Srei Infrastructure Finance Ltd vs Sumit Binani & Ors

[Arising out of Order dated 26th April, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench at Kolkata in C.A.(IB) No. 377/KB/2018 in C.P.(IB)387/KB/2017]

IN THE MATTER OF:

SREI Infrastructure Finance Limited Having its office at 'Vishwakarma', 86C, Topsia Road (South), Kolkata - 700 046.

...Appellant Vs

1. Mr. Sumit Binani Resolution Professional, Adhunik Alloys & Power Ltd., 4th Floor, Room No.6, Commerce House, 2A, Ganesh Chandra Avenue, Kolkata. And

Also at: At Line Road, Cuttack - 753 012,

Site Office at: Arjeepalli, Via Chatrapore, Ganjam - 761 020.

2. Price Water House Coopers Private Limited Having its office at Plot No. Y-14, Block-EP, Sector-V, Salt Lake Electronics Complex, Bidhan Nagar, Kolkata - 700 091.

3. State Bank of India Having its office at 1, Strand Road, Samriddhi Bhawan, Kolkata - 700 001.

4. ICICI Bank Having its office at 2B, Gorky Terrace, Kolkata - 700 017. -2-

5. IFCI Having its office at Chatterjee International Centre, 3rd Floor, 33A, Jawaharlal Nehru Road, Kolkata - 700 071.

6. Punjab National Bank Having its office at 52A, Shakespeare Sarani, Kolkata - 700 017.

7. Allahabad Bank Having its corporate office at 2, Netaji Subhas Road, Kolkata - 700 001.

8. Reliance Commercial Finance Limited Having its office at 7th Floor, the A. C. Market Complex, 1, Shakeshpeare Sarani, Kolkata - 700 071.

9. Bhagwati Power And Steel Ltd. Through its Authorised Signatory Mr. Deepak Jain Having Registered Office at: D-22, Sector 5, Devendra Nagar, Raipur, Chattisgarh - 492 001.

10. Orissa Metaliks Pvt. Ltd. Having Registered office at 1, Garstin Place, Orbit House, 3rd Floor, Room No. 313, Kolkata - 700 001. ....Respondents

Present:

For Appellant: Mr. S. N. Mookherjee, Senior Advocate assisted by Mr. Diwakar Maheshwari, Mr. Shounak Mitra, Mr. Arijit Mazumdar, Mr. Aditya V Singh, Mr. Zulfikar Ali Alquaderi and Mr. Yugam Taneja, Advocates.

Company Appeal (AT) (Insolvency) No. 184 of 2018 -3-

For Respondents: Mr. Mukul Rohatgi, Mr. Mihir Thakore and Mr. Arun Kathpalia, Senior Advocates with Mr. Mahesh Agarwal, Mr. Anuj Singh, Ms. Neeha Nagpal, Ms. Manisha, Mr. Arshit Anand and Mr. Divyang Chandi Ramani, Advocates for Respondent No. 9. Mr. Arjun Asthana and Ms. Sreenita Ghosh, Advocates for Resolution Professional. Ms. Misha and Mr. Shantanu Chaturvedi, Advocates for Committee of Creditors. Mr. Nitish Massey and Mr. Abhishek, Advocates for Orissa Metaliks Pvt. Ltd.

BANSI LAL BHAT, J.

The Appellant - 'SREI Infrastructure Finance Limited', one of the

'Financial Creditors' of Respondent No. 1 - 'M/s Aadhunik Alloys and Power

Ltd.' (hereinafter referred to as 'Corporate Debtor') is aggrieved of order

dated 26th April, 2018 passed by the Adjudicating Authority (National

Company Law Tribunal), Kolkata Bench, Kolkata, whereby and whereunder

the Adjudicating Authority declined to pass an order of restraint upon the

Respondents from continuing with the Corporate Insolvency Resolution

Process (CIRP) of the Corporate Debtor, negotiating with any other bidder

and/or approving any Resolution Plan till the pendency of application being

CA(IB) No. 377/KB/2018 arising out of CP(IB)No.387/KB/2017. The

impugned order has been assailed on the grounds set out in the

memorandum of appeal.

Company Appeal (AT) (Insolvency) No. 184 of 2018 -4-

2. For better understanding of the controversy, it would be appropriate

to trace the genesis thereof by wading through the factual matrix, which is

reproduced hereunder:-

Somewhere in 2017, 'State Bank of India' filed an application under

Section 7 of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to

as 'I&B Code') being CP (IB) No. 387/KB/2017 against the Corporate Debtor

for triggering Corporate Insolvency Resolution Process, which was admitted

by the Adjudicating Authority on 03.08.2017. The Interim Resolution

Professional made public announcement. Subsequently, Committee of

Creditors (CoC) was formed and Resolution Professional was appointed.

Pursuant to the publication of Expression of Interest inviting prospective

Resolution Applicants for submission of Resolution Plans the Resolution

Professional received four Resolution Plans from:-

(a) Bhagwati Power & Steel Ltd. (BPSL)

(b) Orissa Metaliks Pvt. Ltd. (OMPL)

(c) Edelweiss Asset Reconstruction Company (EARC)

(d) SREI Infrastructure Finance Ltd. (SREI)

On the basis of evaluation matrix as decided upon by the CoC, the

Appellant was declared as the highest evaluated Resolution Applicant (H1).

When the negotiations with Appellant were underway, Respondent No. 9 -

'Bhagwati Power & Steel Ltd.' approached the Adjudicating Authority with

Company Appeal (AT) (Insolvency) No. 184 of 2018 -5-

an application being CA(IB)289/KB/2018, on consideration whereof the

Adjudicating Authority directed the Resolution Professional to consider the

application of Respondent No.9 and its Resolution Plan in accordance with

the provisions of I&B Code before submitting the same to the CoC. During

the course of hearing before the Resolution Professional, Respondent No. 9

submitted an additional representation dated 12.04.2018 containing details

about ineligibility of the Appellant to participate in the Resolution process as

a Resolution Applicant. Respondent No. 9 relied upon order dated

16.11.2017 passed by the Adjudicating Authority (National Company Law

Tribunal) Hyderabad, by which the Appellant holding more than 20% of the

equity shares of the 'Deccan Chronicle Holding Ltd.' (DCHL) was held to be a

'related party' and not allowed to participate as the member of the CoC in a

resolution process of 'DCHL'. Respondent No. 9 prayed for rejecting the

Resolution Plan submitted by the Appellant. Resolution Professional sought

clarification from the Appellant with regard to issue of its ineligibility in

terms of Section 29A of the Code. Appellant submitted a detailed

representation to prove its eligibility. Resolution Professional obtained legal

opinion and having regard for the order dated 16.11.2017 passed by the

Adjudicating Authority (National Company Law Tribunal) Hyderabad Bench

in 'SREI Infrastructure Finance Ltd. Vs. Canara Bank & Ors.' held the

Appellant ineligible. Resolution Professional placed the matter before the

CoC, which took a decision to negotiate with the H2 bidder only.

Negotiations with the H2 bidder were underway when the Appellant

Company Appeal (AT) (Insolvency) No. 184 of 2018 -6-

questioned the decision of Resolution Professional and CoC in rejecting the

Appellant as a Resolution Applicant by filing CA(IB) No. 377/KB/2018. The

Adjudicating Authority passed an order dated 07.05.2017 directing the CoC

to consider the question of eligibility of the Appellant under Section 29A

independently. In pursuance thereto CoC looked into the aspect of eligibility

of the Appellant and was of the view that the Appellant was at that moment

ineligible. Meanwhile the Appellant filed an appeal before this Appellate

Tribunal wherein, in terms of interim order dated 09.05.2018 this Appellate

Tribunal directed the CoC to decide as to which resolution plan will be

accepted and keep the said resolution plan in a sealed cover so that it is not

given any effect without prior permission of this Appellate Tribunal.

Besides, the Adjudicating Authority was also restrained from passing any

order of liquidation. Pursuant to such direction, the CoC voted upon the

BPSL Resolution Plan as amended and same was approved by CoC with

100% voting. This development was brought to the notice of this Appellate

Tribunal. On 29.05.2018, this Appellate Tribunal directed the Resolution

Professional to place the BPSL Resolution Plan already approved by the CoC

before the Adjudicating Authority in a sealed cover with direction to the

Adjudicating Authority to consider the same for approval subject to the

outcome of the appeal. The Resolution Professional filed an application

before the Adjudicating Authority under Section 30 (1) of the Code for

approval of BPSL Resolution Plan. Same is stated to be pending

consideration before the Adjudicating Authority. Appeal filed by the

Company Appeal (AT) (Insolvency) No. 184 of 2018 -7-

Appellant was decided by this Tribunal vide judgment dated 20.07.2018

holding that the Appellant could not be treated to be a 'related party' in

relation to the Corporate Debtor - 'DCHL'. The Resolution Professional

convened the meeting of the CoC on 28.07.2018 to take further steps in the

light of judgment dated 20.07.2018 of this Appellate Tribunal. CoC

deliberated upon the issue and arrived at the conclusion that the Appellant

had become eligible under Section 29A of the Code for submission of

Resolution Plan for the Corporate Debtor.

3. A piquant situation has arisen due to judicial process as the CoC is of

the view that the Appellant who earlier emerged as H1 has been found

eligible in terms of Section 29A of the Code for submission of Resolution

Plan for the Corporate Debtor while the Resolution Plan of BPSL approved

by CoC with 100% voting is pending approval before the Adjudicating

Authority. The issue for consideration of this Appellate Tribunal is whether

the finding recorded by this Appellate Tribunal in terms of judgment dated

20.07.2018 in the matter of 'SREI Infrastructure Finance Ltd. Vs. Canara

Bank & Ors.', Company Appeal (AT) (Insolvency) No. 316 & 317 of 2018

could be relied upon to decide the issue of ineligibility of the Appellant as

regards submission of Resolution Plan for the Corporate Debtor.

4. Learned counsel for the Appellant would submit that the question

involved in Company Appeal (AT) (Insolvency) Nos.316 & 317 of 2017 was

whether the Appellant was a 'related party' of DCHL by virtue of holding

Company Appeal (AT) (Insolvency) No. 184 of 2018 -8-

24.6% shareholding in DCHL and the question has been answered in

negative by this Appellate Tribunal. It was immaterial that Respondent No.

9 was not a party in Company Appeal (AT) (Insolvency) Nos.316 & 317 of

2017 and the finding recorded by this Appellate Tribunal that the Appellant

was not a 'related party' of DCHL would be binding. He would further

submit that the Respondent No. 9 is estopped from contending that the

decision of 20th July, 2018 is not relevant as it has accepted in its affidavit

that such decision is relevant and would determine the instant appeal. It is

further submitted that the membership is determined on the basis of entry

in the register of members and the mere fact that the Appellant had asserted

itself as a shareholder of the DCHL will make no difference as there is no

estoppel against statute.

5. The Resolution Professional, in its additional affidavit dated

01.08.2018, has taken the stand that in view of order of this Appellate

Tribunal dated 20.07.2018 in DCHL matter the Appellant is now eligible

under Section 29A of the Code to submit a resolution plan for the Corporate

Debtor.

6. The Committee of Creditors has taken the stand that pursuant to the

order of this Appellate Tribunal in DCHL matter the Appellant is not a

'related party' of the Deccan Chronicle. It is submitted on behalf of

Committee of Creditors that in the event of this appeal being allowed CoC

may be allowed to negotiate with both Resolution Applicants i.e. 'SREI

Company Appeal (AT) (Insolvency) No. 184 of 2018 -9-

Infrastructure Finance Ltd.' and 'Bhagwati Power & Steel Ltd.', afresh and

accordingly approve a resolution plan with the condition that the minimum

upfront cash consideration payable to Financial Creditors shall be

Rs.3 Crores to Rs.6 Crores which has been offered in the resolution plan

submitted by BPSL and approved by the CoC.

7. It is contended on behalf of Respondent No. 9 - 'Bhagwati Power &

Steel Ltd.' that the Appellant SREI is a shareholder of DCHL - a fact

admitted and accepted by the Appellant in various letters, statutory filings

and pleadings. It is contended that the Appellant has admitted that

6,60,37,735 equity shares of DCHL were allotted to it. Reference is made to

various documents including Appellant's disclosure dated 14.01.2015 to

NSE and BSE regarding acquisition of 6,60,37,735 equity shares of DCHL.

It is contended that the admission made by the Appellant is admissible

against it. It is further submitted that DCHL has issued share certificate in

favour of Appellant which is prima facie proof of its shareholding. Learned

counsel for Respondent No. 9 would contend that in terms of provisions of

Section 46 (1) of the Companies Act, 2013 share certificate issued under the

common seal of the Company specifying the shares held by any person shall

be prima facie evidence of the title of such person to such shares. It is

further contended that the share certificates were duly issued and the name

of SREI appeared in the shareholders/members list. Without a formal order

of Tribunal cancelling such shares, the shareholding of SREI continues to

exist. Learned counsel for Respondent No. 9 would further contend that the

Company Appeal (AT) (Insolvency) No. 184 of 2018 -10-

register of members can only be rectified as per procedure established by

law. It is further contended that the judgment rendered by this Appellate

Tribunal on 20th July, 2018 in DCHL matter is a judgment in personam and

not judgment in rem. Further that DCHL is not a party in the present appeal

and status of Appellant SREI was not the question involved in DCHL matter.

It is contended that the Appellant does not qualify as an eligible Resolution

Applicant as it holds approximately 24% equity shares in Deccan which

makes SREI a 'connected person' of Deccan and at the time of submission of

resolution plan account of Deccan had been classified as NPA since more

than one year before. It is lastly contended that Respondent No. 9 is the

Successful Resolution Applicant with its resolution plan having been

approved by CoC with 100% vote and its bid is Rs.326 Crores as compared

to Appellants bid of Rs.300 Crore and the negotiation has already been

closed.

8. Heard learned counsel for the parties and perused the record. Section

29A of the I&B Code, introduced by Act 8 of 2018 with retrospective effect

from 23.11.2017 deals with persons not eligible to be Resolution Applicant.

It reads as under:

"29A. 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;

Company Appeal (AT) (Insolvency) No. 184 of 2018 -11-

(b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949;

(c) has an account, or an account of a corporate debtor under the management 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;

(d) has been convicted for any offence punishable with imprisonment for two years or more;

(e) is disqualified to act as a director under the Companies Act, 2013;

(f) is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets;

(g) as been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued

Company Appeal (AT) (Insolvency) No. 184 of 2018 -12-

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

(h) has executed an enforceable guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code

(i) has been subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or

(j) has a connected person not eligible under clauses (a) to (i).

Explanation. - For the purposes of this clause, the expression "connected person" means -

(i) any person who is the promoter or in the management or control of the resolution applicant; or (ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or (iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii):

Provided that nothing in clause (iii) of this Explanation shall apply to -

(A) a scheduled bank; or

Company Appeal (AT) (Insolvency) No. 184 of 2018 -13-

(B) 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; or (C) an Alternate Investment Fund registered with the Securities and Exchange Board of India."

9. This Appellate Tribunal had an occasion to consider the ambit and

scope of Section 29A of the I&B Code in 'Numetal Ltd. Vs. Satish Kumar

Gupta & Ors.' Company Appeal (AT) (Insolvency) No. 169 of 2018 decided on

7th September, 2018. It observed as follows:

"41. The substantive provision of Section 29A of the

'I&B Code' suggests that not only a person is ineligible to

submit a 'Resolution Plan', but also a person with any

other person acting jointly or in concert with such person, if

attracts any one or other ineligibility clause mentioned in

clauses (a) to (i) is also ineligible. In terms of clause (j) of

Section 29A, if the 'connected person' is not eligible under

clauses (a) to (i), then also the person who submits the

'Resolution Plan' is not eligible.

42. Section 29A must be interpreted in light of the

mischief it sought to curtail. The 'Statement of Objects and

Reasons' appended to the Insolvency and Bankruptcy

Company Appeal (AT) (Insolvency) No. 184 of 2018 -14-

Code (Amendment) Bill, 2017 (Bill No. 280 of 2017) in Lok

Sabha (ultimately passed as Act 8 of 2018), seeking the

above said amendment is as under:

"2. The provisions for insolvency resolution

and liquidation of a corporate person in the

Code did not restrict or bar any person from

submitting a resolution plan or participating in

the acquisition process of the assets of a

company at the time of liquidation. Concerns

have been raised that persons who, with

their misconduct contributed to defaults

of companies or are otherwise

undesirable, may misuse this situation due

to lack of prohibition or restrictions to

participate in the resolution or liquidation

process, and gain or regain control of the

corporate debtor. This may undermine the

processes laid down in the Code as the

unscrupulous person would be seen to be

rewarded at the expense of creditors. In

addition, in order to check that the

undesirable persons who may have submitted

their resolution plans in the absence of such a

Company Appeal (AT) (Insolvency) No. 184 of 2018 -15-

provision, responsibility is also being

entrusted on the committee of creditors to give

a reasonable period to repay overdue amounts

and become eligible."

Therefore, it is to be looked into whether the

persons who, with their misconduct contributed to defaults

of companies'/ undesirable persons have submitted the

resolution plan either in person or jointly with another

person, or in concert with such person.

Therefore, while interpreting Section 29A the

statement and object to achieve is required to be noticed.

43. As per Section 29A, a person who submits a

'Resolution Plan', is in itself or any other person 'acting

jointly' or 'in concert with such person' if attracts any of

the dis-qualification under clause (a) to (h) of Section 29A

will be ineligible to submit a 'Resolution Plan'. Clause (i) of

Section 29A further makes it clear that any disability

corresponding to clauses (a) to (h) under any law in a

jurisdiction outside India will be one of the criteria of

ineligibility. Clause (j) stipulates that if any connected

person is ineligible under clauses (a) to (i), the person who

intend to submit, is not eligible to file 'Resolution Plan'.

Company Appeal (AT) (Insolvency) No. 184 of 2018 -16-

**** **** ****

117. Admittedly, 'AM Netherlands' is related party of

'AM India Ltd.'. 'AM Netherlands' was the promoter of

'Uttam Galva' on the date when the 'Uttam Galva'

classified as NPA in accordance with the guidelines of

Reserve Bank of India and a period of one year has

elapsed from the date of such classification, at the time of

commencement of 'Corporate Insolvency Resolution

Process' of the 'Corporate Debtor'.

118. Once the stigma of "classification of the account

as NPA" has been labelled on the promoter of the 'Uttam

Galva', even after sale of shares by 'AM Netherlands' it

ceased to be a member or promoter of the 'Uttam Galva',

but stigma as was attached with it will continue for the

purpose of ineligibility under clause (c) of Section 29A, till

payment of all overdue amount with interest and charges

relating to NPA account of the 'Uttam Galva' is paid."

10. Adverting to the factual matrix of the instant case, be it seen that

upon evaluation of the financial matrix, feasibility and viability by the

Committee of Creditors, the Appellant -'SREI Infrastructure Finance Ltd.'

emerged as the highest evaluated Resolution Applicant. However, tables

Company Appeal (AT) (Insolvency) No. 184 of 2018 -17-

were turned on it when BPSL approached the Adjudicating Authority

(National Company Law Tribunal) Kolkata Bench through the medium of

CA No. 289 of 2018. During its hearing BPSL submitted representations

alleging that the Appellant was ineligible in terms of Section 29A of the I&B

Code as it had been held so in the DCHL Case by the Adjudicating Authority

(National Company Law Tribunal) Hyderabad Bench on the ground that the

Appellant was holding more than 24% of equity shares in DCHL and thereby

falling under the scope and ambit of a 'related party' of DCHL. It is on the

basis of the finding recorded by the Adjudicating Authority (National

Company Law Tribunal) Hyderabad Bench in DCHL Case that the

Resolution Professional held the Appellant to be ineligible under Section 29A

of the Code. The Resolution Professional placed his opinion before the CoC

which decided to negotiate with the H2 bidder - BPSL only. In utter

desperation the Appellant appears to have approached the Adjudicating

Authority against the decision of Resolution Professional and the Committee

of Creditors to reject its resolution plan and go ahead with the resolution

plan submitted by BPSL. The Adjudicating Authority appears to have

directed the CoC to consider the question of eligibility of the Resolution

Applicant under Section 29A of the Code independently, if not already done.

This happened on 07.05.2018. CoC appears to have convened its 14th

Meeting to consider the eligibility aspect of the Appellant. However, the CoC

was of the view that on account of the finding given by the Adjudicating

Authority in DCHL Case, the Appellant was at the moment ineligible under

Company Appeal (AT) (Insolvency) No. 184 of 2018 -18-

Section 29A of the Code. Thus, it declined to consider the resolution plan

submitted by the Appellant on ground of ineligibility of the Appellant.

Meanwhile the Appellant appears to have approached this Appellate

Tribunal assailing the order rendered by the Adjudicating Authority in DCHL

Case. This Appellate Tribunal passed interim direction on 9th May, 2018

directing the CoC to take a call in regard to the acceptability of the

Resolution Plans and keep the same in a sealed cover. It further emerges

from record that in pursuance of directions of this Appellate Tribunal the

CoC voted upon the BPSL resolution plan and the same was approved by

100% voting. Resolution Professional placed the BPSL resolution plan as

approved by CoC before the Adjudicating Authority. Same was done in

pursuance of interim directions passed by this Appellate Tribunal. The

Adjudicating Authority was permitted to consider the same for approval

subject to the outcome of the appeal. The Resolution Professional appears

to have approached the Adjudicating Authority for approval of the BPSL

Resolution Plan. The matter is said to be pending consideration before the

Adjudicating Authority.

11. Whether the judgment rendered by this Appellate Tribunal on

20.07.2018 in the matter of 'SREI Infrastructure Finance Ltd. Vs. Canara

Bank & Ors.', Company Appeal (AT) (Insolvency) No. 316 & 317 of 2018

overturning the finding of Adjudicating Authority (National Company Law

Tribunal), Hyderabad Bench with regard to Appellants ineligibility on the

Company Appeal (AT) (Insolvency) No. 184 of 2018 -19-

ground of being a related party of DCHL would operate as res judicata is the

primary question for consideration.

12. As has been noticed elsewhere in this judgment, a person will be

ineligible to submit a resolution plan if such person or any other person

acting jointly or in concert with such person attracts any of the

disqualifications enumerated under clause (a) to (h) of Section 29A. The

disqualification, in terms of clause (i) would also be attracted if such person

suffers from any disability corresponding to clauses (a) to (h) under any law

in a jurisdiction outside India. Clause (j) embraces within its sweep

'connected persons' including 'related party' of any person who is the

Promoter or in the Management or control of the Resolution Applicant

whether at the time of commencement of the Corporate Insolvency

Resolution Process or during the implementation of the Resolution Plan.

The expression 'person', defined under Section 3(23) of I&B Code includes

an individual, Hindu Undivided Family, a company, a trust, a partnership, a

limited liability partnership and any other statutory entity. Besides, it

includes a person resident outside India. The term 'related party in relation

to a Corporate Debtor' defined under Section 5(24), inter alia means a

private company in which a Director, Partner or Manager of the Corporate

Debtor is a Director and holds alongwith his relatives more than 2% of its

share capital. 'Related Party' also means any person who controls more

than 20% of voting rights in the Corporate Debtor or in whom the Corporate

Debtor controls more than 20% of voting rights on account of ownership or

Company Appeal (AT) (Insolvency) No. 184 of 2018 -20-

a voting agreement. Whether the Appellant was ineligible to submit a

Resolution Plan for the Corporate Debtor on the ground of being a related

party is to be determined with reference to the status of Appellant qua the

Deccan Chronicle Holdings Limited (DCHL), which has admittedly been

declared as a Non-performing Asset (NPA) for more than a period of one year

before insolvency commencement date of the Corporate Debtor. In view of

this admitted position there would be no difficulty in holding that in the

event of DCHL being a resolution applicant for the respondent corporate

debtor, it would have been disqualified under Section 29A(c). Admittedly,

DCHL, declared as NPA and suffering the ignominy of being a defaulter at

the relevant time has not jumped in the fray to submit a Resolution Plan for

the Corporate Debtor. However, the Appellant, which initially emerged as

H1 relegating BPSL to second slot was stripped of H1 status at the instance

of BPSL, which alleged ineligibility of Appellant on the ground of the

Appellant holding more than 24% of shares in DCHL which had been

declared NPA thereby bringing the Appellant within the ambit of a 'related

party' of DCHL. It appears that the allegation of ineligibility of the Appellant

relating to its capacity as a 'related party' of DCHL emanated from BPSL on

the strength of order dated 16th November, 2017 passed by Adjudicating

Authority, Hyderabad Bench in the matter of 'SREI Infrastructure Finance

Ltd. Vs. Canara Bank and Ors.', which turned tables on the Appellant

forcing its ouster from the Resolution Process of the Corporate Debtor.

Admittedly, the aforesaid order passed by Adjudicating Authority,

Company Appeal (AT) (Insolvency) No. 184 of 2018 -21-

Hyderabad Bench has been set aside in appeal by this Appellate Tribunal. It

is therefore a question of vital importance to determine whether the

allegation of ineligibility of the Appellant under Section 29A of I&B Code

founded on the edifice of finding in regard to its being a related party of

DCHL stands effaced on account of setting aside of the order of Adjudicating

Authority, Hyderabad Bench.

13. Learned counsel for Respondent No. 9 (BPSL) submits that admission

on the part of the Appellant in regard to its status as shareholder of DCHL

in its various statutory filings and pleadings coupled with its conversion

notice dated 14th December, 2013 operates as an estoppel against the

Appellant. He further submits that these equity shares were allotted to the

Appellant. Reference is made to the share certificate issued by DCHL in

favour of the Appellant. It is further submitted that without a formal order

of Tribunal cancelling such shares, the shareholding of Appellant continues

to exist. Stress is also laid on the fact that the name of Appellant continues

to appear in register of members of DCHL. Learned counsel for Appellant,

on the other hand submits that the judgment rendered by this Appellate

Tribunal setting aside the order of Adjudicating Authority, Hyderabad Bench

sets at rest the controversy in regard to status of Appellant qua DCHL and

the finding of being a related party having been overturned has the effect of

rendering the Appellant eligible as Resolution Applicant of the Corporate

Debtor.

Company Appeal (AT) (Insolvency) No. 184 of 2018 -22-

14. The question for determination is whether judgment rendered by the

Appellate Tribunal in appeal in DCHL matter operates as res judicata?

The Hon'ble Apex Court while dealing with doctrines of 'issue estoppel'/

'estoppel by judgment' and 'res judicata' in 'Satyendra Kumar & Ors. Vs.

Rajnath Dubey and Ors.' reported in (2016) 14 Supreme Court Cases 49

held that 'estoppel by judgment' operates as a bar which precludes the

parties after final judgment to re-agitate and re-litigate the same cause of

action or ground of defense or any fact determined by the judgment. The

principle of estoppel operates as a bar against the party and not the court.

Nothing comes in the way of a competent court to decide a question of law

differently if it is so warranted. However, the issues of fact, once finally

determined, will stare at the parties and bind them. Erroneous

determination of a pure question of law in a previous judgment will not

operate as res judicata in the subsequent proceeding for different property

though between the same parties.

15. Admittedly, R-9 was not a party to the decision rendered by this

Appellate Tribunal on 20.07.2018 in the matter of 'SREI Infrastructure

Finance Ltd. Vs. Canara Bank and Ors.' in which it was held that the

Appellant could not be treated to be a 'related party' in relation to DCHL.

However, the fact remains that the issue of Appellant being in control of

DCHL by virtue of holding more than 20 per cent shares and thereby

attracting ineligibility as a 'related party' was involved in DCHL matter.

Company Appeal (AT) (Insolvency) No. 184 of 2018 -23-

Determination of the question as to whether the Appellant held 24.6%

shareholding in DCHL at the relevant time thereby attracting ineligibility in

terms of provisions of Section 29A of I&B Code is relevant notwithstanding

the fact that R-9 was not a party to the DCHL matter. The finding recorded

in DCHL matter in regard to status of Appellant as a 'related party' qua

DCHL stands dislodged in appeal. The edifice upon which rested the plea of

R-9 in regard to alleged ineligibility of Appellant stands demolished. It is not

in controversy that the judgment rendered by this Appellate Tribunal in

appeal stands unassailed and has attained finality. In view of the same the

finding in appeal that the Appellant was not a related party of DCHL would

be binding though it may liberally not fall within the contours of 'Res

Judicata'.

16. Next question for consideration is whether the aforesaid finding is a

finding on a pure question of law and if so, whether the same is erroneous

so as to warrant interference in these appeal proceedings. A bare look at the

judgment lays bare that this Appellate Tribunal was of the view that the

finding of Resolution Professional and the Adjudicating Authority that the

Appellant was a 'related party' in relation to DCHL was not based on the

records of DCHL. This Appellate Court further found that even after

triggering of Corporate Insolvency Resolution Process the amount of Rs.20

crores out of Rs.240 crores investment had not been legally approved as

equity share nor recognized by the Registrar of Companies and the Stock

Exchange. Based on these findings of fact this Appellate Tribunal held that

Company Appeal (AT) (Insolvency) No. 184 of 2018 -24-

the Appellant could not be treated to be a 'related party' in relation to

Corporate Debtor. It is unmistakably clear that the finding arrived at by

this Appellate Tribunal was on a mixed question of law and fact. That being

so, it would not be open to question such finding. Finding on a question of

fact or a mixed question of law and fact, howsoever erroneous, even if

recorded in a different proceedings cannot be subject to review in these

appeal proceedings. However, that does not bring the controversy to its

logical conclusion as it is contended on behalf of R-9 that the Appellant has

admitted the factum of being a shareholder of DCHL in statutory filings and

pleadings. It appears from record that the documents and pleadings relied

upon by R-9 in this regard formed annexures to the affidavit filed in

Company Appeal (AT) (Insolvency) No. 316 and 317 of 2017 and were

considered by this Appellate Tribunal while rendering judgment dated

20.07.2018. R-9 has not been able to demonstrate as to how the judgment

rendered in appeal is irrelevant. The fact of the matter is that the allegation

emanating from R-9 in regard to ineligibility of Appellant as Resolution

Applicant on account of it being a person in control of DCHL by virtue of

owning 24.6% shareholding stands refuted by the judgment rendered by

this Appellate Tribunal in DCHL matter. R-9 appears to have raised the

issue of ineligibility of the Appellant for the first time only after the Appellant

emerged as H-1 Bidder on the basis of evaluation matrix as decided upon by

the Committee of Creditors. The Appellant came to be held as ineligible on

the strength of order passed by Adjudicating Authority (National Company

Company Appeal (AT) (Insolvency) No. 184 of 2018 -25-

Law Tribunal) Hyderabad Bench on 16.11.2017 paving way for approval of

Resolution Plan submitted by R-9 who figured as H-2 Bidder. Since the

allegation in regard to ineligibility of the Appellant was founded upon the

order passed by Adjudicating Authority, Hyderabad Bench in DCHL matter

which has since been reversed by this Appellate Tribunal, it would not be

open to R-9 to insist on fresh consideration in regard to the issue of

ineligibility of Appellant, which was based solely on order passed in DCHL

matter. Corporate Insolvency Resolution Process being a time bound

exercise, would not allow such indulgence.

17. The legal impediment in the form of ineligibility alleged against the

Appellant having been removed by process of law, the BPSL Resolution Plan

pending approval before the Adjudicating Authority under Section 31(1) of

the I&B Code no more survives for consideration. The Resolution

Professional shall now be required to place the Resolution Plan submitted by

the Appellant and approved by the CoC before the Adjudicating Authority for

its approval in terms of provisions of Section 30(6) of the Code. The

Adjudicating Authority shall accord consideration thereto in accordance

with law except for the issue in regard to eligibility of Appellant as a

Resolution Applicant which stands settled.

18. The appeal is allowed in the aforesaid terms. Since the extended

period of 270 days for conclusion of the Corporate Insolvency Resolution

Process has expired on 18th May, 2018, the period for which this appeal has

Company Appeal (AT) (Insolvency) No. 184 of 2018 -26-

remained pending shall be excluded. The Resolution Professional is granted

seven days' time from date of pronouncement of this judgment to submit the

resolution plan of Appellant as approved by CoC, before the Adjudicating

Authority for approval. There shall be no orders as to costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial) NEW DELHI

30th October, 2018

AM

Company Appeal (AT) (Insolvency) No. 184 of 2018