ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND POWER LTD. & ANR.

The Judgment of the Court was delivered by DR. DHANANJAYA Y CHANDRACHUD, J. B This judgment has been divided into the following sections to facilitate analysis: A Factual Background A.1 Civil Appeal 9664 of 2019 C A.2 Civil Appeal 2719 of 2020 A.3 Liquidation Process Regulations, 2016 A.4 Article 32 Petition B Issues D C Submissions D Analysis of the Legal Framework D.1 Ineligibility during the resolution process and liquidation D.2 Interplay : IBC liquidation and Section 230 of E the Act of 2013 D.3 The ‘Clean Slate’ D.4 Constitutional Validity of Regulation 2B - Liquidation Process Regulations

F E Epilogue F Conclusion A Factual Background A.1 Civil Appeal 9664 of 20191

1Copy pinpoint1. By its judgment dated 24 October 2019, the National Company G Law Appellate Tribunal2 held that a person who is ineligible under Section 29A of the Insolvency Bankruptcy Code, 20163 to submit a resolution plan, is also barred from proposing a scheme of compromise and 1 “First Appeal” 2 “NCLAT” 3 H “IBC”

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POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

arrangement under Section 230 of the Companies Act, 20134. The A judgment was rendered in an appeal5 filed by Jindal Steel and Power Limited6, an unsecured creditor of the corporate debtor, Gujarat NRE Coke Limited⁷. The appeal was preferred against an order passed by the National Company Law Tribunal8 in an application⁹ under Sections 230 to 232 of the Act of 2013, preferred by Mr Arun Kumar Jagatramka, B who is a promoter of GNCL. The NCLT had allowed the application and issued directions for convening a meeting of the shareholders and creditors. In its decision dated 24 October 2019, the NCLAT reversed this decision and allowed the appeal by JSPL. The decision of the NCLAT dated 24 October 2019 is challenged in the appeal before this Court.

2Copy pinpoint2. Mr Arun Kumar Jagatramka, assails the order dated 24 October C 2019 of the NCLAT, inter alia, on the ground that Section 230 of the Act of 2013 does not place any embargo on any person for the purpose of submitting a scheme. According to the appellant, in the absence of a disqualification, the NCLAT could not have read the ineligibility under Section 29A of the IBC into Section 230 of the Act of 2013. This would, in the submission, amount to a judicial reframing of legislation by the NCLAT, which is impermissible. 3.Before we advert to the submissions of the counsels on questions of law, it will be useful to outline the salient facts of this dispute to understand the contours of the controversy. GNCL, the corporate debtor, moved an application under Section 10 of the IBC before the NCLT for initiating the Corporate Insolvency Resolution Process¹⁰. The application was admitted on 7 April 2017.

4Copy pinpoint4. Mr Arun Kumar Jagatramka submitted a resolution plan for GNCL on 1 November 2017, which was presented by the Resolution F Professional11 before the Committee of Creditors12. The plan was to be put to a vote in a meeting of the CoC scheduled on 23-24 November 2017. 4 the “Act of 2013” 5 Company Appeal (AT) No. 221 of 2018 6 “JSPL” G 7 “GNCL” 8 “NCLT” 9 C.A. (CAA) No. 198/KB/2018 10 “CIRP” or “resolution process” 11 “RP” 12 “CoC” H

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5Copy pinpoint5. The IBC was amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2018. Section 29A which was inserted with retrospective effect from 23 November 2017 provides a list of persons who are ineligible to be resolution applicants. Sub-section (g) of Section 29A disqualifies a person from being a resolution applicant if they have been a promoter or in the management or control of a corporate debtor B 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 NCLT under the IBC. A second amendment was made to various provisions of IBC, including Section 29A, under the Insolvency and Bankruptcy Code (Second Amendment) C Act, 2018, effective from 6 June 2018. A proviso was added to sub- Section (g) of Section 29A. Section 29A of the IBC in its present form reads as follows: “29A. Persons not eligible to be resolution applicant: A person shall not be eligible to submit a resolution plan, if such D 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 E 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, 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 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; H

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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 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 or completion of such transactions as may be prescribed, prior to the insolvency commencement date. C 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 D 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— E

(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: F 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: Provided further that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I; G (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 person referred to in clause (iii) of Explanation I; H

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A (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; 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 Code and such guarantee has been invoked by the creditor and remains unpaid in full or part; E (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). Explanation I — For the purposes of this clause, the expression F “connected person” means— (i) any person who is the promoter or in the management or control of the resolution applicant; or (ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the G implementation of the resolution plan; or (iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii): Provided that nothing in clause (iii) of 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: H

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Provided further that the expression “related party” shall not include a financial entity, regulated by a 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 9[or completion of such transactions as may be prescribed], prior to the insolvency commencement date; Explanation II.— For the purposes of this section, “financial entity” 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:— C (a) a scheduled bank; (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 D Organisation of Securities Commissions Multilateral Memorandum of Understanding; (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 E in regulation 2 of the Foreign Exchange Management (Transfer or Issue of Security by a Person 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 and F 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; G (f) such categories of persons as may be notified by the Central Government.” (emphasis supplied) Due to the insertion of Section 29A, Mr Arun Kumar Jagmatramka became ineligible to submit a resolution plan. H

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6Copy pinpoint6. No further resolution plan was approved by the CoC due to the paucity of time. In the absence of a resolution plan, the NCLT passed an order of liquidation on 11 January 2018, after the expiry of 270 days. The order of the NCLT ordering liquidation was challenged in appeal13 by Mr Arun Kumar Jagatramka before the NCLAT. The appeal was dismissed by the NCLAT by its order dated 10 July 2018. The dismissal B of the appeal by the NCLAT was assailed before this Court, which issued notice to GNCL on 19 July 2019.

7Copy pinpoint7. During the pendency of the appeal before NCLAT, where the order of liquidation passed by the NCLT was assailed, Mr Arun Kumar Jagatramka moved an application under Sections 230 to 232 of the Act C of 2013 before the NCLT proposing a scheme for compromise and arrangement between the erstwhile promoters and creditors. This application was allowed by the NCLT through its order dated 15 May 2018, and a direction was issued for convening of a meeting of shareholders, secured creditors, unsecured creditors and FCCB holders for approval of the scheme of compromise and arrangement.

8Copy pinpoint8. JSPL, an operational creditor of GNCL, preferred an appeal against the order of the NCLT dated 15 May 2018 before the NCLAT. The NCLAT allowed the appeal by its judgement dated 24 October 2019, holding that promoters who are ineligible to propose a resolution plan under Section 29A of the IBC are not entitled to file an application for compromise and arrangement under Sections 230 to 232 of the Act of 2013. The basis of this finding is contained in paragraphs 10 to 12 of the impugned judgement which is extracted below: “10. As noticed above, the Hon’ble Supreme Court in Swiss F Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors. - Writ Petition (Civil) No.99 of 2019 held that the ‘primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation’.

G 11. The aforesaid judgment makes it clear that even during the period of Liquidation, for the purpose of Section 230 to 232 of the Companies Act, the ‘Corporate Debtor’ is to be saved from its own management, meaning thereby the Promoters, who are ineligible under Section 29A, are not entitled to file application for 13 H Company Appeal (IB) No. 55-56 of 2018

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Compromise and Arrangement in their favour under Section 230 A to 232 of the Companies Act. Proviso to Section 35(f) prohibits the Liquidator to sell the immovable and movable property or actionable claims of the ‘Corporate Debtor’ in Liquidation to any person who is not eligible to be a Resolution Applicant, quoted below: - B “35. Powers and duties of Liquidator.-(1) Subject to the directions of the Adjudicating Authority, the liquidator shall have the following powers and duties, namely:— xxx xxx xxx C

(f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be D specified. Provided that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant.” E

12. From the aforesaid provision, it is clear that the Promoter, if ineligible under Section 29A cannot make an application for Compromise and Arrangement for taking back the immovable and movable property or actionable claims of the ‘Corporate Debtor’.” F (emphasis in original)

9Copy pinpoint9. The judgment and order of the NCLAT is the subject of the appeal. A.2 Civil Appeal 2719 of 202014

10Copy pinpoint10. This appeal has been filed for assailing an order dated 19 G December 2019 of the NCLAT in which it relied on the judgment dated 24 October 2019 impugned in the earlier appeal, to hold that an individual ineligible for proposing a resolution plan under Section 29A of the IBC,

14 “Second Appeal” H

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A is also ineligible to propose a scheme of compromise and arrangement under Section 230 of the Act of 2013.

11Copy pinpoint11. The appellant - Mr Kunwer Sachdev - was the promoter and director (since suspended) of Su-Kam Power Systems Limited15. An application16 under Section 7 of the IBC was filed by one of the financial B creditors of Su-Kam, which was admitted by the NCLT through its order dated 5 April 2018. The CIRP was initiated against Su-Kam.

12Copy pinpoint12. When the RP invited applications for resolution plans for Su- Kam, Mr Kunwar Sachdev submitted a plan along with Phoenix ARC Private Limited on 15 November 2018. However, Mr Kunwar Sachdev C was informed by an email dated 27 December 2018 issued by the RP, that the CoC had found him to be ineligible under Section 29A(h) of the IBC and consequently annulled his resolution plan.

13Copy pinpoint13. This decision was challenged by filing an application17 before the NCLT. However, this was dismissed by the NCLT through its order D dated 2 April 2019. This order was not challenged.

14Copy pinpoint14. In the interim, due to the absence of any other resolution plan, the NCLT passed an order dated 3 April 2019, under Section 34(1) of the IBC, directing the liquidation of Su-Kam and appointing a Liquidator. The appointment of the Liquidator was challenged before the NCLAT E in an appeal18, which was disposed of by an order dated 29 April 2019 upholding the appointment of the Liquidator. The Liquidator was also directed to accept applications for schemes of compromise and arrangement under Sections 230 to 232 of the Act of 2013.

15Copy pinpoint15. When the Liquidator invited expressions of interest for F submitting schemes of compromise and arrangement, Mr Kunwar Sachdev again expressed his interest. Emails were exchanged between the Liquidator and Mr Kunwar Sachdev, during the course of which Mr Kunwar Sachdev was invited to present his plan to the lenders of Su- Kam. However, before this could materialise, Mr Kunwar Sachdev was informed by the Liquidator through an email dated 19 September 2019, G that he was ineligible to propose a scheme under Section 230 of the Act of 2013 in view of his ineligibility under Section 29A(h) of the IBC. 15 “Su-Kam” 16 CP (IB)/540 (PB)/2017) 17 CA. 58(PB)/2019 18 H Company Appeal (AT) (Ins) No.451 of 2019

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16Copy pinpoint16. Mr Kunwar Sachdev challenged this decision in an application19 A filed before the NCLT, which was dismissed by an order dated 31 October 2019 relying on the judgment dated 24 October 2019 impugned in the earlier appeal, and on the basis of Section 29A and Section 35(1)(f) of the IBC.

17Copy pinpoint17. Mr Kunwar Sachdev then filed an appeal20 against this order dated 31 October 2019 before the NCLAT, which dismissed it by an order dated 19 December 2019. Mr Kunwar Sachdev now comes before this Court in appeal. A.3 Liquidation Process Regulations, 2016

18Copy pinpoint18. Before averting to Writ Petition (Civil) No 269 of 2020, it is important to first understand the controversy surrounding the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 201621.

19Copy pinpoint19. The Liquidation Process Regulations have been issued by the Insolvency and Bankruptcy Board of India22, constituted under Part IV of the IBC, in exercise of the powers conferred by Sections 5, 33, 34, D 35, 37, 38, 39, 40, 41, 43, 45, 49, 50, 51, 52, 54, 196 and 208 read with Section 240 of the IBC.

20Copy pinpoint20. The Liquidation Process Regulations were amended by the IBBI by a notification23 dated 25 July 2019, which inserted Regulation 2B. Sub-section (1) of Regulation 2B provides that a compromise or E arrangement proposed under Section 230 of the Act of 2013 shall have to be completed within 90 days of the order of liquidation issued under sub-sections (1) and (4) of Section 33 of the IBC. Further, Sub-section (2) provides that the time taken in a compromise or arrangement, not exceeding 90 days, shall not be included within the liquidation period. F Finally, Sub-section (3) provides that any cost which is incurred by the Liquidator in relation to the compromise or arrangement shall be borne by the corporate debtor, if such compromise or arrangement is sanctioned by the NCLT under Section 230(6). However, a proviso to Sub-section (3) notes that if such compromise or arrangement is not sanctioned by the NCLT under Section 230(6), the cost shall be borne by the parties G who proposed the compromise or arrangement. 19 CA-2335(PB)/2019 20 Company Appeal (AT) (Insolvency) No. 1498 of 2019 21 “Liquidation Process Regulations” 22 “IBBI” 23 Noti. No. IBBI/2019-20/GN/REG047 H

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21Copy pinpoint21. Regulation 2B was amended by a notification24 dated 6 January 2020, by which a proviso was added to Sub-section (1) of Regulation 2B, which provides that a party ineligible to propose a resolution plan under the IBC cannot be a party to a compromise or arrangement. Regulation 2B, in its present form, reads as follows: B “2-B. Compromise or arrangement.—(1) Where a compromise or arrangement is proposed under Section 230 of the Companies Act, 2013 (18 of 2013), it shall be completed within ninety days of the order of liquidation under sub-sections (1) and (4) of Section 33: C Provided that a person, who is not eligible under the Code to submit a resolution plan for insolvency resolution of the corporate debtor, shall not be a party in any manner to such compromise or arrangement. (2) The time taken on compromise or arrangement, not exceeding D ninety days, shall not be included in the liquidation period. (3) Any cost incurred by the liquidator in relation to compromise or arrangement shall be borne by the corporate debtor, where such compromise or arrangement is sanctioned by the Tribunal under sub-section (6) of Section 230: E Provided that such cost shall be borne by the parties who proposed compromise or arrangement, where such compromise or arrangement is not sanctioned by the Tribunal under sub-section (6) of Section 230.” (emphasis supplied) F A.4 Article 32 Petition

22Copy pinpoint22. Writ Petition (Civil) No 269 of 2020 has been filed by Mr Arun Kumar Jagatramka, also the appellant in the First Appeal, assailing the notifications dated 25 July 2019 and 6 January 2020 issued by the IBBI, through which it inserted Regulation 2B into the Liquidation Process G Regulations, and subsequently amended it. As the petitioner, he contends that Regulation 2B is ultra vires the IBC and the Act of 2013, and also violates Articles 14, 19 and 21 of the Constitution. The prayer in the writ petition has been extracted below: 24 Noti. No. IBBI/2019-20/GN/REG053 H

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“In the premises set forth above, the Petitioner prays that this A Hon’ble Court may be pleased to issue: a. Writ, Order or Direction more particularly in the nature of WRIT OF DECLARATION declaring that the provisions of Notifications dated 25.⁷.2019 and 06.01.2020 issued by the Insolvency and Bankruptcy Board of India are ultra vires the Insolvency and B Bankruptcy Code, 2016 as well as the Companies Act, 2013 and violative of Article 14, 19, 21 of the Constitution of India.” B Issues

23Copy pinpoint23. Having detailed the factual background of these petitions, we shall now turn to the issues before this Court and the submissions of C counsels.

24Copy pinpoint24. The NCLAT formulated two principal issues in the first of its judgments in appeal: “(i) Whether in a liquidation proceeding under Insolvency and D Bankruptcy Code, 2016 (hereinafter referred to as the ‘l&B Code’)the Scheme for Compromise and Arrangement can be made in terms of Sections 230 to 232 of the Companies Act; (ii) If so permissible, whether the Promoter is eligible to file application for Compromise and Arrangement, while he is ineligible E under Section 29A of the I&B to submit a ‘Resolution Plan’.”

25Copy pinpoint25. The first of the above issues has been answered in the affirmative by the NCLAT, to which, as Mr Sandeep Bajaj, learned Counsel for the appellant noted, there is no challenge. The real bone of dispute relates to the second issue. In the submission of Mr Sandeep F Bajaj, what the NCLAT determined while addressing itself to the issue in dispute is whether the ineligibility under Section 29A of the IBC can be read into the provisions of Section 230 of the Act of 2013. In essence, Mr Bajaj’s approach to the issue is that a disqualification which is not provided by the legislature cannot be introduced by a judicial determination. In the present case, he submitted, Section 29A does not G expressly provide that it extends to Section 230 of the Act of 2013. Section 230, in his submission, is a ‘different section in different enactment’ to which the ineligibility under Section 29A of the IBC cannot be attracted. H

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26Copy pinpoint26. Mr Amit Sibal, learned Senior Counsel appearing for the respondent in the Second Appeal, on the other hand, submitted that the correct question to pose is whether a person who is ineligible under Section 29A of the IBC is permitted to propose a scheme for revival under Section 230 of the Act of 2013 at the stage of liquidation either themselves or in concert with others. B

27Copy pinpoint27. The nuanced manner in which the contesting sides have prefaced their submissions is indicative of the broad nature of the contest. On one hand, Mr Bajaj submits that the ineligibility under Section 29A of the IBC attaches to the proceedings under the IBC alone, involving the submission of a resolution plan. On the other hand, what Mr Sibal urges is that when an order of liquidation has been passed under and in pursuance of proceedings which were initiated under the IBC, Section 230 of the Act of 2013 expressly contemplates that the liquidator appointed under the IBC may move the NCLT where a compromise or arrangement is proposed. Hence, the proposal for a compromise or arrangement under Section 230, where a company is in liquidation under the IBC, is in continuation of that liquidation process. Hence, according to Mr Sibal, a person who is ineligible under Section 29A cannot propose a scheme for revival under Section 230. C Submissions

28Copy pinpoint28. Having thus elucidated the battle lines of legal conflict, we proceed to enumerate the submissions.

29Copy pinpoint29. Mr Sandeep Bajaj, learned Counsel appearing on behalf of the appellant in the First Appeal and the Petition under Article 32 submitted that: F (i) Chapter II of the IBC indicates that the CIRP can be invoked in three modes: (a) By a financial creditor under Section 7; (b) By an operational creditor under Section 9; and (c) By a corporate debtor under Section 10. G (ii) The IBC and its regulations indicate that there is a clear distinction between: (a) the settlement mechanism which allows for a settlement upon which the corporate debtor would H

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stand restored to the promoter together with all its assets and liabilities; and (b) the resolution mechanism under which, upon the acceptance of a resolution plan, the company moves over to the control of the acquirer on a clean slate for a fixed consideration, consequent to the provisions of Section 31; (iii) Section 29A is a part of the resolution mechanism, the object and purpose of which is to prevent a back-door entry to the promoter who should not be allowed to have advantage of their own wrong; C (iv) Though the appellant falls in the prohibited category under Section 29A, the purpose of the prohibition is to prevent the promoter from submitting a resolution plan with reference to the provisions of Sections 30 and 31 of the IBC; (v) Chapter III of the IBC, commencing with Section 33, deals with the liquidation process and Regulation 32 of the Liquidation Process Regulations deals with “sale of assets etc. by the liquidator”. In the course of the liquidation under Chapter III, the liquidation estate is to be formed under Section 36 and the sale under Regulation 32 is an intrinsic part of the liquidation estate. The consequence is that acquirer begins on a clean slate. The ineligibility under Section 29A which attaches for the purpose of Chapter II, in the context of a resolution plan, has been extended under Section 35(1)(f) to Chapter III on the basis of the above rationale, i.e., that the liquidator shall not sell the moveable or immoveable property of the corporate debtor or its actionable claims in liquidation to any person who is not eligible to be a resolution applicant; (vi) Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 contemplates that the G NCLT, in its role as the Adjudicating Authority, may permit withdrawal of an application by the financial creditor, operational creditor or corporate applicant on a request made by the applicant before its admission. This is indicative of the position that the NCLAT does not have an inherent H

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A power to allow for withdrawal of the application after admission; (vii) Section 12-A was inserted in the IBC by Amending Act 26 of 2018 with retrospective effect from 6 June 2018 so as to permit the NCLT to allow the withdrawal of an application B which has been admitted under Sections 7, 9 or 10 on an application made by the applicant, with the approval of ninety per cent of a voting share of the CoC in such a manner as may be specified; (viii) Regulation 30-A of the Insolvency and Bankruptcy Board C of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (which was inserted on 3 July 2018) allowed for the withdrawal under Section 12-A before the issuance of an invitation for expression of interest under Regulation 36-A. In the decision of this Court in Swiss Ribbons Private Limited v. Union of India25 which was D rendered on 25 January 2019, the Court held that a withdrawal of an application can be permitted between admission of the application and the constitution of the CoC. Following up on this, Regulation 30-A was substituted on 25 July 2019 to allow an application for withdrawal under E Section 12-A both before and after the constitution of the CoC. However, where the application is made after the constitution of the CoC (under Regulation 30-A(1)(b)), and after the issuance of the invitation for expression of interest, the reasons justifying the withdrawal are required to be stated; F (ix) The decision in Brilliant Alloys (P) Ltd. v. S Rajagopal 26would indicate that a withdrawal can be permitted even after the expression of interest, as a consequence of which Regulation 30-A is directory in nature; G (x) The consequence of a withdrawal of the application under Sections 7, 9 or 10 is that the corporate debtor stands restored to the promoter. As such, Section 29A does not operate as an ineligibility on the settlement mechanism. On 25 (2019) 4 SCC 17; herein, referred to as “Swiss Ribbons” 26 H 2018 SCC OnLine SC 3154; hereinafter, referred to as “Brilliant Alloys”

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the withdrawal of the application the corporate debtor goes A back to the same promoter, even if they are ineligible under Section 29A for the submission of the resolution plan; (xi) The ineligibility under Section 29A, which forms a part of Chapter II of the IBC, is only during the resolution process; (xii) The rationale for imposing an ineligibility under Section 29A B in the resolution process is that the successful resolution applicant under Section 31 of the IBC obtains the company on a clean slate, as indicated in the decision of this Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta27. This benefit is not available where an application is simpliciter withdrawn under Section 12-A; (xiii) Section 230 of the Act of 2013 is a part of the settlement mechanism and is at par with the provisions of Section 12- A. The impact of a compromise or arrangement is also that company is restored to the promoters with all its liabilities. While Section 12-A of the IBC permits withdrawal of an application, Sections 230 and 230-A of the Act of 2013 envisage a compromise or arrangement. As such, they both form a part of the settlement mechanism and are not part of the resolution mechanism, to which alone the ineligibility under Section 29A applies. Hence, this ineligibility cannot now be engrafted into Section 230; (xiv) Section 230 was amended on 15 November 2016 and under Sub-Section (6), the compromise or arrangement becomes binding if 3/4th in value of the creditors or class of creditors or members agree to it, and if it is sanctioned by the NCLT. The compromise or arrangement then becomes binding on the liquidator appointed under the IBC as a whole. The provisions of Section 230 are, however, not restricted to liquidation. They are not regulated by the IBC. Section 230 G operates in an area independent of the IBC. Following the amendment of Section 230(1) on 15 November 2016, the application for a compromise can also be proposed by the liquidator appointed under the IBC. However, the right of 27 (2020) 8 SCC 531 H

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A the liquidator to make an application under Section 230(1) is in addition to the others enumerated therein and not exclusive, in view of the principle which was laid down by this Court while construing the corresponding provisions of Section 391 of the Companies Act, 195628; B (xv) The discussion papers circulated by the IBBI in April and November 2019 clearly demonstrate that IBBI was aware of the fact that the ineligibility which attaches to the resolution process under Section 29A will not attach to Section 230 of the Act of 2013. The proviso to Regulation 2B was notified by the IBBI on 6 January 2020 to stipulate that a person who is not eligible under the IBC to submit a resolution plan for insolvency resolution of the corporate debtor shall not be a party to such compromise or arrangement. Regulation 2B is ultra vires the provisions of Section 230 of the Act of 2013. IBBI had no statutory authority to make the Regulation 2B, through which it has effectively provided a disqualification under the Act of 2013, even though the mandate of IBBI is confined only to the IBC; and (xvi) Regulation 2B is violative of Articles 14, 19 and 21 of the E Constitution as it seeks to import an ineligibility under the provisions of the IBC to a dissimilar provision in the Act of

2013. Moreover, when ineligibility is not attracted under Section 12-A of the IBC, imposing this ineligibility under Section 230 of the Act of 2013 is arbitrary.

30Copy pinpoint30. Adopting the submissions which were urged by Mr Sandeep Bajaj, Mr Shiv Shankar Banerjee, learned Counsel appearing on behalf of the appellant in the Second Appeal, submitted that: (i) A complete procedure has been stipulated under the provisions of the IBC for liquidation; G (ii) Where a sale of the assets of the corporate debtor or sale of the business of the corporate debtor takes place in the course of the liquidation, Section 35(1)(f) of the IBC stipulates that the assets cannot be sold to a person who is ineligible under Section 29A. The object is to ensure that 28 H the “Act of 1956”

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liquidation should not be used to allow the promoter to get A the assets free from encumbrances; (iii) In contrast to a successful resolution applicant under Chapter II or the person who benefits from the sale of assets in liquidation under Chapter III of the IBC, the person who proposes a compromise or arrangement under Section 230 B under the Act of 2013 does not have the benefit of acquiring the company free of encumbrances. There is thus no reason or justification to exclude the promoter from invoking the provisions of Section 230; (iv) Section 230(1) makes a reference to a liquidator appointed under the IBC because when the provision of Sections 7, 9 or 10 have been invoked, and an order of admission has been passed, liquidation, if required, will take place under the provisions of Section 35 of the IBC; (v) The mischief which was sought to be remedied by the adoption of Section 29A is restricted to the resolution process, its object being that persons should not take advantage of their own wrong. It is justifiable if a defaulter is excluded from the resolution process which may result in the creditors taking a haircut of their outstanding claims. Moreover, a successful resolution applicant begins on a clean slate. In contrast, under Section 230, the scheme has to be sanctioned by the NCLT only upon which it will pass muster; and (vi) The insertion of the proviso in Regulation 2B of the Liquidation Process Regulations is a clear indicator of the fact that a disqualification or ineligibility under Section 29A is not a part of Section 230 of the Act of 2013.

31Copy pinpoint31. The above submissions have been contested by Mr Amit Sibal, learned Senior Counsel appearing on behalf of the respondents in the Second Appeal. Learned Senior Counsel submitted that: G (i) A proposal under Section 230 of the Act of 2013 need not result in the revival of the company. The proposal may apply only to a class of creditors or shareholders. Even prior to its amendment, this Court had held that additional conditions apply when a plan under the erstwhile provisions of Section H

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A 391 of the Act of 1956 is propounded at the time of liquidation of the company; (ii) Section 29A has several ineligibilities apart from those that attach to promoters. To allow a person who is ineligible under Section 29A from submitting a compromise or arrangement under Section 230 at the liquidation stage is contrary to the letter and spirit of the IBC; (iii) The NCLT while dealing with an application for a compromise or arrangement under Section 230 of the Act of 2013, in respect of a company which is being liquidated under the IBC, performs a dual role: firstly, as an Adjudicating Authority under the IBC and as a Tribunal under the Act of

2013. Therefore, it can insist on adherence to additional conditions namely that: (a) The proposed compromise or arrangement must result in a revival of the company; and (b) The compromise or arrangement cannot be proposed by a person who is barred under Section 29A; (iv) When the IBC was originally enacted there was no bar of the nature found in Section 29A on who can propose a E resolution plan either pre or post liquidation; (v) The ineligibility under Section 29A and Section 35(1)(f) was introduced by a legislative amendment on 23 November 201729, both at the pre and post liquidation stages; (vi) The purpose of the disqualification is to ensure a sustainable F revival, which means that those responsible for the state of affairs of a company and other persons regarded by the legislature as undesirable should be excluded from the process; (vii) Persons who are ineligible under Section 29A or Section G 35(1)(f) cannot seek an entry: (a) at the CIRP stage; or (b) under Section 230 of the Act of 2013; or

29 H “Act 8 of 2018”

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(c) by purchasing the assets during liquidation. A (viii) Section 29A does not apply only to conduct in relation to the corporate debtor, but in relation to other companies as well; (ix) The ineligibility engrafted in Section 29A extends to Chapter III by virtue of the provision of Section 35(1)(f). This must B be read together with Regulation 32 of the Liquidation Process Regulations. Regulation 32 provides six modes of realization of assets, out of which four involve the sale of assets and two involve the transfer of the corporate debtor or its business as a ‘going concern’; C (x) Regulation 44(1), through its proviso, allows for an additional period of ninety days for the liquidation process where the sale is through Regulation 32-A(1) so as to encourage a revival of the company; (xi) There is no reference in the body of the IBC to a scheme of compromise under Section 230. Section 230 (especially sub-Sections (1) and (6)) indicate that: (a) a compromise can be with a sub-set of creditors; (b) liquidation is one scenario in which Section 230 can be invoked; and (c) a compromise with only a class of creditors will bind only that class under Section 230(c); (xii) While construing the corresponding provisions of erstwhile Section 391 of the Act of 1956, this Court held in Meghal F Homes Pvt. Ltd. v Shree Niwas Girni K. K. Samiti30 that where a scheme of compromise and arrangement is proposed in respect of the company in liquidation, additional requirements need to be established, namely that the scheme must be for the revival of company. The impact of a scheme under Section 391, where the company is in liquidation, is G that the proposers of the scheme enter into the management with the debt having been resolved. This makes the scheme of compromise or arrangement under Section 230

30 (2007) 7 SCC 753; herein, referred to as “Meghal Homes” H

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A qualitatively different from a simpliciter withdrawal of an application under Section 12-A of the IBC. Section 12-A does not incorporate any requirement for the revival of the company; (xiii) The IBC provides for three modes of revival: B (a) the CIRP under Chapter II; (b) sale of a company in liquidation as a going concern (read with Regulation 32(e) and (f)); and (c) a scheme of compromise or arrangement under C Section 230 of the Act of 2013, following upon an order for liquidation being passed under Chapter III of the IBC; The prohibition or ineligibility which applies in (a) and (b) must necessarily attach to (c) as well. When a plan for D compromise or arrangement is proposed at the liquidation stage of IBC under Section 230 of the Act of 2013, it must satisfy the rigors of the IBC. Hence, a person who is ineligible under Section 29A cannot submit a plan under Section 230 of the Act of 2013; (xiv) In construing the provisions of Sections 29A and 35(1)(f) E of the IBC, notice must be taken of the fact that the ineligibility was made applicable both to the resolution stage as well as the stage of liquidation. In interpreting these provisions, the purpose and object of the amendment must be borne in mind, which is that a scheme of revival cannot F be proposed by a person who stands disqualified under Section 29A; (xv) The proposal of a compromise or arrangement under Section 230 in a situation where the company is in liquidation under the IBC is a facet of the liquidation process under the IBC. G Section 230 was amended to include a liquidator appointed under the IBC. The statutory scheme indicates that: (a) A liquidation under the IBC follows upon the entire gamut of proceedings under the IBC; (b) Section 230 of the Act of 2013 provides one of the H modes of revival in the liquidation process; and

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(c) Other activities of the liquidator do not cease while inviting schemes under Section 230. The steps required to be taken by the liquidator in liquidation include a compromise or arrangement under Section

230. It is in this context that the NCLT performs a dual role - that of an Adjudicating Authority in the matter of liquidation under the IBC as well as of a Tribunal for a scheme of compromise and arrangement under the Act of 2013; (xvi) The fundamental postulate of the IBC is that a corporate debtor has to be protected from its management and corporate debt. Hence, it would be anomalous if a C compromise or arrangement can be entertained from a person who is responsible for the state of affairs of the corporate debtor; (xvii) Where a company is in liquidation under the provisions of the IBC, the submission of a compromise or arrangement under Section 230 has distinct features of commonality with a resolution plan namely: (a) The object is to revive the company; and (b) Once officially approved, it assumes a binding character; These intrinsic elements of revival and of the binding nature permeate both a resolution plan on the one hand and a compromise or arrangement on the other, which is arrived at in the course of liquidation; F (xviii) The introduction of the proviso to Regulation 2(B) of the Liquidation Process Regulations with effect from 6 January 2020 is only by way of a clarification; (xix) Dehors the provisions of the IBC, the rigors of the IBC will not apply to a proceeding under Section 230 of the Act G of 2013. In other words, the ineligibility under Sections 29A and 35(1)(f) applies only to a situation where a corporate debtor has come within the purview of the IBC and has been taken into liquidation under Chapter III. It is only where a compromise or arrangement under Section 230 of the H

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A Act of 2013 is proposed in respect of a company which is undergoing liquidation under the IBC that the rigors of Section 29A and 35(1)(f) would stand attracted; (xx) An absurdity will result if persons found to be derelict or guilty of malfeasance, who are barred from: B (a) submitting a resolution plan; (b) obtaining a sale of assets in liquidation; and (c) obtaining a sale of the company as a going concern. can still propose a compromise under Section 230 of the C Act of 2013. It is a settled principle of law that an interpretation which leads to absurdity must be avoided; (xxi) There is a fallacy in equating the provisions of Section 230 of the Act of 2013 with an application for withdrawal under Section 12-A of the IBC. Section 12-A is not intended to be the culmination of the resolution process but is at the inception. The withdrawal by an applicant leads to a status quo ante in respect of liabilities of the corporate debtor and does not require that the defaults in respect of all creditors are brought to an end. In contrast: (a) a resolution plan under Section 31 of the IBC (as well as the scheme under Section 230 of the Act of 2013) binds all the stakeholders; (b) results in a clean slate unlike Section 12-A; and (c) constitutes a culmination of the resolution plan. F As distinct from the provisions of Section 31 of the IBC and Section 230 of the Act of 2013, a withdrawal under Section 12-A restores the status quo ante and is hence not concerned with ineligibilities under Section 29A; and (xxii) Section 240 of the IBC enunciates the power to make regulations to carry out the provisions of the Code. The G insertion of the proviso to Regulation 2(B) is valid because: (a) the amendment is consistent with the IBC and carries out its provisions; and (b) it is clarificatory in nature since even in its absence, H the ineligibility under Section 29A would govern.

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32Copy pinpoint32. In summing up, Mr Sibal urged that: A (i) Where a company is in liquidation under Chapter III of the IBC, a proposed scheme of compromise or arrangement under Section 230 of the Act of 2013 must comply with the requirements of the IBC; (ii) The specific requirements which must be fulfilled under (i) B above are that: (a) the scheme must be for the revival of the company; and (b) it must not be proposed by a person who is ineligible under Section 29A of the IBC; (iii) The above requirements are IBC specific and not inconsistent with the provisions of Section 230 of the Act of 2013; (iv) Sections 29A and 35(1)(f) of the IBC prohibit a certain category of persons from proposing a revival of the company in the course of the CIRP, liquidation process and in purchasing the assets in the course of liquidation. To make an exception in a plan for revival under Section 230 of the Act of 2013 in the context of a scheme of compromise or arrangement will defeat the object and intent of the amendment to the IBC and lead to an absurdity. This would perpetrate the mischief which was sought to be obviated; (v) When a company is in liquidation under the IBC, a scheme proposed under Section 230 is a facet of the liquidation process and the same rationale which permeates the liquidation process must also govern it; and (vi) Section 12-A stands on a completely different footing. It provides for a withdrawal at the inception of the CIRP and is not a culmination of a resolution process. Nor does a Section 12-A withdrawal bind all stakeholders. G

33Copy pinpoint33. Mr Gopal Jain, learned Senior Counsel appearing for the respondents in the First Appeal, has urged submissions along the same lines as Mr Amit Sibal. His submissions are summarized below:

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A (i) The commencement or the initiation process attracting the IBC is an application under Sections 7, 9 or 10; (ii) In the present case, an application was filed under Section 10 as a consequence of which the case has to be analyzed through the prism of the IBC; B (iii) The IBC is an economic legislation and its key objectives are to ensure: (a) good corporate governance; (b) control deviant behavior; C (c) protect the integrity of the resolution process; (d) enhance commercial morality; and (e) foster respect for the rule of law. The IBC is premised on the principle that there is a D significant element of public interest in facilitating a creditor- centric regime for achieving economic growth. Ensuring that resolution plans are submitted by credible persons is intrinsic to the scheme of the IBC. Speed is of the essence. The IBC has sought to convert a legal regime which was a debtor’s paradise into a regime governed by corporate justness. The regime under the IBC is dynamic, which is reflected by eight amendments which took place between November 2017 and September 2020; (iv) The basic principle is that an entity which is barred under Section 29A and Section 35(1)(f) should not be in control of the assets of the corporate debtor. The objective is that defaulting promoters: (a) should not be in the driver’s seat; and (b) should be kept at arm’s length; G (v) In order to achieve the above objectives, the Parliament enacted a simultaneous amendment of both Section 29A and Section 35(1)(f) to maintain a level playing field by comprehensively catering to all situations relating to defaulting or barred promoters; H

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(vi) In interpreting the IBC, legal sanctity and clarity are of utmost importance. But for Section 29A, promoters would have got back into management after securing a haircut to lenders in the course of the resolution plans. Section 29A which applies to the resolution process and Section 35(1)(f) which applies to the liquidation process were intended to plug a loophole. To accept the submissions of the appellants would be creating a new loophole. Section 29A is in the nature of a see-through provision. The submissions of the appellants will in fact scare away genuine creditors and derail the process; and (vii) According to Section 238 of the IBC, in case of any inconsistency between the provisions of the IBC and any other law in force, the provisions of the IBC are to have an overriding effect.

34Copy pinpoint34. Mr Tushar Mehta, learned Solicitor of General of India, defended the validity of Regulation 2B, more specifically the proviso. D The learned Solicitor General submitted that: (i) The trigger is the liquidation resulting from the operation of the provisions of Section 33 of the IBC; (ii) Regulation 2B facilitates an additional period of ninety days for a compromise under Section 230 of the Act of 2013 because the entire process is time specific; (iii) Even if the legal position is assessed independent of Regulation 2B, the same embargo as contained in Section 29A and Section 35(1)(f) would apply to a compromise or arrangement proposed under Section 230 of the Act of 2013 in respect of a company which is undergoing liquidation under Chapter III of the IBC; (iv) Regulation 2B is essentially clarificatory; (v) The basis of Regulation 2B is the same as Sections 29A G and 35(1)(f), which is that a person who is the cause of the problem either by a design or default cannot be a part of the process solution; (vi) The IBC is a beneficial legislation. Prior to the enactment of the IBC: H

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A (a) individual creditors had individual remedies; and (b) the debtor would remain in possession of the company and its assets. With the introduction of the IBC, there has been a paradigm shift in that: B (a) under the new legal regime there is a collective effort of all creditors even if at the behest of one of them; (b) the creditor is in control instead of the debtor in possession; and C (c) revival is the soul of the IBC; (vii) Sections 196 and 240 of the IBC reflect a specific conferment of power on the IBBI to frame regulations subject to the stipulation that: (i) they are not inconsistent with the provisions of the IBC; D and (ii) they carry out the purposes of the IBC. Both these conditions are fulfilled by Regulation 2(B); (viii) A regulation which is framed under a statute in exercise of E the authority which is conferred on the delegate can be challenged on the ground of being: (a) ultra vires the parent statute; or (b) being contrary to the provisions of Part III of the F Constitution; To suffer from unreasonableness, a regulation must be held to be manifestly arbitrary. Regulation 2(B) is consistent with the object and purpose of the IBC; and does not suffer from manifest arbitrariness; and G (ix) Sections 29A and 35(1)(f) apply to liquidation pursuant to the IBC. The principle of Section 29A stands absorbed in the hybrid process of compromise during liquidation under the IBC, by way of a device of incorporation by reference.

35Copy pinpoint35. Mr Balbir Singh, learned Additional Solicitor General, has H addressed submissions also along the above lines.

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D Analysis of the Legal Framework A

36Copy pinpoint36. Having narrated the submissions advanced by both sides, we now turn to the legal position and the interplay between the proposal of a scheme of compromise and arrangement under Section 230 of the Act of 2013 and liquidation proceedings initiated under Chapter III of the IBC. B D.1 Ineligibility during the resolution process and liquidation

37Copy pinpoint37. Section 29A of the IBC was introduced with effect from 23 November 2017 by Act 8 of 2018. The birth of the provision is an event attributable to the experience which was gained from the actual working C of the provisions of the statute since it was published in the Gazette of India on 28 May 2016. The provisions of the IBC were progressively brought into force thereafter. The foundation D

38Copy pinpoint38. The IBC is a law which consolidated and amended existing legislation relating to re-organisation and insolvency resolution of corporate persons, partnerships and individuals. The long title to the legislation indicates the specific objects, which it is intended to facilitate. These objects include: E (i) A time bound process of re-organization and insolvency resolution; (ii) Maximization of the value of assets; (iii) Promoting entrepreneurship; (iv) Facilitating the availability of credit; and F

(v) Balancing the interests of all stakeholders.

39Copy pinpoint39. Some of the key drawbacks of the legal regime, as it existed prior to the enactment of the IBC, were: (i) The absence of a single legislation governing insolvency G and bankruptcy; (ii) A multiplicity of laws governing insolvency and bankruptcy of corporate entities;

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A (iii) The existence of multiple foraestablished to deal with the enforcement of diverse legislative provisions; and (iv) The complexity caused by a maze of statutes resulting in inadequate, ineffective and delayed resolutions, occasioned by the (then) existing framework. B These inadequacies were noticed in the Statement of Objects and Reasons accompanying the introduction of the Bill. The IBC reflects a fundamental change in the erstwhile legal regime. A timely resolution of corporate insolvency was conceived as an instrument to support the development of credit markets, encourage entrepreneurship, enhance the ease of doing business and provide an environment conducive to investment, setting the economy on the path to growth and development. In resolving some of the complex issues which arise under the new legal regime envisaged under the IBC, it then becomes necessary to vacuum the cobwebs of the past. Interpreting the IBC in a manner which would facilitate the salutary objects which it is intended to achieve requires all stakeholders to shed concepts and notions associated with the earlier legal regime, which was largely a debtor’s paradise. The earlier regime was one in which the debtor would largely remain in possession of the company and its assets and individual creditors were left to paddle their own canoe in headwinds controlled by those in debt and default.

40Copy pinpoint40. The enactment of the IBC has marked a quantum change in corporate governance and the rule of law. First and foremost, the IBC perceives good corporate governance, respect for and adherence to the rule of law as central to the resolution of corporate insolvencies. Second, the IBC perceives corporate insolvency not as an isolated problem faced by an individual business entities but places it in the context of a framework which is founded on public interest in facilitating economic growth by balancing diverse stakeholder interests. Third, the IBC attributes a primacy to the business decisions taken by creditors acting as a collective body, on the premise that the timely resolution of corporate insolvency is necessary to ensure the growth of credit markets and encourage investment. Fourth, in its diverse provisions, the IBC ensures that the interests of corporate enterprises are not conflated with the interests of their promoters; the economic value of corporate structures is broader in content than the partisan interests of their managements. These salutary objectives of the IBC can be achieved if the integrity of the resolution process is placed at the forefront. Primarily, the IBC is a legislation H

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aimed at re-organization and resolution of insolvencies. Liquidation is a A matter of last resort. These objectives can be achieved only through a purposive interpretation which requires courts, while infusing meaning and content to its provisions, to ensure that the problems which beset the earlier regime do not enter through the backdoor through disingenuous stratagems. B The amendments

41Copy pinpoint41. On 23 November 2017, Parliament intervened through its amending power to introduce Section 29A into the provisions of Chapter II and Section 35(1)(f) into the provisions of Chapter III. Chapter II of the IBC ,which enunciates provisions for the CIRP, has evolved over C the previous four years. Chapter III enunciates provisions in regard to the liquidation process. Section 29A stipulates diverse categories of persons who will not be eligible to submit a resolution plan.

42Copy pinpoint42. By the same amending Act through which Section 29A was introduced, Section 35(1)(f) was also amended with the introduction of D a proviso. Section 35 specifies the powers of the liquidator as well as their duties, which are subject to the directions of the Adjudicating Authority. Section 35(1)(f) provides as follows: “35. Powers and duties of liquidator.—(1) Subject to the directions of the Adjudicating Authority, the liquidator shall have the following powers and duties, namely:— E ... (f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in F parcels in such manner as may be specified: Provided that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant.” G

43Copy pinpoint43. The Statement of Objects and Reasons accompanying the introduction of the Bill proposing the amendment dated 23 November 2017, elucidates the purpose of introducing the new provisions: “2. The provisions for insolvency resolution and liquidation of a corporate person in the Code did not restrict or bar any person H

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A from submitting a resolution plan or participating in the acquisition process of the assets of a company at the time of liquidation. Concerns have been raised that persons who, with their misconduct contributed to defaults of companies or are otherwise undesirable, may misuse this situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process, and gain or regain control of the corporate debtor. This may undermine the processes laid down in the Code as the unscrupulous person would beseen to be rewarded at theexpense of creditors. In addition, in order to check that the undesirable persons who may have submitted their resolution plans in the absence of such a provision, responsibility is also being entrusted on the committee of creditors to give a reasonable period to repay overdue amounts and become eligible.”

44Copy pinpoint44. During the course of the debate in the Lok Sabha on 29 December 2017, the Finance Minister noted that the IBC had been in operation for about a year. The new legislation had been a “learning experience”. The Ordinance was promulgated since a large number of cases were “already pending resolution mechanism itself” and there was a danger that if the amendment was not immediately brought in, persons who were “ineligible” would have started applying as resolution applicants. The Finance Minister in the course of his speech highlighted the reason for the amendments when he observed as follows: “…What do you do with promoters who are themselves responsible for these NPAs, that is clause C. Every creditor takes his haircut and there is an equitable distribution in the case of dissolution. In the case of resolution also, all type of creditors may take some haircut and the man who created the insolvency pays a fraction of the amount and comes back into management. Should we allow that to continue? The overwhelming view, as expressed by the Members, is that it should not be allowed. This was a gap which was there in the original Bill and by bringing in 29(a) we have tried to fill in that gap. That is the objective. In order that this provision must apply to allexisting cases of resolution which are pending, that is the case for urgency. If we had not done this, then all such defaulters would have rejoiced because they would have merely walked back into these companies by paying only a fraction of these H

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