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

Judgment

114 SUPREME COURT REPORTS [2021] 3 S.C.R. 114 [2021] 3 S.C.R. A B C D E F G H ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND POWER LTD. & ANR. (Civil Appeal No. 9664 of 2019) MARCH 15, 2021 [DR. DHANANJAYA Y CHANDRACHUD AND M. R. SHAH, JJ.] Insolvency and Bankruptcy Code, 2016: s. 29A – Person not eligible to be resolution applicant – Eligibility of promoter to file application for compromise and arrangement, while he is ineligible u/s. 29A to submit ‘Resolution Plan’ – On facts, application by GNCL, corporate debtor for initiating the Corporate Insolvency Resolution Process admitted and the appellant-promoter of GNCL submitted a resolution plan for GNCL – However, due to insertion of s. 29A, which disqualifies a person from being a resolution applicant if they have been a promoter or in the management or control of a corporate debtor, appellant became ineligible to submit a resolution plan – No resolution plan approved by the CoC and in absence thereof, the order of liquidation by NCLT – During the pendency of the appeal before NCLAT, application u/ss. 230 to 232 of the Act of 2013 by appellant-promoter of GNCL before the NCLT proposing a scheme for compromise and arrangement between the erstwhile promoters and creditors and the same was allowed – Appeal thereagainst by respondent- unsecured creditor of the corporate debtor – NCLAT holding that promoters ineligible u/s. 29A to submit a resolution plan, also barred from proposing a scheme of compromise and arrangement u/s.230 of the Act of 2013 – On appeal, held: Prohibition placed by the Parliament in s. 29A and s. 35(1)(f) must also attach itself to a scheme of compromise or arrangement u/s. 230 of the 2013 Act, when the company is undergoing liquidation under the auspices of the IBC – As such, Reg 2B, specifically the proviso to Reg 2B(1), is also constitutionally valid – Even in the absence of the Reg 2B, a person ineligible u/s. 29A read with s. 35(1)(f) is not permitted to propose a scheme for revival u/s. 230, in the case of a company which is undergoing a liquidation under the IBC – In the case of a 114 ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND POWER LTD. 115 company undergoing liquidation under the IBC, a scheme of compromise or arrangement proposed u/s. 230 is a facet of the liquidation process – Object of the scheme of compromise or arrangement is to revive the company – Same rationale which permeates the resolution process u/s. 29A permeates the liquidation process u/s. 35(1)(f) – Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 – Reg 2B – Companies Act, 2013 – ss. 230 to 232. Enactment of – Salutary objectives of good corporate governance and respect for and adherence to the rule of law; and re-organization and resolution of insolvencies under – Held: Can be achieved if the integrity of the resolution process is placed at the forefront – Purposive interpretation is required by the 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. s. 29A – Person not eligible to be resolution applicant – Purpose of the ineligibility under – Held: Is to achieve a sustainable revival and to ensure that a person who is the cause of the problem either by a design or a default cannot be a part of the process of solution – s. 29A encompasses not only conduct in relation to the corporate debtor but in relation to other companies as well. ss. 29A, 35(1)(f) – Interplay between the proposal of a scheme of compromise and arrangement u/s.230 of the Act of 2013 and liquidation proceedings initiated under IBC – Held: s. 230 of the Act of 2013 is wider in its ambit – It is not confined only to a company in liquidation or to corporate debtor which is being wound up under Chapter III of the IBC – Thus, the rigors of the IBC will not apply to proceedings u/s. 230 of the Act of 2013 where the scheme of compromise or arrangement proposed is in relation to an entity which is not the subject of a proceeding under the IBC – However, where s. 230 of the Act of 2013 traces its origin to the liquidation proceedings initiated under IBC, harmonious construction is needed between the two statutes which would ensure that a scheme of compromise or arrangement u/s. 230 is being pursued, in a manner 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 A B C D E F G H 116 SUPREME COURT REPORTS [2021] 3 S.C.R. A B C D E F G H the company in liquidation, are somehow permitted to propose a compromise or arrangement u/s. 230 of the Act of 2013 – IBC has made a provision for ineligibility u/s. 29A which operates during the course of the CIRP – Similar provision, s. 35(1)(f) forms a part of the liquidation provisions contained in Chapter III as well – In the context of the statutory linkage provided by the provisions of s. 230 of the Act of 2013 with Chapter III of the IBC, it would be far- fetched to hold that the ineligibilities which attach u/s. 35(1)(f) r/w s. 29A would not apply when s. 230 is sought to be invoked – Such an interpretation would result in defeating the provisions of the IBC and must be eschewed – Stages of submitting a resolution plan, selling assets of a company in liquidation and selling the company as a going concern during liquidation, all indicate that the promoter or those in the management of the company must not be allowed a back-door entry in the company and are hence, ineligible to participate during these stages – Proposing a scheme of compromise or arrangement u/s. 230 of the Act of 2013, while the company is undergoing liquidation under the provisions of the IBC lies in a similar continuum – Companies Act, 2013 – ss. 230 to 232. ss. 6 to 32A – Modes of revival of a company under the provisions of the IBC – Explained. s. 12A - Withdrawal of application – Withdrawal of the application admitted u/ss. 7, 9 and 10 – Discussed. Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016: Reg 2B - Constitutional validity of – Held: Reg 2 B provides that where a compromise or arrangement is proposed u/s. 230 of the Act of 2013, it shall be completed within ninety days of the order of liquidation under sub-Sections (1) and (4) of s. 33 – Proviso to Reg 2B provides 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 in any manner to such compromise or arrangement – Reg 2B, specifically the proviso to Reg 2B(1) is constitutionally valid. Dismissing the appeals and writ petition, the Court HELD: 1.1 The prohibition placed by the Parliament in Section 29A and Section 35(1)(f) of the Insolvency and Bankruptcy Code, 2016 must also attach itself to a scheme of compromise or ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND POWER LTD. 117 arrangement under Section 230 of the Companies Act 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. [Para 91][192-C-D]

#2. Section 29A 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 29A 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). [Para 52][166-B-D] Chitra Sharma v. Union of India (2018) 18 SCC 575 : [2018] 12 SCR 1044; Arcelormittal India Private Limited v. Satish Kumar Gupta & Ors (2019) 2 SCC 1 : [2018] 12 SCR 362; Phoenix ARC Private Limited v. Spade Financial Service 2021 SCC OnLine SC 51; Ramesh Kymal v. M/s Siemens Gamesa Renewable Power Pvt Ltd. [2021] 3 SCC 224; Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited (2020) 8 SCC 401 – relied on.

#3. The purpose of the ineligibility under Section 29A is to achieve a sustainable revival and to ensure that a person who is the cause of the problem either by a design or a default cannot be a part of the process of solution. Section 29A encompasses not only conduct in relation to the corporate debtor but in relation to other companies as well. [Para 53][166-F-G]

4.1 Section 230 of the Act of 2013 is incorporated in Chapter titled “compromise, arrangement and XV which amalgamations”. A compromise or arrangement under Sub- section (1) of Section 230 may take place: between a company A B C D E F G H 118 SUPREME COURT REPORTS [2021] 3 S.C.R. and its creditors or any subset of creditors; or between a company and its members or subset of members. Liquidation is one of the factual situations in which the provisions of Section 230 can be invoked. Section 230(1) can also be invoked in the case of a company which is wound up, as is evident from the statutory provision itself, which contemplates that an application may be submitted to the NCLT, acting as the Tribunal, by the liquidator. Upon the sanctioning of the compromise or arrangement by the NCLT, it binds the company, all the creditors or members or a class of them, as may be, or in the case of a company being wound up, the liquidator appointed under the Act of 2013 or the IBC and the contributories. [Para 57-59, 61][168-D; 169-A-C; 170- B-C]

5.1 There is no reference in the body of the IBC to a scheme of compromise or arrangement under Section 230 of the Act of 2013. Sub-section (1) of Section 230 was however amended with effect from 15 November 2016 so as to allow for a scheme of compromise or arrangement being proposed on the application of a liquidator who has been appointed under the provisions of the IBC. It was submitted by the appellant that Section 230 is not regulated by the IBC but is a provision independent of it, though after the amendment of Sub-section (1), a compromise or arrangement can be proposed by the liquidator appointed under the IBC; that the decision in Meghal Homes’s case recognises that the liquidator is an additional person who may submit an application under Section 391 of the Act of 1956 (corresponding to Section 230 of the Act of 2013). The submission however, misses the crucial interface between the provisions of Section 230 of the Act of 2013 in their engagement with a company in respect of which the provisions of the IBC have been invoked, resulting in an order of liquidation under Section 33 of the IBC. Liquidation of the company under the IBC is a matter of last resort. Section 33 requires the NCLT, acting as the Adjudicating Authority, to pass an order for the liquidation of the corporate debtor where: before the expiry of the insolvency resolution process period or the maximum period contemplated for its completion a resolution plan has not been received under Sub- section (6) of Section 30; or the resolution plan has been rejected A B C D E F G H ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND POWER LTD. 119 under Section 31 for non-compliance with the requirements of the provision. [Para 64][171-H; 172-A-E] A Meghal Homes Pvt. Ltd. v Shree Niwas Girni K. K. Samiti (2007) 7 SCC 753 : [2007] 9 SCR 330; Miheer H Mafatlal v. Mafatlal Industries Ltd. (1997) 1 SCC 579 : [1996] 6 Suppl. SCR 1 – referred to.

5.2 Under Sub-Section (2) of Section 33, the Adjudicating Authority has to pass a liquidation order where the resolution professional, during the CIRP but before the confirmation of the resolution plan, intimates the Adjudicating Authority of the decision of the CoC approved by not less than 66 per cent of the voting shares to liquidate the corporate debtor. Under Section 34, upon the Adjudication Authority passing an order for liquidation of the corporate debtor under Section 33, the resolution professional appointed for the CIRP under Chapter II is to act as a liquidator for the purpose of liquidation. Section 35 proceeds to stipulate that subject to the directions of the Adjudicating Authority, the liquidator shall have the powers and duties enumerated in the provision. [Para 65][172-F-H]

5.3 There are three modes in which a revival is contemplated under the provisions of the IBC. The first of those modes of revival is in the form of the CIRP elucidated in the provisions of Chapter II of the IBC. The second mode is where the corporate debtor or its business is sold as a going concern within the purview of clauses (e) and (f) of Regulation 32. The third is when a revival is contemplated through the modalities provided in Section 230 of the Act of 2013. A scheme of compromise or arrangement under Section 230, in the context of a company which is in liquidation under the IBC, follows upon an order under Section 33 and the appointment of a liquidator under Section 34. While there is no direct recognition of the provisions of Section 230 of the Act of 2013 in the IBC, a decision was rendered by the NCLAT in Y Shivram Prasad v. S Dhanapal’s case wherein NCLAT took note of the fact that while passing the order u/s. 230, the Adjudicating Authority would perform a dual role, one as the Adjudicating Authority in the matter of liquidation under the IBC and the other as a Tribunal for passing an order B C D E F G H 120 SUPREME COURT REPORTS [2021] 3 S.C.R. u/s. 230 of the Act of 2013. Following the decision of NCLAT, an amendment was made on 25 July 2019 to the Liquidation Process Regulations by the IBBI so as to refer to the process envisaged under Section 230 of the Act of 2013. [Para 67][173-C-G] Y Shivram Prasad v. S Dhanapal 2019 SCC OnLine NCLAT 172 – approved.

5.4 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 for the outcome of the controversy in the instant case. The first point is that a liquidation under Chapter III of the IBC follows upon the entire gamut of proceedings contemplated under that statute. The second point to be noted is that one of the modes of revival in the course of the liquidation process is envisaged in the enabling provisions of Section 230 of the Act of 2013, to which recourse can be taken by the liquidator appointed under Section 34 of the IBC. The third point is that the statutorily contemplated activities of the liquidator do not cease while inviting a scheme of compromise or arrangement under Section 230. The appointment of the liquidator in an IBC liquidation is provided in Section 34 and their duties are specified in Section 35. In taking recourse to the provisions of Section 230 of the Act of 2013, the liquidator appointed under the IBC is , to attempt a revival of the corporate debtor so as to save it from the prospect of a corporate death. The consequence of the approval of the scheme of revival or compromise, and its sanction thereafter by the Tribunal under Sub-section (6), is that the scheme attains a binding character upon stakeholders including the liquidator who has been appointed under the IBC. In this backdrop, it is difficult to accept that Section 230 of the Act of 2013 is a standalone provision which has no connect with the provisions of the IBC. Undoubtedly, Section 230 of the Act of 2013 is wider in its ambit in the sense that it is not confined only to a company in liquidation or to corporate debtor which is being wound up under Chapter III of the IBC. Obviously, therefore, the rigors of the IBC will not apply to proceedings under Section 230 of the Act of 2013 where the scheme of compromise or A B C D E F G H ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND POWER LTD. 121 arrangement proposed is in relation to an entity which is not the subject of a proceeding under the IBC. But, when, as in the instant case, the process of invoking the provisions of Section 230 of the Act of 2013 traces its origin or, as it may be described, the trigger to the liquidation proceedings which have been initiated under the IBC, it becomes necessary to read both sets of provisions in harmony. 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 because the scheme is proposed in respect of an entity which is undergoing liquidation under Chapter III of the IBC. As such, the company has to be protected from its management and a corporate death. 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. [Para 68][174-A-H; 175-A-C]

5.5 The IBC has made a provision for ineligibility under Section 29A which operates during the course of the CIRP. A similar provision is engrafted in Section 35(1)(f) which forms a part of the liquidation provisions contained in Chapter III as well. In the context of the statutory linkage provided by the provisions of Section 230 of the Act of 2013 with Chapter III of the IBC, where a scheme is proposed of a company which is in liquidation under the IBC, it would be far-fetched to hold that the ineligibilities which attach under Section 35(1)(f) read with Section 29A would not apply when Section 230 is sought to be invoked. Such an interpretation would result in defeating the provisions of the IBC and must be eschewed. [Para 69][175-C-F]

5.6 There is no merit in the submission that attaching the ineligibilities under Section 29A and Section 35(1)(f) of the IBC to a scheme of compromise and arrangement under Section 230 of the Act of 2013 would be violative of Article 14 of the Constitution as the appellant would be “deemed ineligible” to submit a proposal under Section 230 of the Act of 2013. The stages A B C D E F G H 122 SUPREME COURT REPORTS [2021] 3 S.C.R. of submitting a resolution plan, selling assets of a company in liquidation and selling the company as a going concern during liquidation, all indicate that the promoter or those in the management of the company must not be allowed a back-door entry in the company and are hence, ineligible to participate during these stages. Proposing a scheme of compromise or arrangement under Section 230 of the Act of 2013, while the company is undergoing liquidation under the provisions of the IBC lies in a similar continuum. Thus, the prohibitions that apply in the former situations must naturally also attach to the latter to ensure that like situations are treated equally. [Para 70][175-E-F; 176-A-C]

#6. Section 12A of the IBC was inserted with effect from 6 June 2018 by Amending Act 26 of 2018. Under Section 12A, the Adjudicating Authority may allow the withdrawal of an application which is admitted under Sections 7, 9 and 10, on an application made by the applicant with the approval of a 90 per cent voting share of the CoC in such manner as may be specified. Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, on the other hand, contemplates that the NCLT, functioning as the Adjudicating Authority, may permit a withdrawal of an application made under Rule 4 (by the financial creditor), Rule 6 (by the operational creditor) or Rule 7 (by the corporate applicant) on the request made by the applicant before its admission. Regulation 30-A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 contains provisions for the withdrawal of an application. Under Regulation 30-A, as it originally stood, an application for withdrawal under Section 12-A was required to be submitted before the issuance of an invitation for the expression of interest under Regulation 36-A. The decision in Swiss Ribbons led to substitution of the Regulation 30-A which stipulates that an application for withdrawal under Section 12-A may be made to the adjudicating authority: before the constitution of the CoC, by the applicant through the IRP; and after the constitution of the CoC, by the applicant through the IRP or the RP as the case may be. However, where the application under clause (b) is made after the issuance of the invitation for expression of interest, the applicant has to state the reasons A B C D E F G H ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND POWER LTD. 123 justifying withdrawal after the issuance of the invitation. [Para 72][178-B-E; 179-A-B; 180-A-B] A Swiss Ribbons Private Limited v. Union of India (2019) 4 SCC 17 : [2019] 3 SCR 535; Brilliant Alloys (P) Ltd. v. S Rajagopal 2018 SCC OnLine SC 3154 – referred to.

7.1 There is a fundamental fallacy in the submission that on the withdrawal of the application under Sections 7, 9 and 10, as the case may be, the company goes back to the same promoter in spite of such a promoter being ineligible under Section 29A for submitting a resolution plan, as such, there is no reason or justification then to preclude a promoter from presenting a scheme of compromise or arrangement under Section 230. An application for withdrawal under Section 12-A is not intended to be a culmination of the resolution process. This, as the statutory scheme would indicate, is at the inception of the process. Rule 8 of the Adjudicating Authority Rules contemplates a withdrawal before admission. Section 12-A subjects a withdrawal of an application, which has been admitted under Sections 7, 9 and 10, to the requirement of an approval of ninety per cent voting shares of the CoC. A withdrawal in other words is by the applicant. The withdrawal leads to a status quo ante in respect of the liabilities of the corporate debtor. A withdrawal under Section 12-A is in the nature of settlement, which has to be distinguished both from a resolution plan which is approved under Section 31 and a scheme which is sanctioned under Section 230 of the Act of 2013. A resolution plan upon approval under Section 31(1) of the IBC is binding on the corporate debtor, its employees, members, creditors (including the central and state governments), local authorities, guarantors and other stakeholders. The approval of a resolution plan u/s. 31 results in a “clean slate,”. [Para 73, 74] [181-D-H; 182-A-C]