexure 5 of Resolution

Plan specifically provides for permission required from SEBI, thus, without

obtaining permission from SEBI regarding reclassification, there was no

occasion to adopt for Option 2 as given in Clause 3 of Annexure 5. On

Closing date, Tata Steel was obliged to subscribe 89,70,44,238 shares,

which have not been done by the Tata Steel. Tata Steel has failed to inform

the Tribunal that the contingency step in Clause 3 of Annexure 5 of

Approved Resolution Plan suggests compulsory acquisition of Appellant/

existing promoter shares only if the main mechanism cannot be availed of

due to Stock Exchange refusing to recognize the Appellants as Public

shareholders. The Appellants are fully entitled to keep their shareholding,

which have now been classified as public shareholding and cannot be

compelled to sell the shares to Resolution Applicant. The Appellants being

public shareholders are entitled to retain the subject shareholding. The

Respondent is attempting to create a wrongful impression that the present

Company Appeal (AT) (Insolvency) No. 988 of 2021 6 Appeal has been filed with an intent to avail higher sale price of the subject

shareholding.

6. Shri Sibal submits that the submission of the Respondent that for

the Successful Resolution Applicant to reach 75% shareholding, it had to

compulsory purchase the subject shareholding by 2% approximately is an

argument in contravention of the Resolution Plan. It is the Respondent,

who has not complied with the Resolution Plan, since it was required to

subscribe 89,70,44,238 fresh equity shares, whereas it has subscribed only

794,428,986 equity shares. On 18.05.2018, the Appellants were no longer

Promoters.

7. Mr. Niranjan Reddy, learned senior Counsel also supporting the

submissions of Shri Sibal contended that closing date will be the date when

all steps are completed. Reclassification of shareholding of the Appellants

having not been completed till 25.06.2018, the closing date cannot be

earlier than to 25.06.2018. The closing date is dependent on SEBI's

approval. The Adjudicating Authority in paragraph 82 of the order dated

15.05.2018 has observed that the Resolution Applicant to obtain necessary

approval has to approach the competent Authorities, which also impel the

Resolution Applicant to approach the SEBI for obtaining reclassification.

8. Shri Ramji Srinivasan, learned Advocate appearing for the Tata Steel

refuting the submissions of learned Counsel for the Appellants submits

that purchase of erstwhile Promoters equity shareholding in Bhushan Steel

Limited is an integral part of the Resolution Plan approved on 15.05.2018.

The mode and manner of acquiring shares of erstwhile Promoter is provided

Company Appeal (AT) (Insolvency) No. 988 of 2021 7 in the approved Resolution Plan in para-3 of Annexure 5. The Resolution

Applicant implemented the entire Resolution Plan on 18.05.2018 by taking

all necessary steps required to be taken under the Plan. The closing day

was 18.05.2018, on which day Resolution Applicant completed all steps.

Entire outstanding financial debt was discharged on 18.05.2018. Tata

Steel made financial payment of INR 35,232.57 crores to the Financial

Creditors and towards the equity of the Corporate Debtor. On closing day,

the Applicant (Respondent herein) subscribed 72.65% equity shares of the

Corporate Debtor as per the Resolution Plan. Tata Steel/ Bamnipal Steel

Limited had to hold 75% equity shares of the Corporate Debtor on the

closing day. Hence, in addition to subscription of 72.65% equity shares,

the remaining 2.35% equity shares held by the erstwhile Promoters

including the Appellants, which were to be sold by the Appellants at INR

2/- per share. On 18.05.2018, Bamnipal Steel Limited had issued a letter

to Appellants calling upon Promoters to sell equity shares by them, which

letter was neither replied nor shares were sold. It is submitted that the

Appellant after dismissal of their Appeal by this Tribunal against order

dated 15.05.2018 had filed Civil Appeal before the Hon'ble Supreme Court,

where they have taken a ground that the shareholding of the Appellant

cannot be compulsory acquired at a sum of INR 2/- per share. Transfer of

shares cannot be forcefully acquired. It is submitted by Shri Srinivasan

that the Civil Appeals filed by the Appellants were dismissed by the Hon'ble

Supreme Court as withdrawn, only with liberty to pursue remedy with

regard to other grievances. The grievances were raised in the Hon'ble

Company Appeal (AT) (Insolvency) No. 988 of 2021 8 Supreme Court, but the Hon'ble Supreme Court does not permit them to

agitate again and the Respondents objection for selling their share has been

taken even after dismissal of the Civil Appeal by the Hon'ble Supreme

Court.

9. Shri Srinivasan submits that before the Adjudicating Authority, the

Appellant contended that their shares cannot be sold @ INR 2/- per share

and the shares should be permitted to be re-sold at the current price of

shares, which was INR 27/- at the relevant time. The letters dated

26.05.2018 written to National Stock Exchange and Bombay Stock

Exchange were in line with the Regulation 31A, sub-regulation (5) of

Regulation 2015, which is a separate and independent provision from

Regulation 31A(7), sub-clause (b) of Regulation 2015. The letters dated

26.05.2018 should not be treated to have been written towards seeking any

exception from Regulation 31A(7)(b). It was the Resolution Applicant, who

was to implement the Resolution Plan and on 18.05.2018 it having taken

all steps including sending a letter to Appellants to sell their equity shares

@ INR 2/- per share, nothing more was required to be done and the

Appellants were obliged to sell the equity shares at the rate of INR 2/-.

10. Shri Srinivasan further submits that all acts taken by Respondents

were in accordance with the Resolution Plan and above Option 2 in the

Clause 3 of Annexure 5 was elected by the Respondent since Option 1 on

the relevant date that is 18.05.2018 was not permissible, there being a

specific prohibition from treating the reclassified Promoter shareholding

towards minimum public shareholding i.e. 25%. Option 1 in the Clause 3

Company Appeal (AT) (Insolvency) No. 988 of 2021 9 thus was not permissible and was statutorily prohibited, hence opting for

contingency plan as provided in the Resolution Plan was perfectly in

accordance with Plan and no exception can be taken by the Appellants.

The Appellants, who are erstwhile Promoter and who are responsible for

insolvency of the Corporate Debtor cannot be allowed to continue their

shareholding in the Bhushan Steel, now undertaken by the Tata Steel in

defiance of Resolution Plan. The attempt of the Appellants to claim

continuous of their shareholding is not only in violation of the terms of the

Resolution Plan, but is a serious impediment in proper implementation of

the Approved Resolution Plan and the Appellant from last so many years

continuingly flouting the terms of the Resolution Plan. When the

acquisition of shareholding of erstwhile Promoter was duly provided in the

Resolution Plan, no objection can be taken by the Appellants to the steps

taken by the Respondent as per Resolution Plan for acquiring the

shareholding of the erstwhile Promoter. This Appeal filed by the Appellants

is violent efforts on behalf of the erstwhile Promoter to continue in the

Bhushan Steel, who is now taken by Respondent.

11. We have considered the submissions of learned Counsel for the

parties and perused the records.

12. We may notice the relevant portion of the Resolution Plan in para 3

of Annexure 5, which deals with the allotment of equity shares to the

Resolution Plan. Para 3 is to the following effect:

"3. Allotment of Equity Shares to the Resolution Applicant:

Company Appeal (AT) (Insolvency) No. 988 of 2021 10 On the Closing Date, the Company shall issue, by way of preferential allotment, and the Resolution Applicant shall subscribe to 89,70,44,238 (Eighty Nine Crore Seventy Lakh Forty Four Thousand Two Hundred and thirty Eight) equity shares of the Company at face value of 2 (Indian Rupees two only) per share, and the aggregate consideration shall be the "Applicant subscription Consideration".

As a result of such issuance, the shareholding pattern of the Company shall be as indicated in the table below:

Shareholding Post Primary Share Issuance

The Resolution Applicant 8970,44,238 75.00% Existing Promoter Group 256,53,813 2.14% Security Trustee on behalf of the pledge holding Financial Creditors (Public Shareholders) 743,02,524 6.21% Eligible Financial Creditors 725,00,000 6.06% Other Public Shareholders 1265,58,409 10.58% Total 11960,58,984 100.00%

The above structure is assuming that the erstwhile Existing Promoter Group shareholding is not counted towards promoter shareholding for the purposes of SEBI (Listing Obligations and Disclosure Requirement) Regulation, 2015. If SEBI does not allow the erstwhile Existing Promoter Group shareholding to be counted towards public shareholding, then the following structure will be adopted instead of the structure indicated above in this step 3:

Company Appeal (AT) (Insolvency) No. 988 of 2021 11 On the Closing Date, the Company shall issue, by way of preferential allotment, and the Resolution Applicant shall subscribe to 79,44,28,986 (Seventy Nine Crore Forty Four Lakh Twenty Eight Thousand Nine Hundred and Eighty Six) equity shares of the Company at face value of 2 (Indian Rupees two only) per share. Further, the Resolution Applicant shall on the Closing Date, purchase, and the Existing Promoter Group shall be bound to sell, all the shares held by the Existing Promoter Group (i.e. 256,53,813 equity shares) for a consideration of 2 (Indian Rupees two only) per share, such that the Resolution Application holds 75% of the fully paid up equity share capital of the Company (on a fully diluted basis).

Upon the Plan being approved by the Adjudicating Authority, the terms of this Plan including Annexure 5 are deemed to be accepted by the Existing Promoter Group in their capacity as shareholders of the Company.

As a result of such issuance, the shareholding pattern of the Company shall be as indicated in the table below:

Shareholding Post Primary Share Issuance

The Resolution Applicant 794,428,986 72.65% Existing Promoter Group 256,53,813 2.35% Security Trustee on behalf of the pledge holding Financial Creditors (Public Shareholders) 146,802,524 13.43% Other Public Shareholders 1265,58,409 11.57% Total 1,093,443,732 100.00%

Shareholding Post Transfer of Shares by Existing Promoter Group

Company Appeal (AT) (Insolvency) No. 988 of 2021 12 The Resolution Applicant 820,082,799 75.00% Eligible Financial Creditors 146,802,524 13.43% and the security trustee on behalf of the pledge holding Financial Creditors Other Public Shareholders 1265,58,409 11.57% Total 1,093,443,732 100.00%

The issuance of shares by way of a preferential allotment, pursuant to the terms of this Plan, shall not acquire this consent of the creditors of the Company or approval of the shareholders the Company, as the Plan, upon being approved by the Adjudicating Authority is binding on the Company and its stakeholders (including its creditors and shareholders). Further, in accordance with the provisions of Regulation 70(1) of the ICDR Regulations, the provisions of Chapter VII of the ICDR Regulations (other than the provisions relating to lock-in of shares) shall not apply to such issuance of equity shares by the Company. Further, in terms of Regulation 10(1)(da) of the SEBI (substantial Acquisition of Shares and Takeovers) Regulation, 2011, the Resolution Applicant will be exempt from the obligation of making an open offer pursuant to such acquisition."

13. Para 3 of the Resolution Plan, as noted above, provides two

structures (methods) for allotment of equity shares to the Resolution

Applicant. As per first structure (method) Resolution Applicant has to

subscribe 75% of equity shares that is 89,70,44,238. The Existing

Promoter Group equity share is 2.14% that is 256,53,813 was to be in rest

Company Appeal (AT) (Insolvency) No. 988 of 2021 13 25% shareholding. The first structure was to take place in event erstwhile

Existing Promoter Group shareholding is not counted towards promoter

shareholding for the purposes of Regulation 2015. We may at this juncture

notice the relevant provisions of Regulation 2015 as well as the provisions

of Securities Contracts (Regulation) Rules, 1957. The Securities Contracts

(Regulation) Rules, 1957, Rule 19A provided that "Every listed company

other than public sector company shall maintain public shareholding of at

least twenty five percent". The Bhushan Steel being listed company, it was

obliged to maintain public shareholding of at least 25%. Now we come to

Regulation 2015. Regulation 31A, sub-regulation (7), which is relevant for

the present case is as follows:

"31A(7) Without prejudice to sub-regulations (5) and (6), re-classification of promoter as public shareholders shall be subject to the following conditions:

(a) Such promoter shall not, directly or indirectly, exercise control, over the affairs of the entity.

(b) Increase in the level of public shareholding pursuant to re-classification of promoter shall not be counted towards achieving compliance with minimum public shareholding requirement under rule 19A of the Securities Contracts (Regulation) Rules, 1957, and the provisions of these regulations.

(c) The event of re-classification shall be disclosed to the stock exchanges as a material event in accordance with the provisions of these regulations. (d) Board may relax any condition for re-classification

in specific cases, if it is satisfied about non-

Company Appeal (AT) (Insolvency) No. 988 of 2021 14 exercise of control by the outgoing promoter or its persons acting in concert."

14. The above Regulation clearly prohibit public shareholding of

Promoter pursuant to reclassification to be counted towards achieving

compliance with minimum public shareholding requirement under Rule

19A as noted above. Thus, shareholding of 2.14%, which was held by

erstwhile Promoter Group, even if they were treated as public shareholding

cannot be counted towards 25% shareholding, which is statutory

requirement to be maintained. Thus, Structure one on 15.05.2018, on the

date when Plan was approved ok on 18.05.2018, did not permit subscribing

of 75% shareholding by the Tata Steels. It was due to above reasons that

the Structure two, which was contained in the Resolution Plan was

adopted. Under the Structuure-2, Tata Steel was required to subscribe

794,428,986 equity shares at the face value of INR 2/-, which Tata Steel

did and further the Resolution Plan contemplated "Further, the

Resolution Applicant on the Closing Date, purchase, and the Existing

Promoter Group shall be bound to sell, all the shares held by Existing

Promoter Group i.e. 256,53,813 equity shares for consideration of

Rs.2 (Indian Rupees two only) per share". On 18.05.2018 itself,

Bamnipal Steel Ltd. (subsidiary of Tata Steel) proceeded to act under

Structure two and wrote to erstwhile Promoter Group to sell their shares @

INR 2/-. The letter dated 18.05.2018 written by Bamnipal Steel Ltd. to

Appellants and other shareholders is part of paper-book of the plea and is

Company Appeal (AT) (Insolvency) No. 988 of 2021 15 at page 198. It is useful to extract the aforesaid letter dated 18.05.2018,

which is to the following effect:

"Subject: Resolution plan submitted by Tata Steel Limited ("Resolution Plan") in relation to Bhushan Steel Limited ("Company") under the Insolvency and Bankruptcy Code, 2016 ("IBC") as approved by the National Company Law Tribunal ("NCLT") on May 15, 2018.

1. We reference the captioned subject matter.

2. As per the approved Resolution Plan, Tata Steel Limited is acquiring the Company through its wholly owned subsidiary, Bamnipal Steel Limited ("Bamnipal").

3. Pursuant to the approved Resolution Plan, we request you to transfer all unpledged equity shares of the Company held by you to Bamnipal for a consideration of INR 2 (Rupees two only) per share (which is the same price as the price at which Bamnipal is subscribing to the equity shares) at the earliest. The details of our dematerialized account are set out in Annexure A below.

4. We look forward to receiving your support and co-

operation on implementing the terms of the Resolution Plan which has been approved by the NCLT.

5. Any communication pursuant to this letter should be addressed to the following:

Bamnipal Steel Limited Address: Tarapur Complex, Plot No.F8, MIDC,

Company Appeal (AT) (Insolvency) No. 988 of 2021 16 Tarapur Industrial Area, Palghar Thane, Maharashtra - 401506.

Attention: Mr. R Ranganath Tel. No.: 033 22883332 Email: r.ranganath@tatasteel.com

With a copy to:

Attn: Managing Director Bhushan Steel Limited Ground Floor, Hyatt Regency Complex, Bhikaji Cama Place, New Delhi-110066.

6. This letter is without prejudice and we reserve all our rights and remedies in law and under the IBC in particular.

Thanking you,

Yours Sincerely

_____________ Name: Sd/-

Authorised signatory Bamnipal Steel Limited"

15. The Tata Steel thus on 18.05.2018 itself opted Structure two and

wrote to the Appellants to sell their shares @ INR 2/- per share, as per

Resolution Plan, which letter was neither replied nor the Appellants sold

their equity shares. The submission of Shri Kapil Sibal, learned Senior

Counsel is that Bhushan Steel Ltd. on 18.05.2018 having instead writing

to National Stock Exchange that it shall ensure the process of re-

classification, actually wrote letters dated 26.05.2018 to both National

Stock Exchange and Bombay Stock Exchange to reclassify the Promoters

Company Appeal (AT) (Insolvency) No. 988 of 2021 17 shareholding, there was no occasion to ask the Appellants to sell their

shares @ INR 2/-. Tata Steel was to await the completion of reclassification

process as per Regulation 2015, which reclassification process was

completed on 25.06.2018 when approval of classification of existing

Promoters as public shareholding was granted by National Stock Exchange

and Bombay Stock Exchange. It is submitted that on the date of approval

granted that is 25.06.2018, will be considered the closing date and it is on

25.06.2018 that applicability of structures provided in para 3 of Resolution

Plan has to be examined. It is submitted that on 26.05.2018, the

prohibition contained in Regulation 31A, sub-clause (7)(b) was not

applicable since the Regulation 2015 was amended by Regulation 2018

with effect from 1st June, 2018, by which sub-regulation (9) was added

making it clear that sub-regulation (7) shall not apply, if re-classification

of existing Promoter or Promoter Group of the Company as per the

Resolution Plan approved under Section 31. Sub-regulation (9) of

Regulation 31A, which was added by Notification dated 31st May, 2018 is

to the following effect:

"31A(9) The provisions of sub-regulations (5), (6) and clause (b) of sub regulation (7) of this regulation shall not apply, if re-classification of existing promoter or promoter group of the listed entity is as per the resolution plan approved under Section 31 of the Insolvency Code, subject to the following conditions:

(i) The existing promoter and promoter group seeking re-classification shall not remain in control of the listed entity; and

Company Appeal (AT) (Insolvency) No. 988 of 2021 18

(ii) Such re-classification along with the underlying rationale shall be disclosed to the stock exchanges within one day of the resolution plan being approved."

16. The amended Regulation dated 31st May, 2018 made in 2015

Regulation were only prospective in nature and shall be applicable with

effect from 1st June 2018 when Notification was gazetted, which notification

was not applicable on 15.05.2018 or 18.05.2018. The prohibition

contained in Regulation 31A, sub-regulation 7(b) was very much in

existence on the day when Resolution Plan was approved. In this context,

learned Counsel for the Appellant has referred to Clause 10 of the

Resolution Plan, by which 'Reliefs and concessions' were asked for

Resolution Applicant. In clause 10 of the Resolution Plan, which deals with

'relief and concessions' in para 10.1.26, it is provided:

"10. Reliefs and concessions ...

10.1.26 SEBI shall:

a) provide dispensation from Regulation 31A(7)(b) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 in respect of shareholding of the Existing promoter Group post re-classification of the Existing Promoter Group to public shareholding category to be counted towards satisfaction of the minimum public shareholding requirement;"

17. It is relevant to notice that Adjudicating Authority while approving

the Resolution Plan on 15.05.2018 with regard to reliefs and concessions

Company Appeal (AT) (Insolvency) No. 988 of 2021 19 in paragraph 82 of the judgment denied to grant relief and concession as

prayed for and only observation was made that monitoring agency along

with Resolution Applicant may make a claim before the Authorities, which

shall be considered in accordance with law. In paragraph 82, following has

been stated:

"82. In respect of the relief and concession as set forth in Annexure-8 it is not possible for us to issue any directions except to say that the monitoring agency along with the resolution applicant may make a claim before the authorities which shall be considered in accordance with law. Moreover, these reliefs and concessions are also not condition precedent for the acceptance of resolution plan and would not be any impediment for us to accept the Resolution Plan."

18. Thus, in event the relief and concessions regarding dispensation

from Regulation 31A(7)(b) was allowed by the Adjudicating Authority, the

Structure one as contained in the Resolution Plan would have been

implemented. But Adjudicating Authority having not allowed the

dispensation, the prohibition contained in Regulation 31A(7)(b) of

Regulation 2015, continued on 15.05.2018 as well as on 18th May, 2018,

which prohibited the Resolution Applicant on 18.05.2018 to adopt the

Structure one mentioned in Para-3 of the Resolution Plan. We do not find

any error in the action of Respondents in proceeding to opt to acquire the

equity shares of the Promoter Group by asking them to sell the equity

shares @ INR 2/- after subscribing 72.65% of equity shares, so that after

Company Appeal (AT) (Insolvency) No. 988 of 2021 20 purchase of the equity shares of Existing Promoter Group, the Respondent

may have 75% of shareholding leaving 25% to the public shareholding.

19. Much emphasis has been laid by Shri Kapil Sibal, learned Senior

Counsel to the letters dated 26.05.2018 written by Bhushan Steel to

National Stock Exchange and Bombay Stock Exchange. The subject of the

application dated 26.05.2018 was "Application for Reclassification under

Regulation 31A (5) of the SEBI (Listing Obligations and Disclosure

Requirements) Regulation, 2015". The reclassification process initiated by

the said application mentions that it was not initiated to achieve minimum

public shareholding. In paragraph 5 of the said application, following was

specifically stated:

"5) The reclassification process has not been initiated to achieve minimum public shareholding."

20. The Respondent could have very well acquired the equity shares of

the existing Promoter Group as per the Resolution Plan without awaiting

for reclassification by National Stock Exchange and Bombay Stock

Exchange, since the Resolution Plan itself provided for two structures for

acquiring the equity shares of the existing Promoter Group. When on

18.05.2018 after Board Resolution was passed divesting rights of the

existing Promoter Group, the Plan was fully implemented on 18.05.2018

for subscribing the equity shares as per Para-3, Tata Steel was not to wait

till reclassification of application was to be decided.

Company Appeal (AT) (Insolvency) No. 988 of 2021 21

21. Much arguments have been addressed by the parties on the

expression "if SEBI does not allow" in respect of para-3 of the Resolution

Plan. It is contended by the Appellant that word SEBI used in para-3 is

the word as per definition Clause in Resolution Plan itself. When

Respondent acted on Regulation 2015, which contains prohibition of

shareholding of existing Promoter Group to be counted for achieving

minimum 25% of public shareholding, action of Respondent not to proceed

under Structure one can neither be said to be contrary to Resolution Plan

or any statutory provisions, rather the said action is inconsonance of the

statutory provisions as existed at the relevant date that is 15.05.2018 and

18.05.2018. As noted above, the reliefs and concessions asked for

dispensation of rigour under Section 31A(7)(b) was denied by the

Adjudicating Authority, there was no occasion to wait for any decision of

SEBI, when Regulation also clearly makes prohibition in the above regard.

On 18.05.2018, when Structure two was adopted by Respondent, it cannot

be imagined that in future the rigour of 31A(7)(b) shall be relaxed when

acquisition is in pursuance of Resolution Plan. The letters issued by

National Stock Exchange and Bombay Stock Exchange on 25.06.2018 were

clearly in accord with amended Regulation, that is Regulation 31A sub-

clause (9). The wholesome reading of para-3 of Annexure 5 indicate that

existing Promoter Group could have retained their equity shares only if they

fall within the group of public shareholding of 25%, which was

impermissible as Structure two was adopted by subscribing to 72.65%

shares and to acquire 2.35% equity shares of existing Promoter Group to

Company Appeal (AT) (Insolvency) No. 988 of 2021 22 make their shareholding by 75%, which was specifically provided for in

para-3 of Resolution Plan itself, which we have quoted above at paragraph

12 of this judgment. Thus, the request sent to Appellants on 18.05.2018

to sell their shares @ INR 2/- was as per the Resolution Plan, which cannot

be said to be in any way contrary to the Resolution Plan.

22. We may notice one more aspect of the matter. Before the

Adjudicating Authority, when Application was filed by Respondent seeking

a direction to the Appellants to transfer their shares, the Appellants

resisted the Application and one of the ground taken was that they could

not be asked to sell their shares @ INR 2/- per share, when the market

price of the share is much more. It was further submitted by the Appellants

that they should be given the same price of the shares, which is to be given

to Pledge and Un-pledge shares, which submission was noticed in

paragraph 34 and 35 of the judgment of the Adjudicating Authority, which

is to the following effect:

"34. That the plea taken by the Respondent No.2 and 3 that the equal treatment shall be given to the price with respect to Pledge and Un-pledge shares, in terms of Clause 6 of the Resolution Plan, in our considered view it does not merit consideration since the clause 6 solely deals with the pledged shares.

35. If unpledged shares are allowed to be transferred at the market price, then the same will result in modification in the terms of the resolution plan. Since, the resolution plan has a specific clause dealing with a specified rate INR 2.00 with respect to unpledged shares. Any other interpretation of the same shall result in

Company Appeal (AT) (Insolvency) No. 988 of 2021 23 modification in the terms of the Resolution Plan which is not permissible in light of the law laid down by the Hon'ble Supreme Court in the matter of Ebix Singapore Private Limited vs. Committee of Creditors of Educomp Solutions Limited & Anr. Civil Appeal No.3224 of 2020 dated 13.09.2021. The extract of the relevant portion is reproduced below:

"203..... In this context, we hold that the existing insolvency framework in India provides no scope for effecting further modifications or withdrawals of CoC-approved Resolution Plans, at the behest of the successful Resolution Applicant once the plan has been submitted to the Adjudicating Authority."

23. We may further notice that Resolution Plan dated 15.05.2018 was

challenged before this Appellate Tribunal by filing an Appeal by the

Appellants, which Appeal was dismissed and thereafter matter was taken

up before the Hon'ble Supreme Court by the Appellants by filing Civil

Appeal. The learned Senior Counsel for the Respondent made reference to

one of the ground which was taken by the Appellant in the Special Leave

Petition, which is to the following effect:

"GROUNDS E. Because the equity shares held by the Appellant could not have been forcefully acquired by Bamnipal Steel Ltd. through the Resolution Plan for a dismal sum of Rs.2/- per share when such shares are listed on the Stock Exchange for much higher sums and in any case the Appellant does not wish to sell the said shares to any person. This shareholding being of the Appellant of personal

Company Appeal (AT) (Insolvency) No. 988 of 2021 24 nature having no lien or pledge in favor of any Financial Creditor, could not have been appropriated by any person either through Section 31 of the IBC or even otherwise, without there being a consent by the Appellant. In any case, transfer of such shares can only be in accordance with and law and not through a forced transaction where there is not even an element of consent from one party to the other."

24. The Hon'ble Supreme Court on 22nd February, 2021 dismissed the

Appeal filed by the Appellant. The Hon'ble Supreme Court has passed the

following order in Civil Appeal No.___ of 2018:

"Civil Appeal No.............. of 2018 (Arising out of Dy. No.39637/2018)

Neeraj Singal Appellant(s) Versus Bhushan Steel Ltd. & Ors. Respondent(s)

ORDER We have heard learned counsel for the parties at great length.

Leave is sought to withdraw the appeals reserving the right to pursue appropriate remedies with regard to other grievances, if any.

Civil Appeals stand dismissed as withdrawn.

.........................J. [NAVIN SINHA]

.........................J. [KRISHNA MURARI]"

Company Appeal (AT) (Insolvency) No. 988 of 2021 25

25. The Hon'ble Supreme Court by the aforesaid order dated 22nd

February, 2021 did not grant any leave to pursue any other remedy with

regard to grievances, which was raised in the Civil Appeal that is arising

out of the Resolution Plan dated 15.05.2018. Liberty was granted to

pursue remedy with regard to other grievances, if any. What is being

agitated by the Appellants before the Adjudicating Authority while opposing

the Application filed under Section 60 sub-Section (5) of the Code is that

they cannot be compelled to sell their shares @ INR 2/- per equity share

and they are entitled to keep their shares with them without selling it.

When the Resolution Plan clearly contemplated that in event Structure two

was followed by Respondent to oblige the Appellant to sell their equity

shares @ INR 2/- and specific number of shares that is 256,53,813 as

mentioned in the Plan itself, the Appellants cannot refuse to follow the

aforesaid portion of the Resolution Plan. As per Section 31, sub-section (1)

of the Code, after approval of the Resolution Plan, same is binding on

Corporate Debtor, its employees, members, creditors. Section 31, sub-

section (1) is to the following effect:

"31. Approval of resolution plan. - (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, [including the Central Government, any State Government or any

Company Appeal (AT) (Insolvency) No. 988 of 2021 26 local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan.

Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation."

26. The Adjudicating Authority has also in paragraph 28 to 31 of the

judgment has given reasons for approving the above act by Respondent to

the following effect:

"28. However, no matter whether the Option 1 or the Option 2 is exercised by the Successful Resolution Applicant, the position with respect to the share price would remain same INR 2/-. If the SEBI guidelines does not allow the erstwhile promoter group as part and parcel of the new promoter group, there is no right vested with the erstwhile promoters to hold on to the shares and to remain in the company as shareholders by the virtue of the resolution plan. Even in case of the Option 2, if the existing promoter group as per the resolution plan hold 75% shareholding, the erstwhile promoter group cannot be considered as promoter group nor as a public shareholding for the reasons the shares are not allotted to them in any public issue, nor they have purchased the same in the open market.

29. As any stretch of imagination in any of the Option, there remains no vested right of the erstwhile promoter

Company Appeal (AT) (Insolvency) No. 988 of 2021 27 group to hold on to the company in any capacity, let alone as shareholders.

30. In this scenario the attempts on the part of erstwhile promoter group to remain in the company as shareholders either by interpreting the option 1 or option 2 cannot merit their case, in any manner for the reason they first of all ought not to have been given any place in the company at the time of the approval of the resolution plan.

31. Assuming for a moment some accommodation was offered by the successful resolution applicant by graciously allowing the erstwhile promoter group to have 2.35% stake in the company and it does not mean that they can hold on to 2.35% forever nor can they claim market price for selling of shares."

27. We fully endorse of the above observations made by the Adjudicating

Authority while allowing the Application filed by Respondent seeking

direction to the Appellants to sell their Promoter group shares @ INR 2/-

per equity shares.

28. We thus are of the view that the Resolution Plan as per Section 30(2)

(e) of the Code has to be in accordance with law for the time being in force.

Section 30(2) sub-clause (e) mandates - "does not contravene any of the

provisions of the law for the time being in force". The implementation of the

Resolution Plan has to be thus in accordance with the existing law and the

Respondent could not have implemented the Plan following Structure one

in para-3, which could have been in contravention of Regulation 31A(7)(b)

of 2015 Regulation. Thus, the implementation of Resolution Plan by

Company Appeal (AT) (Insolvency) No. 988 of 2021 28 following Structure two as provided in para 3 of Annexure 5 was fully

permissible and no exception can be taken by the Appellants when they

are asked to sell their equity shares as per Plan itself. We do not find any

error in the judgment of the Adjudicating Authority allowing the Application

filed by Respondent while holding that erstwhile Promoters have to sell

their shares to the Applicant (Tata Steel) @ INR 2/- per share.

29. In view of the foregoing, we do not find any merit in this Appeal, the

Appeal is dismissed. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Dr. Ashok Kumar Mishra] Member (Technical)

[Dr. Alok Srivastava] Member (Technical)

NEW DELHI

7th March, 2022

Ash/NN

Company Appeal (AT) (Insolvency) No. 988 of 2021 29