Eligibility is the major grey areas while choosing the resolution applicant under the Corporate Insolvency Resolution Process. Vide Insolvency and Bankruptcy Code (Amendment) Act, 2018 effective from November 23, 2017,Section 29A was inserted which states the ineligibility criteria of a person to submit a resolution plan or to be a resolution applicant. Basically, this amendment was enacted in order to avoid the back-door entries and bidding for the assets of the Debtor. Section 29A entirety not only restricts promoters but, also the people related/connected with the promoters. It is noticeable that the objective behind inserting Section 29A was to restrict those persons from submitting a resolution plan who could have an adverse effect on the entire corporate insolvency resolution process.
However, in the matter of Wig Associates Private Limited (“Company”) Hon’ble National Company Law Tribunal, Mumbai Bench, had allowed the resolution plan submitted by the sole resolution applicant who wasrelated to the promoter Directors of the Company in the meeting of the committee of creditors held on April 20, 2018, i.e., after the effective date of applicability of Section 29/A.
If we look on another aspect of the law there are many relevant cases wherein eligibility has been challenged, like in case of Binani Cement, Dalmia Bharat alleged that Ultratech was ineligible to bid for the assets of the Binani Cement under section 29A of the Insolvency and Bankruptcy Code, 2016. Further, in the case of Bhushan steel matter Promoter challenged in NCLAT that Tata Steel was not eligible to bid under section 29 (A) (d) of the Insolvency and Bankruptcy Code, 2016. Promoter alleged that Tata Steel UK attracts disqualification as it has been found guilty on two counts under the ‘Health and Safety at Work Act, 1974, UK’ (hereinafter referred to as “U.K. Act”). However, National Company Law Appellate Tribunal on August 10, 2018 approves the acquisition of Bhushan Steel by Tata Steel by rejecting the allegation of the Promoters of the Bhushan Steel that Tata Steel was ineligible to bid for Bhushan Steel under section 29 A of the Insolvency & Bankruptcy Code. 2016
National Company Law Appellate Tribunal said that Tata Steel UK is a foreign subsidiary of Tata Steel and was convicted by English Court under U.K. Act in February 2018. Referring to Section 33(1) of the ‘U.K Act’ and Section 29A (d) of the ‘I&B Code’, it seems that the Indian Law only talks of imposition of punishment of imprisonment of two years or more in order to attract disability, whereas under the English Law both have been provided.
National Company Law Tribunal interpreted that as per the provision of section 29A, the term “imprisonment” would only apply to ‘natural persons’ and not to ‘juristic persons’. Further, to apply Section 29 A(d), the following conditions shall be required to be found in existence: –
3(23) “person” includes
From section 29A (d) it can be interpreted that the term ‘person’ in Section 29A (d) to be read as a natural person who can be imprisoned. Hence, in case of a mere conviction of a corporate/juristic person, obviously, without “imprisonment” (and even withfine), the said corporate/juristic person will not be ineligible under Section29A(d) of Insolvency and Bankruptcy Code, 2016.
Being very specific, National Company Law Appellate Tribunal, headed by Chairman Justice S J Mukhopadhaya said that ‘Tata Steel UK’, being the ‘connected person’ of ‘Tata Steel Limited’, does not attract the disability under Section 29A of the Insolvency and Bankruptcy Code, 2016 and further upheld that ‘Tata Steel Limited’ is eligible to file the ‘Resolution Plan”.Bhushan Steel’s final approval of the acquisition by Tata Steel and hence rejecting the claim of promoters clarifies the literal interpretation of person under section 29A (d) for eligibility of the resolution applicant under Insolvency and Bankruptcy Code, 2016.
Vide Insolvency and Bankruptcy second Amendment Act, 2018, Section 29 A (d) has been amended. The amended section 29A (d) would read as under or we can follow conditions be required to be found in existence:
In case of Bhushan Steel clarification in section 29 A (d) has been given in the context provided in section 29A(d) before the amendment proposed in it. However, this clarification also justifies the amended context of section 29 A(d). Section 29 A, being the crucial aspect of corporate insolvency resolution process has to be looked into depth with respect to the implementation of an effective Resolution plan. Further, vide this amendment relaxation has been granted in entire section 29A.Clarification has been provided in the relevant date under section 29A(c) and further relief has been provided to financial entities. Responsibility has been shifted to resolution applicant to state its eligibility u/s 29A of Insolvency and Bankruptcy Code, 2016. Basically, this amendment should result in a greater number of resolution applicants for distressed corporate debtors and improve competition and value but the practical aspect has to be seen in coming time.w
www.grandmasters.in | 8 Years & Counting
www.rcls.in | 8 Years & Counting
www.itlegalsummit.com | 8 Years & Counting
www.bfls.in | 8 Years & Counting
www.maels.in | 8 Years & Counting
www.plcs.co.in | 8 Years & Counting
Copyright © 2020 Lex Witness - India's 1st Magazine on Legal & Corporate Affairs Rights of Admission Reserved
