Bank of Baroda & Anr. Vs MBL Infrastructures Limited & Ors. (Supreme Court of India)
Facts- Corporate insolvency resolution process was initiated against respondent No. 1. Two resolution plans were received by the resolution professional (respondent no. 2). Committee of creditors decided seeking an appropriate resolution plan at the hands of respondent no. 3.
Section 29A was introduced vide Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017. The present suit is concerned about section 29A(c) and (h).
Conclusion- Section 29A has a laudable object of protecting and balancing the interest of the committee of creditors and the corporate debtor, while shutting the doors to canvas the interests of others. That is the reason why it consciously excludes certain categories of persons. We may add that Section 29A(h) foresees the creditors who are otherwise either already under the insolvency resolution process or are entitled to go under it.
The Respondent No.3 has executed personal guarantees which were invoked by three of the financial creditors even prior to the application filed. The rigor of Section 29A(h) of the Code obviously gets attracted. The eligibility can never be restricted to the three creditors, but also to other financial creditors in view of the import of Section 7 of the Code.
As held in Ebix Singapore Pvt. Ltd. Vs. COC of Educomp Solutions Ltd. it was observed that Committee of Creditors cannot approve a resolution plan proposed by an applicant barred under section 29A of IBC.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. A judicial interpretation of Section 29A(h) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code”), as amended by the Act 26 of 2018 is sought from us.
2. We have heard Shri. Tushar Mehta, learned Solicitor General and Mr. Bishwajit Dubey, learned counsel appearing for the Appe1llant, and Shri. Ranjit Kumar and Shri. Parag P. Tripathi, learned senior counsels on behalf of Respondent Nos. 1 and 3, respectively. Perused the documents filed by both sides, and additionally, we had the benefit of going through the written arguments placed on record.
A BRIEF JOURNEY:
3. M/s. MBL Infrastructures Limited (Respondent No.1) was set up by one, Mr. Anjanee Kumar Lakhotiya (Respondent No. 3) in the early 1990s. Loans/ credit facilities were obtained by the Respondent No.1 from the consortium of banks (State Bank of Mysore now State Bank of India as lead bank), some of who are also arrayed as respondents apart from the appellant. On the failure of the Respondent No.1 to act in tune with the terms of repayment, some of the respondents were forced to invoke the personal guarantees extended by the Respondent No.3 for the credit facilities availed by the Respondent No.1.
4. M/s. RBL Bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’ for short), after duly invoking the personal guarantee of the Respondent No.3. This was followed by a similar action at the hands of Respondent No.8 (M/s Allahabad Bank) and M/s. State Bank of Bikaner and Jaipur. We are given to understand that M/s. State Bank of Bikaner and Jaipur got merged with State Bank of India. The aforesaid two proceedings invoking Section 13(2) of the SARFAESI Act were initiated in the month of February and March, 2013, respectively.
5. On the aforesaid factual setting, M/s. RBL Bank filed an application bearing No. (IB)-170/KB/2017 under Section 7 of the Code before the National Company Law Tribunal, Kolkata (hereinafter referred to as “adjudicating authority”) to initiate corporate insolvency resolution process (CIRP) against Respondent No.1. It was admitted vide order dated 30.03.2017, appointing an Interim Resolution Professional, leading to imposition of moratorium in terms of Section 14 of the Code. After the expiry of the initial period of CIRP, an application was filed by the Resolution Professional for extending the duration of CIRP by an additional 90 days, which was duly granted.
6. Two resolution plans were received by the Resolution Professional (Respondent No.2 herein) as he then was, of which, one was authored by Respondent No.3 on 29.06.2017. This was done prior to the introduction of Section 29A of the Code.
7. A series of meetings took place with the active participation of the Committee of Creditors (CoC) on the resolution plan submitted by the Respondent No.3 between October 16, 2017 to November 17, 2017. A decision was made in the 9th meeting of the CoC held on 18.11.2017 seeking an appropriate resolution plan at the hands of Respondent No.3. In tune with the aforesaid directive, the Respondent No.3 submitted a modified resolution plan on 22.11.2017.
6. Thereafter, by way of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, Section 29A was introduced to the Code with which we are concerned in the present lis, specifically 29A(c) and (h). The same are reproduced as under:
“Section 29 A – Persons not eligible to be resolution applicant – A person shall not be eligible to submit a resolution plan, if such person or any other person acting jointly with such person or any other person who is a promoter or in the management or control of such person, –
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(c) has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 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;
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(h) has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor under insolvency resolution process or liquidation under this code.”
9. The CoC held its meeting on 01.12.2017 to deliberate upon the impact of the amendment qua the eligibility of the Respondent No.3 in submitting a resolution plan in the CIRP proceedings. In view of the lingering doubt expressed, the Respondent No.3 filed an application bearing CA(IB) No.543/KB/2017 praying for a declaration that he was not disqualified from submitting a resolution plan under sub-section (c) and (h) of Section 29A of the Code.
10. The adjudicating authority, vide its order dated 18.12.2017 held that the Respondent No.3 was eligible to submit a resolution plan, notwithstanding the fact that he did extend his personal guarantees on behalf of the Respondent No.1 which were duly invoked by some of the creditors, as aforesaid. This issue was never placed and raised before the adjudicating authority. Though the adjudicating authority took note of Section 29A(c) of the Code, it did not give any specific findings on it. However, it ruled that inasmuch as the personal guarantee having not been invoked and the Respondent No.3 merely having extended his personal guarantee, as such there is no disqualification per se under Section 29A(h) of the Code as the liability under a guarantee arises only upon its invocation. Thus, only those guarantors who had antecedents which might adversely impact the credibility of the process are alone to be excluded. As debt payable by Respondent No.3 was not crystalized, he could not be construed as a defaulter for breach of the guarantee. Incidentally, a finding has been given that the Respondent No.3 did not commit any default. With the aforesaid clarification, the application filed was allowed by taking into consideration the amendment made on 23.11.2017, introducing Section 29A to the Code.
11. The aforesaid order was assailed by the Punjab National Bank (Respondent No.10) before the National Company Law Appellate Tribunal (hereinafter referred to as “appellate tribunal”) in Company Appeal (AT) (Insolvency) No. 330 of 2017. Upon hearing the Respondent No.10, the following interim order was passed on 21.12.2017:
“Let notice be issued to respondents by speed post. Requisites by next dated. Dasti service permitted.
Copy of this order may also be forwarded to the respondents. The appellant will file the certified copy of the impugned order by 5th January, 2018. Post the matter on 11th January, 2018.
In the meantime, if the 2nd Respondent filed any Resolution Plan, the Resolution Professional and the Committee of Creditors may go through the same but the Adjudicating Authority will not accept or reject the resolution plan or pass any order in lower court without prior approval of this Appellant Tribunal.”
12. On the very same day, the resolution plan submitted by the Respondent No.3 was put to vote by the Respondent No.2 in the 12th meeting of the CoC by way of e-voting, and the process was completed the next day. The plan received 68.50% vote share of the CoC. Six financial creditors voted against the plan, including Respondent No.10 (PNB) and RBL Bank. The extended 270 day period of CIRP expired on 25.12.2017.
13. RBL Bank filed an appeal against the order dated 18.12.2017 being Company Appeal (AT) (Insolvency) No.1 of 2018 wherein an order was passed upon hearing the parties on 11.01.2018 facilitating the adjudicating authority to proceed further but not to accept the resolution plan, without its prior approval.
14. The Respondent No.3 filed an application on 12.01.2018 invoking Section 60 of the Code bearing CA No.(IB) 50/KB/2018 seeking an appropriate direction to the dissenting and abstaining creditors to facilitate a possible change of mind by supporting the resolution plan, as modified. Thereafter, Bank of Maharashtra (Respondent No. 11), since impleaded by the order of this court dated 26.10.2021, sent a letter to Respondent No.2 dated 31.01.2018 setting forth its conditions for its approval of the resolution plan. Further, Indian Overseas Bank was pleased to give its approval to the resolution plan. As such, the resolution plan gathered 78.50% vote share.
15. In the meanwhile, Section 29A(h) went through a further amendment which came into effect from 18.01.2018:
“Section 29 A – Persons not eligible to be resolution applicant – A person shall not be eligible to submit a resolution plan, if such person or any other person acting jointly or in concert with such person –
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(h) has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this code.”
16. On 23.03.2018, the appellate tribunal passed the following order in the appeals filed by Respondent No.10 and RBL Bank:
“When the matter was taken up learned counsel appearing on behalf of the Appellant – ‘Punjab National Bank’ sought permission to withdraw the appeal. One of the learned counsel appearing on behalf of the Respondent opposed the prayer. However, we are not inclined to the ground of opposition as made by the Respondent. Bank intends to withdraw the appeal, without any liberty. In this background, without taking into consideration the grounds shown in the affidavit for withdrawal, we allow the Appellant to withdraw the Appeal without any liberty to challenge the same very impugned order. The appeal is dismissed as withdrawn. I.A. No.311 of 2018 stands disposed of. The ‘question of law’ may be decided in some other case. No cost.
The interim order passed by this Appellant Tribunal on 21st December, 2017 stands vacated.”
17. The above order was passed while permitting the appellants to withdraw the appeals against the order of eligibility of Respondent No.3, in view of the resolution plan having reached the mandatory requirement of 75% as warranted under Section 30(4) of the Code. Thus, it is clear that those appellants did not have any grievance on the plan as accepted by the majority of the CoC. However, the request made by the present appellant who filed I.A. No. 311 of 2018 before the appellate tribunal, seeking to be impleaded as a party to the aforesaid proceedings to continue the lis was not favourably considered though no reason was assigned in the aforesaid order. We may also note that the appellant before us who incidentally filed the aforesaid application was not heard before the adjudicating authority. Suffice it is to state that the appellant did raise its objection to the withdrawal of appeal, presumably on the premise that it wanted to continue by substituting itself in place of the original appellants.
18. The resolution professional, the Respondent No.2 filed a report dated 12.02.2018 for recording the increase in voting share up to 78.50% together with the resolution plan stating that it was accordingly passed. Only on the aforesaid factual setting the pending appeal before the appellate tribunal was withdrawn on 27.02.2018. The adjudicating authority approved the resolution plan submitted by its order dated 18.04.2018 inter alia holding that there is a marked difference between extension and exclusion and therefore, the rigor of Section 12(1) of the Code would not get attracted on the facts of the case particularly when there were pending proceedings with interim orders. It was further held that the issue qua the eligibility under Section 29A(h) decided already, coupled with the resolution plan crossing the requisite threshold of approval by the CoC, i.e. 75% vote share, having considered the techno-economic viability and feasibility of the plan, the application filed for approval of the resolution plan submitted by the Respondent No.3 was liable to be allowed. A direction was accordingly given, holding that the approved resolution plan shall come into force with immediate effect.
19. The appellant before us put into challenge, the aforesaid order passed by the adjudicating authority in Company Appeal (AT)(Insolvency) No. 194 of 2018.
20. In the meanwhile, Section 29A(h) went through a further change by way of ordinance dated 06.06.2018, which subsequently became an Act with effect from the same date through the Act 26 of 2018:
“Section 29 A- Persons not eligible to be resolution applicant – A person shall not be eligible to submit a resolution plan, if such person or any other person acting jointly or in concert with such person –
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(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 credit and remains unpaid if full or part.”
21. The appellate tribunal did explore other possibilities during the pendency of the appeal. It also directed the Respondent No.3 to submit a revised resolution plan. After hearing the parties, the order passed by the adjudicating authority was confirmed, dismissing the appeal filed by the appellant while approving the revised resolution plan submitted by the Respondent No.3 before it. After the disposal of the appeals filed including that of the appellant along with the others who have not challenged the same before us, the shareholders of the Respondent No.1 approved the fund raising of Rs.300 crores in the Annual General Meeting.
22. The appeals including that of the appellant were dismissed on the ground that the resolution plan was approved with 78.50% of the voting share of the CoC, and it was backed by the techno-economic report qua the viability and feasibility. The earlier decision of the adjudicating authority dated 18.12.2017 has attained finality qua the issue of eligibility of the Respondent No.3 under Section 29A of the Code to submit a resolution plan, and it cannot sit in appeal over the decision of the adjudicating authority or the CoC in the absence of any apparent discrimination. It is this decision of the appellate authority confirming the order passed by the adjudicating authority, which is tested before us.
23. Before we proceed with the submissions made at the Bar, we have to record one more fact, namely, Section 30 of the Code also underwent a change by the introduction of amendment dated 06.06.2018 by way of an ordinance followed by an Act through which the percentage required for approval of a resolution plan by the CoC has been brought down from 75% to 66% of the voting share of the CoC.
SUBMISSIONS OF THE APPELLANT:
24. We will collectively consider the submissions of the learned counsel appearing for the appellant and the Respondent No.7, though the said respondent did not choose to file any appeal before us.
25. Section 29A has to be given a holistic interpretation as the objective is to weed out undesirable persons with the intention of promoting primacy of debt by disqualifying guarantors who have not fulfilled their co-extensive liability with the insolvent corporate debtor. The Respondent No.3 (who is a promoter of the corporate debtor) was ineligible to submit a resolution plan under Section 29A(h) of the Code, as several personal guarantees executed by the Respondent No.3 in favour of various creditors of the Respondent No.1 stood invoked, prior commencement of CIRP. There is a clear suppression on the part of Respondent No.3, which was not taken note of by the adjudicating authority on both the occasions. Even the Respondent No.2 failed to bring the said fact before the adjudicating authority. Therefore, the premise on which the adjudicating held the Respondent No.3 eligible to submit a resolution plan is ex facie false.
26. The law which was prevailing on the date of the application has to be seen, therefore, the disqualification gets attracted on the date of filing of the application and on the same analogy not only Section 29A(h) but also Section 30(4) has to be interpreted. As fraud vitiates all solemn acts, the appeal deserves to be allowed. A legal ineligibility cannot be done away with by alleged estoppel, such ineligibility is a matter of fact to be considered by Courts irrespective of any waiver by any party or creditor. The approval of the resolution plan was made after the mandatory period of 270 days, i.e. after the expiry of the CIRP period. Since there is clear infraction of Section 12, the orders passed are liable to be interfered with. The learned Solicitor General has sought to place reliance on the judgment of this Court in K. Shashidhar vs. Union of India (Order dated 05.02.2019 in Civil Appeal 10673 of 2018). The revised plan before the appellate tribunal was never approved by the adjudicating authority, including the conditional assent given by the Respondent No.11, which were erroneously accepted.
27. There is no bar in law for questioning the eligibility before the adjudicating authority as the appellant was neither a party before it on earlier occasion nor an adjudication was made on the merits by the appellate tribunal. Therefore, the order passed by the appellate tribunal confirming that of the adjudicating authority requires to be set aside.
SUBMISSIONS OF THE RESPONDENT:
28. A decision made by the CoC in its commercial wisdom on being satisfied with the report of the expert on the viability and feasibility of the resolution plan, is not required to be interfered with by this Court by substituting its views. The revised plan as accepted by the appellate tribunal is an improvement to the earlier one submitted by the Respondent No.3 and, therefore, there cannot be any grievance on that count.
29. The object of the Code has to be read with Section 29A(h). The appellant being aware of the decision of the adjudicating authority in the first instance ought to have taken it further, as such the appellant is estopped from questioning the eligibility of the Respondent No.3 to submit a resolution plan under Section 29A(h) of the Code. The provision has to be literally interpreted to the extent that a personal guarantor is barred from submitting a resolution plan only when the creditor invoking the jurisdiction of the adjudicating authority has invoked a personal guarantee executed in favour of said creditor by the resolution applicant.
30. No personal guarantee stood invoked by RBL Bank at the time of application to the adjudicating authority under Section 7 of the Code. It is further submitted that the invocation of the consortium guarantee by Allahabad Bank and State Bank of Bikaner and Jaipur under Section 13(2) of the SARFAESI Act, 2002 is ex facie illegal in terms of the inter-se agreement executed between the members of the consortium of banks. Even otherwise the same is not relevant as neither Allahabad Bank nor State Bank of Bikaner and Jaipur filed an application before the adjudicating authority.
31. The first respondent is an on-going concern as of now and the resolution plan is under implementation since 18.04.2018. The object of the Code is revival of the Corporate Debtor and liquidation is the last resort. Any interference at this stage will have an adverse effect and militate against the very object of the Code. The Respondent No.3 has infused over Rs. 63 crores since the resolution plan has been in operation and has further received approval of the shareholders to raise Rs. 300 crores to revive the Respondent No.1. Since the approval of the resolution plan submitted by the Respondent No.3, several projects of national importance have been completed and various others are under execution. Further, all workmen have also been paid in full, and all current employees, operational creditors and statutory dues are being regularly paid.
32. Both the forums have rightly construed the issue qua extension and exclusion. Admittedly, there were earlier rounds of litigation and proceedings were pending against the interim orders. This issue has also been concluded finally by this Court inter alia holding that in such a scenario exclusion has to be granted, in light of the time spent in litigation.
33. Buttressing the aforesaid submissions, the counsels for the Respondents have sought to place reliance on the following decisions:
