Srei Multiple Asset Investment Trust vs Idbi Bank Limited & Ors

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, Principal Bench, New Delhi Company Appeal (AT) (Ins) No. 593 of 2020 (Under Section 61 of Insolvency & Bankruptcy Code, 2016) (Arising from the Order dated 02.03.2020 in CP (IB) No.352/KB/2018 passed by the 'Adjudicating Authority', National Company Law Tribunal, Cuttack Bench) IN THE MATTER OF:

Srei Multiple Asset Investment Trust Having its Registered Office at "Vishwakarma" 86 C, Topsia Road, Kolkata - 700046 Appellant Vs.

1. IDBI Bank Ltd. ....Respondent No.1 Having its Registered Office at IDBI Tower, World Trade Centre Cuff Parade, Colaba Mumbai - 400005 2. Odisha Slurry Pipe ... Respondent No.2 Line Infrastructure Limited Having its office at House No.119, Ward No.11, Badahal Road, NH-6 behind Indian Bank, Keonjhar, Odisha - 758 001 3. Arcelor Mittal India Private Limited Respondent No.3 Uppal Plaza, M-6, 6th Floor, Unit C & D Jasola District Centre, New Delhi 110 025 4. Committee of Creditors of Odisha Slurry Respondent No.4 Pipeline Infrastructure Limited, Through IDBI Bank Ltd. Having its registered office at IDBI Tower, NMG, 7th Floor, WTC Complex, Cuffe Parade, Mumbai - 400 005.

1 Comp App (AT) (INS) No. 593 of 2020 Present:

For Appellant: Mr. Arijit Mazumdar, Mr. Shambo Nandy and Akanksha Kaushik, Advocates

For Respondents: Mr. Ramji Srinivasan, Sr. Advocate with Mr. Deep Roy and Mr. Rony O John, Mr. Piyush Swami, Mr. Dhaval Savla, Mr. Arshdeep Singh, Advocates for R-1.

Mr. Arun Kathpalia, Sr. Advocate with Mr. Suommo Biswas, Ms. Prabh Simran Kaur, Mr. Parth Gokhale, Mr. Siddhant Kant, Advocates for R-2 (CoC). Ms. Shrishti Agnihotri, RP

Mr. Neeraj K Kaul, Sr. Advocate with Mr. Vishal Gehrana, Mr. Naman Singh Bagga, Advocates for R-3.

JUDGMENT

(VIRTUAL MODE)

CA (AT) (INS) 593 of 2020

Coram: Mr. Justice Jarat Kumar Jain Member (J) Mr. Kanthi Narahari Member (T)

Per: Kanthi Narahari Member (T) The present Appeal is filed against the order dated 02.03.2020 in CA No.188 of 2019 in TP No.41 of 2019 in CP No.352 of 2018 passed by the Adjudicating Authority (NCLT, Cuttack Bench) whereby the Adjudicating Authority allowed the above CA and approved the Resolution Plan of the 3rd Respondent herein as per Section 31(1) of the I&B Code, 2016. Aggrieved by the same, the Appellant preferred the present Appeal.

Appellant's Submissions

2 Comp App (AT) (INS) No. 593 of 2020

1. Mr. Arijit Mazumdar, Learned Counsel appeared for the Appellant

submitted the brief facts.

2. The Learned Counsel appearing for the Appellant submitted that the

Appellant is a Trust registered under the Indian Trusts Act,1882 and registered as

category-II Alternative Investment Fund under the SEBI Regulations, 2016. It is a

privately pooled investment vehicle which collects funds from its investors and invest

such funds in accordance with the define Investment Policy for the benefit of all its

Investors. The investments are made through various schemes floated by the

Appellant from the time to time. The IGOF India Growth Opportunity Fund is one of

such schemes which is a shareholder of the 2nd Respondent Corporate Debtor. The

Appellant is a Financial Service Provider within the meaning of Section 3(17) of I&B

Code, 2016.

3. It is submitted that the Appellant invested an amount of Rs.60 Crore for

acquiring 60 lakhs equity shares of the Respondent No.2 Company and accordingly

Shares Subscription Agreements dated 28.03.2015 and 15.05.2016 was executed by

and between the Appellant and the 2nd Respondent. The Essar is another shareholder

of the Corporate Debtor, which has subscribed to Compulsorily Convertible

Debentures (CCDs) the Principal value of which was Rs.50.01 Crores.

4. It is submitted that CIRP was initiated against the 2nd Respondent vide

Order dated 14.05.2019 and declared moratorium, at the instance of the 1st

3 Comp App (AT) (INS) No. 593 of 2020 Respondent who is a Financial Creditor of the 2nd Respondent.

5. It is submitted that the main Asset of the Corporate Debtor is Pipeline

and as per the Business Transfer Agreement the sale of Pipeline transferred from

Essar to the 2nd Respondent herein. Subsequent to Business Transfer Agreement the

parties have entered a Right to Use Agreement dated 30.03.2015 executed by and

between the 2nd Respondent and Essar under which Essar undertook to pay usage

charge of Rs.600/MT for an allocated capacity of 10 Million tons per annum for use

of the Pipeline, thereby yielding a revenue of Rs.600 Crores per annum.

6. It is submitted that based on the aforesaid representation the appellant

agreed to invest an amount of Rs.60 crore for acquiring 60 lakhs equity shares of the

2nd Respondent and accordingly a Share Subscription Agreements dated 15.03.2015

and 28.052.015 was executed by and between the Appellant and the 2nd Respondent.

7. While so, the said Business Transfer Agreement dated 27.02.2015

executed by and between Essar and OSPIL for sale of Business undertaking was

cancelled vide Deed of Cancellation dated 24.06.2016 and un-winded. The said

cancellation of Business Transfer Agreement has been challenged by the SREI

Finance Investment Ltd. (SFIL) by filing suit being T.S.No.177 of 2016 in the Court

of Learned Civil Judge, Senior Division, Sealdah (Title Suit) praying for decree for

declaration that the Deed of Cancellation dated 24.06.2016 is null and void and

sought perpetual injunction restraining 2nd Respondent and Essar from giving any

4 Comp App (AT) (INS) No. 593 of 2020 effect to instrument unwinding the sale of the pipeline contained in the Business

Transfer Agreement.

8. It is submitted that the 3rd Respondent (AMIPL) herein is the Successful

Resolution Applicant for Essar Steel India Ltd. and the Resolution Plan of the 3 rd

Respondent has been approved on 08.03.2019 by the Learned Adjudicating

Authority, Ahmedabad. It is submitted that after the Judgment of the Hon'ble

Supreme Court in Essar Insolvency matter on 15.11.2019, the 3 rd Respondent

concluded the complete acquisition of Essar on 16.12.2019 by extinguishing the

existing Share Capital of Essar. As per Essar's own statement in the recently filed

Financial Statement, the 3rd Respondent in its nominee now hold 100% of its

shareholding thus, making it a wholly owned subsidiary of 3rd Respondent (AMIPL).

9. It is submitted that Essar is also a shareholder of 2nd Respondent

(OSPIL) the Corporate Debtor holding 30.2% shareholding and the 2nd Respondent

being under CIRP is an undischarged insolvent. Therefore, the 3rd Respondent is

ineligible to be a Resolution applicant of OSPIL as it is barred under Section 29A (a)

read with 29A (j) of the Code read with explanation 1 (iii) thereof thereby making 3 rd

Respondent a connected person to Essar.

10. It is submitted that the 3rd Respondent is also a Successful Resolution

Applicant of the Corporate Debtor i.e. 2nd Respondent herein. However, the Learned

Adjudicating Authority approved the resolution plan of 3rd Respondent relying only

5 Comp App (AT) (INS) No. 593 of 2020 on the basis of 3rd Respondent's Affidavit dated 29.11.2019 wherein it has affirmed

that it is eligible under Section 29A of the Code to submit the Resolution Plan for 2nd

Respondent. It is submitted that neither Resolution Professional nor the Resolution

applicant disclosed to the Learned Adjudicating Authority about the ineligibility of

3rd Respondent when the application filed by the Resolution Professional under

Section 30(6) of the Code.

11. As stated supra, the shares of the 2nd Respondent are held by the

Appellant constituting 69.8% and Essar constituting 30.2%. However, the Resolution

Plan discriminates between the two shareholders as it pays NIL amount to the

Appellant whereas it proposes to pay Essar 100% of its amount invested in

Compulsory Convertible Debentures (CCD's) by treating it as Financial Debt,

whereas the settled law is that CCD's are equity.

12. It is submitted that from 08.03.2019, the Essar is effectively under the

management of 3rd Respondent and it has become its wholly owned subsidiary. Under

the Resolution Plan the 3rd Respondent seeks to pay an amount of Rs. 501.01 Crores

to Essar which signifies that the 3rd Respondent is in effect paying Rs.501.01 Crores

to itself.

13. In view of Business Transfer Agreement and Right to Use Agreement

the Corporate Debtor ought to have yielded a Revenue in excess of Rs.600 Crores per

annum to it. Basing on promising income potential the Corporate Debtor mobilized

6 Comp App (AT) (INS) No. 593 of 2020 funds including from the Appellant for funding the purchase consideration. The

Corporate Debtor is entitled to recover over Rs.1800 Crores under RTU Agreement

form Essar and the 3rd Respondent is obligated to make such payments being CIRP

costs under insolvency process of Essar.

14. The Learned Counsel in the Grounds of Appeal submitted that the

Learned Adjudicating Authority ignored the fact that the 3 rd Respondent is a

connected person of Essar which is a shareholder of OSPIL and undischarged

insolvent. The Learned Adjudicating Authority approved the resolution plan of 3 rd

Respondent relying on the basis of its affidavit dated 29.11.2019, wherein it has

affirmed that it is eligible under Section 29A of the Code to submit the Resolution

Plan for 2nd Respondent.

15. In view of the reasons as stated above, the Learned Counsel prayed this

Bench to quash and set aside the Impugned Order dated 02.03.2020 passed by the

Adjudicating Authority, Cuttack Bench.

SUBMISSIONS OF RESPONDENTS 1 AND 4:

16. The Learned Senior Counsel appearing for the Respondent submitted

that the CIR process of the Corporate Debtor was initiated pursuant to the Order

dated 14.05.2019 passed by the Adjudicating Authority in CP/352/2018. After

completion of the process as envisaged under law, in terms of Section 25(2)(h) of the

Code after having discussions, held the Resolution Plan submitted by the 3rd

7 Comp App (AT) (INS) No. 593 of 2020 Respondent came to be approved by 100% positive vote of COC at its 8 th meeting

held on 06.12.2019. The Plan provided for payment of 100% of the verified and

admitted Principal amount due to each financial Creditor of the Corporate Debtor as

admitted by the RP.

17. It is submitted that the Appellant had at no point raised any objection to

the approved Resolution Plan before the Learned Adjudicating Authority during the

proceedings under Section 31 of the Code.

18. On the point of ineligibility of the 3rd Respondent to be a Resolution

Applicant for the 2nd Respondent in terms of Section 29A (a) (j) of the Code owing to

its purported relationship with the Corporate Debtor through Arcerol Mittal Nippon

Steel India Ltd. (formerly ESIL). It is submitted that the above ineligibility criteria

under Section 29A (a) applies only in reference to natural persons and not Corporate

persons as there is no concept of an undischarged insolvent in reference to a

Corporate person. Insolvency and Liquidation of Corporate persons is dealt with

under the provisions of the Code and/or the Companies Act, 2013 (for Liquidation on

grounds other than default/commercial grounds). Neither the code nor the Companies

Act, 2013 provide for the concept of undischarged insolvent. Therefore, even under

the I&B Code, 2016 only an individual can be considered as an undischarged

insolvent and therefore, for the said reason, the code specifically uses the terminology

Corporate Insolvency Resolution and Liquidation for the purposes of a Corporate

8 Comp App (AT) (INS) No. 593 of 2020 person and at no point of time uses the term 'undischarged insolvent' with respect to

a Corporate person under the Code.

19. The Learned Counsel appearing for the Respondent submitted that even

assuming without admitting that the test of an undischarged insolvent provided under

Section 29A (a) can apply to Corporate persons, it could only be those corporate

persons whose insolvency Resolution Process has failed resulting in Liquidation of

the Corporate Debtor under Section 33 of the Code, prior to liquidation of the

Corporate Debtor there is no question of a Corporate being termed as an

undischarged insolvent. Therefore, Section 29A (a) does not apply to the facts of

present case.

20. The Learned Counsel relied upon the Judgement of the Hon'ble

Supreme Court Thampanoor Ravi v Charupara Ravi and Ors. (1999) 8 SCC 74, and

the Judgment of this Tribunal in Binani Cements to support his argument.

21. The Learned Counsel further submitted that the 3rd Respondent did not

own and or control ESIL at the time of submission of the approved Resolution Plan

of 2nd Respondent. It is submitted that the Hon'ble Supreme Court vide its Judgment

dated 15.11.2019 in Committee of Creditors of Essar Steel India Ltd. v Satish Kumar

Gupta and Ors. (2019) 16 SCALE 319 disposed of the Appeal and the

implementation of Resolution Plan of ESIL and handover of ownership and control

9 Comp App (AT) (INS) No. 593 of 2020 of ESIL to 3rd Respondent (AMIPL) occurred only on 16.12.2019. Therefore, it is

submitted that the allegation that the 3rd Respondent was a connected person of

Corporate Debtor owing to its purported ownership control of ESIL since 08.03.2019

has no basis. As stated supra, the 3rd Respondent took over the management and

control of ESIL on 16.12.2019 whereas the approved Resolution Plan was submitted

by the 3rd Respondent in respect of Corporate Debtor on 30.11.2019 and approved by

the COC by 100% positive vote on 06.12.2019. Therefore, it is submitted that prior to

taking over the ESIL the 3rd Respondent plan was approved.

22. It is submitted that the entire purpose of Section 29A of the Code is to

preclude undesirable persons from participating in the resolution process and not to

punish bona fide resolution applicants who are genuinely attempting to revive certain

Corporate Debtors. It is submitted that keeping in view the text and object of

introducing Section 29A within the four corners of the Code, the 3 rd Respondent not

being an undesirable person who contributed towards the Corporate Debtor would in

no manner fall within the ambit of Section 29A of the Code. It is submitted that the

intent of this legislation not to penalize genuine resolution applicants only on account

of having taken over the distressed debtor under the framework of the code can be

deciphered from the 2nd Proviso to Section 29A (c) introduced vide the Insolvency

and Bankruptcy Code, (2nd Amendment) Act, 2018 whereby the legislature has

clarified that the ineligibility under Section 29A (c) would not be applicable to

10 Comp App (AT) (INS) No. 593 of 2020 Resolution Applicants who acquired a debtor pursuant to a prior Resolution Plan

approved under the Code.

23. With regard to the RTU charges the Learned Counsel submitted that the

RTU charges had remained due and pending from ESIL to the Corporate Debtor for a

substantial period of time prior to the commencement of the CIR Process. During

such period the Appellant being the majority shareholder of the Corporate Debtor

failed to take any steps whatsoever to ensure that appropriate efforts were made to

secure the recovery of the RTU charges due to the Corporate Debtor. Even

subsequent to commencement of the CIR process of ESIL on 02.08.2017, the

Corporate Debtor in which the Appellant being its majority shareholder failed to file

any claim as an Operational Creditor under the statutory Form 'B' with the

Resolution Professional of ESIL.

24. It is submitted that the question of the pending RTU charges has no

effect whatsoever on the legality or the validity of the approved Resolution Plan.

25. With regard to payment of approximately Rs.501 Crores to ESIL is in

accordance with equal treatment accorded to all Financial Creditors. It is submitted

that the Resolution Plan has ensured equal treatment to all admitted Financial Debts

of the Corporate Debtor by ensuring payment of 100% principal admitted debt of

each of the institutional Financial Creditors (Secured and Unsecured), ESIL, PSCL

and SIFL.

11 Comp App (AT) (INS) No. 593 of 2020

26. It is submitted that each company is a separate legal entity and therefore,

a separate person in law from its shareholders. Therefore, the contention that by

virtue of the approved Resolution Plan the 3rd Respondent has sought to make

payment to itself is contrary to the Principle of Law.

27. It is submitted that the RP has duly admitted the claim of ESIL arising

out of the compulsorily convertible debentures held by it as a Financial Debt and the

payment of approximately Rs.501 Crores made to ESIL in terms of the approved

Resolution Plan is towards the full and final satisfaction of such Financial Debt held

by ESIL.

28. It is submitted that the provisions of the Code do not mandate that a

Resolution Plan is required to provide for return for the equity shareholders of the

Corporate Debtor.

29. In view of the reasons as stated above the Learned Counsel prayed this

Tribunal to dismiss the Appeal.

3RD RESPONDENT'S SUBMISSIONS:

30. The Learned Counsel appearing for the 3rd Respondent submitted that

the appellant has no loco standi in its capacity as an erstwhile shareholder of

Corporate Debtor to intervene in and challenge the Plan. It is a settled law that

shareholders have no role to play in either the initiation of the CIRP or in the

12 Comp App (AT) (INS) No. 593 of 2020 Resolution Process. Shareholders have no right to take part in the proceedings of the

COC. Furthermore, they are ineligible to participate as Resolution Applicants by

virtue of the bar under Section 29A of the I&B Code. Further the shareholders are not

entitled to receive any payments under Section 30 of the I&B Code. Therefore, the

Appellant cannot be considered to be an aggrieved person within the meaning of

section 61 and has no loco standi to challenge the Plan.

31. It is submitted that the Appellant has chosen to challenge the order

belatedly on 13.07.2020 after the 3rd Respondent has already disbursed payments in

excess of Rs.2358 Crores under the Resolution Plan and discharged the debts of

Corporate Debtor. The Appellant was fully aware of the Plan approval proceedings

before the Adjudicating Authority.

32. With regard to the ineligibility of 3rd Respondent under Section 29A (a)

and 29A (j) of the I & B Code, it is submitted that the said reliance is incorrect and

unsustainable. The Appellant sought to invoke Section 29A (a) on the ground that the

Corporate Debtor was an undischarged insolvent. The phrase "undischarged

insolvent" has a specific connotation in law when it is used by the legislature, and

means individuals who are adjudged insolvent under the prevailing insolvency laws

and not yet discharged by the Court. The Corporate persons do not even come within

the purview of the Insolvency Law such as the Precedency Terms Insolvency Act

1909 and the Provincial Insolvency Act, 1902.

13 Comp App (AT) (INS) No. 593 of 2020

33. It is submitted that the term "bankrupt" under Section 79(3) of the I&B

Code, is defined to include any person adjudged as an undischarged insolvent.

Section 79 is placed under part III which only applies to Individuals and Partnership

Firms. Therefore, the undischarged insolvent under Section 29A cannot be the

Corporate Debtor itself. Further, the contention of the Appellant that the ESIL to be

a connected party to 3rd Respondent under Section 29A (j) is concerned, under the

scheme of Section 29A(a) read with Section 29A (j), the so-called connected party

and the undischarged insolvent cannot be two separate entities.

34. The Learned Counsel submitted that Section 29A was introduced with

the specific purpose of precluding undesirable persons from participating in the

Resolution Process and not to punish Resolution Applicants who are genuinely

attempting to revive certain Corporate Debtors.

35. It is submitted that on the date of submission of the Resolution Plan in

respect of 2nd Respondent, the 3rd Respondent had no control over ESIL. As stated

supra, the Resolution Plan for the Corporate Debtor was submitted on 30.11.2019 by

the 3rd Respondent much prior to the acquisition of ESIL by the 3 rd Respondent. The

ineligibility claimed by the appellant arises from the 3rd Respondent's control of

ESIL which occurred on 16.12.2019 when the 3rd Respondent came to acquire 100%

shares of ESIL i.e. after the date on which ineligibility attaches. The said fact was

admitted by the Appellant also. Therefore, as on the date of submitting the Resolution

14 Comp App (AT) (INS) No. 593 of 2020 Plan, the 3rd Respondent was eligible.

36. In view of the reasons as stated above, the Learned Counsel prayed this

Bench to dismiss the Appeal.

37. Heard the Learned Counsel appeared for the respective parties, perused

the Pleadings and documents filed in their support. After analyzing the pleadings, the

issue that arises for consideration is whether the 3rd Respondent is ineligible under

Section 29A(a) read with Section 29A(j) of the Code, 2016 read with explanation I

(iii) thereof to submit a Resolution Plan or not?

38. Before answering the issue we would like to refer to a few facts. The

present Appeal filed challenging the approval of the Resolution Plan of the 3rd

Respondent herein in respect of the Corporate Debtor i.e. 2nd Respondent by the

Adjudicating Authority vide Order dated 2nd March 2019. The Resolution

Professional of the Corporate filed IA/188/2019 before the Adjudicating Authority

under Section 30(6) read with Section 31(1) of the I & B Code, 2016 for seeking

approval of the Resolution Plan. While so, the SFIL filed two applications being CA

No.12 of 2020 and CA No.194 of 2019. CA 194 of 2019 the applicant therein sought

relief to allow the said applicant as intervener to be impleaded in the proceedings and

sought some more directions as prayed in the said Application. However, CA 12 of

2020 the Applicant i.e. SIFL sought declaration that the Resolution Plan submitted by

3rd Respondent herein be declared as illegal.

15 Comp App (AT) (INS) No. 593 of 2020

39. However, the Learned Adjudicating Authority dealt those two

applications and gave a finding in respect thereof. However, this Tribunal is not

concerned with those issues. Having considered the application filed by the

Resolution Applicant, being CA No.188 of 2019 the Learned Adjudicating Authority

approved the Resolution Plan submitted by the 3 rd Respondent herein as per Section

31(1) of the I&B Code, 2016. It is an admitted fact that the plan of the R3 was

approved by 100% of voting in the 8th COC meeting held on 06.12.2019.

40. It is seen that the Appellant has not challenged nor filed any application

when CA/188/2019 filed by the RP seeking approval of the Resolution Plan.

However, the Appellant filed the present appeal on 13.07.2020 whereas the order

passed by the Adjudicating Authority in IA/188/2019 on 02.03.2020. We are of the

view that there is no challenge with regard to the ineligibility of the Respondent No.3

before the Learned Adjudicating Authority and there is no occasion for the

Adjudicating Authority to deal with the same. It is also an admitted fact that the

Appellant is a shareholder of the Corporate Debtor (holding 69.8% and the other

Shareholder of the Corporate Debtor is Essar who holds 30.2%). One of the grounds

raised by the Respondent is that the Appellant is not an aggrieved party to file the

present Appeal, since the appellant is not a aggrieved party as contemplated under

Section 61 of the I&B Code, 2016. However, we are not going into those issues at

this point of time.

16 Comp App (AT) (INS) No. 593 of 2020

41. Now, we classify to address the issues i.e.

a. whether the 3rd Respondent is ineligible under Section 29A

b. whether the plan discriminates between two shareholders i.e.

Appellant and Essar.

42. In this regard, we refer to Section 29A which read as under:

"29A 'persons' not eligible to be Resolution Applicant. A person shall

not be eligible to submit a Resolution Plan if such person, are any other person

acting jointly or in concert with such person.

a) Is an undischarged insolvent

b) A willful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulations Act, 1949

c) at the time of submission of the Resolution Plan has an account or an account of the 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 Regulations Act, 1949 (10 of 1949) or the guidelines of a Financial Sector Regulator issued under any other law for the time being in force 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

17 Comp App (AT) (INS) No. 593 of 2020 before submission of resolution plan.

j) has a connected person not eligible under Clauses (a) and (i). Explanation I: 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 the 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 referred to in clauses (i) and (ii) provided that nothing in clause (iii) of explanation 1 shall apply to a Resolution Applicant where such applicant is a financial entity and is not a related party of the Corporate Debtor."

43. From the plain reading of the Section 29A Sub clause (a) which referred

to as 'is an undischarged insolvent'. The undischarged insolvent has not defined in

the IBC, however, the word 'insolvent' has been defined under Section 79 Sub

Section 3 which falls under part III of the I&B Code. The said Part III applicable to

individuals and partnership firms. As per the above sub section 3, the Bankrupt

means (a) a debtor who has been adjudged as Bankrupt by a Bankruptcy Order under

Section 126, (b) each of the partners of a firm, where a Bankruptcy order under

Section 126 has been made against a firm or (c) any person adjudged as an

'undischarged insolvent'. Therefore, from the plain reading of the above provisions

18 Comp App (AT) (INS) No. 593 of 2020 the undischarged insolvent is applicable to individuals and partnership firms.

44. The Appellant cannot take the above stand that the 3rd Respondent is an

'undischarged insolvent'. Section 29A was inserted by Act 8 of 2018 with effect from

23.11.2017 with a purpose precluding undesirable persons from participating in the

Resolution Process.

45. The issue relating to Section 29A came up for consideration before the

Hon'ble Supreme Court and the Hon'ble Supreme Court in Arcerol Mittal India Pvt.

Ltd. v Satish Kumar Gupta and Ors. reported in (2019) 2 SCC, the Hon'ble Supreme

Court reproduced the amendment bill placed before the Parliament and one of the

Statement and objects of the Bill of the Hon'ble Minister extracted as under:

"28. The Statement of objects and reasons of the aforesaid bill lays down

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 the 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 persons would be seen to be rewarded at the expense of the creditors. In addition, in order to check that the undesirable persons who may have submitted their resolution plans in the absence of such a provision, responsibility is also being entrusted on the

19 Comp App (AT) (INS) No. 593 of 2020 committee of creditors, to give a reasonable period to repay overdue amounts and become eligible."

46. From the reading of the above statement and objects by incorporating

Section 29A by way of amendment is to preclude undesirable persons from

participating in the resolution process. Further the Hon'ble Supreme Court held that

the Courts must take recourse to the purpose, object, text and context of a particular

provision before arriving at a judicial conclusion. Having considered the legal

position as explained hereinabove, we consider it and hold that the 3rd Respondent is

not ineligible to be a Resolution Applicant.

47. One of the grounds raised regarding ineligibility of the 3rd Respondent

who is a connected person to the Corporate Debtor by virtue of taking over the ESIL

as a Successful Resolution Applicant thereof. Admittedly, the ESIL is one of the

Shareholder of the Corporate Debtor. In accordance with Section 29A (J) of the I&B

Code which refers to connected person.

48. The 3rd Respondent is a Successful Resolution Applicant of ESIL and

ESIL is one of the Shareholder of the Corporate Debtor. While so, it is an admitted

fact that the Successful Resolution Applicant has not stepped into shoe of the

Corporate Debtor i.e. ESIL in view of the reason that the matter has been pending

before the Hon'ble Supreme Court and the Hon'ble Supreme Court vide its order

dated 12.04.2019 directed the non-implementation of the order of the Ahmedabad

20 Comp App (AT) (INS) No. 593 of 2020 Bench of Adjudicating Authority until the appeal before the Hon'ble Supreme Court

was finally decided. The Hon'ble Supreme Court on 22.07.2019 directed a status quo

to be maintained by the parties in civil Appeal No.24417 of 2019. Further, the

Hon'ble Supreme Court finally disposed of the Appeals on 15.11.2019 and till such

time, there was no occasion of implementing the resolution plan of ESIL. It is on

record that the 3rd Respondent took over the management and control of ESIL

on16.12.2019. It is borne out from the facts that the 3rd Respondent submitted

expression of interest on 28.08.2019 and thereafter submitted the Resolution Plan in

November 2019 and approved by the COC on 06.12.2019 i.e. prior to taking over the

Management and Control of ESIL.

49. To elaborate further, with regard to undischarged insolvent means a

person declared by the relevant court to be insolvent. As per the I&B Code, 2016 the

CIR process is a process undertaken for Resolution of the Corporate Debtor as a

going concern to save it from Corporate Death i.e. Liquidation. In our view, the

Successful Resolution Applicant who takes over the company as the going concern

unless and otherwise, declared as ineligible under the Provisions of I&B Code, 2016,

cannot be treated as ineligible.

50. In view of the aforesaid fact, the 3rd Respondent was not in the control

and management of ESIL until the disposal of the Appeals by the Hon'ble Supreme

Court. Therefore, the Appellant cannot be treated or classified as a connected person.

21 Comp App (AT) (INS) No. 593 of 2020 Till the time the Appellant finally took the company into its control and management,

the company was managed and was under the control of the Resolution Professional

of ESIL.

51. As on the date of submission of Resolution Plan to this Corporate

Debtor by the 3rd Respondent, the 3rd Respondent was not the shareholder of the

Corporate Debtor i.e. OSPIL. Therefore, the stand that it is the connected party is

rejected.

52. Further, Section 29A(c) would not be applicable to Resolution

Applicants who acquire a Corporate Debtor pursuant to a prior Resolution Plan

approved under the Code. Therefore, we hold that the 3rd Respondent is not ineligible

for the submission of Resolution Plan as a Successful Resolution Applicant.

53. The other contention of the Appellant is that the ESIL who is a 32%

shareholder paid a sum of RS.501.01 Crore and the Appellant was not made any

payment. It is to state that the ESIL who is a shareholder of the Corporate Debtor and

having Compulsorily convertible Debentures and the ESIL was categorized as

Financial Creditor of the Corporate Debtor. As per the approved Resolution Plan the

3rd Respondent proposed a payout based on the admitted principal amount due to all

Financial Creditors and would be paid in full in accordance with the List of Creditors.

Further the Plan has ensured equal treatment of all admitted Financial Debtors of the

Corporate Debtor by ensuring payment of Rupees 100% Principal admitted debt. It is

22 Comp App (AT) (INS) No. 593 of 2020 also on record that the Resolution Professional in the present case admitted the claim

of ESIL arising out of CCD's held by it as a Financial Debt and the payment of

Rs.501 Crores made to ESIL in terms of the approved Resolution Plan. Therefore, the

ESIL was treated as a Financial Creditor not only as a shareholder. Therefore, the

stand of the appellant that the plan discriminating between the two similarly situated

shareholders is far from truth and cannot be accepted.

54. It is not out of place to mention that the debentures being treated as the

Debt under the IBC and not as equity. Therefore, the payment made to the ESIL for

the CCDs which was classified as a Financial Debt, cannot be equated as a payment

made to ESIL in the capacity as an equity shareholder.

CONCLUSION:

55. All the issues answered against the Appellant. In view of the aforesaid

reasons, the Appellant has not made out any case and a futile exercise in filing this

Appeal. The Appeal is devoid of merit and liable to be dismissed. Accordingly, the

same is dismissed. No orders as to cost.

[Kanthi Narahari] [Justice Jarat Kumar Jain] Member (Technical) Member (Judicial)

18.01.2022 SE

23 Comp App (AT) (INS) No. 593 of 2020