ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH KUMAR GUPTA & ORS.
vidhipandit.com/case/sc-2018-12-362-494
Headnote — Supreme Court Reports (editorial summary, not part of the judgment)
by Numetal to be considered by CoC to find out its viability – As A regards AMIPL, order of NCLT was affirmed subject to condition that AMIPL shall make payment of all overdue amount with interest thereon and charges relating to NPA of both the “Uttam Galva” and “KSS Petron” within three days – Instant appeals filed by AMIPL and Numetal –
Held
The ingredients of sub-clause (c) of s.29A are that, the ineligibility to submit a resolution plan attaches if any person, as is referred to in the opening lines of s.29A, either itself has an account, or is a promoter of, or in the management or control of, a corporate debtor which has an account, which account has been classified as a non-performing asset, for a period of at least one year from the date of such classification till the date of commencement of the corporate insolvency resolution process – If it is shown, on facts, that, at a reasonably proximate point of time before the submission of the resolution plan, the affairs of the persons referred to in s.29A are so arranged, as to avoid paying off the debts of the non-performing asset concerned, such persons must be held to be ineligible to submit a resolution plan – In the instant case, since both the resolution plans even on 2.4.2018, were hit by s.29A(c), and since the proviso to s.29A(c) will not apply as the corporate debtors related to AMIPL and Numetal have not paid off their respective NPAs, ordinarily, these appeals would be disposed of by merely declaring both resolution applicants to be ineligible under s.29A(c) – However, in order to do complete justice under Art.142 of the Constitution of India, one more opportunity is given to both resolution applicants to pay off the NPAs of their related corporate debtors within a period of two weeks in accordance with the proviso to s.29A(c) – If such payments are made within the said period, both resolution applicants can resubmit their resolution plans dated 2.4.2018 to CoC, who are then given a period of 8 weeks to accept, by the requisite majority, the best amongst the plans submitted, including the resolution plan submitted by Vedanta – In the event that no plan is found worthy of acceptance by the requisite majority of the CoC, the corporate debtor, i.e. ESIL, shall go into liquidation – Constitution of India – Art.142 – Company law. Insolvency and Bankruptcy Code, 2016: s.29A(c) – It is important for the competent authority to see that persons, who are
A otherwise ineligible and hit by sub-clause (c), do not wriggle out of the proviso to sub-clause (c) by other means, so as to avoid the consequences of the proviso – For this purpose, despite the fact that the relevant time for the ineligibility under sub-clause (c) to attach is the time of submission of the resolution plan, antecedent facts reasonably proximate to this point of time can always be seen, to determine whether the persons referred to in s.29A are, in substance, seeking to avoid the consequences of the proviso to sub- clause (c) before submitting a resolution plan. Insolvency and Bankruptcy Code, 2016: s.29A – Point of time at which the disqualification in sub-clause (c) of s.29A will attach – C
Held
The stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant – The date of commencement of the corporate insolvency resolution process is only relevant for the purpose of calculating whether one year has lapsed from the date of classification of a person as a non-performing asset. D Insolvency and Bankruptcy Code, 2016: s.3(37) – By s.3(37) of the Code, words and expressions used but not defined in the Code but defined inter alia by the SEBI Act, 1992, and the Companies Act, 2013, shall have the meanings respectively assigned to them in those Acts – SEBI (Substantial Acquisition of Shares and Takeovers) E Regulations, 2011 – s.2(1)(q). Doctrines/Principles: Doctrine of lifting veil – Held: The doctrine is applicable even to group companies, so that one is able to look at the economic entity of the group as a whole. Words and phrases: Expression “acting jointly” – Meaning of in the context of s.29A of Insolvency and Bankruptcy Code, 2016. Disposing of the appeals, the Court HELD: 1.1 Where a statute itself lifts the corporate veil, or where protection of public interest is of paramount importance, or where a company has been formed to evade obligations imposed by the law, the court will disregard the corporate veil. Further, this principle is applied even to group companies, so that one is able to look at the economic entity of the group as a whole. [Para 34] [427-F-G]
Reporter's headnote (continued) and case details
362 [2018] REPORTS SUPREME COURT 12 S.C.R. 362 [2018] 12 S.C.R.
A (Civil Appeal Nos. 9402-9405 of 2018) Insolvency and Bankruptcy Code, 2016: s.29A – Issue relates to ineligibility of resolution applicants to submit resolution plans after the introduction of s.29A into the Code – Petition filed under C the Code for financial debts owed to the financial creditors-Banks by the corporate debtor ESIL for Rs.45,000 crores – RP (Resolution Professional) invited an expression of interest from potential resolution applicants – Appellant (AMIPL) and one entity Numetal submitted expression of interest – Submission of resolution plan by D AMIPL and Numetal – RP found both AMIPL and Numetal ineligible under s.29A – RP held that AM Netherlands mentioned as a connected person of AMIPL was disclosed as a promoter of Uttam Galva which was declared as a NPA – Similar was the situation of Numetal – AMIPL and Numetal challenged the order of RP before Adjudicating Authority (NCLT) – On 2.4.2018, pursuant to the RP’s E invitation, fresh resolution plans submitted by AMIPL, Numetal and one other entity ‘Vedanta’ – On 19.4.2018, NCLT passed order in all the IAs, wherein it first held that there was no patent illegality in the decision of RP for declaring ineligibility of applicants – It then went on to hold that RP ought to have produced both the resolution plans before the Committee of Creditors (CoC) and to follow the provision of s.29A(c) r/w s.30(4) for affording opportunity to the resolution applicants before declaring them ineligible and, therefore, remanded back the matter to RP and CoC on this ground – Pending appeals before NCLAT, on 8.5.2018, CoC disqualified AMIPL and Numetal – On 7.9.2018, NCLAT held that at the time of first resolution plan by Numetal, one of the shareholders being ‘AEL’ was related party and therefore, Numetal was not eligible to submit resolution plan in terms of s.29A and that on 29.3.2018, as the AEL was not the shareholder of Numetal and all the three shareholders being eligible, Numetal was eligible – Therefore, resolution plan submitted H 362
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Faqir Chand Gulati v. Uppal Agencies Pvt. Ltd. & Anr. A (2008) 10 SCC 345 : [2008] 10 SCR 697; Laurel Energetics Private Limited v. Securities and Exchange Board of India, (2017) 8 SCC 541 : [2017] 5 SCR 1005 – held inapplicable. 1.2 The expression “acting jointly” in the opening sentence B of Section 29A cannot be confused with “joint venture agreements”. All that is to be seen by the expression “acting jointly” is whether certain persons have got together and are acting “jointly” in the sense of acting together. If this is made out on the facts, no super added element of “joint venture” as is understood in law is to be seen. The other important phrase is “in concert”. By C Section 3(37) of the Code, words and expressions used but not defined in the Code but defined inter alia by the SEBI Act, 1992, and the Companies Act, 2013, shall have the meanings respectively assigned to them in those Acts. In exercise of powers conferred by Sections 11 and 30 of the SEBI Act, 1992, the 2011 D Takeover Regulations have been promulgated by SEBI. By Regulation 2(1)(q) of the 2011 Takeover Regulations, “persons acting in concert” is defined. Under sub-clause (2) of clause (q), a deeming fiction is enacted, by which a presumption is raised in the categories mentioned, that a person falling within one category is deemed to be acting in concert with another person mentioned in the same category, unless the contrary is established. The corporate veil is not merely torn but is left in tatters by sub- clauses (i) to (iv) of Regulation 2(1)(q)(2). Sub-clause (v) covers “immediate relatives” i.e., father and son, brothers, etc. Explanation to Regulation 2(1)(q)(2) defines “associate”, which subsumes not merely immediate relatives but other forms in which a person can be associated with another - which includes the form of trust, partnership firm and HUF. Wherever persons act jointly or in concert with the “person” who submits a resolution plan, all such persons are covered by Section 29A. [Paras 35, 38, 39] [427- G-H; 428-A-C; 431-E; 433-D-F] G
Technip SA v. SMS Holding (Pvt.) Ltd. & Ors. (2005) 5 SCC 465 : [2005] 1 Suppl. SCR 223; M/s. Daiichi Sankyo Company Ltd. v. Jayaram Chigurupati & Ors. (2010) 7 SCC 449 : [2010] 8 SCR 251 – relied on. H
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A 2.1 The opening words of Section 29A state: “a person shall not be eligible to submit a resolution plan…”. It is therefore clear that the stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant. The date of commencement of the corporate insolvency resolution process is only relevant for the purpose of calculating whether one year B has lapsed from the date of classification of a person as a non- performing asset. Further, the expression used is “has”, is in praesenti. This is to be contrasted with the expression “has been”, which is used in sub-clauses (d) and (g), which refers to an anterior point of time. [Para 43] [437-D-F] C 2.2 The ingredients of sub-clause (c) are that, the ineligibility to submit a resolution plan attaches if any person, as is referred to in the opening lines of Section 29A, either itself has an account, or is a promoter of, or in the management or control of, a corporate debtor which has an account, which account D has been classified as a non-performing asset, for a period of at least one year from the date of such classification till the date of commencement of the corporate insolvency resolution process. For the purpose of applying sub-clause (c), any one of three things, which are disjunctive, needs to be established. The expression “management” would refer to the de jure management of a E corporate debtor. The de jure management of a corporate debtor would ordinarily vest in a Board of Directors, and would include, in accord with the definitions of “manager”, “managing director” and “officer” in Sections 2(53), 2(54) and 2(59) respectively of the Companies Act, 2013, the persons mentioned therein. The F expression “control” is defined in Section 2(27) of the Companies Act, 2013. The expression “control” is defined in two parts. The first part refers to de jure control, which includes the right to appoint a majority of the directors of a company. The second part refers to de facto control. So long as a person or persons acting in concert, directly or indirectly, can positively influence, G in any manner, management or policy decisions, they could be said to be “in control”. A management decision is a decision to be taken as to how the corporate body is to be run in its day to day affairs. A policy decision would be a decision that would be beyond running day to day affairs, i.e., long term decisions. So H
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long as the management or policy decisions can be, or are in fact, A taken by virtue of shareholding, management rights, shareholders agreements, voting agreements or otherwise, control can be said to exist. Thus, the expression “control”, in Section 29A(c), denotes only positive control, which means that the mere power to block special resolutions of a company cannot amount to control. B “Control” here, as contrasted with “management”, means de facto control of actual management or policy decisions that can be or are in fact taken. [Para 44-48] [438-A-E] M/s Subhkam Ventures (I) Private Limited v. The Securities and Exchange Board of India (Appeal No. 8 of 2009 decided on 15.1.2010) – relied on. C
2.3 Section 29A(c) speaks of a corporate debtor “under the management or control of such person”. The expression “under” would seem to suggest positive or proactive control, as opposed to mere negative or reactive control. This becomes even clearer when sub-clause (g) of Section 29A is read, wherein the expression used is “in the management or control of a corporate debtor”. Under sub-clause (g), only a person who is in proactive or positive control of a corporate debtor can take the proactive decisions mentioned in sub-clause (g), such as, entering into preferential, undervalued, extortionate credit, or fraudulent transactions. It is thus clear that in the expression “management or control”, the two words take colour from each other, in which case the principle of noscitur a sociis must also be held to apply. Thus viewed, what is referred to in sub-clauses (c) and (g) is de jure or de facto proactive or positive control, and not mere negative control which may flow from an expansive reading of the definition of the word “control” contained in Section 2(27) of the Companies Act, 2013, which is inclusive and not exhaustive in nature. [Para 50] [440-F-H; 441-A] Chintalapati Srinivasa Raju v. Securities and Exchange Board of India, (2018) 7 SCC 443; Securities and G Exchange Board of India v. Kishore R. Ajmera (2016) 6 SCC 368 : [2016] 1 SCR 1118 – relied on. 2.4 Sub-clause (a) refers to a de jure position, namely, where a person is expressly named in a prospectus or identified by the H
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A company in an annual return as a promoter. Sub-clauses (b) and (c) speak of a de facto position. Under sub-clause (b), so long as a person has “control” over the affairs of a company, directly or indirectly, in any manner, he could be said to be a promoter of such company. Under sub-clause (c), such person need not be a member of the Board of Directors of a company, but can be a B person who in fact advises, directs or instructs the Board to act. Under the proviso, only a person who acts in a professional capacity is excluded from the talons of sub-clause (c). Any person who wishes to submit a resolution plan, if he or it does so acting jointly, or in concert with other persons, which person or other persons happen to either manage or control or be promoters of a corporate debtor, who is classified as a non-performing asset and whose debts have not been paid off for a period of at least one year before commencement of the corporate insolvency resolution process, becomes ineligible to submit a resolution plan. The first proviso to sub-clause (c) makes it clear that the ineligibility can only be removed if the person submitting a resolution plan makes payment of all overdue amounts with interest thereon and charges relating to the non-performing asset in question before submission of a resolution plan. Any person who wishes to submit a resolution plan acting jointly or in concert with other persons, any of whom may either manage, control or be a promoter of a corporate debtor classified as a non-performing asset in the prescribed period must first pay off the debt of the said corporate debtor classified as a non-performing asset in order to become eligible under Section 29A(c). [Paras 53, 54] [442-A-G] F 3.1 If a person has been a promoter, or in the management, or control, of a corporate debtor in which a preferential transaction, undervalued 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 the Code, such person is ineligible to present a G resolution plan under Section 29A(g). This ineligibility cannot be cured by paying off the debts of the corporate debtor. Therefore, it is only such persons who do not fall foul of sub- clause (g), who are eligible to submit resolution plans under sub- clause (c) of Section 29A, if they happen to be persons who were H
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in the erstwhile management or control of the corporate debtor. A [Para 56] [444-B-D] 3.2 It is important for the competent authority to see that persons, who are otherwise ineligible and hit by sub-clause (c), do not wriggle out of the proviso to sub-clause (c) by other means, so as to avoid the consequences of the proviso. For this purpose, B despite the fact that the relevant time for the ineligibility under sub-clause (c) to attach is the time of submission of the resolution plan, antecedent facts reasonably proximate to this point of time can always be seen, to determine whether the persons referred to in Section 29A are, in substance, seeking to avoid the consequences of the proviso to sub-clause (c) before submitting C a resolution plan. If it is shown, on facts, that, at a reasonably proximate point of time before the submission of the resolution plan, the affairs of the persons referred to in Section 29A are so arranged, as to avoid paying off the debts of the non-performing asset concerned, such persons must be held to be ineligible to D submit a resolution plan, or otherwise both the purpose of the first proviso to sub-section (c) of Section 29A, as well as the larger objective sought to be achieved by the said sub-clause in public interest, will be defeated. [Para 57] [446-E-G] Madras Petrochem Ltd. and Anr. v. Board for Industrial E and Financial Reconstruction and Ors., (2016) 4 SCC 1: [2016] 11 SCR 419; Innoventive Industries Ltd. v. ICICI Bank & Anr. (2018) 1 SCC 407 : [2017] 8 SCR 33; E.V. Mathai v. Subordinate Judge, Kottayam & Ors., (1969) 2 SCC 194 : [1970] 1 SCR 345 – relied on. F
4.1 How the corporate insolvency resolution process is to work from the inception. Before admission of an application under Section 7 by a financial creditor, the Adjudicating Authority is, under Section 7(4), to first ascertain the existence of a default within 14 days of receipt of the application, as specified in Section G 7(4). Upon satisfaction that such default has occurred, it may then admit such application, subject to rectification of defects, which the proviso in Section 7(5) says must be done within 7 days of receipt of such notice from the Adjudicating Authority by H
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A the applicant. The time frame within which ascertainment of default is to take place, as well as the time within which the defect is to be rectified are directory in nature, the reason being that the stage of these provisions is before admission of the application. The corporate insolvency resolution process commences from the date of admission of the application vide Section 7(6). Section B 7(7) makes it incumbent upon the Adjudicating Authority to communicate the order accepting or rejecting the application to the financial creditor and the corporate debtor within a period of 7 days of such admission or rejection. [Para 69] [462-E-H] Surendra Trading Co. v. Juggilal Kamlapat Jute Mills C Company Ltd. & Ors. (2017) 16 SCC 143 – relied on. 4.2 The time limit for completion of the insolvency resolution process is laid down in Section 12. A period of 180 days from the date of admission of the application is given by Section 12(1). This is extendable by a maximum period of 90 D days only if the Committee of Creditors, by a vote of 66%, votes to extend the said period, and only if the Adjudicating Authority is satisfied that such process cannot be completed within 180 days. The authority may then, by order, extend the duration of such process by a maximum period of 90 days. What is also of importance is the proviso to Section 12(3) which states that any extension of the period under Section 12 cannot be granted more than once. This has to be read with the third proviso to Section 30(4), which states that the maximum period of 30 days mentioned in the second proviso is allowable as the only exception to the extension of the aforesaid period not being granted more than once. Section 33 makes it clear that when either of these two contingencies occurs, the corporate debtor is required to be liquidated in the manner laid down in Chapter III. Section 12, construed in the light of the object sought to be achieved by the Code, and in the light of the consequence provided by Section G 33, therefore, makes it clear that the periods previously mentioned are mandatory and cannot be extended. In fact, even the literal language of Section 12(1) makes it clear that the provision must read as being mandatory. The expression “shall be completed” is used. Further, sub-section (3) makes it clear that the duration of 180 days may be extended further “but not H
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exceeding 90 days”, making it clear that a maximum of 270 days is laid down statutorily. Also, the proviso to Section 12 makes it clear that the extension “shall not be granted more than once”. [Paras 70, 71, 72] [463-A-C, E-G; 464-A] 4.3 Regulation 40A of the CIRP Regulations presents a model timeline of the corporate insolvency resolution process, on the basis that the time available is 180 days. It is of utmost importance for all authorities concerned to follow this model timeline as closely as possible. [Para 74] [466-F-G; 470-F] 4.4 It is settled law that a statute is designed to be workable, and the interpretation thereof should be designed to make it so workable. [Para 75] [470-G-H] Commissioner of Income Tax, Delhi v. S. Teja Singh [1959] Supp. 1 SCR 394 – relied on. 4.5 Given the timeline, and given the fact that a resolution applicant has no vested right that his resolution plan be considered, it is clear that no challenge can be preferred to the Adjudicating Authority at this stage. A writ petition under Article 226 filed before a High Court would also be turned down on the ground that no right, much less a fundamental right, is affected at this stage. This is also made clear by the first proviso to Section E 30(4), whereby a Resolution Professional may only invite fresh resolution plans if no other resolution plan has passed muster. However, a Resolution Professional is only to “examine” and “confirm” that each resolution plan conforms to what is provided by Section 30(2). The Resolution Professional is required to examine that the resolution plan submitted by various applicants is complete in all respects, before submitting it to the Committee of Creditors. The Resolution Professional is not required to take any decision, but merely to ensure that the resolution plans submitted are complete in all respects before they are placed before the Committee of Creditors, who may or may not approve it. The fact that the Resolution Professional is also to confirm that a resolution plan does not contravene any of the provisions of law for the time-being in force, including Section 29A of the Code, only means that his prima facie opinion is to be given to the Committee of Creditors that a law has or has not been H
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A contravened. Section 30(2)(e) does not empower the Resolution Professional to “decide” whether the resolution plan does or does not contravene the provisions of law. Thus, the importance of the Resolution Professional is to ensure that a resolution plan is complete in all respects, and to conduct a due diligence in order to report to the Committee of Creditors whether or not it is in order. Even though it is not necessary for the Resolution Professional to give reasons while submitting a resolution plan to the Committee of Creditors, it would be in the fitness of things if he appends the due diligence report carried out by him with respect to each of the resolution plans under consideration, and to state briefly as to why it does or does not conform to the law. [Paras 76-78] [471-F-H; 472-A-E; 473-D-E] 5.1 A Resolution Professional has presented a resolution plan to the Committee of Creditors for its approval, but the Committee of Creditors does not approve such plan after considering its feasibility and viability, as the requisite vote of not less than 66% of the voting share of the financial creditors is not obtained. The first proviso to Section 30(4) furnishes the answer, which is that all that can happen at this stage is to require the Resolution Professional to invite a fresh resolution plan within the time limits specified where no other resolution plan is available with him. It is clear that at this stage again no application before the Adjudicating Authority could be entertained as there is no vested right or fundamental right in the resolution applicant to have its resolution plan approved, and as no adjudication has yet taken place. It is the Committee of Creditors which will approve or disapprove a resolution plan, given the statutory parameters of Section 30. [Paras 79, 80] [473-E-H; 474-A] 5.2 Regulation 39 of CIRP Regulations shows that the disapproval of the Committee of Creditors on the ground that the resolution plan violates the provisions of any law, including the ground that a resolution plan is ineligible under Section 29A, is not final. The Adjudicating Authority, acting quasi-judicially, can determine whether the resolution plan is violative of the provisions of any law, including Section 29A of the Code, after hearing arguments from the resolution applicant as well as the Committee of Creditors, after which an appeal can be preferred H
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from the decision of the Adjudicating Authority to the Appellate A Authority under Section 61. If, on the other hand, a resolution plan has been approved by the Committee of Creditors, and has passed muster before the Adjudicating Authority, this determination can be challenged before the Appellate Authority under Section 61, and may further be challenged before the B Supreme Court under Section 62, if there is a question of law arising out of such order, within the time specified in Section 62. Section 64 also makes it clear that the timelines that are to be adhered to by the NCLT and NCLAT are of great importance, and that reasons must be recorded by either the NCLT or NCLAT if the matter is not disposed of within the time limit specified. C Section 60(5), when it speaks of the NCLT having jurisdiction to entertain or dispose of any application or proceeding by or against the corporate debtor or corporate person, does not invest the NCLT with the jurisdiction to interfere at an applicant’s behest at a stage before the quasi-judicial determination made by the D Adjudicating Authority. [Paras 80, 81] [474-C-G] Lachmeshwar Prasad Shukul & Ors. v. Keshwar Lal Chaudhuri & Ors. AIR 1941 FC 5; Jang Singh v. Brijlal & Ors. [1964] 2 SCR 146; A.S. Antulay v. R.S. Nayak & Ors. [1988] Supp. 1 SCR – relied on. E 6.1 Facts of this case: Numetal was incorporated in Mauritius on 13.10.2017, expressly for the purpose of submission of a resolution plan qua the corporate debtor, i.e., ESIL. Two other companies, viz., AHL and AEL, were also incorporated on the same day in Mauritius. The son of the promoter of ESIL held the entire share capital of AHL, which in turn held the entire F shareholding of AEL, which in turn held the entire share capital of Numetal. At this stage there can be no doubt whatsoever that the son of the promoter, would be deemed to be a person acting in concert with the corporate debtor, being covered by Regulation 2(1)(q)(v) of the 2011 Takeover Regulations. On 18.10.2017, AEL G transferred its shareholding of 26.1% in Numetal to a group company, viz., ECL. This group company was ultimately owned by ‘Virgo Trust’ and ‘Triton Trust’, the beneficiaries of which are companies owned by the promoter of ESIL, his brother and their immediate family members. The very next day, the son of H
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A promoter of ESIL settled an irrevocable and discretionary trust, viz., the ‘Crescent Trust’, and settled the entire share capital of AHL into the Trust, at a par value of USD 10,000. The beneficiaries of this Trust were general charities, as well as entitles owned by the brother of promoter of the corporate debtor, and entities owned by son of promoter. [Paras 84-86] [476-C-F; B 477-C-D] 6.2 On 20.11.2017, the son of the promoter of ESIL settled ‘Prisma Trust’, another irrevocable and discretionary trust, whose beneficiaries are “general charities” and one ‘Solis Enterprises Limited’, a company incorporated in Bermuda, whose share capital is held by the son of promoter of ESIL. Numetal by a response dated 30.3.2018, admitted that while the trust deed relating to Prisma Trust allowed the trustee to benefit any English or Bermuda charity, “no particular charity is named at this stage”. The Trustee of AEL is one ‘Rhone Trustee’, Singapore. The son of promoter of ESIL was the ultimate natural person who held the beneficial interest in AEL through Prisma Trust, through Solis Enterprises Limited. This emerged from Section 6.7 of the resolution plan submitted by Numetal to the Resolution Professional. The Resolution Professional, after looking at this affidavit of Prisma Trust, correctly noted that statements of such E a nature would not have been made by a truly independent trustee of a discretionary trust, which demonstrated that the trustee was under the complete control of the son of promoter of ESIL. This in turn indicated that Prisma Trust was one more smokescreen in the chain of control, which would conceal the fact that the actual F control over AEL is by none other than the son of the promoter. [Paras 87, 88] [477-D-F; 478--B-C] 6.3 One day later on 22.11.2017, the trustees of the Prisma Trust acquired 100% of the shareholding of AHL for a par value of approximately USD 10,000 from the trustees of the Crescent G Trust. On this very date, merely one day before the Ordinance bringing into force Section 29A was promulgated, ECL transferred its shareholding of 26.1% of the share capital of Numetal to Crinium Bay, an indirect wholly owned subsidiary of VTB Bank, whose shares in turn are held by the Russian Government. AEL also transferred shares representing 13.9% of the share capital H
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of Numetal to Crinium Bay, thus making Crinium Bay’s total holding in Numetal 40%. On the same date, AEL also transferred shares representing 25.1% of the share capital of Numetal to Indo, and also transferred shares representing 9.9% of the share capital of Numetal to TPE. These transfers were likely to have taken place between 10.2.2018 and 12.2.2018. At the time of submission of its first Resolution Plan dated 12.2.2018, the shareholding of Numetal was as follows: Crinium Bay: 40% Indo : 25.1% TPE: 9.9% AEL: 25%. As of this date, the son of promoter, who is the ultimate beneficiary in the chain of control of the trusts which in turn controlled AEL, was very much on the scene, holding through AEL 25% of the shareholding of Numetal. C [Paras 89-90] [478-D-H] 7.1 One other extremely important fact is that the earnest money in the form of Rs. 500 crores, credited to the account of the corporate debtor, was provided to Numetal by AEL as a shareholder of the resolution applicant, viz. Numetal. This earnest money deposit of Rs.500 crores made by AEL continued to remain with the Resolution Professional till date, despite the fact that, by the time the second resolution plan was submitted by Numetal on 2.4.2018, AEL had exited as a shareholder of Numetal. Under clause 4.4.4 of the request for proposal for submission of resolution plans for ESIL, the earnest money deposit stands to be forfeited if any condition thereof is breached or the qualifications of the potential resolution applicant are found to be untrue. [Para 91] [479-A-C] 7.2 Clause 6.7 of Numetal’s resolution plan stipulated that it satisfied the minimum tangible net worth requirement, as set out under the request for proposal, because Crinium Bay held 40% of the shareholding of Numetal, and that VTB Bank, Crinium Bay’s holding company had sufficient net worth, as on 31.12.2016, to comply with the requirement under the request for proposal. The excerpted portions of Numetal’s resolution plan make it clear that, since Numetal itself was a newly incorporated entity, with no financial or experience credentials of its own, it therefore relied entirely on the credentials of each of its constituent shareholders. This shows that Numetal itself revealed in its resolution plan that its corporate veil should be lifted, for without lifting this veil, none of the parameters of the request for proposal H
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A could have been met by Numetal itself. It is thus clear that the four shareholders of Numetal were persons “acting jointly” within the meaning of Section 29A. This being the case, it is clear that the argument that VTB Bank is a “connected person”, being ineligible under sub-clause (j), would have to be rejected, as VTB Bank is itself, through its wholly owned subsidiary of Crinium B Bay, a person acting jointly with the three other shareholders of Numetal, and would, therefore, fall within the first part of Section 29A itself. This being so, it cannot be said that VTB Bank is a person “connected to” any one of the persons acting jointly, as it is itself a person acting jointly, and therefore covered by the first C part of Section 29A. [Paras 92, 93] [481-C-D; 482-B-D] 7.3 On 29.3.2018, AEL transferred its 25% shareholding in Numetal to the other three constituent shareholders, thereby leaving its shareholding in Numetal as ‘Nil’. In response to the Resolution Professional’s invitation, the second Resolution Plan, D therefore, submitted by Numetal on 2.4.2018, did not have AEL as a constituent of Numetal; instead, Crinium Bay continued with 40% of the shareholding of Numetal, with TPE’s holding now augmented to 29.5% and Indo’s to 34.1%. Given the fact that the son of promoter is a person deemed to be acting in concert with his father (who was a promoter of the corporate debtor ESIL), E there is no doubt whatsoever that Section 29A(c) would be attracted as on the date of submission of the first resolution plan, viz. 12.2.2018, as AEL was held by Prisma Trust, whose ultimate beneficiary is son of promoter himself. This would show that the NPA declared over a year before the date of commencement of the corporate resolution process of ESIL (i.e. in 2015) would render Numetal ineligible to submit a resolution plan. The only manner in which Numetal could successfully present a resolution plan would be to first pay off the debts of ESIL, as well as those of such other corporate debtors of the Ruia group of companies, which were declared as NPAs prior to the aforesaid period of one year, before submitting its resolution plan. However, if the date of the second resolution plan is to be seen, son of promoter of the corporate debtor ESIL appears to have disappeared from the scene altogether, as the three entities left are stated to be independent entities in the form of two Russian entities and one H
ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH 377 KUMAR GUPTA & ORS.
UAE entity. Viewed on 2.4.2018, therefore, it could not be said A that son of promoter of the corporate debtor ESIL had disappeared from the scene altogether, so as to obviate the application of Section 29A(c). This is for two reasons. First, Rs.500 crores that was deposited towards submission of earnest money continued to remain deposited by AEL even post 2.4.2018, B showing thereby that son of promoter of the corporate debtor ESIL continued to be present, insofar as Numetal’s second resolution plan was concerned. Further, having regard to the reasonably proximate state of affairs before submission of the resolution plan on 2.4.2018, beginning with Numetal’s initial corporate structure, and continuing with the changes made till C date, it is evident that, the object of all the transactions that have taken place after Section 29A came into force on 23.11.2017 was undoubtedly to avoid the application of Section 29A(c), including its proviso. Therefore, whether the first or second resolution plan is taken into account, both would clearly be hit by Section D 29A(c), as the looming presence of son of promoter of the corporate debtor ESIL was found all along, from the date of incorporation of Numetal, till the date of submission of the second resolution plan. [Paras 94, 95] [482-E-H; 483-A-E] 8.1 The ultimate shareholder of the resolution applicant, viz. AMIPL, is directly the ultimate shareholder of AMNLBV as E well, which is an L.N. Mittal Group Company. When the corporate veil of the various companies is pierced, both AMIPL and AMNLBV are found to be managed and controlled by Shri L.N. Mittal, and are therefore persons deemed to be acting in concert as per Regulation 2(1)(q)(2)(i) of the 2011 Takeover Regulations. F That AMNLBV is a promoter of Uttam Galva is clear from the aforementioned facts, being expressly stated as such in Uttam Galva’s annual returns. The reasonably proximate facts prior to the submission of both resolution plans by AMIPL would show that there is no doubt whatsoever that AMNLBV’s shares in Uttam Galva were sold only in order to get out of the ineligibility G mentioned by Section 29A(c), and consequently the proviso thereto. The fact that the lenders with whom AMNLBV had a Non Disposal Undertaking have not yet moved any forum for a declaration that the sale of the shares, being without their consent, H
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A is non est, does not absolve AMNLBV from having failed to first obtain their consent before selling off its shares in Uttam Galva. Such sale is directly contrary to the Non Disposal Undertaking given to the lenders. Quite apart from this, it is also clear that shares worth Rs.19.50 each were sold at a distress value of Re.1 each, so as to overcome the provisions of Section 29A(c) and the proviso thereto. It is clear therefore that the Uttam Galva transaction clearly renders AMIPL ineligible under Section 29A(c) of the Code. [Para 109] [491-G-H; 492-A-D] 8.2 Insofar as the transaction with regard to KSS Petron is concerned, the facts are that on 3.3.2011, Fraseli, an entity registered and incorporated in Luxemburg, which is managed and controlled by Shri L.N. Mittal, held 32.22% of the shareholding of KSS Global, a company domiciled in the Netherlands. On 19.5.2011, by a Shareholders Agreement entered into between KSS Holding, KSS Infra EALQ, Fraseli D and KSS Global, the first three companies were each given a right to appoint an equal number of directors on the board of directors of KSS Global, which in turn held 100% of the share capital of KSS Petron, a company incorporated in India. Fraseli was also granted affirmative voting rights on decisions regarding certain specified matters, both at the board and the shareholder E level, in respect of KSS Global and all companies controlled by it, which would include KSS Petron. As has been stated hereinabove, KSS Petron was declared as an NPA on 30.9.2015. As in the case of Uttam Galva, Fraseli divested its shareholding in KSS Petron on 9.2.2018, i.e., only three days before AMIPL F submitted its first resolution plan. On the same day, the directors nominated by Shri L.N. Mittal, through Fraseli, resigned from the board of KSS Global. [Para 110] [492-E-H] 8.3 There can be no doubt whatsoever that Fraseli, being a company managed and controlled by Shri L.N. Mittal, holding G one third of the shares in KSS Global, which in turn held 100% of the share capital in KSS Petron, was in joint control of KSS Petron, if the corporate veil of all these companies is disregarded. Further, the Shareholders Agreement of 19.5.2011 makes it clear that the joint control of KSS Global would be between three entities, viz., KSS Holding, KSS Infra EALQ and Fraseli, each of H
ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH 379 KUMAR GUPTA & ORS.
whom had the right to appoint an equal number of directors on the board of directors of KSS Global. Not only this, but Fraseli was also granted affirmative voting rights as aforementioned, on certain important specified matters. There would be no doubt whatsoever that, just before presentation of the resolution plan of 12.2.2018, AMIPL would be hit by Section 29A(c), as a group company of Shri L.N. Mittal exercised positive control, by its shareholding, right to appoint directors and affirmative voting rights, over KSS Global, which in turn held 100% shareholding in KSS Petron. Again, as in the case of Uttam Galva, there can be no doubt whatsoever that the sale of Fraseli’s shareholding in KSS Global, together with the resignation of the Mittal directors from the board of directors of KSS Global, is a transaction reasonably proximate to the date of submission of the resolution plan by AMIPL, undertaken with the sole object of avoiding the consequence mentioned in the proviso to Section 29A(c). Having regard to the law laid down in this judgment, it is, therefore, clear that AMIPL is ineligible under Section 29A(c) of the Code, on this account as well. [Para 111] [493-A-E] 8.4 Since it is clear that both sets of resolution plans that were submitted to the Resolution Professional, even on 2.4.2018, are hit by Section 29A(c), and since the proviso to Section 29A(c) will not apply as the corporate debtors related to AMIPL and E Numetal have not paid off their respective NPAs, ordinarily, these appeals would have been disposed of by merely declaring both resolution applicants to be ineligible under Section 29A(c). In order to do complete justice under Article 142 of the Constitution of India, one more opportunity is given to both resolution F applicants to pay off the NPAs of their related corporate debtors within a period of two weeks from the date of receipt of this judgment, in accordance with the proviso to Section 29A(c). If such payments are made within the said period, both resolution applicants can resubmit their resolution plans dated 2.4.2018 to the Committee of Creditors, who are then given a period of 8 G weeks from this date, to accept, by the requisite majority, the best amongst the plans submitted, including the resolution plan submitted by Vedanta. In the event that no plan is found worthy of acceptance by the requisite majority of the Committee of H
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A Creditors, the corporate debtor, i.e. ESIL, shall go into liquidation. [Para 113] [493-H; 494-A-E] Ms. Eera Through Dr. Manjula Krippendorf v. State (Govt. of NCT of Delhi) & Anr. (2017) 15 SCC 133 : [2017] 7 SCR 924; Salomon v. A Salomon and Co. Ltd. B [1897] AC 22; Life Insurance Corporation of India v. Escorts Ltd. & Ors., (1986) 1 SCC 264 : [1985] 3 Suppl. SCR 909; Union of India v. ABN Amro Bank and others (2013) 16 SCC 490; Balwant Rai Saluja & Anr. etc. etc. v. Air India Ltd. & Ors., (2014) 9 SCC 407; Delhi Development Authority v. Skipper Construction C Company (P) Ltd. & Another, (1996) 4 SCC 622 : [1996] 2 Suppl. SCR 295 – referred to. Case Law Reference [2017] 7 SCR 924 referred to Para 26 D [1985] 3 Suppl. SCR 909 referred to Para 30 (2013) 16 SCC 490 referred to Para 31 (2014) 9 SCC 407 referred to Para 32 [1996] 2 Suppl. SCR 295 referred to Para 33 E [2008] 10 SCR 697 held inapplicable Para 35 [2017] 5 SCR 1005 held inapplicable Para 35 [2005] 1 Suppl. SCR 223 relied on Para 40 [2010] 8 SCR 251 relied on Para 41 F (2018) 7 SCC 443 relied on Para 51 [2016] 1 SCR 1118 relied on Para 51 [1970] 1 SCR 345 relied on Para 58 [2016] 11 SCR 419 relied on Para 62 G [2017] 8 SCR 33 relied on Para 64 (2017) 16 SCC 143 relied on Para 69 [1959] Supp. 1 SCR 394 relied on Para 75 AIR 1941 FC 5 relied on Para 82 H
ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH 381 KUMAR GUPTA & ORS.
[1964] 2 SCR 146 relied on Para 83 A [1988] Supp. 1 SCR relied on Para 83 CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 9402- 9405 of 2018 From the Judgment and Order dated 07.09.2018 passed by the B National Company Law Appellate Tribunal, New Delhi in Company Appeal (AT) (Insolvency) Nos. 169, 171, 172 and 173 of 2018 WITH Civil Appeal Nos. 9582, 10204, 10208 of 2018. C Harish N. Salve, Dr. A. M. Singhvi, Neeraj Kishan Kaul, Mukul Rohatgi, Mihir Thakore, K. V. Vishwanathan, Ramji Srinivasan, Gopal Subramanium, Sr. Advs., Raghav Shankar, R. N. Karanjawala, Ms. Ruby Singh Ahuja, Vishal Gehrana, Anupam Prakash, Sanjeet Ranjan, Utkarsh Maria, Sudhir Sharma, Abhishek Swaroop, Akhil Anand, Sameen Kumar Vyas, Amit Bhandari, Ms. Misha Chandna, Avishkar Singhvi, Naman D Singh Bagga, Ms. Manik Karanjawala, Rajat Sethi, Sahil Monga, Deepak Joshi, Sanyat Lodha, Devanshu Sajlan, Akash Lamba for M/s. Karanjawala & Co., Mahesh Agarwal, Keyur Gandhi, Raheel Patel, Arjun Joshi, Ms. Aastha Mehta, Rudreshwar Singh, Gautam Singh, Ms. Shaili A. Shah, Hemanta Kothari, Kumar Saurabh Singh, Aashutosh E Sampath, Ashwij Ramiah, Kaushik Poddar, Ms. Kristy Baptist, Ms. Zainab, Ms. Devanshi Singh, Raunak Dhillon, Karan Khanna, Naveen Hegde, Bunmeet Singh Grover, Ms. Ananya Dhar Choudhury, Ms. Vrinda Bhandari, R. Venkataraman for M/s. Cyril Amarchand Mangaldas, Ms. Misha, Sapan Gupta, Hitesh Kumar Saini, Pavan Bhushan, Vaijayant Paliwal, Ms. Jasveen Kaur, S. S. Shroff, Advs. with them for the F appearing parties.
Judgment
The Judgment of the Court was delivered by R. F. NARIMAN, J. 1. The facts of the present case revolve around the ineligibility of resolution applicants to submit resolution plans after the introduction of Section 29A into the Insolvency and Bankruptcy G Code, 2016 (hereinafter referred to as “the Code”), with effect from 23.11.2017.
22. On 2.8.2017, the Adjudicating Authority, being the NCLT, Ahmedabad Bench, passed an order under Section 7 of the Code at the H
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A behest of financial creditors, being the State Bank of India and the Standard Chartered Bank, admitting a petition filed under the Code for financial debts owed to them by the corporate debtor Essar Steel India Limited (hereinafter referred to as “ESIL”), in the sum of roughly Rs.45,000,00,00,000 (Rupees Forty Five Thousand Crores). Shri Satish Kumar Gupta was appointed as the Interim Resolution Professional and B confirmed as such on 4.9.2017. Consequently, the Resolution Professional published an advertisement dated 6.10.2017, seeking expression of interest from potential resolution applicants who wished to submit resolution plans for the revival of ESIL. In terms of the advertisement, the last date for submission of an expression of interest was 23.10.2017. C Pursuant to this advertisement, one ‘ArcelorMittal India Private Limited’ (hereinafter referred to as “AMIPL”) submitted an expression of interest on 11.10.2017. An entity called Numetal Limited (hereinafter referred to as “Numetal”), also submitted an expression of interest on 20.10.2017. On 24.12.2017, the Resolution Professional published a ‘request for proposal’, in which it was stated that the last date for submission of resolution plans would be 29.1.2018. On a request made by the Committee of Creditors, the NCLT extended the duration of the corporate insolvency resolution process by 90 days beyond the initial period of 180 days, i.e., upto 29.4.2018. The Resolution Professional therefore issued the first addendum to the request for proposal, extending the date for submission of resolution plans to 12.2.2018. Given this, both AMIPL and Numetal submitted their resolution plans on this date. On 20.3.2018, apprehending that the Resolution Professional would recommend that it be declared ineligible, Numetal filed I.A. No. 98 of 2018 before the NCLT inter alia seeking that it be declared eligible as a resolution applicant. On 23.3.2018, however, the Resolution Professional found both AMIPL and Numetal to be ineligible under Section 29A. Insofar as AMIPL is concerned, the Resolution Professional found thus: “2. Please note that during the course of the evaluation of the Resolution Plan, I became aware of the fact that ArcelorMittal Netherlands B.V. (AM Netherlands) (which is mentioned as a G ‘connected person’ of AM India in the Resolution Plan) has been disclosed as the ‘promoter’ of Uttam Galva Steels Limited (Uttam Galva) pursuant to which my Advisor had requested certain clarifications from AM India on 26 February 2018 (Request for Clarification 1) and on 14 March 2018 (Request for Clarification 2). H
ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH 383 KUMAR GUPTA & ORS. [R. F. NARIMAN, J.]
Further to the responses received from AM India on 28 February A 2018 and 17 March 2018 (collectively the AM India Responses) on the aforementioned requests for clarifications, I understand that: 2.1. AM Netherlands had acquired 29.05% of the shareholding in Uttam Galva in 2009 and has since been classified as a promoter of Uttam Galva; 2.2. AM Netherlands had entered into a ‘co-promoter’ agreement dated 4 September 2009 with the other promoters of Uttam Galva (Co-Promoter Agreement) under which AM Netherlands had various rights (including certain rights which can be considered as participative in nature and not merely protective); 2.3. Uttam Galva’s account was classified as a ‘non-performing asset’ (NPA) on 31 March 2016 by Canara Bank and Punjab National Bank (which classification has continued for more 1 year till 02 August 2017); D 2.4. AM Netherlands has sold its shareholding in Uttam Galva to the other promoters of Uttam Galva on 7 February 2018; and 2.5. AM Netherlands has applied to the National Stock Exchange Limited and the BSE Limited, each on 8 February 2018 for declassification as a ‘promoter’ of Uttam Galva under Regulation E 31A(2) of the Securities and Exchange Board of India
33. Further, as on the Plan Submission Date, AM Netherlands (had not obtained the Stock Exchange Approvals relating to declassification as a promoter of Uttam Galva and) continued to be classified as a promoter of Uttam Galva. F
44. In light of the above, AM India is ineligible under the provisions of Section 29A(c) of the IBC and pursuant to paragraph 4.11.2(a) of the RPP, the Resolution Plan is hereby rejected and will not be placed before the Committee of Creditors.”
3. Similarly, holding Numetal to be ineligible, the Resolution G Professional, on the same date, found: “2.1. as on the date of submission of its expression of interest (EOI) on 20 October 2017 by Numetal, it relied on Essar Communications Limited (ECL), one of its shareholders to comply H
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A with the eligibility requirement relating to its ‘tangible net worth’ (TNW) (as stipulated in the section titled ‘Eligibility Criteria’ in the EOI); 2.2. as on the Plan Submission Date, Numetal relied on Crinium Bay, its shareholder to comply with the eligibility requirement B relating to its TNW (as stipulated in Section 6.7 of the Resolution Plan); 2.3. Numetal was incorporated 7 days before submission of the EOI; and 2.4. Numetal is a newly incorporated joint venture between Aurora C Enterprises Limited, Crinium Bay, Indo International Limited and Tyazhpromexport.
3. Since Numetal has at all stages relied on its shareholders to comply with the eligibility requirements relating to submission of a resolution plan in respect of ESIL, for the purposes of ensuring D compliance with Section 29A of the Insolvency and Bankruptcy Code, 2016 (IBC), I have considered each of the shareholders of Numetal as joint venture partners to be acting jointly for the purposes of submission of the Resolution Plan. Whilst considering the eligibility of the shareholders of Numetal, since Aurora E Enterprises Limited (AEL) is held completely by Rewant Ruia (through various companies and a trust), I have considered Rewant Ruia, Crinium Bay, Indo International Limited and Tyazhpromexport for scrutiny under Section 29A of the IBC.
4. Further, pursuant to Regulation 2(q) of the Securities and F Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations), a person is deemed to acting in concert with amongst others, his (or her) ‘immediate relatives’, which term (as defined under Regulation 2(1) of the SAST Regulations) includes the father of such person. Therefore, in relation to the Resolution Plan in respect of ESIL G (which contemplates the acquisition of ESIL by Numetal by way of a merger of ESIL with a wholly owned subsidiary of Numetal), Rewant Ruia is deemed to be acting in concert with his father Ravi Ruia.
55. Further, as on the Plan Submission Date: H
ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH 385 KUMAR GUPTA & ORS. [R. F. NARIMAN, J.]
(a)* Ravi Ruia (who Rewant Ruia is deemed to be acting in concert with) was the promoter of ESIL whose account was classified as an NPA for more than 1 year, prior to the commencement of corporate-insolvency resolution process (CIRP) of ESIL on 2 August 2017; and (b) Ravi Ruia (who Rewant Ruia is deemed to be acting in concert with) has executed a guarantee in favour of SBI (for itself and a consortium of lenders) and the CIRP application filed by SBI has been admitted by the National Company Law Tribunal on 2 August 2017.
66. In light of the above, Rewant Ruia (who is acting jointly with the other shareholders of Numetal for the purposes of submission of the Resolution Plan) is ineligible under Section 29A of the IBC, specifically paragraphs (c) and (h) and accordingly, as on the Plan Submission Date, Numetal (which is nothing but an incorporated joint venture investment vehicle through which its shareholders are submitting the Resolution Plan) was not eligible under Section D 29A of the IBC.
77. Accordingly and for the reasons set out in paragraphs 5 and 6 above, please note that pursuant to paragraph 4.11.2(a) of the RFP, the Resolution Plan is hereby rejected and will not be placed before the Committee of Creditors.” E
4. On 26.3.2018, AMIPL filed I.A. No. 110 of 2018 before the Adjudicating Authority, challenging “the order” of the Resolution Professional dated 23.03.2018. Numetal did likewise vide I.A. No. 111 of 2018. F
5. On 2.4.2018, pursuant to the Resolution Professional’s invitation, fresh resolution plans were submitted (as both the resolution plans before this were found to be ineligible) by AMIPL, Numetal, and one other entity, namely ‘Vedanta Resources Ltd.’. On this very date, the NCLT directed that the bids of the resolution applicants, submitted pursuant to the revised request for proposal, should not be opened pending adjudication G of I.A. No. 98 of 2018 filed by Numetal.
6. On 19.4.2018, the Adjudicating Authority, being the NCLT, passed its order in all the I.A.s, in which it first held:
H
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A “21. As per the matter available on the record, a third party contestant, Arcelor Mittal India Pvt. Ltd., by filing Additional Application No. P-7 of 2018 has also sought for impleading itself in Intervention Application No. IA 98/2018 the Numetal has filed a Reply opposing such relief as being sought for by the present Applicant, Numetal Ltd., and in the present IA and also sought a B declaration in its favour to be declared as eligible for filing a valid resolution plan as on 12.2.2018 thus, it has opposed the application alleging disability/ineligibility on the part of M/s. Numetal Ltd., to file a valid and proper resolution plan as on date of 12.2.2018. Since we have not decided the Impleadment Application in favour of ArcelorMittal by formally impleading it as party in the present I.A. No. 98 of 2018 and only audience were given to its learned counsel in support of its resolution plan, therefore, we find it appropriate to confine the issue of determination of eligibility mainly on the reason which formed a basis for the RP and CoC for not founding eligible for submission of resolution plan by the resolution applicant, M/s. Numetal Ltd., and not on additional ground as put forth by the ArcelorMittal. However, the oral submissions advanced by learned counsel for parties including the ArcelorMittal duly supported by their Written Submissions are being taken into consideration for deciding the issue involved in the present application. For arriving at such findings/conclusion of the RP has obtained legal opinion and its such findings is based on such opinion which were explained to the CoC for reaching to appropriate conclusion/ decision. Equally, the applicant in I.A. No. 98/2018 also obtain legal opinion from renowned jurists, e.g. (former judge of the hon’ble Supreme Court) and from former learned Law Officer of the GOI which are placed on record along with the present IA also in support of their case in this opinion it is expressed the Numetal Ltd. (Resolution Applicant) is a single and independent corporate entity and it cannot be termed as a consortium of its shareholders not it intend to implement the resolution plan jointly with another person hence, in view of this the amended clause 4.11.2(1) to the RFP would neither be applicable nor binding upon the resolution applicant and thus, it is not required at all to seek an approval from the RP or the CoC. In respect of proposed change H
ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH 387 KUMAR GUPTA & ORS. [R. F. NARIMAN, J.]
its shareholding of ESIL in terms of RET and also are required A under the other provisions of the Law. It has been also emphasised that the Numetal Ltd., is not a SPV brought into existence merely for the purpose of submitting the resolution plan in respect of the corporate debtor ESIL as it has recently entered into an agreement to acquire majority stock in Odisha Slurry Pipeline Infrastructure B Ltd., by an independent contract from the Resolution Plan. Thus, it cannot be presumed that the applicant is such a corporate entity which is brought into the existence only for the purpose of putting forth resolution plan for the ESIL. Since, there is difference in the legal opinions among the Learned Luminaries and law firms and more than one views are possible in the present case to be acted upon then, it cannot be said that there is patently illegality in the conclusion of the RP or it acted arbitrarily or mala fidely in rejecting the resolution plan by relying on the legal opinion received and believed to be true by him and which were placed before the CoC. Moreover, the RP under the provision of the Code it is expected to make scrutiny of a resolution plan in conformity with the law of the land and to take such a prudent decision which a common man in normal course may arrive and think just and proper. This court being the Adjudicating Authority under the Code is not expected to substitute its view upon the discretion and wisdom of the RP and CoC to opt for only which a particular view until and unless it is the case of patent illegality or arbitrariness. Therefore, for the aforesaid reason in our prima facie view we do not find any patent illegality in the decision of the RP for declaring ineligible to applicants which is a prudent decision where there is possibility of more than one legal view then this court at this stage is not expected to substitute its view and to interfere with the conclusion of the RP.”
7. It then went on to hold: G “19. Thus, the date on which a person stands disqualified would be the date of commencement of the Corporate Insolvency Resolution Process of the Corporate Debtor, i.e., ESIL. This date is 02.08.2017 on which date, ArcelorMittal India Pvt. Ltd., is disqualified in view of the fact that its connected persons of AM H
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A Netherland and L.N. Mittal are disqualified as they have an account or an account of the corporate debtor under their management and control or of whom they are a promoter classified as NPA under the guidelines of the Reserve Bank of India and at least a period of one year has lapsed from the date of such classification till the date of commencement of corporate insolvency resolution process of the corporate debtor. The said disqualification starts from 02.08.2017 can only be remedied in the manner provided in the proviso to clause (c) of section 29A read with section 30(4) proviso and in no other manner. The disqualification commenced on 02.08.2017 continues till 12.02.2018 and the same disqualification cannot be relieved by merely ceasing to be the promoter or by selling shares in the companies whose accounts are NPA such as Uttam Galva or KSS Petron.
20. On perusal of annexure R/4, i.e., shareholding pattern annexed with the reply of Numetal Ltd., it is found that ArcelorMittal is a D publicly known promoter of Uttam Galva and its shareholding is classified under “promoter and promoter group” in the filings made in the Stock Exchange of India. As per shareholding pattern of Uttam Galva disclosed in the stock exchange as on December, 2017 ArcelorMittal was a single largest shareholder having significant shareholding of 29.05 % in Uttam Galva. E
21. On perusal of the record it is found that connected person of the applicant are the promoter of KSS Petron Pvt. Ltd., a company incorporated under the Companies Act, 1956, having registered office at Swastik Chamber, 6th Floor, Sion Trombay Road, Chembur, Mumbai has been NPA for more than a year and CIRP F has been initiated against the KSS Petron vide order dated 01.08.2017 by Mumbai Bench of the National Company Law Tribunal.
22. It is also pertinent to mention herein that, in the minutes of the meeting of the committee of creditors which reproduces the G decision of the RP pursuant to the opinions received by the RP from Cyril Amarchand Mangaldas and Mr. Khambatta. Cyril Amarchand Mangaldas had opined that AM Netherlands exercised positive control over Uttam Galva and merely divesting the shareholding prior to the submission of the resolution plan could H
ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH 389 KUMAR GUPTA & ORS. [R. F. NARIMAN, J.]
not remove the disqualification under section 29A(c) of the Code, A unless cured by payment.
23. It is an admitted position that AM Netherlands is an indirect 100% subsidiary of ArcelorMittal Societe Anonyme (AMSA) which is a listed company incorporated in Luxemburg. On the other hand, AM India is also an indirect subsidiary (99.99%) of B AMSA. Accordingly, AMSA is promoter, in management and in control of AM India, the resolution applicant and AM Netherlands is a subsidiary company/associate company of AMSA in view of which AM Netherlands becomes a connected person and such connected person has an account of corporate debtor Uttam Galva under its management, control or of whom such connected person, C namely, AM Netherlands is a promoter is classified as NPA for more than one year before 02.082017. Consequently, AM India shall not be eligible to submit a resolution plan as on 12.02.2018.
24. It is an admitted position that Laxminarayan Mittal is controlling AM India being an indirect subsidiary of AMSA. Accordingly, D LN Mittal/AMSA is promoter in management and in control of AM India, the resolution applicant, and LN Mittal is also in management and control of KSS Global BV in view of what is stated above and KSS Petron which is a 100% subsidiary of KSS Global BV is also under management and control of LN Mittal. E KSS Petron has a NPA for more than one year and consequently, LN Mittal being a promoter/in control of KSS Global BV/KSS Petron Pvt. Ltd., is a connected person whose account is classified non-performing. Consequently, AM India shall not be eligible to submit a resolution plan. F
25. From a bare reading of section 29A(c) it is very clear that 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; has an account, or an account of a corporate debtor under the management or control of such person or whom such person is a promoter, classified as non-performing asset in accordance G with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 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, H
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A 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. Section 29A does not distinguish between positive and negative control. Any person who is either promoter or in the management or in the control of the business of the corporate debtor and in default is ineligible. Person connected to ArcelorMittal India Pvt. Ltd., who are either promoter or in the management with KSS Petron and Uttam Galva Steels Ltd., are ineligible. Mere sale of shares and declassification as promoter after the companies have gone into default cannot be absolved them responsibility. In order to become eligible, overdue amounts to lenders in both the cases of KSS Petron and Uttam Galva Steels Ltd., should be paid by ArcelorMittal before being eligible to bid, as provided in Section 29A itself.”
88. Having said this, it then remanded the matter to the Committee of Creditors as follows:- “27. Further, we are of the view that RP ought to have produced both the resolution plan before the CoC, along with his comments of eligibility of both the resolution applicants for consideration of the CoC and to follow the provision of section 29A(c) read with section 30(4) for the purpose of affording the opportunity to the resolution applicants before declaring them ineligible. In our view, such procedure has not been followed hence, it vitiate the proceeding of the CoC and hence the present matter can be remanded back to the RP and CoC on this ground alone for their reconsideration.”
99. Appeals were filed by both Numetal and AMIPL, on 26.4.2018 and 27.4.2018 respectively, before the Appellate Authority, being the NCLAT. Before these appeals could be decided, in compliance with the order passed by the Adjudicating Authority, the Committee of Creditors, after hearing both AMIPL and Numetal, disqualified AMIPL by an order dated 8.5.2018 as follows: “48. In wrapping up this post-decisional hearing, we reiterate that AMIL is an ineligible resolution applicant under Section 29A(c) of the IBC, who acting in concert with AMBV (the promoter of H
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Uttam Galva on insolvency commencement date and connected A person of AMIL) and Arcelor Mittal Group in attempting to avoid their obligations to make payment as provided under Section 29A(c) of mc (sic) with reference to Uttam Galva and KSS Petron. Their unwillingness to make payment in the Uttam Galva matter or the KSS Petron matter by their actions of 7th of February, 2018 B and 9th of February, 2018 as stated above is an avoidance device.
49. In case of Uttam Galva, AMBV arranged the sale of its shareholding at a nominal value just days prior to the date of submission of the Resolution Plan is evidence of the fact that AMIL is in concert with AMBV such action is a manifestation of the passage of Section 29A under IBC. As promoter of Uttam C Galva and as member of the Arcelor Mittal Group referred above, they should have made payment of the Overdue Amounts to the lenders of Uttam Galva.
50. The same conduct of Arcelor Mittal Group acting through Fraselli and KSS Global in terminating the shareholders agreement D in KSS Global, the holding company of KSS Petron, a device has been to avoid payment of the Overdue Amounts of KSS Petron before filing the Resolution Plan for ESIL. The close proximity of this action on 9 th February, 2018, one day before the plan submission date is a telling act of avoidance. E
51. Since the CoC have not by themselves filed an appeal over the Ld. Adjudicating Authority’s order dated 19 th April, 2018, the concession granted by the Ld. Adjudicating Authority to give an opportunity to cure the ineligibility, we are indicating to AMIL, its connected persona and persons in concert to cure their disability F under Section 29A(c) of IBC by making a payment to the lenders of Uttam Galva for Overdue Amounts of Uttam Galva, another payment to the lenders of KSS Petron constituting Overdue Amounts in KSS Petron and Overdue Amounts of such other companies which are classified as NPAs and where Arcelor Mittal Group is a promoter. Such payments will have to be made by G AMIL or its constituents / connected persons no later than 15th May, 2018, especially since the law actually requires that this curative payment of overdue amounts, interests and charges should be made by the corporate resolution intending applicant / resolution applicant before the Resolution Plan is filed. This concession by H
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A the CoC is without prejudice to the CoC’s right to strictly enforce the law and provisions of Section 29A(c) of the IBC. The proof of such payment in form of a No Overdue Amounts letter (indicative format set out in Annex) shall be submitted to the RP (with notification to the CoC) by 6:00 P.M. IST on 15th May
2018. As we have limited time available under the CIR process of ESIL, AMIL is requested to adhere to these timelines.”
1010. By another order of the same date, the Committee of Creditors disqualified Numetal as follows: “44. Numetal and AEL are related as an associate company, on account of the fact that AEL (alias Rewant Ruia) has significant influence over Numetal pursuant to its control of at least 20% of the total voting power of Numetal. Since an associate company is considered as a related party to a resolution applicant where such resolution applicant and other persons are acting jointly or in concert, Numetal is clearly said to be acting jointly and in concert with AEL. This in turn means Numetal is acting in concert with Mr. Rewant Ruia and hence with Mr. Ravi Ruia, the promoter and guarantor of ESIL (a non-performing asset since 2016). This inflicts a disability and ineligibility upon Numetal / its consortium and constituent shareholders.” E xxx xxx xxx
57. Thus in wrapping up the post decisional hearing, we reiterate that Numetal is an ineligible resolution applicant acting in concert with Rewant Ruia and his connected person namely his relative / father Ravi Ruia, who is a promoter of a corporate debtor ESIL, F which has a non-performing asset account.
58. Since the CoC have not by themselves filed an appeal over the Ld. Adjudicating Authority’s Order dated 19 th April, 2018, the concession granted by the Ld. Adjudicating Authority to give an opportunity to cure the ineligibility, we are indicating to the resolution G applicant, i.e. Numetal and the consortium of Crinium Bay, Indo, TPE and AEL as persons acting in concert with Numetal, that they would be eligible only if they make payment of (i) the Overdue Amounts constituting NPA in ESIL as on 30 th April, 2018 aggregating to Rs. 37,558.65 crores in principal and interest and Rs. 1,688.27 crores in penal interest and other charges and such H
ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH 393 KUMAR GUPTA & ORS. [R. F. NARIMAN, J.]
other additional Overdue Amounts which have accrued till the date of payment; and (ii) the Overdue Amounts of such other companies which are classified as NPAs and where Mr. Ravi Ruia / Mr. Rewant Ruia are promoters. Such payments will have to be made by Numetal or its constituents / consortium no later than 15th May, 2018, especially since the law actually requires that this curative payment should be made before the resolution plan is filed. This concession is without prejudice to the CoC’s right to strictly enforce the law and the provisions of Sections 29A(c) and 29A(h) of IBC. The proof of such payment in form of a no-Overdues Amounts letter (indicative format set out in Annex 3) shall be submitted to the RP (with notification to CoC) C by 6:00 P.M. IST on 15th May 2018, As we have limited time available under the CIR process of ESIL, Numetal is requested to adhere to these timelines.”
1111. In the appeals that were filed before it, the Appellate Authority, insofar as Numetal’s Resolution plan was concerned, vide an order dated D 7.9.2018 held as follows:- “44. On behalf of ‘AM India Ltd.’, it was submitted that ‘VTB Bank’ one of the shareholders of ‘Numetal Ltd.’ is ineligible in view of Article 5(c) of the EU Regulations of 2014. Though such submission has been made, no order or evidence has been placed E on record to suggest that any order of prohibition was imposed by the European Union against the ‘VTB Bank’. Neither the date of order nor order passed by any competent authority or court of law has been placed on record.
45. On the other hand, it will be evident that Council of European F Union adopted Council Regulation (EU) No. 833/2014 concerning Restricting measures in view of Russia action. In fact, in view of situation in Ukraine, the European Union Regulation was adopted. Apart from the aforesaid fact, that ‘AM India Ltd.’ has not brought on record any penal order passed by any court of law relating to disability, if any, which is corresponding to any of the disability G shown in clauses (a) to (h) of Section 29A. Therefore, the stand taken by the ‘AM India Ltd.’ with regard to ineligibility of ‘VTB Bank’ is fit to be rejected. xxx xxx xxx H
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A Resolution Plan submitted by the ‘Numetal Ltd.’ on 12th February, 2018
60. As on 12th February, 2018, when the 1st Resolution Plan was submitted by ‘Numetal Ltd.’, it had four shareholders. (i) ‘Crinium Bay’ : 40% B (ii) ‘Indo’ : 25.1% (iii) ‘TPE’ : 9.9% (iv) ‘AEL’ : 25%
61. Admittedly, Mr. Rewant is 100% shareholder of ‘AEL’ and C ‘AEL’ held 25% in ‘Numetal Ltd.’ even as on 12th February, 2018, Mr. Rewant being son of Mr. Ravi, who is the promoter of the ‘Corporate Debtor’, we hold that ‘AEL’ is a related party and comes within the meaning of ‘person in concert’ in terms of Regulation 2(1)(q). D
62. In view of the aforesaid findings, we hold that at the time of submission of 1st Resolution Plan by ‘Numetal Ltd.’, one of the shareholders being ‘AEL’, ‘Numetal Ltd.’ was not eligible to submit ‘Resolution Plan’ in terms of Section 29A. Position of ‘Numetal Ltd.’ as on 29th March, 2018 when the subsequent ‘Resolution Plan’ was submitted by ‘Numetal Ltd.’.
63. The ‘Committee of Creditors’ had extended the period for submitted a fresh ‘Resolution Plan’ by 2nd April, 2018. ‘Numetal Ltd.’ filed fresh ‘Resolution Plan’ on 29th March, 2018. On the said date the ‘Numetal Ltd.’ consisted of the three shareholders: - (a) ‘Crinium Bay’ (‘VTB’) : 40% (b) ‘Indo’ : 34.1% (c) ‘TPE’ : 25.9% G
64. As on 29th March, 2018, as the ‘AEL’ was not the shareholder of ‘Numetal Ltd.’ and all the three shareholders aforesaid being eligible, we hold that ‘Numetal Ltd.’ in respect of the ‘Resolution Plan’ dated 29th March, 2018, is eligible and the provision of Section 29A, as on 29th March, 2018 is not attracted to the ‘Numetal H
ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH 395 KUMAR GUPTA & ORS. [R. F. NARIMAN, J.]
Ltd.’. For the reasons aforesaid, we are of the view that the A ‘Resolution Plan’ submitted by ‘Numetal Ltd.’ on 29th March, 2018 is required to be considered by the ‘Committee of Creditors’ to find out its viability, feasibility and financial matrix.”
1212. In the same order, insofar as AMIPL’s resolution plan was concerned, the Appellate Authority held as follows: B “107. In the present case, the ‘Expression of Interest’ was submitted by ‘AM India Ltd.’ on 11th October, 2017 and by ‘Numetal Ltd.’ on 20th October, 2017, both prior to 23rd November, 2017 i.e. the date Section 29A was inserted by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 but the C ‘Resolution Plans’ were submitted by both ‘AM India Ltd.’ and ‘Numetal Ltd.’ on 12th February, 2018.
108. The question arises for consideration is as to what will be the position if, on the basis of ‘Information Memorandum’ the ‘Expression of Interest’ is submitted by the ‘Resolution Applicants’ D prior to 23rd November, 2017 and whether they are eligible to take advantage of 2nd proviso to sub-section (4) of Section 30.?
109. Section 29A came into force on 23rd November, 2017. Those who submitted ‘Resolution Plan’ prior to the said date and if covered by clause (c) of Section 29A are entitled to derive benefit of second E proviso to sub-section (4) of Section 30. Under ‘I&B Code’ there is no provision to submit ‘Expression of Interest’ prior to ‘Resolution Plan’. What we find from the invitation seeking ‘Expression of Interest’ to submit a ‘Resolution Plan’ for ‘Essar Steel Limited’ published on 6th October, 2017 is the first stage of ‘Resolution Plan’. Therefore, we hold that ‘Expression of Interest’ F is part of the ‘Resolution Plan’, which follows the ‘Resolution Plan’. In such case, the date of submission of the ‘Expression of Interest’ should be treated to be the date of submission of the ‘Resolution Plan’. In this background, we hold that the date of submissions of the 1st ‘Resolution Plan(s)’ of ‘AM India Ltd.’ G and ‘Numetal Ltd.’ will be deemed to be 11th October, 2017/12th February, 2018 and 20th October, 2017/12th February, 2018 respectively.
110. If the aforesaid proposition is not accepted, it will deprive the ‘Resolution Applicants’ from deriving advantage of second H
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A proviso to sub-section (4) of Section 30 inserted on 23rd November, 2017, even though they acted to submit the ‘Resolution Plan’ by submitting the ‘Expression of Interest’ of ‘Resolution Plan’.
111. In view of the aforesaid finding, we hold that the Adjudicating B Authority rightly held that the Appellant- ‘AM India Ltd.’ should have been given the opportunity by the ‘Committee of Creditors’ in terms of second proviso to sub-section (4) of Section 30.
112. The question arises for consideration is whether the ‘AM Netherlands’ is eligible, having transferred its entire shareholding of ‘Uttam Galva’ on 7th February, 2018 and by transferring of its C entire shareholding of ‘Fraseli’ in ‘KSS Global’ on 9th February, 2018 i.e. two to four days prior to the submission of ‘Expression of Interest’ (first phase of ‘Resolution Plan’).
113. Proviso to clause (c) of Section 29A reads as follows:
D “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”
114. The aforesaid proviso to clause (c) makes it clear 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’. It does not stipulate any other mode to become eligible and thereby does not prescribe any other mode to become ineligible, including by selling the shares thereby existing as a member of the Company whose account has been classified as non-performing asset accounts in accordance with the guidelines of the Reserve Bank of India.
115. Second proviso to sub-section (4) of Section 30 also stipulates, as follows: “30. Submission of resolution plan.% (4) xxx xxx xxx Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of section H
ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH 397 KUMAR GUPTA & ORS. [R. F. NARIMAN, J.]
29A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29A”
116. From both the aforesaid provisions, it is clear that except in the manner the ‘Resolution Applicants’ can make it eligible and get rid of ineligibility under clause (c) of Section 29A that is by making payment of all overdue amounts in accordance with the proviso to clause (c) of Section 29A, no other manner a person, who is otherwise ineligible under clause (c) of Section 29A, can become eligible. There is no provision in the ‘I&B Code’ which permits an ineligible person to become eligible by selling or transferring its shares of the Company whose accounts have been declared as NPA in accordance with the guidelines of Reserve Bank of India.
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’. E
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 may 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.
119. ‘AM Netherlands’ is 100% subsidiary of ‘AMSA’ which is a listed company incorporated in Luxemburg. ‘AM India Ltd.’ is also a subsidiary of ‘AMSA’ having 99.99% shareholding in it. Accordingly, ‘AMSA’ is also a promoter, in the management and in control of ‘AM India Ltd.’. ‘Fraseli’ is a company owned and controlled by a company called by ‘Mittal Investments’ acquired about one third of the share capital of ‘KSS Global BV’. Pursuant H
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A to such acquisition, ‘Fraseli’ acquired control over ‘KSS Global BV’ which in turn controls ‘KSS Petron’ and ‘Petron Engineering’. ‘Mittal Investments’ is owned and controlled by LN Mittal Group, the promoters of the ‘AM India Pvt. Ltd’.
120. ‘AM India Ltd.’ divested its shareholding in ‘KSS Global B BV’ which is 100% owner of ‘KSS Petron’ (a Company whose account has been declared as NPA). ‘AM India Ltd.’ has its control over it will be evident from the fact that it has nominee Directors, who also resigned on 9th February, 2018 i.e. 3 days before submission of the ‘Expression of Interest’ of ‘Resolution Plan’ by ‘AM India Ltd.’ This will be also clear from the fact that C the ‘AM India Ltd.’ was nothing that an entity controlling and managing in ‘KSS Global BV’ (which is 100% owner of ‘KSS Petron’ an NPA Company) divested its shareholding in ‘KSS Global BV’ on 9th February, 2018 i.e. 3 days before submission of the ‘Expression of Interest’ of ‘Resolution Plan’.
D 121. We have also noticed that consequent to such acquisition of control by ‘Fraseli’, on 23rd May, 2011 a public announcement was made under ‘SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997’ for the acquisition of shares of ‘Petron Engineering’ inter alia by ‘KSS Global BV’ and ‘Fraseli’. E Therefore, we hold that Mr. L.N. Mittal Group, a connected person of ‘AM India Ltd.’ being the promoter and in the control and management of ‘KSS Petron’ since 2011 and ‘KSS Petron’ having classified as ‘NPA’ by multiple banks, the stigma attached to it cannot be cleared by ‘KSS Global’ by divesting its shares in ‘KSS Petron’ on 9th February, 2018 and the stigma will continue for the F purpose of ineligibility under clause (c) Section 29A, till the payment of all overdue amount with interest thereon and charges relating to NPA account of ‘KSS Petron’.
122. Admittedly, there are three nominee Directors of ‘AM India Ltd.’ in ‘KSS Petron’, one of the NPA Company. The nominee G Directors of the Appellant- ‘AM India Ltd.’ had also resigned on 9th February, 2018 i.e. three days’ before the submission of the ‘Resolution Plan’. Therefore, it is clear that the ‘AM India Ltd.’ had complete control over the ‘KSS Petron’.
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123. It is informed that after impugned order passed by the A Adjudicating Authority, the ‘AM India Ltd.’ had made conditional deposit of Rs. 7,000 Crores in its own current account (Escrow Account). Such depositation of the amount in its own Escrow Account does not qualify as a payment of overdue amounts in terms of proviso to clause (c) of Section 29A. A conditional offer B to pay the over dues amount cannot be accepted till it is complied in the light of proviso to clause (c) of Section 29A unconditionally.
124. Dr. Abhishek Manu Singhvi, learned Senior Counsel appearing on behalf of ‘AM India Ltd.’ when asked, on instruction, submitted that if this Appellate Tribunal accept the ‘Resolution Plan’ submitted by the ‘AM India Ltd.’, it may deposit the non- C performing assets amount with interest in the respective accounts which were declared as NPA in accordance with the guidelines of the Reserve Bank of India.
125. As we hold that ‘AM India Ltd.’ is also entitled to the benefit of second proviso to sub-section (4) of Section 30, we give one opportunity to the ‘Resolution Applicant’- ‘AM India Ltd.’ to make payment of all overdue amount with interest thereon and charges relating to Non Performing Accounts of both the ‘Uttam Galva’ and the ‘KSS Petron’ in their respective accounts within three days i.e. by 11th September, 2018. If such amount is deposited in the accounts of both Non-Performing Accounts of ‘Uttam Galva’ and ‘KSS Petron’ within time aforesaid and is informed, the ‘Committee of Creditors’ will consider the ‘Resolution Plan’ submitted by ‘AM India Ltd.’ along with other ‘Resolution Plans’, including the ‘Resolution Plan’ submitted by the ‘Numetal Ltd.’ on 29th March, 2018, and if so necessary, may negotiate with the F ‘Resolution Applicant(s)’. An early decision should be taken by the ‘Committee of Creditors’ and on approval of the ‘Resolution Plan’, the ‘Resolution Professional’ will place the same immediately before the Adjudicating Authority who in its turn will pass order under Section 31 in accordance with law. The G ‘Successful Resolution Applicant’ will take steps for execution of its ‘Resolution Plan’ and deposit the upfront money if proposed, in terms of the ‘Resolution Plan’.
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A 126. Taking into consideration the fact that a long period has taken due to pendency of the case before the Adjudicating Authority and thereafter, before this Appellate Tribunal, we direct the Adjudicating Authority to exclude the period the appeal was pending before this Appellate Tribunal i.e. from 26th April, 2018 till today (7th September, 2018) for the purpose of counting the total period of 270 days. The impugned order dated 19th April, 2018 passed by the Adjudicating Authority so far as it relates to eligibility of ‘Numetal Ltd.’ as on the date of the submission of the ‘Resolution Plan’ dated 29th March, 2018 is set aside. The impugned judgment/order in respect to ‘AM India Ltd.’ is affirmed with conditions as mentioned in the preceding paragraphs. All the appeals are disposed of with aforesaid observations and directions. The parties will bear their respective cost.”
1313. This is how both AMIPL and Numetal are before us in appeals from the Appellate Authority’s order dated 7.9.2018.
1414. Shri Harish N. Salve, learned Senior Advocate appearing on behalf of AMIPL, argued that Section 29A, as originally enacted, disqualified a person who has an account of a corporate debtor under the management or control of such person, or of whom such person is a promoter, which account was declared as a non-performing asset. The E further condition is that one year should have elapsed from the date of such declaration till the date of commencement of the corporate insolvency resolution process of the corporate debtor. Thus, a plain reading of the same establishes that the ineligibility under Section 29A is in relation to the submission of a resolution plan, which must consist of the elements set out in Section 30. Responding to preliminary enquiries, i.e., an expression of interest, is not the subject matter of a resolution plan, and therefore, the relevant time is the time of submission of a resolution plan. He further argued that the amendment made to Section 29A in June, 2018, expressly stating that the relevant time was the time of submission of a resolution plan, is clarificatory in nature. Once this becomes clear, everything on facts falls into place. According to the learned Senior Advocate, AMIPL is an indirect subsidiary of one ‘ArcelorMittal Societe Anonyme’ (hereinafter referred to as “AMSA”), which is a listed company in Luxemburg. AMSA holds 100% shares in one ‘ArcelorMittal Belvel & Differdange Societe Anonyme’ (hereinafter referred to as “AMBD”), a company incorporated in Luxemburg, which H
ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH 401 KUMAR GUPTA & ORS. [R. F. NARIMAN, J.]
in turn holds 100% in one ‘Oakey Holding BV’, a company incorporated A in the Netherlands, which in turn holds 99.99% shares in AMIPL. ArcelorMittal Netherlands BV (hereinafter referred to as “AMNLBV”), which is a member of the L.N. Mittal Group incorporated in the Netherlands, is 100% held by AMSA (the Chairman and CEO of AMSA being Shri L.N. Mittal). AMNLBV held 29.05% in one ‘Uttam Galva B Steels Limited’ (hereinafter referred to as “Uttam Galva”) which is an Indian company, listed in India. Uttam Galva was declared as a non- performing asset on 31.3.2016, with a debt of around Rs. 6000 crores. According to Shri Salve, Uttam Galva, though it entered into a Co- Promotion Agreement with AMNLBV on 4.9.2009, was really promoted by the Miglani Group of businessmen who are Indian citizens residing in C Mumbai. The Co-Promotion Agreement conferred on AMNLBV the right to appoint 50% of the non-independent directors on the board, as well as certain affirmative voting rights. This required that the Articles of Association be amended, which was never in fact done. In 2015 itself, AMNLBV had written off the investment in Uttam Galva from its books, seeking an exit from Uttam Galva at this time. AMNLBV never appointed any director or exercised any voting rights in Uttam Galva. What is important to note is that it had transferred its entire shareholding in Uttam Galva on 7.2.2018 to one ‘Sainath Trading Company Private Limited’, which was a Miglani Group Company, for Re.1 per share (having purchased the shares at Rs.120 per share). The depository participant account of AMNLBV ceased to show the said shares with effect from 7.2.2018. The Co-Promotion Agreement dated 4.9.2009, pursuant to which the status of “promoter” had been conferred on AMNLBV, stood automatically terminated vide clause 21.6 thereof on 7.2.2018. In order to put the matter beyond any doubt, the parties also executed a Co- F Promotion Termination Agreement on 7.2.2018. On 8.2.2018, Uttam Galva filed the necessary forms with the Registrar of Companies and made the necessary disclosures with the National Stock Exchange and Bombay Stock Exchange to declassify AMNLBV as a promoter of Uttam Galva. This was accordingly done on 21.3.2018 and 23.3.2018 before the NSE and BSE respectively. Such declassification, being a G ministerial act, is relatable to the date of sale of shares, i.e., 7.2.2009, and considered effective from the said date. Inasmuch as AMNLBV therefore ceased to be a promoter in Uttam Galva prior to 12.2.2018, the resolution plan is not hit by Section 29A(c). Similarly, according to the learned Senior Advocate, insofar as KSS Petron Private Limited H
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A (hereinafter referred to as “KSS Petron”) is concerned, it is an admitted case that ‘Fraseli Investments Sarl’ (hereinafter referred to as “Fraseli”) is a company owned and controlled by one ‘Mittal Investments Sarl,’ which in turn is owned and controlled by the L.N. Mittal Group, the promoters of AMIPL. Fraseli held 32.22% in one ‘KazStroy Service Global BV’ (hereinafter referred to as “KSS Global”), a company B incorporated in the Netherlands which in turn held 100% of KSS Petron, an Indian company. The shareholders agreement entered into between Fraseli and KSS Global permitted Fraseli to appoint two out of six nominee directors in KSS Global, and provided for an affirmative vote of shareholders with respect to certain matters. According to the learned C Senior Advocate, if the definition of “control” in Section 2(27) of the Companies Act, 2013 is applied, the relationship of KSS Global with KSS Petron would not constitute “control” over the wholly owned subsidiary in India. In any case, the entire shareholding of Fraseli in KSS Global was transferred back to the promoters of KSS Global on 9.2.2018, i.e., 3 days before submission of the resolution plan. KSS D Petron has been classified as a non-performing asset by multiple banks, and the corporate insolvency resolution process was initiated against it on 1.8.2017 before the NCLT. It may be added that KSS Petron was declared a non-performing asset on 30.9.2015 with a debt of around Rs. 1000 crores. The learned Senior Advocate therefore attacked the finding of the Appellate Authority on this score, and stated that, as Section 29A was not attracted, the question of paying off the debts of Uttam Galva and KSS Petron would not arise.
1515. When it came to Numetal’s resolution plan, the learned Senior Advocate argued that it is important to remember that Numetal was incorporated on 13.10.2017 by Shri Rewant Ruia, son of Shri Ravi Ruia (who was a promoter of the corporate debtor of ESIL), with the specific objective of trying to acquire ESIL. At the time of its incorporation, one ‘Aurora Enterprises Limited’ (hereinafter referred to as “AEL”), a Ruia Group Company, held 100% shareholding of Numetal. In turn AEL’s 100% shareholding was held by one ‘Aurora Holdings Limited’ G (hereinafter referred to as “AHL”), 100% of whose shareholding was held by Shri Rewant Ruia, who was a former director of the corporate debtor, i.e. ESIL. On 18.10.2017, a few weeks before Section 29A was introduced, AEL transferred 26.1% of its shares in Numetal to one ‘Essar Communications Limited’ (hereinafter referred to as “ECL”), a group H
ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH 403 KUMAR GUPTA & ORS. [R. F. NARIMAN, J.]
company of the corporate debtor. On 19.10.2017 Shri Rewant Ruia settled an irrevocable discretionary trust, called the ‘Crescent Trust’, which purchased the shares of AHL at par value. On 20.10.2017, when Numetal submitted its expression of interest, it had two share holders, i.e., AEL (holding 73.9%) and ECL (holding 26.1%). On 22.11.2017, when the Finance Minister made a statement that the Code would be amended in order to prevent unscrupulous persons from submitting resolution plans, AEL transferred 13.9% of its shareholding in Numetal, and ECL its entire 26.1% shareholding, to one ‘Crinium Bay Holdings Limited’ (hereinafter referred to as “Crinium Bay”), a 100% indirectly held subsidiary of one ‘VTB Bank’, which in turn was a Russian company, the majority of whose shares were held by the Russian Government. C Crinium Bay thus became the owner of 40% of the shareholding of Numetal. AEL subsequently transferred 25.1% of the shareholding in Numetal to one ‘Indo International Trading FZCO’ (hereinafter referred to as “Indo”), a Dubai company, and 9.9% of the shareholding to one ‘JSC VO Tyazhpromexport’ (hereinafter referred to as “TPE”), a D Russian company. AEL was left with only a 25% shareholding in Numetal. Even this holding in Numetal was ultimately divested on 29.3.2018, so that Crinium Bay held 40%, TPE held 25.9% and Indo held 34.1% in Numetal, with AEL’s holding becoming ‘Nil’. Shri Salve has argued that Numetal is hit by Section 29A(i) of the Code, as VTB Bank, the parent of Crinium Bay, stands prohibited from accessing the securities E markets in the European Union pursuant to an order dated 31.7.2004, and in the United States by two orders. This being the case, Numetal is directly hit by sub-section (f) read with sub-section (i) of Section 29A. It is also hit by Section 29A(j) as Crinium Bay, being a subsidiary of VTB Bank, becomes a “connected person” as defined under sub-clauses (i) F and (iii) of Explanation 1 to Section 29A(j). One very important fact that was stressed by him was that an amount of Rs. 500 crores was given by AEL to Numetal so that it could deposit the requisite earnest money that had to be made along with the resolution plan furnished by Numetal. This amount, that was admittedly furnished by AEL, continues to remain with the Resolution Professional, and has till date not been G withdrawn by AEL, showing that Shri Rewant Ruia continues to be vitally interested and linked with the resolution plan of Numetal, even after the complete exit of AEL as its shareholder. He therefore submitted that, given these facts, whereas AMIPL should have been held eligible, it was wrongly held to be ineligible by the Appellate Authority; and that H
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