Imp. Rulings - Disqualification under section 29A
Index;
NCLAT (11.01.2024) in Vishram Narayan Panchpor RP Vs. CoC of Blue Frog Media Pvt. Ltd. and Anr. [Company Appeal (AT) (Insolvency) No. 1489 of 2023 & I.A. No. 5342 of 2023] [No bank account/creditor - Section 29A (c) Not applicable]
NCLAT (04.07.2022) in Avantha Holdings Ltd. Vs. Mr. Abhilash Lal, RP for Jhabua Power Ltd. [Company Appeal (AT) (Insolvency) No. 304 of 2022] - [29A(c) - Date of declaration of NPA]
NCLT Chandigarh (24.05.2022) in Mr. Sumat Gupta RP, M/s Vallabh Textiles Company Ltd. Vs. M/s Aggarsain Spinners Ltd. [IA No.342 of 2021, IA No.456 of 2021, IA No.154 of 2022 In CP(IB) No.391/Chd/Pb/2018] - [29A(f)]
NCLAT (05.04.2022) in Sharavan Kumar Vishnoi & Anr. Vs. Upma Jaiswal & Ors. [Comp. App. (AT) (Ins.) No. 371 & 374 of 2022] - [29A - 30(2)(e)]
Supreme Court (18.01.2022)) in Bank of Baroda & Anr. Vs. MBL Infrastructures Ltd. & Ors. [Civil Appeal No. 8411 of 2019] - [29A(h)]
NCLAT (05.01.2022)) in Everest Organics Ltd. Vs. Leesa Lifesciences Pvt. Ltd. [Company Appeal (AT) (CH) (INS) No. 228 of 2021] - [29A(e)]
NCLAT (03.01.2022) in Canara Bank Vs. Mamta Binani, RP of Aristo Texcon Pvt. Ltd. [(Company Appeal(AT)(Insolvency) No. 1117 of 2019)] - [‘ex-facie’ opinion of RP]
NCLAT (21,09.2021) In Telangana State Trade Promotion Corporation Vs. A.P. Gems & Jewellery Park Pvt. Ltd. & Anr. [Company Appeal (AT)(CH) (Ins.) No.54 of 2021] - [29A(c) - 21(2) in praesenti]
NCLAT (04.06.2021) in Martin S.K.Golla & Anr. Vs Wig Associates Pvt. Ltd. & Ors. [Company Appeal (AT) (Ins) No.121 of 2019] - [ in praesenti 29A(c)]
NCLAT (01.06.2021) in Rakesh Kumar Agarwal & Ors. Vs Devendra P. Jain [Company Appeal (AT) (Insolvency) No. 1034 of 2020] - [29A - 240A]
SCI (15.03.2021) in Arun Kumar Jagatramka Vs. Jindal Steel and Power Ltd. & Anr. [Civil Appeal No. 9664 of 2019] - [29A - 35(1)(f) & 230 of CA]
NCLAT (17.02.2020) in JSW Steel Ltd. Vs. Mahender Kumar Khandelwal & Ors. [Company Appeal (AT) (Insolvency) No. 957 of 2019] - [Authorities empowered to decide in 29A]
Supreme Court of India (04.10.2018) in ArcelorMittal India Private Limited Vs. Satish Kumar Gupta and Ors.(Civil Appeal Nos. 9402 – 9405 of 2018) - [Role of RP, CoC & AA]
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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 -
Notes; Proviso in section 30(4) reads as under;
Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 (Ord. 7 of 2017), where the resolution applicant is ineligible under section 29A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it:
Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of section 29A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29A:
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NCLAT (11.01.2024) in Vishram Narayan Panchpor RP Vs. CoC of Blue Frog Media Pvt. Ltd. and Anr. [Company Appeal (AT) (Insolvency) No. 1489 of 2023 & I.A. No. 5342 of 2023] held that;
Section 29A (c) is attracted when at the time of submission of the plan, the person 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, is classified as non-performing assets. Present is a case where as per submission of the Appellant, no bank is creditor of the Corporate Debtor.
Present is not a case even there is any suggestion or material that account of Respondent No.2 or the Corporate Debtor is NPA on the date of submission of the Resolution Plan, therefore, there is no question of applicability of Section 29A(c).
A plain reading of Section indicates that a person shall not be eligible to submit a plan if such person, or any other person acting jointly or in concert with such person is covered by any of the clauses mentioned from (a) to (g).
We may also note that the aforesaid intent is reflected in the statutory provision itself that in Section 29A (c) which begins with “at the time of submission of the resolution plan”.
The present is not a case where any of the clauses of Section 29A are being pressed for ineligibility of Respondent No.2. Ineligibility is being held only on the ground that Respondent No.2 was promoter of the Corporate Debtor till 2018 when he resigned.
Section 29A does not make per se promoters and directors ineligible to submit a plan unless they are ineligible under clauses (a) to (g)………….. the mere fact that Respondent No.2 was promoter and director shall not make him ineligible to submit a Resolution Plan.
[ Link Synopsis ]
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2. NCLAT (04.07.2022) in Avantha Holdings Ltd. Vs. Mr. Abhilash Lal, RP for Jhabua Power Ltd. [Company Appeal (AT) (Insolvency) No. 304 of 2022] held that;
The statutory provision under Section 29A, sub-clause (c) is plain and clear that grace period of one year has been given and if after expiry of grace period, Resolution Applicant is unable to pay the dues and the NPA continues, the Resolution Applicant becomes ineligible.
We, thus, are of the view that date of NPA classification by the Canara bank shall be treated as 21.05.2018 and it cannot be taken as on 01.04.2009, which is the backdate, as has been given by the Canara Bank, with effect from which date NPA is declared.
[ Link - Synopsis ]
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3. NCLT Chandigarh (24.05.2022) in Mr. Sumat Gupta RP, M/s Vallabh Textiles Company Ltd. Vs. M/s Aggarsain Spinners Ltd. [IA No.342 of 2021, IA No.456 of 2021, IA No.154 of 2022 In CP(IB) No.391/Chd/Pb/2018] held that;
A perusal of the aforesaid provision reveals that proviso (1) to Section 30(4) requires that committee of creditors shall not approve a resolution plan where the Resolution Applicant is ineligible under Section 29A of the Code.
That before the resolution plan is submitted before the committee of creditors, it is the bound duty of the Resolution Professional to scrutinize that the resolution plan furnished by numerous applicants is complete in all aspects, before presenting it to the committee of creditors.
A ‘Resolution Professional’ is not required to take any decision but he is to confirm that the Resolution Plan does not violate any of the provisions of Law for the time being in force (including Section 29A of the Code).
Thus, suffice for this ‘Tribunal’ to pertinently point out that an ex-facie opinion is to be offered to the ‘committee of creditors’ by the ‘Resolution Professional’ that the law was violated.
It is also the duty of the ‘Resolution Professional’ to determine as to whether the eligibility criteria of the Resolution Applicant prescribed in Section 29-A of the Code are satisfied.
A bare perusal of Section 29A(f) reveals that Resolution Applicant shall not be eligible to submit a resolution plan if it is prohibited by SEBI from trading in securities or accessing the securities markets.
In these circumstances, when SEBI having no restrictions in delegation of its power and functions under Section 11(1) of the SEBI Act, then certainly there was no need to pass any independent order directly by SEBI debarring the resolution applicant from accessing the securities market.
More so Section 29A(f) of the Code does not provide for an order to be passed by SEBI prohibiting the resolution applicant from trading in securities or accessing the securities market. Admittedly, no such order was passed by SEBI expressly and it was also not required to be passed directly by SEBI when it has got ample open-ended powers to delegate its regulatory function to any other authority including BSE.
Secondly, it is settled law that the eligibility of resolution applicants is to be seen on the date of submission of the resolution plan and not thereafter.
The Adjudicating Authority while passing order under Section 31 can find out whether the Resolution Applicant fulfils the conditions under Section 30(2) which includes Section 30(2) (e) and in terms of Section 29A and can decide.
[ Link - Synopsis ]
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4. NCLAT (05.04.2022) in Sharavan Kumar Vishnoi & Anr. Vs. Upma Jaiswal & Ors. [Comp. App. (AT) (Ins.) No. 371 & 374 of 2022] held that;
However, it must not be forgotten that a Resolution Professional is only to “examine” and “confirm” that each resolution plan conforms to what is provided by Section 30(2).
Under Section 25(2)(i), the Resolution Professional shall undertake to present all resolution plans at the meetings of the Committee of Creditors.
A conspectus of all these provisions would show that the Resolution Professional is required to examine that the resolution plan submitted by various applicants is complete in all respects, before submitting it to the Committee of Creditors.
The Resolution Professional is not required to take any decision, but merely to ensure that the resolution plans submitted are complete in all respects before they are placed before the Committee of Creditors, who may or may not approve it.
The fact that the Resolution Professional is also to confirm that a resolution plan does not contravene any of the provisions of law for the time-being in force, including Section 29A of the Code, only means that his prima facie opinion is to be given to the Committee of Creditors that a law has or has not been contravened.
Section 30(2)(e) does not empower the Resolution Professional to “decide” whether the resolution plan does or does not contravene the provisions of law.
The Resolution Professional is not to take a decision regarding the ineligibility of the Resolution Applicant. It has only to form its opinion because it is the duty of the Resolution Professional to find out as to whether the Resolution Plan is in compliance of the provisions of the Code or not,
The Resolution Professional can give his opinion with regard to each plan before the CoC and it is for the CoC to take a decision as to whether the plan is to be approved or not.
[ Link - Synopsis ]
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5. Supreme Court (18.01.2022)) in Bank of Baroda & Anr. Vs. MBL Infrastructures Ltd. & Ors. [Civil Appeal No. 8411 of 2019] held that;
Section 29-A has been construed to be a crucial link in ensuring that the objects of the IBC are not defeated by allowing “ineligible persons”, including but not confined to those in the management who have run the company aground, to return in the new avatar of resolution applicants.
Section 35(1)(f) is placed in the same continuum when the Court observes that the erstwhile promoters of a corporate debtor have no vested right to bid for the property of the corporate debtor in liquidation.
The values which animate Section 29-A continue to provide sustenance to the rationale underlying the exclusion of the same category of persons from the process of liquidation involving the sale of assets, by virtue of the provisions of Section 35(1)(f).
Once a person executes a guarantee in favour of a creditor with respect to the credit facilities availed by a corporate debtor, and in a case where an application for insolvency resolution has been admitted, with the further fact of the said guarantee having been invoked, the bar qua eligibility would certainly come into play.
It is clear that once the Code gets triggered by admission of a creditor’s petition under Sections 7 to 9, the proceeding that is before the adjudicating authority, being a collective proceeding, is a proceeding in rem.
The word “such creditor” in Section 29A(h) has to be interpreted to mean similarly placed creditors after the application for insolvency application is admitted by the adjudicating authority.
As a result, what is required to earn a disqualification under the said provision is a mere existence of a personal guarantee that stands invoked by a single creditor, notwithstanding the application being filed by any other creditor seeking initiation of insolvency resolution process.
Having understood the provision and the objective behind it, as well as the Code, it is clear that, if there is a bar at the time of submission of resolution plan by a resolution applicant, it is obviously not maintainable.
However, if the submission of the plan is maintainable at the time at which it is filed, and thereafter, by the operation of the law, a person becomes ineligible, which continues either till the time of approval by the CoC, or adjudication by the authority, then the subsequent amended provision would govern the question of eligibility of resolution applicant to submit a resolution plan.
[ Link - Synopsis ]
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6. NCLAT (05.01.2022)) in Everest Organics Ltd. Vs. Leesa Lifesciences Pvt. Ltd. [Company Appeal (AT) (CH) (INS) No. 228 of 2021] held that;
Therefore, this Tribunal is of the view that the COC has power to decide and approve the Resolution Plan of the Resolution Applicants. Further, the COC also can consider the eligibility/ineligibility of the Resolution Applicants under Section 29(A)(e) of the Code.
[ Link - Synopsis ]
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7. NCLAT (03.01.2022) in Canara Bank Vs. Mamta Binani, RP of Aristo Texcon Pvt. Ltd. [(Company Appeal(AT)(Insolvency) No. 1117 of 2019) ] held that;
He (Resolution Professional) is an Officer of the Court and he is to exercise reasonable and responsible care for the company whose property and affairs are entrusted with him.
In case, the Resolution Plan is not meeting the requirement of Section 30 of the Code, the Resolution Professional is empowered to refuse to present the Plan to the Committee of Creditors.
A ‘Resolution Professional’ is not required to take any decision but he is to confirm that the Resolution Plan does not violate any of the provisions of Law for the time being in force (including Section 29A of I&B Code). Suffice for this ‘Tribunal’ to pertinently point out that an ‘ex-facie’ opinion is to be offered to the ‘Committee of Creditors’ by the ‘Resolution Professional’ that the Law was not violated.
A Resolution Plan submitted by the concerned Resolution Applicant on accounts of its confidentiality, cannot be disclosed to any competing Resolution Applicant nor any opinion can be taken or objection can be called for from other Resolution Applicants in regard to one other Resolution Plan.
[ Link - Synopsis ]
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8. NCLAT (21,09.2021) In Telangana State Trade Promotion Corporation Vs. A.P. Gems & Jewellery Park Pvt. Ltd. & Anr. [Company Appeal (AT)(CH) (Ins.) No.54 of 2021] held that;
Hence, while the default rule under the first proviso to Section 21(2) is that only those financial creditors that are related parties in praesenti would be debarred from the CoC, those related party financial creditors that cease to be related parties in order to circumvent the exclusion under the first proviso to Section 21(2), should also be considered as being covered by the exclusion thereunder.
It must be borne in mind that the expression ‘control’ in Section 29A(c) of the ‘I&B’ Code symbolizes only the positive control i.e. that the mere power to block special resolutions of a Company cannot amount to control. In reality, the word ‘control’ juxtaposed with the term ‘management’ means ‘De facto control of actual management or policy decisions that may be or are in reality taken.
[ Link - Synopsis ]
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9. NCLAT (04.06.2021) in Martin S.K.Golla & Anr. Vs Wig Associates Pvt. Ltd. & Ors. [Company Appeal (AT) (Ins) No.121 of 2019] held that;
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.
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.
that the disqualification pursuant to section 29-A(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.”
[ Link - Synopsis ]
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10. NCLAT (01.06.2021) in Rakesh Kumar Agarwal & Ors. Vs Devendra P. Jain [Company Appeal (AT) (Insolvency) No. 1034 of 2020] held that;
We have perused the notification dated 01.06.2020 and Section 240A of the IBC and in terms of above notification the Corporate Debtor falls into the category of MSME. The Appellants vehemently contend that being existing promoters now they are eligible to submit a Scheme.
Before taking steps to sell the assets of the ‘corporate debtor(s)’(companies herein), the Liquidator will take steps in terms of Section 230 of the Companies Act, 2013. The Adjudicating Authority, if so required, will pass appropriate order. Only on failure of revival, the Adjudicating Authority and the Liquidator will first proceed with the sale of company’s assets. . . . .
it is settled law as per the decisions of the Hon’ble Supreme Court that the liquidation is only the last resort and as per the preamble of the IBC the main object of the Code is in resolving corporate insolvencies and not the mere recovery of monies due and outstanding.
For the foregoing reasons and relied upon the Judgments of the Hon’ble Supreme Court and this Tribunal we are of the view that the Appellant being eligible to submit a scheme by virtue of an amendment to Section 7 of Micro, Small and Medium Enterprises Development Act, 2006 vide notification dated 01.06.2020.
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11. SCI (15.03.2021) in Arun Kumar Jagatramka Vs. Jindal Steel and Power Ltd. & Anr. [Civil Appeal No. 9664 of 2019] held that;
The statutory scheme underlying the IBC and the legislative history of its linkage with Section 230 of the Act of 2013, in the context of a company which is in liquidation, has important consequences.
A harmonious construction between the two statutes would ensure that while on the one hand a scheme of compromise or arrangement under Section 230 is being pursued, this takes place in a manner which is consistent with the underlying principles of the IBC
It would lead to a manifest absurdity if the very persons who are ineligible for submitting a resolution plan, participating in the sale of assets of the company in liquidation or participating in the sale of the corporate debtor as a ‘going concern’, are somehow permitted to propose a compromise or arrangement under Section 230 of the Act of 2013.
Based on the above analysis, we find that the prohibition placed by the Parliament in Section 29A and Section 35(1)(f) of the IBC must also attach itself to a scheme of compromise or arrangement under Section 230 of the Act of 2013, when the company is undergoing liquidation under the auspices of the IBC. As such, Regulation 2B of the Liquidation Process Regulations, specifically the proviso to Regulation 2B(1), is also constitutionally valid.
[ Link - Synopsis ]
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12. NCLAT (17.02.2020) in JSW Steel Ltd. Vs. Mahender Kumar Khandelwal & Ors. [Company Appeal (AT) (Insolvency) No. 957 of 2019] held that;
# 62. The question arises as to who are the Competent Authorities to decide ineligibility of the ‘Resolution Applicant’ under Section 29A or 32A (1) (a) and to find out whether it comes within the meaning of ‘related party’ for the purpose of ineligibility.
# 63. As per Section 30(1), the ‘Resolution Applicant’ while submitting ‘Resolution Plan’ has to file an Affidavit stating clearly that he is eligible or not eligible under Section 29A.
# 64. As per Section 30(3), the ‘Resolution Professional’ shall present to the ‘Committee of Creditors for its approval such ‘Resolution Plans’ which confirm the conditions referred to in sub-section (2). It is only thereafter the ‘Committee of Creditors’ is empowered to find out whether the ‘Resolution Applicant’ is ineligible under Section 29A:
# 65. It is only thereafter under Section 31, the Adjudicating Authority is to satisfy that the ‘Resolution Plan’ as approved by the ‘Committee of Creditors’ under sub-section (4) of Section 30 meets the requirements as referred to in sub-section (2) of Section 30.
# 66. The aforesaid provisions show that the following persons/ Authorities are empowered to decide whether a ‘Resolution Applicant’ is ineligible being ‘related party’ in terms of Section 29A or not:
(i) The ‘Resolution Professional’ in terms of Section 30(1) is to find out whether such statement has been made or not;
(ii) The ‘Committee of Creditors’ is empowered to decide whether the ‘Resolution Applicant’ is ineligible in terms of Section 29A. Thereby the ‘Committee of Creditors’ is also required to decide whether it is related party to the ‘Corporate Debtor’ or not.
(iii) The Adjudicating Authority while passing order under Section 31 can find out whether the ‘Resolution Applicant’ fulfils the conditions under Section 30(2) which includes Section 30(2) (e) and in terms of Section 29A can decide whether the ‘Resolution Applicant’ is a ‘related party’ to the ‘Corporate Debtor’.
# 70. However, on the direction of the Central Government, if a person is asked to join hands with others for compliance of such direction a person cannot be held to be ineligible on the ground of ‘related party’.
[ Link - Synopsis ]
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13. Supreme Court of India (04.10.2018) in ArcelorMittal India Private Limited Vs. Satish Kumar Gupta and Ors.(Civil Appeal Nos. 9402 – 9405 of 2018) held that;
# 77. However, it must not be forgotten that a Resolution Professional is only to “examine” and “confirm” that each resolution plan conforms to what is provided by Section 30(2). Under Section 25(2)(i), the Resolution Professional shall undertake to present all resolution plans at the meetings of the Committee of Creditors. This is followed by Section 30(3), which states that the Resolution Professional shall present to the Committee of Creditors, for its approval, such resolution plans which confirm the conditions referred to in sub-section (2). This provision has to be read in conjunction with Section 25(2)(i), and with the second proviso to Section 30(4), which provides that where a resolution applicant is found to be ineligible under Section 29A(c), the resolution applicant shall be allowed by the Committee of Creditors such period, not exceeding 30 days, to make payment of overdue amounts in accordance with the proviso to Section 29A(c). A conspectus of all these provisions would show that the Resolution Professional is required to examine that the resolution plan submitted by various applicants is complete in all respects, before submitting it to the Committee of Creditors. The Resolution Professional is not required to take any decision, but merely to ensure that the resolution plans submitted are complete in all respects before they are placed before the Committee of Creditors, who may or may not approve it. The fact that the Resolution Professional is also to confirm that a resolution plan does not contravene any of the provisions of law for the time-being in force, including Section 29A of the Code, only means that his prima facie opinion is to be given to the Committee of Creditors that a law has or has not been contravened. Section 30(2)(e) does not empower the Resolution Professional to “decide” whether the resolution plan does or does not contravene the provisions of law.
# 78. Thus, the importance of the Resolution Professional is to ensure that a resolution plan is complete in all respects, and to conduct a due diligence in order to report to the Committee of Creditors whether or not it is in order. Even though it is not necessary for the Resolution Professional to give reasons while submitting a resolution plan to the Committee of Creditors, it would be in the fitness of things if he appends the due diligence report carried out by him with respect to each of the resolution plans under consideration, and to state briefly as to why it does or does not conform to the law.
# 80. It is the Committee of Creditors which will approve or disapprove a resolution plan, given the statutory parameters of Section 30. Under Regulation 39 of the CIRP Regulations, sub-clause (3) thereof provides:-
“(3) The committee shall evaluate the resolution plans received under sub-regulation (1) strictly as per the evaluation matrix to identify the best resolution plan and may approve it with such modifications as it deems fit:
Provided that the committee shall record the reasons for approving or rejecting a resolution plan.”
This regulation shows that the disapproval of the Committee of Creditors on the ground that the resolution plan violates the provisions of any law, including the ground that a resolution plan is ineligible under Section 29A, is not final. The Adjudicating Authority, acting quasi-judicially, can determine whether the resolution plan is violative of the provisions of any law, including Section 29A of the Code, after hearing arguments from the resolution applicant as well as the Committee of Creditors, after which an appeal can be preferred from the decision of the Adjudicating Authority to the Appellate Authority under Section 61.
[ Link - Synopsis ]
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