ARCELORMITTAL INDIA PRIVATE LIMITED v. SATISH KUMAR GUPTA & ORS.

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two or more parties undertake an economic activity which is subject to A joint control, which is missing in the present case as a shareholder in a company is distinct from the company itself. He added that Section 29A(c) requires that Numetal as a person, together with any other person acting jointly or in concert, has to have an account of a corporate debtor under its management or control, or of whom such person is a promoter B (which is classified as a non-performing asset for a period of at least one year before the date of commencement of the corporate insolvency resolution process of the corporate debtor). According to the learned Senior Advocate, Shri Rewant Ruia would not fall within any of these categories, on a reading of Section 2(27) of the Companies Act, 2013, which defines “control”; Section 2(69) of the Companies Act, 2013, C which defines “promoter”; and Sections 2(53) and 2(54) of the Companies Act, 2013, which define “manager” and “managing director” respectively. He emphatically argued that though Shri Rewant Ruia is the son of Shri Ravi Ruia, who is a promoter of the corporate debtor, and though he may be deemed to be a “person acting in concert” within D the definition contained in Regulation 2(1)(q) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as the “2011 Takeover Regulations”), yet, he cannot be considered to be a “connected person” under Section 29A(j) of the Code. This is for the reason that under Explanation 1 to Section 29A(j), the expression “connected person” can only mean a related party or a E person who is referred to in sub-clauses (i) and (ii) of Explanation 1, and since Shri Rewant Ruia is neither a promoter of nor in the management or control of the resolution applicant Numetal, he would fall outside of sub-clause (iii) of Explanation 1. According to Shri Rohatgi, the Appellate Authority was absolutely correct in saying that Numetal would not be F ineligible under Section 29A. He strongly attacked Shri Salve’s argument that VTB Bank, the holding company of Crinium Bay, was barred from accessing the securities market by either the European Union or the United States. He took us to the original orders and argued that the document of the European Union, being Council Regulation 833 of 2014 dated 31.7.2014, pursuant to Article 215 of the Treaty on the Functioning G of the European Union, was owing to restrictive measures taken in view of Russia’s actions destabilizing the situation in Ukraine. Because Russia had illegally annexed Crimea, political sanctions were imposed by this document, which cannot possibly be said to be sanctions imposed by an authority equivalent to SEBI in India. The sanctions also did not relate H

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A in any manner to the securities market. Equally, insofar as the two orders of the United States are concerned, they were also political sanctions imposed against Russian companies for the same reason by the Office of Foreign Assets Control by a Presidential Order. He even argued that insofar as the European Union is concerned, the corresponding “authority” to SEBI is the ‘European Securities and B Market Authority’, whereas in the United States it would be the ‘Securities Exchange Commission,’ neither of whom has issued any sanctions which would interdict VTB Bank from accessing or trading in the securities market. He also countered Shri Salve’s submission that the Rs. 500 crores that was advanced by AEL and given as earnest money for the C resolution plan was not yet withdrawn, contending that this was so because the validity of the first bid by Numetal continues to be sub judice.

18Copy pinpoint18. Shri Rohatgi then attacked AMIPL by stating that even a literal reading of Section 29A(c) would make it clear that in the case of Uttam Galva, AMNLBV, which is admittedly an L.N. Mittal Group D Company, was directly covered by sub-clause (c) as it had been shown as a “promoter” in the annual reports of Uttam Galva, and would therefore fit the definition of “promoter” contained in Section 2(69) of the Companies Act, 2013. What is of great importance, and what is in fact not disclosed, is that a Non-Disposal Undertaking was issued to the State Bank of India, the secured creditor of Uttam Galva, on 12.7.2011 E by AMNLBV, agreeing that it would not sell, transfer or dispose of any shares held by it without the consent of the lenders of Uttam Galva. According to Shri Rohatgi, therefore, the transfer of these shares, the recognition of such transfer by Uttam Galva, and the consequent application to the Stock Exchanges for declassification as promoter, without obtaining the consent of the State Bank of India, is invalid in law and a fraud played by AMNLBV. Further, in the disclosures that were made under the 2011 Takeover Regulations, the column relatable to the existence of any non-disposal undertakings was left blank. In addition, since a sale of shares between co-promoters inter se is exempted from the requirement of making a public offer under Regulation 3(1) read with Regulation 10(1)(a)(2) of the 2011 Takeover Regulations, it is clear that on the one hand promoter status is claimed in order to avail of the regulation, whereas, in the present case, it is argued that, in substance, AMNLBV is not in fact a promoter. Equally, leaving a blank in the form against the column which required disclosure of non-disposal undertakings, H

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is a fraud played on SEBI, and on the shareholders of Uttam Galva; as otherwise, in the public offer that would have had to be made, the shares of Uttam Galva would have had to be purchased at the higher price that is mentioned in the said Regulations. Incidentally, according to Shri Rohatgi, in any case, getting out of Uttam Galva by paying a price of Re.1 per share when the market value on that date was Rs.19.50 per share is again a fraudulent transaction, which cannot possibly pass muster under Section 29A. Further, insofar as KSS Petron is concerned, it is clear that Fraseli’s holding of 32.22% in KSS Global would certainly amount to de facto control, if not de jure control, of KSS Petron, its wholly owned subsidiary, as defined under Section 2(27) of the Companies Act, 2013. The transfer of Fraseli’s shareholding on 9.2.2018, C before submission of the resolution plan on 12.2.2018, is again a dubious and fraudulent act squarely hit by Section 29A. Shri Rohatgi further argued that Shri Pramod Mittal, brother of Shri L.N. Mittal, is a connected person, which would trigger Section 29A(j). Shri Pramod Mittal is a promoter and director of one ‘Gontermann Piepers (India) Limited’, which D has also been declared an NPA, rendering Shri L.N. Mittal ineligible under Section 29A(j). Equally, Shri L.N. Mittal, Shri Pramod Mittal and other members of the Mittal family are promoters of one ‘Ispat Profiles India Limited’. This company was ordered to be wound up by the BIFR, appeals from which have been dismissed by the AAIFR. Consequently, Shri L.N. Mittal, as a related party of Shri Pramod Mittal, would render E AMIPL ineligible under sub-clause (c) read with sub-clause (j) of Section 29A of the Code.

19Copy pinpoint19. Shri Gopal Subramanium, learned Senior Advocate appearing on behalf of the Committee of Creditors, has placed before us the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, F introducing Section 29A, and commented on the difference between the opening lines of the said Ordinance as compared with those of the Amendment Act of 2017. The Amendment Act of 2017 brings in “persons acting in concert”. According to the learned senior counsel, “persons acting in concert” has been dealt with by the Justice P.N. Bhagwati Committee Report on Takeovers, 1997, which he read out to G us in copious detail. He also referred to some of our judgments on tearing the corporate veil, and on persons acting in concert. According to him, there should be no interference by the appropriate authority at the behest of a resolution applicant at the stage of a Resolution H

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A Professional processing resolution applications, and the subsequent stage of a Committee of Creditors disapproving a resolution plan. According to him, the period of 270 days is a watertight compartment, within which either a resolution plan will be approved, or the corporate debtor be wound up. According to him, the practice of interlocutory applications being filed at anterior stages of the proceedings before the Adjudicating B Authority, and orders of remand to the Committee of Creditors, should be stopped. However, the time taken by the Adjudicating Authority and the Appellate Authority in deciding disputes that may arise before them should be excluded from the computation of 270 days as aforesaid. According to the learned Senior Advocate, the expressions “persons acting in concert” and “control” are broad enough to bring all associated persons within the dragnet of Section 29A. He cited a number of judgments on how this provision should be construed in accordance with the object sought to be achieved by the said provision, which should never be stultified or defeated, so as to get to the real state of affairs of the facts of every given case. Therefore, it is very important to remember that phrases such as “persons acting in concert” and “control” are meant not only to pierce the corporate veil, but also to get to the real persons who present resolution plans. On the facts of each case, according to Shri Subramanium, both resolution plans were correctly rejected by the Resolution Professional and the Committee of Creditors, E as they were both hit by the provisions of Section 29A. Any circular method, by which payment of debts of an NPA of a person acting jointly or in concert under the proviso to Section 29A(c) is sought to be avoided, should be interdicted. According to the learned Senior Advocate, both resolution plans are hit by Section 29A(c), and the only way out is for both resolution applicants to pay up the debts of the respective NPAs of the corporate debtors who are associated with them.

20Copy pinpoint20. Shri K.V. Viswanathan, learned Senior Advocate, appearing on behalf of the Resolution Professional, drew our attention to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as the “CIRP Regulations”), and stated that the role of the Resolution Professional is essentially to do a due diligence on each resolution plan submitted before it. It is only after such due diligence is done that this plan is to be forwarded to the Committee of Creditors. According to him, even if it is found that the resolution plan in question contravenes H

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any law, such finding would only be a tentative opinion formed by the A Resolution Professional, who has to submit the plan to the Committee of Creditors once it is complete in all respects. According to him, a conjoint reading of Section 25(2)(i) of the Code, read with Section 30(3) and the second proviso to Section 30(4), would necessarily lead to this conclusion. Also, according to the learned Senior Advocate, the expression “control” B contained in Section 29A(c) should be construed noscitur a sociis with the word “management”, and so construed, would only mean positive, de facto, control of such person.

21Copy pinpoint21. At this point, it is necessary to first set out Section 29A in its various forms: as first introduced by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 and the Insolvency and Bankruptcy C Code (Amendment) Act, 2017, together with the amendment made by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018. Section 29A, as introduced by the Insolvency & Bankruptcy Code (Amendment) Ordinance, 2017, on 23.11.2017, reads as follows: “29A. A person shall not be eligible to submit a resolution plan, if D such person, or any other person acting jointly with such person, or any person who is a promoter or in the management or control of such person,- (a) is an undischarged insolvent; E (b) has been identified as a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949); (c) Whose account is classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued F under the Banking Regulation Act, 1949 (10 of 1949) and period of one year or more has lapsed from the date of such classification and who has failed to make the payment of all overdue amounts with interest thereon and charges relating to non-performing asset before submission of the resolution plan; G (d) Has been convicted for any offence punishable with imprisonment for two years or more; or (e) Has been disqualified to act as a director under the Companies Act, 2013 (18 of 2013); H

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A (f) Has been prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets; (g) Has indulged in preferential transaction or undervalued transaction or fraudulent transaction in respect of which an order has been made by the Adjudicating Authority under this Code; B (h) Has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor under insolvency resolution process or liquidation under this Code; (i) Where any connected person in respect of such person meets any of the criteria specified in clauses (a) to (h). C Explanation – For the purposes of this clause, the expression “connected person” means- (i) any person who is promoter or in the management or control of the resolution applicant; or D (ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or (iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) E and (ii) (j) Has been subject to any disability, corresponding to clauses (a) to (i), under any law in a jurisdiction outside India.”

22Copy pinpoint22. The Insolvency and Bankruptcy Code (Amendment) Act, 2017, received the assent of the President on 28.1.2018, but came into force with retrospective effect from 23.11.2017. Section 29A, as contained therein, reads as follows: “29A. Persons not eligible to be resolution applicant. - A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person— (a) is an undischarged insolvent; (b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949); H

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(c) has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (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: 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; C

(d) has been convicted for any offence punishable with imprisonment for two years or more; (e) is disqualified to act as a director under the Companies Act, 2013 (18 of 2013); D (f) is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets; (g) 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 this Code; (h) has executed an enforceable guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code; (i) has been subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or (j) has a connected person not eligible under clauses (a) to (i). G Explanation.— For the purposes of this clause, the expression “connected person” means— (i) any person who is the promoter or in the management or control of the resolution applicant; or H

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A (ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or (iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii): B Provided that nothing in clause (iii) of this Explanation shall apply to— (A) a scheduled bank; or (B) an asset reconstruction company registered with the Reserve C Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); or (C) an Alternate Investment Fund registered with the Securities and Exchange Board of India.”

23Copy pinpoint23. Finally, the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, received the assent of the President on 17.8.2018, but came into force with retrospective effect from 6.6.2018. The said amendment inter alia amended Section 29A, which now reads as follows: “29A. Persons not eligible to be resolution applicant.—A E person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person— (a) is an undischarged insolvent; (b) is a wilful defaulter in accordance with the guidelines of the F Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949); (c) at the time of submission of the resolution plan has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, G classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) or the guidelines of a financial sector regulator issued under any other law for the time being in force, and at least a period of one year has lapsed from the date of such H

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classification till the date of commencement of the corporate A insolvency resolution process of the corporate debtor: Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of resolution plan: B Provided further that nothing in this clause shall apply to a resolution applicant where such applicant is a financial entity and is not a related party to the corporate debtor. Explanation I.—For the purposes of this proviso, the expression “related party” shall not include a financial entity, regulated by a C financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares, prior to the insolvency commencement date. D Explanation II.—For the purposes of this clause, where a resolution applicant has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset and such account was acquired pursuant to a prior resolution plan approved under this Code, then, the provisions of this clause shall not apply to such resolution applicant for a period of three years from the date of approval of such resolution plan by the Adjudicating Authority under this Code; (d) has been convicted for any offence punishable with imprisonment— (i) for two years or more under any Act specified under the Twelfth Schedule; or (ii) for seven years or more under any other law for the time being in force: G Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment:

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A Provided further that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I; (e) is disqualified to act as a director under the Companies Act, 2013 (18 of 2013): Provided that this clause shall not apply in relation to a connected B person referred to in clause (iii) of Explanation I; (f) is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets; (g) has been a promoter or in the management or control of a C 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 this Code: Provided that this clause shall not apply if a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place prior to the acquisition of the corporate debtor by the resolution applicant pursuant to a resolution plan approved under this Code or pursuant to a scheme or plan approved by a financial sector regulator or a court, and such resolution applicant has not otherwise contributed to the preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction; (h) has executed a guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this F Code and such guarantee has been invoked by the creditor and remains unpaid in full or part; (i) is subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or (j) has a connected person not eligible under clauses (a) to (i). G Explanation I.—For the purposes of this clause, the expression “connected person” means— (i) any person who is the promoter or in the management or control of the resolution applicant; or H

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(ii) any person who shall be the promoter or in management or A control of the business of the corporate debtor during the implementation of the resolution plan; or (iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii): B Provided that nothing in clause (iii) of Explanation I shall apply to a resolution applicant where such applicant is a financial entity and is not a related party of the corporate debtor: Provided further that the expression “related party” shall not include a financial entity, regulated by a financial sector regulator, C if it is a financial creditor of the corporate debtor and is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares, prior to the insolvency commencement date; Explanation II.—For the purposes of this section, “financial entity” D shall mean the following entities which meet such criteria or conditions as the Central Government may, in consultation with the financial sector regulator, notify in this behalf, namely— (a) a scheduled bank; E (b) any entity regulated by a foreign central bank or a securities market regulator or other financial sector regulator of a jurisdiction outside India which jurisdiction is compliant with the Financial Action Task Force Standards and is a signatory to the International Organisation of Securities Commissions Multilateral Memorandum of Understanding; F (c) any investment vehicle, registered foreign institutional investor, registered foreign portfolio investor or a foreign venture capital investor, where the terms shall have the meaning assigned to them in regulation 2 of the Foreign Exchange Management (Transfer or Issue of Security by a Person G Resident Outside India) Regulations, 2017 made under the Foreign Exchange Management Act, 1999 (42 of 1999); (d) an asset reconstruction company registered with the Reserve Bank of India under Section 3 of the Securitisation H

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A and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (e) an Alternate Investment Fund registered with the Securities and Exchange Board of India; (f) such categories of persons as may be notified by the Central B Government.”

24Copy pinpoint24. The Hon’ble Minister of Finance and Minister of Corporate Affairs, Shri Arun Jaitley, while moving the Insolvency and Bankruptcy Code (Amendment) Bill, 2017, stated on 29.12.2017:

C “The core and soul of this new Ordinance is really Clause 5, which is Section 29A of the original Bill. I may just explain that once a company goes into the resolution process, then applications would be invited with regard to the potential resolution proposals as far as the company is concerned or the enterprise is concerned. Now a number of ineligibility clauses were not there in the original Act D and, therefore, Clause 29A introduces those who are not eligible to apply. For instance there is a clause with regard to an undischarged insolvent who is not eligible to apply; a person who has been disqualifies under the Companies Act as a director cannot apply and a person who is prohibited under the SEBI Act cannot apply. So these are statutory disqualifications. And there is also a disqualification in Clause (c) with regard to those who are corporate debtors and who as on the date of the application making a bid do not operationalise the account by paying the interest itself i.e. you cannot say that I have an NPA. I am not making the account operational. The accounts will continue to be NPAs and yet I am going to apply for this. Effectively this clause will mean that those who are in management and on account of whom this insolvent or non-performing asset has arisen will now try and say. I do not discharge any of the outstanding debts in terms of making the accounts operational and yet I would like to apply and set the enterprise back at a discount value, for this is not the object of this particular Act, So clause 5 has been brought in with that purpose in mind.” (emphasis supplied)

25Copy pinpoint25. The Statement of Objects and Reasons of the aforesaid Bill lays down: H

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“2. The provisions for insolvency resolution and liquidation of a A corporate person in the Code did not restrict or bar any person from submitting a resolution plan or participating in the acquisition process of the assets of the company at the time of liquidation. Concerns have been raised that persons who, with their misconduct contributed to defaults of companies or are otherwise undesirable, may misuse this situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process, and gain or regain control of the corporate debtor. This may undermine the processes laid down in the Code as the unscrupulous person would be seen to be rewarded at the expense of the creditors. In addition, in order to check that the undesirable persons who may have submitted their resolution plans in the absence of such a provision, responsibility is also being entrusted on the committee of creditors to give a reasonable period to repay overdue amounts and become eligible.” (emphasis supplied)

26Copy pinpoint26. It is in this background that the section has to be construed. D In Ms. Eera Through Dr. Manjula Krippendorf v. State (Govt. of NCT of Delhi) & Anr., (2017) 15 SCC 133, this Court, after referring to the golden rule of literal construction, and its older counterpart the “object rule” in Heydon’s case, referred to the theory of creative interpretation as follows:- E “122. Instances of creative interpretation are when the Court looks at both the literal language as well as the purpose or object of the statute in order to better determine what the words used by the draftsman of legislation mean. In D.R. Venkatachalam v. Transport Commr. [D.R. Venkatachalam v. Transport Commr., (1977) 2 SCC 273], an early instance of this is found in the concurring judgment of Beg, J. The learned Judge put it rather well when he said: (SCC p. 287, para 28) “28. It is, however, becoming increasingly fashionable to start with some theory of what is basic to a provision or a chapter or in a statute or even to our Constitution in order to interpret and determine the meaning of a particular provision or rule made to subserve an assumed “basic” requirement. I think that this novel method of construction puts, if I may say so, the H

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A cart before the horse. It is apt to seriously mislead us unless the tendency to use such a mode of construction is checked or corrected by this Court. What is basic for a section or a chapter in a statute is provided: firstly, by the words used in the statute itself; secondly, by the context in which a provision occurs, or, in other words, by reading the statute as a whole; thirdly, by the Preamble which could supply the “key” to the meaning of the statute in cases of uncertainty or doubt; and, fourthly, where some further aid to construction may still be needed to resolve an uncertainty, by the legislative history which discloses the wider context or perspective in which a provision was made to meet a particular need or to satisfy a particular purpose. The last mentioned method consists of an application of the mischief rule laid down in Heydon case [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637] long ago.” xxx xxx xxx

D 127. It is thus clear on a reading of English, US, Australian and our own Supreme Court judgments that the “Lakshman Rekha” has in fact been extended to move away from the strictly literal rule of interpretation back to the rule of the old English case of Heydon [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637], E where the Court must have recourse to the purpose, object, text and context of a particular provision before arriving at a judicial result. In fact, the wheel has turned full circle. It started out by the rule as stated in 1584 in Heydon case [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637], which was then waylaid by the literal interpretation rule laid down by the Privy Council and the House F of Lords in the mid-1800s, and has come back to restate the rule somewhat in terms of what was most felicitously put over 400 years ago in Heydon case [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637].”

27Copy pinpoint27. A purposive interpretation of Section 29A, depending both on G the text and the context in which the provision was enacted, must, therefore, inform our interpretation of the same. We are concerned in the present matter with sub-clauses (c), (f), (i) and (j) thereof.

28Copy pinpoint28. It will be noticed that the opening lines of Section 29A contained in the Ordinance of 2017 are different from the opening lines of Section H

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29A as contained in the Amendment Act of 2017. What is important to note is that the phrase “persons acting in concert” is conspicuous by its absence in the Ordinance of 2017. The concepts of “promoter”, “management” and “control” which were contained in the opening lines of Section 29A under the Ordinance have now been transferred to sub- clause (c) in the Amendment Act of 2017. It is, therefore, important to note that the Amendment Act of 2017 opens with language which is of wider import than that contained in the Ordinance of 2017, evincing an intention to rope in all persons who may be acting in concert with the person submitting a resolution plan.

29Copy pinpoint29. The opening lines of Section 29A of the Amendment Act refer to a de facto as opposed to a de jure position of the persons mentioned therein. This is a typical instance of a “see through provision”, so that one is able to arrive at persons who are actually in “control”, whether jointly, or in concert, with other persons. A wooden, literal, interpretation would obviously not permit a tearing of the corporate veil when it comes to the “person” whose eligibility is to be gone into. However, a purposeful and contextual interpretation, such as is the felt necessity of interpretation of such a provision as Section 29A, alone governs. For example, it is well settled that a shareholder is a separate legal entity from the company in which he holds shares. This may be true generally speaking, but when it comes to a corporate vehicle that is set up for the purpose of submission of a resolution plan, it is not only permissible but imperative for the competent authority to find out as to who are the constituent elements that make up such a company. In such cases, the principle laid down in Salomon v. A Salomon and Co. Ltd. [1897] AC 22 will not apply. For it is important to discover in such cases as to who are the real individuals or entities who are acting jointly or in concert, and who have set up such a corporate vehicle for the purpose of submission of a resolution plan.

30Copy pinpoint30. The doctrine of piercing the corporate veil is as well settled as the Salomon (supra.) principle itself. In Life Insurance Corporation of India v. Escorts Ltd. & Ors., (1986) 1 SCC 264, this Court held: G “90. It was submitted that the thirteen Caparo companies were thirteen companies in name only; they were but one and that one was an individual, Mr Swraj Paul. One had only to pierce the corporate veil to discover Mr Swraj Paul lurking behind. It was H

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A submitted that thirteen applications were made on behalf of thirteen companies in order to circumvent the scheme which prescribed a ceiling of one per cent on behalf of each non-resident of Indian nationality or origin, or each company 60 per cent of whose shares were owned by non-residents of Indian nationality/origin. Our attention was drawn to the picturesque pronouncement of Lord B Denning M.R. in Wallersteiner v. Moir [(1974) 3 All ER 217] and the decisions of this Court in Tata Engineering and Locomotive Co. Ltd. v. State of Bihar [(1964) 6 SCR 885], CIT v. Sri Meenakshi Mills Ltd. [(1967) 1 SCR 934] and Workmen v. Associated Rubber Industry Ltd. [(1985) 4 SCC C 114]. While it is firmly established ever since Salomon v. A. Salomon & Co. Ltd. [1897 AC 22] was decided that a company has an independent and legal personality distinct from the individuals who are its members, it has since been held that the corporate veil may be lifted, the corporate personality may be ignored and the individual members recognised for who they are in certain exceptional circumstances Pennington in his Company Law (4th Edn.) states: “Four inroads have been made by the law on the principle of the separate legal personality of companies. By far the most extensive of these has been made by legislation imposing taxation. The government, naturally enough, does not willingly suffer schemes for the avoidance of taxation which depend for their success on the employment of the principle of separate legal personality, and in fact legislation has gone so far that in certain circumstances taxation can be heavier if companies are employed by the taxpayer in an attempt to minimise his tax liability than if he uses other means to give effect to his wishes. Taxation of companies is a complex subject, and is outside the scope of this book. The reader who wishes to pursue the subject is referred to the many standard text books on corporation tax, income tax, capital gains tax and capital transfer tax. G The other inroads on the principle of separate corporate personality have been made by two sections of the Companies Act, 1948, by judicial disregard of the principle where the protection of public interest is of paramount importance, or where the company has been formed to evade obligations H

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imposed by the law, and by the courts implying in certain cases A that a company is an agent or trustee for its members.” In Palmer’s Company Law (23rd Edn.), the present position in England is stated and the occasions when the corporate veil may be lifted have been enumerated and classified into fourteen categories. Similarly in Gower’s Company Law (4th Edn.), a B chapter is devoted to ‘lifting the veil’ and the various occasions when that may be done are discussed. In Tata Engineering and Locomotive Co. Ltd. [(1964) 6 SCR 885] the company wanted the corporate veil to be lifted so as to sustain the maintainability of the petition, filed by the company under Article 32 of the Constitution, by treating it as one filed by the shareholders of the company. The request of the company was turned down on the ground that it was not possible to treat the company as a citizen for the purposes of Article 19. In CIT v. Sri Meenakshi Mills Ltd. [(1967) 1 SCR 934] the corporate veil was lifted and evasion of income tax prevented by paying regard to the economic realities behind the legal facade. In Workmen v. Associated Rubber Industry Ltd. [(1985) 4 SCC 114] resort was had to the principle of lifting the veil to prevent devices to avoid welfare legislation. It was emphasised that regard must be had to substance and not the form of a transaction. Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc.” (Emphasis supplied.) G

31Copy pinpoint31. This statement of the law was followed in Union of India v. ABN Amro Bank and others, (2013) 16 SCC 490, at paragraphs 43 and 44 as follows: “43. We are of the view that in a given situation the authorities functioning under FERA find that there are attempts to overreach H

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A the provision of Section 29(1)(a), the authority can always lift the veil and examine whether the parties have entered into any fraudulent, sham, circuitous device so as to overcome statutory provisions like Section 29(1)(a). It is trite law that any approval/ permission obtained by non-disclosure of all necessary information or making a false representation tantamount to approval/permission obtained by practising fraud and hence a nullity. Reference may be made to the judgment of this Court in Union of India v. Ramesh Gandhi [(2012) 1 SCC 476].

44. Even in Escorts case [(1986) 1 SCC 264], this Court has taken the view that it is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected, etc. In Escorts case [(1986) 1 SCC D 264], this Court held as follows: (SCC pp. 335-36, para 90) “90. … Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought E to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern.””

32Copy pinpoint32. Similarly in Balwant Rai Saluja & Anr. etc. etc. v. Air India Ltd. & Ors., (2014) 9 SCC 407, this Court in following Escorts Ltd. (supra.), held: F “70. The doctrine of “piercing the corporate veil” stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders with its own legal rights and obligations. It seeks to disregard the separate personality of the company and attribute the acts of the company to those who are G allegedly in direct control of its operation. The starting point of this doctrine was discussed in the celebrated case of Salomon v. Salomon & Co. Ltd. [1897 AC 22] Lord Halsbury LC, negating the applicability of this doctrine to the facts of the case, stated that: (AC pp. 30 & 31)

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“[a company] must be treated like any other independent person with its rights and liabilities [legally] appropriate to itself … whatever may have been the ideas or schemes of those who brought it into existence.” Most of the cases subsequent to Salomon case [1897 AC 22], attributed the doctrine of piercing the veil to the fact that the company was a “sham” or a “façade”. However, there was yet to be any clarity on applicability of the said doctrine.

71. In recent times, the law has been crystallised around the six principles formulated by Munby, J. in Ben Hashem v. Ali Shayif [Ben Hashem v. Ali Shayif, 2008 EWHC 2380 (Fam)]. C The six principles, as found at paras 159-64 of the case are as follows: (i) Ownership and control of a company were not enough to justify piercing the corporate veil; (ii) The court cannot pierce the corporate veil, even in the D absence of third-party interests in the company, merely because it is thought to be necessary in the interests of justice; (iii) The corporate veil can be pierced only if there is some impropriety; E (iv) The impropriety in question must be linked to the use of the company structure to avoid or conceal liability; (v) To justify piercing the corporate veil, there must be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or F facade to conceal their wrongdoing; and (vi) The company may be a “façade” even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The court would, however, pierce the corporate veil only so far as it was necessary in order to provide G a remedy for the particular wrong which those controlling the company had done

72. The principles laid down by Ben Hashem case [Ben Hashem v. Ali Shayif, 2008 EWHC 2380 (Fam)] have been H

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A reiterated by the UK Supreme Court by Lord Neuberger in Prest v. Petrodel Resources Ltd. [(2013) 2 AC 415], UKSC at para 64. Lord Sumption, in Prest case [(2013) 2 AC 415], finally observed as follows: (AC p. 488, para 35) “35. I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil.”

73. The position of law regarding this principle in India has been enumerated in various decisions. A Constitution Bench of this Court in LIC v. Escorts Ltd. [(1986) 1 SCC 264], while discussing the doctrine of corporate veil, held that: (SCC pp. 335-36, para 90) E “90. … Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected, etc.””

33Copy pinpoint33. Similarly in Delhi Development Authority v. Skipper Construction Company (P) Ltd. & Another, (1996) 4 SCC 622, this Court held:

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“24. In Salomon v. Salomon & Co. Ltd. [1897 AC 22] the House A of Lords had observed, “the company is at law a different person altogether from the subscribers …; and, though it may be that after incorporation the business is precisely the same as it was before, the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by that Act.” Since then, however, the courts have come to recognise several exceptions to the said rule. While it is not necessary to refer to all of them, the one relevant to us is “when the corporate personality is being blatantly used as a cloak for fraud or improper conduct”. [Gower: Modern Company Law — 4th Edn. (1979) at p. 137.] Pennington (Company Law — 5th Edn. 1985 at p. 53) also states that “where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law”, the court will disregard the corporate veil. A Professor of Law, S. Ottolenghi in his article “From peeping behind the Corporate Veil, to ignoring it completely” says E “the concept of ‘piercing the veil’ in the United States is much more developed than in the UK. The motto, which was laid down by Sanborn, J. and cited since then as the law, is that ‘when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons’. The same can be seen in various European jurisdictions.” [(1990) 53 Modern Law Review 338] Indeed, as far back as 1912, another American Professor L. Maurice Wormser examined the American decisions on the subject in a brilliantly written article “Piercing the veil of corporate entity” [published in (1912) XII Columbia Law Review 496] and summarised their central holding in the following words: “The various classes of cases where the concept of corporate entity should be ignored and the veil drawn aside have now H

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A been briefly reviewed. What general rule, if any, can be laid down? The nearest approximation to generalisation which the present state of the authorities would warrant is this: When the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or B crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and-doing, men and women shareholders, and will do justice between real persons.”

25. In Palmer’s Company Law, this topic is discussed in Part II C of Vol. I. Several situations where the court will disregard the corporate veil are set out. It would be sufficient for our purposes to quote the eighth exception. It runs: “The courts have further shown themselves willing to ‘lifting the veil’ where the device of incorporation is used for some illegal or improper purpose…. Where a vendor of land sought to avoid the action for specific performance by transferring the land in breach of contract to a company he had formed for the purpose, the court treated the company as a mere ‘sham’ and made an order for specific performance against both the vendor and the company.” Similar views have been expressed by all the commentators on the Company Law which we do not think necessary to refer to.

26. The law as stated by Palmer and Gower has been approved by this Court in TELCO v. State of Bihar [(1964) 6 SCR 885]. F The following passage from the decision is apposite: “… Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But, it would not be possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to whether G the veil of the corporation should be lifted or not. Broadly stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions and the shareholders are held to be the persons who actually work for the corporation.” H

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27. In DHN Food Distributors Ltd. v. London Borough of A Tower Hamlets [(1976) 3 All ER 462] the court of appeal dealt with a group of companies. Lord Denning quoted with approval the statement in Gower’s Company Law that “there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look B instead at the economic entity of the whole group”. The learned Master of Rolls observed that “this group is virtually the same as a partnership in which all the three companies are partners”. He called it a case of “three in one” — and, alternatively, as “one in three”. C

28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/ or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people.” (emphasis supplied)

34Copy pinpoint34. It is thus clear that, 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. G

35Copy pinpoint35. The expression “acting jointly” in the opening sentence of Section 29A cannot be confused with “joint venture agreements”, as was sought to be argued by Shri Rohatgi. He cited various judgments including Faqir Chand Gulati v. Uppal Agencies Pvt. Ltd. & Anr., H

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A (2008) 10 SCC 345, and Laurel Energetics Private Limited v. Securities and Exchange Board of India, (2017) 8 SCC 541, to buttress his submission that a joint venture is a contractually agreed sharing of control over an economic activity. We are afraid that these judgments are wholly inapplicable. All that is to be seen by the expression “acting jointly” is whether certain persons have got together and are B 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 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 C 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 Takeover Regulations have been promulgated by SEBI.

36Copy pinpoint36. Originally, the SEBI (Substantial Acquisition of Shares and D Takeovers) Regulations, 1994, defined “persons acting in concert” as follows: “(d) “person acting in concert” comprises persons who, pursuant to an agreement or understanding acquires or agrees to acquire shares in a company for a common objective o purpose of substantial acquisition of shares and includes: i. a company, its holding company, or subsidiaries of such companies or companies under the same management either individually or all with each other. ii. a company with any of its directors, or any person entrusted with the management of the funds of the company; iii. directors of companies, referred to in clause (i) and his associates; and iv. mutual fund, financial institution, merchant banker, portfolio manager and any investment company in which any person has an interest as director, fund manager, trustee, or as a shareholder having not less than 2% of the paid-up capital of that company. Explanation – For the purposes of this clause “associate” means:-

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A. Any relative of that person within the meaning of section 6 A of the Companies Act, 1956 (1 of 1956); B. the director or his relative whether individually or in aggregate holding more than 2% of the paid-up equity capital of such company.” This was replaced in 1997 by the Regulations of 1997, and then B further by the 2011 Takeover Regulations.

37Copy pinpoint37. The Justice P.N. Bhagwati Committee Report on Takeovers, 1997, pursuant to which the Regulations of 1997 were framed, stated as follows: C “2.22 Definition of ‘Persons acting in concert’ “Persons acting in concert” have particular relevance to public offers, for often an acquirer can acquire shares or voting rights in a company “in concert” with any other person in a manner that the acquisitions made by him remain below the threshold limit, though taken together with the voting rights of persons in concert, the threshold may well be exceeded. It is therefore, important to define “persons acting in concert”. To be acting in concert with an acquirer, persons must fulfil certain “bright line” tests. They must have commonality of objectives and a community of interests which could be acquisition of shares or voting rights beyond the threshold limit, or gaining control over the company and their act of acquiring the shares or voting rights in a company must serve this common objective. Implicit in the concerted action of these persons must be an element of cooperation. And as has been observed, this cooperation could be extended in several ways, directly or indirectly, or through an agreement – formal or informal. The committee was of the view that the present definition of “persons acting in concert” in sub- clause (d) of regulation 2 needed to be strengthened by incorporating all the ingredients discussed in the foregoing paragraph to bring out clearly the import of acting in concert. Any person fulfilling the “bright line” tests would be acting in concert. But there could also be certain persons who, by their position in relation to an acquirer or by the very nature of their H

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A business, could be generally presumed to be acting in concert, unless proved to the contrary. In other words, a rebuttable presumption of being persons in concert with burden of proof cast on them will be raised against these persons. The Committee was of the view that while the net of presumption should be cast to include all such persons, it should not be cast too widely so as B to impinge on the freedom of any person to carry on his normal business activities. In other words, there should be well defined bounds of presumption. xxx xxx xxx C 2.23 Burden of proof on ‘persons acting in concert’ The Committee further noted that in the existing Regulations, there is no burden of proof on the ‘persons acting in concert’. Once the burden of proof is cast on the persons presumed to be acting in concert, it would be important to ensure that the persons are grouped in categories such that the persons may be presumed to be acting in concert only with another person belonging to the same category. A general reading of the existing provisions implies that a person belonging to any one of the categories mentioned in sub-clauses (i) to (iv) of clause (d) of regulation 2 could be presumed to be acting in concert with a person belonging to any other category. Thus, a company could be presumed to be acting in concert with a merchant banker, mutual fund, or any other body even though they may all be distinctly independent entities without any connection whatsoever. Such irrebuttable presumption of a common motive amongst unrelated parties would be illogical and not legally tenable. A distinction must be made between persons who could be presumed to be acting in concert unless proved to the contrary and others who may be acting in concert even though such a presumption cannot be raised against them. In this context, it may be noted that the UK City Code of Takeovers and Mergers, for this very reason, has divided the persons acting in concert into groups in such a manner that these persons would in the natural course of affairs be presumed to be acting in concert only with another person in the same group. This served to set the pattern for raising rebuttable presumptions.

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The Committee recommends that A

• In the definition of persons acting in concert, the persons be grouped in such a manner in the same group or category that they bear such relationship amongst themselves as could justify raising of a presumption in the normal course of affairs that they are acting in concert. For example, a sponsor of a mutual fund could be presumed to be acting in concert with the trustee company or asset management company of the same mutual fund; similarly a merchant banker may be presumed to be acting in concert with his client as acquirer. But no presumption may be made that persons in one group are acting in concert with persons in another group. It has to be proved by evidence that they are acting in concert. (Reference: Part II of the Report – sub-clause (e) of sub-regulation (1) of regulation 2). D The definition of the persons acting in concert as defined above would imply a rebuttable presumption. The question which arises is who would rule whether the presumption has been rebutted. The responsibility of ruling will lie with SEBI and over a period of time, jurisprudence on the subject will develop.” E

38Copy pinpoint38. By Regulation 2(1)(q) of the 2011 Takeover Regulations, “persons acting in concert” is defined as follows:- “(q) “persons acting in concert” means,— (1) persons who, with a common objective or purpose of acquisition of shares or voting rights in, or exercising control over a target company, pursuant to an agreement or understanding, formal or informal, directly or indirectly co-operate for acquisition of shares or voting rights in, or exercise of control over the target company. (2) Without prejudice to the generality of the foregoing, the persons falling within the following categories shall be deemed to be persons acting in concert with other persons within the same category, unless the contrary is established,— (i) a company, its holding company, subsidiary company and any company under the same management or control; H

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A (ii) a company, its directors, and any person entrusted with the management of the company; (iii) directors of companies referred to in item (i) and (ii) of this sub-clause and associates of such directors; (iv) promoters and members of the promoter group; B (v) immediate relatives; (vi) a mutual fund, its sponsor, trustees, trustee company, and asset management company; (vii) a collective investment scheme and its collective investment C management company, trustees and trustee company; (viii) a venture capital fund and its sponsor, trustees, trustee company and asset management company; (viiia) an alternative investment fund and its sponsor, trustees, trustee company and manager; D (ix) [***] (x) a merchant banker and its client, who is an acquirer; (xi) a portfolio manager and its client, who is an acquirer;

E (xii) banks, financial advisors and stock brokers of the acquirer, or of any company which is a holding company or subsidiary of the acquirer, and where the acquirer is an individual, of the immediate relative of such individual: Provided that this sub-clause shall not apply to a bank whose sole role is that of providing normal commercial banking services or activities in relation to an open offer under these regulations; (xiii) an investment company or fund and any person who has an interest in such investment company or fund as a shareholder or unitholder having not less than 10 per cent of the paid-up capital of the investment company or unit capital of the fund, and any other investment company or fund in which such person or his associate holds not less than 10 per cent of the paid-up capital of that investment company or unit capital of that fund:

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Provided that nothing contained in this sub-clause shall apply A to holding of units of mutual funds registered with the Board; Explanation.—For the purposes of this clause ¯ “associate” of a person means,— (a) any immediate relative of such person; B (b) trusts of which such person or his immediate relative is a trustee; (c) partnership firm in which such person or his immediate relative is a partner; and (d) members of Hindu undivided families of which such person is a coparcener;”

39Copy pinpoint39. It will be seen from the wide language used, that any understanding, even if it is informal, and even if it is to indirectly cooperate to exercise control over a target company, is included. 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). What is also important to note is that “immediate relatives” are also covered by sub-clause (v) – i.e., father and son, brothers, etc. Also of importance is the definition of “associate” in the explanation to Regulation 2(1)(q)(2), 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. What is of great importance is that wherever persons act jointly or in concert with the “person” who submits a resolution plan, all such persons are covered by Section 29A. It is interesting to note that the report of the Insolvency Law Committee of March, 2018, wanted to curtail the wide definition of persons acting jointly or in concert as follows: “14.3 The term ‘person acting jointly or in concert’ has not been defined in the Code and using the definition provided in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 results in inclusion of an extremely wide gamut of person within the scope of section 29A. In practice, it is unclear whether the term ‘connected person’ in clause (j) applies to only the H

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A resolution applicant or even ‘persons acting jointly or in concert with such person’. If the latter interpretation is taken, this provision would be applicable to multiple layers of persons who are related to the resolution applicant even remotely. Further, ARCs, banks and alternate investment funds which are specifically excluded from the definition of ‘connected person’ provided in section 29A B may be caught by the term ‘person acting jointly or in concert with such person’. The Committee felt that section 29A was introduced to disqualify only those who had contributed in the downfall of the corporate debtor or were unsuitable to run the company because of their antecedents whether directly or indirectly. Therefore, extending the disqualification to a resolution application owing to infirmities in persons remotely related may have adverse consequences. Such interpretation of this provision may shrink the pool of resolution applicants. Accordingly, the Committee felt that the words, “…, if such person, or any other person acting jointly or in concert with such person” in the first line of section 29A must be deleted. This would clarify that section 29A is applicable to the resolution applicant and its connected person only. Further, in order to ensure that anyone who acts with a common objective along with the resolution applicant to acquire shares, voting rights or control of the corporate debtor is required to pass the test laid down in section 29A, the Committee felt that the following clause must be added as clause (iv) to the definition of connected person in the explanation to clause (j), “(iv) any persons who along with the resolution applicant, with a F common objective or purpose of acquisition of shares or voting rights in, or exercising control over a corporate debtor, pursuant to an agreement or understanding, formal or informal, directly or indirectly co-operate for acquisition of shares or voting rights in, or exercise of control over the G corporate debtor.”” This part of the report has not been accepted by the legislature, as none of the suggested changes in the law have been made.

40Copy pinpoint40. In Technip SA v. SMS Holding (Pvt.) Ltd. & Ors., (2005) 5 SCC 465, this Court after referring to the Bhagwati Committee Report H of 1997, stated as follows:-

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“54. The standard of proof required to establish such concert is A one of probability and may be established “if having regard to their relation etc., their conduct, and their common interest, that it may be inferred that they must be acting together: evidence of actual concerted acting is normally difficult to obtain, and is not insisted upon” [CIT v. East Coast B Commercial Co. Ltd., (1967) 1 SCR 821]. (SCR p. 829 H)

55. While deciding whether a company was one in which the public were substantially interested within the meaning of Section 23-A of the Income Tax Act, 1922 this Court said: “The test is not whether they have actually acted in concert C but whether the circumstances are such that human experience tells us that it can safely be taken that they must be acting together. It is not necessary to state the kind of evidence that will prove such concerted actings. Each case must necessarily be decided on its own facts.” [CIT v. Jubilee Mills Ltd., (1963) D 48 ITR 9 (SC), p. 20]

56. In Guinness PLC and Distillers Co. PLC [Guinness PLC and Distillers Company PLC (Panel hearing on 25-8-1987 and 2-9-1987 at p. 10052 — Reasons for decisions of the Panel.)] the question before the Takeover Panel was whether Guinness had acted in concert with Pipetec when Pipetec purchased shares in Distillers Company PLC. Various factors were taken into consideration to conclude that Guinness had acted in concert with Pipetec to get control over Distillers Company. The Panel said: “The nature of acting in concert requires that the definition be drawn in deliberately wide terms. It covers an understanding as well as an agreement, and an informal as well as a formal arrangement, which leads to cooperation to purchase shares to acquire control of a company. This is necessary, as such arrangements are often informal, and the understanding may arise from a hint. The understanding may be tacit, and the definition covers situations where the parties act on the basis of a ‘nod or a wink’…. Unless persons declare this agreement or understanding, there is rarely direct evidence of action in concert, and the Panel must draw on its experience and common sense to determine whether those involved in any H

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A dealings have some form of understanding and are acting in cooperation with each other.” [Guinness PLC and Distillers Company PLC (Panel hearing on 25-8-1987 and 2-9-1987 at p. 10052 — Reasons for decisions of the Panel.)]” (emphasis supplied)

41Copy pinpoint41. In M/s. Daiichi Sankyo Company Ltd. v. Jayaram Chigurupati & Ors., (2010) 7 SCC 449, this Court referred to the concept of “persons acting in concert” and held that there must be a shared common objective for substantial acquisition of shares of a target company under the SEBI regulations. A fortuitous relationship coming into existence by accident or chance obviously cannot amount to “persons acting in concert”. This Court held:- “49. The other limb of the concept requires two or more persons joining together with the shared common objective and purpose of substantial acquisition of shares, etc. of a certain target company. There can be no “persons acting in concert” unless there is a shared common objective or purpose between two or more persons of substantial acquisition of shares, etc. of the target company. For, dehors the element of the shared common objective or purpose the idea of “person acting in concert” is as meaningless as a criminal conspiracy without any agreement to commit a criminal offence. The idea of “persons acting in concert” is not about a fortuitous relationship coming into existence by accident or chance. The relationship can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition or substantial acquisition of shares, etc. of the target company. It is another matter that the common objective or purpose may be in pursuance of an agreement or an understanding, formal or informal; the acquisition of shares, etc. may be direct or indirect or the persons acting in concert may cooperate in actual acquisition of shares, etc. or they may agree to cooperate in such acquisition. G Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of “persons acting in concert” to come into being.” (emphasis supplied) When coming to the presumption created by the provision, this Court held that the deeming provision is left open to rebuttal as indicated by the H

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words “unless the contrary is established” (see paragraph 54 of A Daiichi (supra.)). Finally, this Court held that whether a person is or is not acting in concert would depend upon the facts of each case. (see paragraph 57 of Daiichi (supra.)).

42Copy pinpoint42. When we come to sub-clause (c) of Section 29A, the first thing that was argued, at which the parties were at loggerheads, was the time at which sub-clause (c) can be said to operate. According to Shri Rohatgi, in the original sub-clause (c), pre-amendment, the time must necessarily be the date of commencement of the corporate insolvency resolution process, as is mentioned by the Section itself. According to Messrs Salve and Singhvi, it is clear that since submission of a resolution plan is spoken of, it is the time of submission of such plan and not any anterior stage.

43Copy pinpoint43. According to us, it is clear that the opening words of Section 29A furnish a clue as to the time at which sub-clause (c) is to operate. The opening words of Section 29A state: “a person shall not be eligible to submit a resolution plan…”. It is clear therefore that the stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant. The contrary view expressed by Shri Rohatgi is obviously incorrect, as the date of commencement of the corporate insolvency resolution process is only relevant for the purpose of calculating whether one year has lapsed from the date of classification of a person as a non- E performing asset. Further, the expression used is “has”, which as Dr. Singhvi has correctly argued, is in praesenti. This is to be contrasted with the expression “has been”, which is used in sub-clauses (d) and (g), which refers to an anterior point of time. Consequently, the amendment of 2018 introducing the words “at the time of submission of the resolution plan” is clarificatory, as this was always the correct interpretation as to the point of time at which the disqualification in sub- clause (c) of Section 29A will attach. In fact, the amendment was made pursuant to the Insolvency Law Committee Report of March, 2018. That report clearly stated: “In relation to applicability of section 29A(c), the Committee also discussed that it must be clarified that the disqualification pursuant to section 29A(c) shall be applicable if such NPA accounts are held by the resolution applicant or its connected persons at the time of submission of the resolution plan to the RP.” H

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44Copy pinpoint44. 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 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 this sub-section, any one of three things, which are disjunctive, needs to be established. The corporate debtor may be under the management of the person referred to in Section 29A, the corporate debtor may be a person under the control of such person, or the corporate debtor may be a person of whom such person is a promoter.

45Copy pinpoint45. The expression “management” would refer to the de jure management of a 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.

46Copy pinpoint46. The expression “control” is defined in Section 2(27) of the Companies Act, 2013 as follows:- E “(27) “control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner;”

47Copy pinpoint47. The expression “control” is therefore 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, 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 long as management or policy decisions can be, or are in fact, taken by H

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virtue of shareholding, management rights, shareholders agreements, voting agreements or otherwise, control can be said to exist.

48Copy pinpoint48. 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. “Control” here, as contrasted with “management”, means de facto control of actual management or policy decisions that can be or are in fact taken. A judgment of the Securities Appellate Tribunal in 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), made the following observations qua “control” under the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, wherein “control” is defined in Regulation 2(1)(e) in similar terms as in Section 2(27) of the Companies Act, 2013. The Securities Appellate Tribunal held: “6. …The term control has been defined in Regulation 2(1)(c) of the takeover code to “include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.” This definition is an inclusive one and not exhaustive and it has two distinct and separate features: i) the right to appoint majority of directors or, ii) the ability to control the management or policy decisions by various means referred to in the definition. This control of management or policy decisions could be by virtue of shareholding or management rights or shareholders agreement or voting agreements or in any other manner. This definition appears to be similar to the one as given in Black’s Law Dictionary (Eighth Edition) at page 353 where this term has been defined as under: “Control - The direct or indirect power to direct the management and policies of a person or entity, whether through ownership of voting securities, by contract, or otherwise; the power or authority to manage, direct, or oversee.” Control, according to the definition, is a proactive and not a reactive power. It is a power by which an acquirer can command the target company to do what he wants it to do. Control really means H

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A creating or controlling a situation by taking the initiative. Power by which an acquirer can only prevent a company from doing what the latter wants to do is by itself not control. In that event, the acquirer is only reacting rather than taking the initiative. It is a positive power and not a negative power. In a board managed company, it is the board of directors that is in control. If an acquirer were to have power to appoint majority of directors, it is obvious that he would be in control of the company but that is not the only way to be in control. If an acquirer were to control the management or policy decisions of a company, he would be in control. This could happen by virtue of his shareholding or management rights or by reason of shareholders agreements or voting agreements or in any other manner. The test really is whether the acquirer is in the driving seat. To extend the metaphor further, the question would be whether he controls the steering, accelerator, the gears and the brakes. If the answer to these questions is in the affirmative, then alone would he be in control of the company. In other words, the question to be asked in each case would be whether the acquirer is the driving force behind the company and whether he is the one providing motion to the organization. If yes, he is in control but not otherwise. In short control means effective control.”

49Copy pinpoint49. We think that these observations are apposite, and apply to the expression “control” in Section 29A(c).

50Copy pinpoint50. 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 F 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), 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 H

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control which may flow from an expansive reading of the definition of A the word “control” contained in Section 2(27) of the Companies Act, 2013, which is inclusive and not exhaustive in nature.

51Copy pinpoint51. In a recent judgment delivered by one of us (Nariman, J.) in Chintalapati Srinivasa Raju v. Securities and Exchange Board of India, (2018) 7 SCC 443, this Court after referring to the definition of B “control” in the SEBI regulations, held on facts that an executive director, on a fixed monthly salary, post resignation, cannot be held to be a person exercising “control” within the meaning of the SEBI regulations. This Court referred to with approval the following test laid down in Securities and Exchange Board of India v. Kishore R. Ajmera, (2016) 6 SCC 368:- C

“26. It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled. While direct evidence is a more certain basis to come to a conclusion, yet, in the absence thereof the Courts cannot be helpless. It is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion.” (emphasis supplied)

52Copy pinpoint52. The third concept is that of a promoter. “Promoter” is defined by Section 2(69) of the Companies Act, 2013 as follows: “(69) “promoter” means a person— (a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in Section 92; or G (b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or (c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act: H

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A Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity;”

53Copy pinpoint53. Here again, sub-clause (a) refers to a de jure position, namely, where a person is expressly named in a prospectus or identified by the company in an annual return as a promoter. Sub-clauses (b) and (c) B 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 person who in fact advises, directs or instructs the Board to act. Under the proviso, only a person who acts in a C professional capacity is excluded from the talons of sub-clause (c).

54Copy pinpoint54. The interpretation of Section 29A(c) now becomes clear. 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. This provision therefore ensures that if a person wishes to submit a resolution plan, and if such person or any person acting jointly or any person in concert with such person, happens to either manage, control, or be promoter of a corporate debtor declared as a non-performing asset one year before the corporate insolvency resolution process begins, is 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. The position in law is thus clear. 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 G non-performing asset in the period abovementioned, 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).

55Copy pinpoint55. However, Messrs Salve and Singhvi have argued that the expression “before submission of resolution plan” contained in the H

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proviso must be read in a commercially sensible manner. The provision must, therefore, be interpreted to make it workable, and create a situation so that banks can recover the maximum possible amounts from the NPAs generally, and not merely from the NPAs of the corporate debtor in respect of which it is receiving resolution plans. In this context, therefore, if there is a system by which a person who presents a resolution plan can pay off the entire amount of the NPAs as a part of its resolution plan, to be appropriated before the resolution plan is accepted and implemented, it would fully subserve the object of both the proviso and the statute generally. According to them, the words of a statute can be altered suitably to avoid hardship or absurdity. We are afraid that we cannot accept the aforesaid submission. The plain language of the proviso makes it clear, that ineligibility can only be removed if the necessary payment is made before submission of a resolution plan. It is not possible to accede to the argument that, commercially speaking, no person would ever make a speculative bid, where he would pay off the debt of another related corporate debtor, classified as an NPA, without being certain that his resolution plan would be accepted, as this would narrow the pool of resolution applicants to nil, and therefore stultify the object sought to be achieved by the proviso to Section 29A(c). First, it is clear that there may be persons who may submit resolution plans, either by themselves, or in concert, or jointly with other persons who do not have debts which are declared as NPAs. Also, it is very difficult to say that in no circumstance whatsoever would a person submitting a resolution plan pay off the NPA dues of another person, with whom it is acting in concert or jointly. The dues may be such that it may be worth the while of the person, together with the persons with whom he is acting in concert or jointly, to first pay off the dues of the concerned corporate debtor whose account has been declared to be an NPA, as such dues may be negligible when compared with the gaining of control of the corporate debtor that is sought to be run as a going concern as per a resolution plan submitted. It is, therefore, impossible to say that the plain, literal, meaning of the language used by the proviso leads to absurdity or hardship. This interpretation is also in line with the object sought to be achieved, namely, that other corporate debtors who are declared as NPAs, whose debts may never be cleared in full, are required to be cleared as a condition precedent to submission of a resolution plan under the Code. In order, therefore, to make the statute “workable”, as is suggested by Messrs H

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A Salve and Singhvi, we cannot disregard the plain language of the proviso and substitute words which would have the opposite effect.

56Copy pinpoint56. Since Section 29A(c) is a see-through provision, great care must be taken to ensure that persons who are in charge of the corporate debtor for whom such resolution plan is made, do not come back in some other form to regain control of the company without first paying off its debts. The Code has bifurcated such persons into two groups, as a perusal of sub-clauses (c) and (g) of Section 29A shows. 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 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 in the erstwhile management or control of the corporate debtor.

57Copy pinpoint57. 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, 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 F 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 submit a resolution plan, or otherwise G 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.

58Copy pinpoint58. When we come to sub-clause (f), it is clear that, if any of the persons mentioned in Section 29A is prohibited by SEBI from either H

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trading in securities or accessing the securities market – again, ineligibility A of the person submitting the resolution plan attaches. Under sub-clause (i), if a person situate abroad is subject to any disability which corresponds to sub-clause (f), such person also gets interdicted. In E.V. Mathai v. Subordinate Judge, Kottayam & Ors., (1969) 2 SCC 194, the expression “corresponding to” was explained as follows:- B “It was argued by Mr Daphtary that Section 4 was not applicable because a different intention appeared from Section 34(1) of the Act of 1965. We find ourselves unable to accept this contention. The proviso to Section 34(1) lays down that a legal proceeding which could have been instituted, continued or enforced under the repealed Act of 1959 may be instituted under the corresponding provisions of the new Act. Mr Daphtary tried to meet this by urging that Section 11(4) of the Act of 1959 did not contain any corresponding provision. Sub-section (1) of Section 11 of the 1959 Act laid down that: “Notwithstanding anything to the contrary contained in any other law or contract a tenant shall not be evicted, whether in execution of a decree or otherwise except in accordance with the provisions of this Act: Provided....” E Sub-section (4)(i) of Section 11 however gave the landlord a right to apply for eviction and for an order directing him to be put in possession of the building: “if the tenant has without the consent of the landlord transferred his right under the lease or sub-let the entire building or any portion thereof, if the lease does not confer on him any right to do so, or the landlord has not consented to such sub-letting;” We find ourselves unable to accept Mr Daphtary’s argument that the above quoted provision of Section 11 of the Act of 1959 was not “a corresponding provision” within the meaning of the proviso to sub-section (1) of Section 34 of the Act of 1965. To correspond means to “be in harmony with or be similar, analogous to”. It does not mean to “be identical with” and therefore the relevant provisions of Section 34 (1) of the Act of 1965 must be held to be a provision corresponding to Section 11(4) of the Act of 1959.” H

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59Copy pinpoint59. In the light thereof, it is clear that if a person is prohibited by a regulator of the securities market in a foreign country from trading in securities or accessing the securities market, the disability under sub- clause (i) would then attach.

60Copy pinpoint60. When we come to sub-clause (j), a “connected person” is defined as meaning the three categories of persons mentioned in the three sub-clauses therein. The first sub-clause of Explanation 1 again takes us back to the same three definitions of “promoter”, “management” and “control” of the resolution applicant. Under sub-clause (ii), again, a “connected person” is a person who is either the promoter, or in management or control, of the business of the corporate debtor during implementation of the resolution plan. And under sub-clause (iii), holding companies, subsidiary companies and associate companies as defined under the Companies Act, 2013, or related parties of persons referred to in clauses (1) and (2) also become connected persons1 1 By the Insolvency and Bankruptcy Code (Second Amendment) Act of 2018 a new definition of “related party” has been inserted with effect from 6.6.2018, as section 5(24-A) of the Code, as follows:- “(24-A) “related party”, in relation to an individual, means— (a) a person who is a relative of the individual or a relative of the spouse of the individual; (b) a partner of a limited liability partnership, or a limited liability partnership or a partnership firm, in which the individual is a partner; E (c) a person who is a trustee of a trust in which the beneficiary of the trust includes the individual, or the terms of the trust confers a power on the trustee which may be exercised for the benefit of the individual; (d) a private company in which the individual is a director and holds along with his relatives, more than two per cent. of its share capital; (e) a public company in which the individual is a director and holds along with relatives, more than two per cent. of its paid-up share capital; F (f) a body corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of the individual; (g) a limited liability partnership or a partnership firm whose partners or employees in the ordinary course of business, act on the advice, directions or instructions of the individual; G (h) a person on whose advice, directions or instructions, the individual is accustomed to act; (i) a company, where the individual or the individual along with its related party, own more than fifty per cent. of the share capital of the company or controls the appointment of the board of directors of the company. Explanation.—For the purposes of this clause,— (a) “relative”, with reference to any person, means anyone who is related to another, in H the following manner, namely:—

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61Copy pinpoint61. We now come to the equally important question as to the timelines within which the insolvency process is to be completed.

62Copy pinpoint62. Previous legislation, namely, the Sick Industrial Companies (Special Provisions) Act, 1985, and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, which made provision for rehabilitation of sick companies and repayment of loans availed by them, were found to have completely failed. This was taken note of by our judgment in Madras Petrochem Ltd. and Anr. v. Board for Industrial and Financial Reconstruction and Ors., (2016) 4 SCC 1: “40. An interesting pointer to the direction Parliament has taken after enactment of the Securitisation and Reconstruction of C Financial Assets and Enforcement of Security Interest Act, 2002 is also of some relevance in this context. The Eradi Committee Report relating to insolvency and winding up of companies dated 31-7-2000, observed that out of 3068 cases referred to BIFR from 1987 to 2000 all but 1062 cases have been disposed of. Out of the cases disposed of, 264 cases were revived, 375 cases were under D negotiation for revival process, 741 cases were recommended for winding up, and 626 cases were dismissed as not maintainable. These facts and figures speak for themselves and place a big

(i) members of a Hindu Undivided Family, E (ii) husband, (iii) wife, (iv) father, (v) mother, (vi) son, (vii) daughter, (viii) son’s daughter and son, F (ix) daughter’s daughter and son, (x) grandson’s daughter and son, (xi) grand daughter’s daughter and son, (xii) brother, (xiii) sister, (xiv) brother’s son and daughter, G (xv) sister’s son and daughter, (xvi) father’s father and mother, (xvii) mother’s father and mother, (xviii) father’s brother and sister, (xix) mother’s brother and sister, and (b) wherever the relation is that of a son, daughter, sister or brother, their spouses shall also be included;” H