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thaparandassociateslawfirm · 5 years ago

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Insolvency and Bankruptcy case lawyer

Insolvency and bankruptcy in India have become one of the biggest challenges facing the Indian economy, because Indian bankruptcy law is ancient and archaic. The revised Insolvency Law provides a single and comprehensive insolvency law covering all aspects of insolvency, bankruptcy, insolvency, liquidation and other related matters. It was passed by both houses of parliament with a majority of votes in the Lok Sabha and Rajya Sabha, as well as the government of the National Democratic Alliance.

In India, insolvency and bankruptcy case law is still being developed, and there is hardly any precedent for the judiciary. Prior to the foundation of IBC, insolvency and insolvency law was more contrary to the legal system and tilted in favour of debtors. The Indian government has proposed a uniform and comprehensive bankruptcy code for failing banks and financial sectors.

A major reason for this perception is that debtors retain control over the management and operations of the company during the insolvency proceedings.

Under the new IBC regime, control of the company's daily work is passed on to professionals.

Changes to the Insolvency and Bankruptcy Code of 2016 allow the debtor to withdraw from the proceedings before the CIRP is opened. Section 12A allows IBC to fulfil the promoter's requirement to retain control of the company even after a case has been approved by the NCLT. The promoter loses control of the company after NclT's bankruptcy petition is approved, but not before it becomes insolvent.

The initiation of proceedings under the SARFAESI Act excludes the creditor from initiating proceedings under paragraph 7 of the Code. The Adjudicating Authority may allow the withdrawal of the case from the insolvency proceedings if 90 percent of the creditors committee (CoC) agree. Under Section 65 of the Code, filing for bankruptcy in a case will be punishable by a fine of up to Rs. 10,000 crore and a maximum of 10 years in prison.

The creditor must appeal to the Adjudicating Authority against the above-mentioned order pursuant to Section 65 of the SARFAESI Act 2016.

By overturning the NCLT's view, it ruled that the creditor may proceed in the event of non-bankruptcy pursuant to Section 65 of the SARFAESI Act of 2016. The filing of parallel proceedings has attracted the attention of other financial institutions such as the State Bank of India (SBI). This is because there is a strong correlation between a failing bank's financial position and the status of its creditors.

The first, the insolvency solution, is that it is separate from the non-bankruptcy procedure pursuant to Section 65 of the SARFAESI Act, 2016. The second is what the Insolvency Service tells you about the financial status of your bank and its creditors.

More than two years ago, the Reserve Bank of India ordered local banks to take Essar Steel and 11 other borrowers to court under the revised bankruptcy law passed at the end of 2016. The jury was finally able to clearly recognise that the creditors had entered into an insolvency resolution agreement with the Bank and its creditors in accordance with Section 65 of the SARFAESI Act 2016, and the Board of Directors made a statement of fact on the financial situation of its assets and liabilities. [Sources: 2, 5]

So far, the ride has been rocky and tested the patience of all involved, but not without its fair share of ups and downs.

Since the first IBC was introduced in May 2016, the government has introduced several legislative changes, including the power of the Reserve Bank of India to send cases into bankruptcy, blocking errant developers in tenders, and an exit code to maximize COC votes. There were also several questions of legal interpretation and some of the largest bad loans were involved in litigation. Lenders fear that bankruptcy cases could hang in the higher courts and then be delayed for months because of delays caused by dependency and adjournments.

History has shown that India has been slow to implement the IBC and other anti-corruption measures in the past, but the Jinx finally seems to be broken. Kumar breathed a sigh of relief after his bank got its first loan back from the Reserve Bank of India. Some have invoked divine intervention to express frustration at the government's inaction on the issue.

This position was upheld by the Supreme Court in August 2018, but the court also made clear that the bankruptcy code cannot be used as a tool to deduct a small amount from companies "debtors and jeopardize the future of an otherwise solvent company. The judgment also confirmed that the distribution of the proceeds of the offer must be subject to a resolution plan approved by a majority of creditors and clarified that shareholders have a right to claim.

The Insolvency Code provides for a moratorium on all recovery actions against creditors of corporate debtors, including SARFAESI, during the period of the bankruptcy resolution process. This effectively prohibits any recovery action against creditors of a company debtor, which is prohibited to avoid obstacles to the resolution process. The bankruptcy resolution process can only be effective if the debtor is under real stress.

#https://thaparandassociateslawfirm.com/strategic-corporate-practice/

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techminsolutions · 4 years ago

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Essar Oil UK appoints new advisory council to bolster corporate governance

In order to increase its corporate governance standards, Essar Oil (UK) Limited has appointed a new Advisory Council that includes top notch lawyers, diplomats and corporate honchos. Sue Prevezer, a barrister and solicitor with over 30 years’ experience in commercial litigation, international arbitration and mediation, joined the new council along with Sir John Grant, former president of BHP…

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m-n-a-critique · 6 years ago

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Essar verdict may drive more investments into distressed assets space

#Essar verdict may drive more investments into distressed assets space

The recent verdict of the Supreme Court on Essar Steel’s insolvency resolution process, which upheld the primacy of secured creditors, will drive global investments into India’s distressed assets market as it will expedite the litigation process, said Rahul Chawla, managing director at Deutsche Bank India.

“It sets the sanctity of the capital structure in place. There is a logic by which a…

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essarupdate · 5 days ago

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Essar Litigation reflects Essar Group’s commitment to legal compliance and strong corporate governance. Through transparent legal processes, Essar addresses challenges proactively, reinforcing its integrity and focus on ethical business practices in every litigation matter.

#Essar Litigation

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essarcase · 1 month ago

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[NASHWAUK, MN] – In a substantial victory for Mesabi Metallics Company LLC, a federal court in Delaware, after years of court proceedings and considering volumes of evidence, confirmed there is sufficient evidence that Cleveland-Cliffs caused Mesabi antitrust injury and rejected Cliffs’ request to dismiss Mesabi’s antitrust claims on summary judgment. In the antitrust suit, Mesabi alleges that Cliffs unlawfully impeded Mesabi from building its iron ore mine and pelletizing plant in Minnesota.

#Essar Litigation

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olko71 · 6 years ago

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New Post has been published on All about business online

New Post has been published on http://yaroreviews.info/2019/01/three-years-later-indias-bankruptcy-reform-languishes-in-courts

Three years later, India's bankruptcy reform languishes in courts

MUMBAI (Reuters) – When India introduced new bankruptcy resolution rules in 2016, government officials & investors said they expected debt-burdened state-owned banks to clear up some of their offensive loans & create a dynamic market in restructured debt.

FILE PHOTO: Commuters walk past a bank sign along a road in New Delhi, India November 25, 2015. REUTERS/Anindito Mukherjee/File Photo

Ultimately, they said, they hoped the reform would remove an obstacle to higher profitable growth.

Almost three years later, those hopes have been badly dented. Litigation has tied down some huge restructuring deals & bankers are starting to sell offensive debts at fire sale prices rather than wait for the system to work better.

That is offensive news for Prime Minister Narendra Modi, who is keen to obtain banks lending more to stimulate the economy & create more jobs ahead of an election due by May this year.

“The delay (in resolution) unquestionably affects the diligence & planning effort of financial investors,” said Vijay Padmanabhan, director of KKR & Co. Inc., one of world’s biggest private fairness firms which has said it is keen on investing in India’s distressed assets.

Although Padmanabhan said the current bankruptcy process was faster than before, he cautioned that “litigations have to be contained and timelines have to be maintained to generate serious interest amongst financial investors.”

The Insolvency & Bankruptcy Code, introduced in May 2016, allows even small creditors to file insolvency petitions against a company that had defaulted on debt. Once the petition is accepted by a court, a resolution plan has to be decided within 270 days, failing which the company will be liquidated.

The idea was the law would provide an incentive to owners to negotiate over distressed debt, rather than face an accelerated bankruptcy process over which they would have very little control.

It would in addition pull in foreign investors seeking distressed investments & potentially high returns, said Siby Antony, chairman of distressed assets resolution commerce at Edelweiss, which specializes in turning around debt-ridden companies.

Then, the owners of one of India’s biggest defaulters – Essar Steel, which owes 508 billion rupees ($7.11 billion) mostly to state banks – challenged the bankruptcy court’s decision to sell the steel producer to Arcelor Mittal, taking it absent from its preceding owners, the brothers Shashi & Ravi Ruia.

The nine months set for the process has now stretched to more than one & a half years, leaving creditors still not knowing how much of their money will be returned.

RESTRICTIONS ON LITIGATION

The debt of Bhushan Power & Steel Ltd, Jyoti Structures (JYTS.NS) & scores of other companies are in addition stuck in similar litigation.

While the bankruptcy code was a step forward, it would have been more effective whether it had included restrictions on the scope for litigation, bankers & investors said.

India has 14.5 trillion rupees ($204.16 billion) of distressed assets, of which only around 730 billion rupees ($10.26 billion), or approximately 5 percent, have been resolved. However, only approximately half of this sum has so far been recouped by the banks due to legal challenges that have stalled payments.

“It would have been helpful whether all the nuances of the law & possible outcomes were thought through,” said Alok Verma, executive director at Kotak Investment Banking, part of the Kotak Mahindra Group which works with clients looking at distressed assets in India.

So far out of 1,198 cases admitted under insolvency process, only 52 have seen approval of resolution plans, & even among those, repayments are still to be made to lenders.

“Most foreign investors are sitting on the fence waiting for the resolution process to stabilize,” said Antony of Edelweiss.

But Anthony does hold some hope that the system will speed up once the Essar Steel issue is resolved as that would set a precedent. “Once the huge accounts are cleared the pipeline will move fast,” he predicted.

In the meantime, bankers are now looking to sell some of their offensive assets at a steep reduction to free up capital.

India’s largest lender State Bank of India is looking to put its 150.4 billion rupees ($2.1 billion) exposure to Essar Steel on the block at 62 cents to the dollar. Other lenders to the company are weighing similar options as prolonged litigation might cost them more in terms of provisions for losses & loss in interest income than any final recovery they might make, one banker to Essar said.

For capital-starved Indian banks, taking such haircuts is costly. But for the economy, it is an even greater cost given banks fund more than 60 percent of India’s credit requirements.

“State-owned banks’ core capital ratios are already very weak & that is the main factor constraining their capacity to lend,” said Saswata Guha, director & head of financial institutions at Fitch Ratings. “It eventually poses a risk to profitable growth.”

(GRAPHIC: India’s stressed debt interactive – tmsnrt.rs/1Sf4ij7)

Additional reporting by Euan Rocha; Editing by Martin Howell

Our Standards:The Thomson Reuters Trust Principles.

#affiiate marketing #article marketing #business online #businessNews #internet marketing #make money online #mobile marketing #video marketing #web marketing

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legalseat · 6 years ago

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Arbitrating ISDA Disputes: A Bright Future for Derivative Markets

[Saurav Roy is a final-year law student [V B.A.LL.B] at ILS Law College, Pune]

The International Swaps and Derivatives Association (“ISDA”) is the go-to trade organisation for participants in the over-the-counter (“OTC”) derivatives market. The ISDA Master Agreement (“Master Agreement”) is a standardised agreement which allows participants to enter into these derivative transactions. Although the Master Agreement is preliminarily viewed as a useful tool for banks and financial institutions, it has found usage in several transactions entered into by counterparties (entities which normally have some exposure to financial risk).

What makes the Master Agreement useful is that it sets out standard terms that will apply in each set of transactions between the parties, thus eliminating the need for re-negotiation of terms at the onset of a transaction. This is made abundantly clear in the Agreement itself.[1]

Arbitrating Disputes under the Master Agreement

It has been over five years since the ISDA published its Arbitration Guide, which contains a general guidance on arbitration, along with a selection of model arbitration clauses that may be incorporated into the Master Agreement. ISDA’s lengthy consultation with stakeholders, coupled with the intent to include arbitration clauses in their documentation, showcases a broader trend towards more widespread acceptance of arbitration in financial markets.

Moreover, parties prefer arbitration owing to the ability to appoint arbitrators who have experience with complex financial products, and a working knowledge of ISDA documentation. Additionally, what gives arbitration an advantage over any national court process is the freedom to appoint industry and product-specific experts, who can effectively assist the adjudicatory process in highly technical derivative disputes, an option which may not always be readily available in court.

A few relevant points pertaining to arbitrating derivative disputes should be considered:

a. Enforcement mechanisms

Courts in European jurisdictions (United Kingdom, Germany) have traditionally been preferred for derivative disputes. In fact, in a bid to cement their position as a preferred forum, English courts have created a special ‘Financial List’ that is dedicated to handling disputes arising out of financial markets.

The New York Convention has been ratified by various countries, and provides for an easier option in terms of enforcement of awards, as compared to parties entering into agreements relating to cross-border enforcement of orders arising out of their disputes. In cases of emerging markets (such as the derivatives market), the choice of arbitration vis-à-vis other dispute resolution mechanisms is a better one, owing to ISDA’s increasingly diverse membership in terms of counterparties and jurisdictions both.

b. Limited grounds for appeal and procedural flexibility

In most jurisdictions, the grounds on which an award can be appealed are fairly limited, and this helps in providing finality to the adjudication of the dispute between the parties. Moreover, arbitration provides parties with a greater amount of exposure when it comes to determining how the dispute will be resolved. This can be extremely advantageous when deciding an approach towards disclosure of information, as the process can be made less onerous for parties or institutions that will not have to face the burden of extracting, analysing, and eventually releasing documents.

c. Lack of binding precedent

One potential downside of opting for arbitrating disputes pertaining to financial markets is that, as compared to litigation, arbitration does not tend to give rise to persuasive precedent, which may be used by parties for their commercial and legal stances. Most awards are not publically available, and this could be a major issue for parties that enter into several Master Agreements, leading to them having to arbitrate the same point multiple times against different counterparties.

The 2018 Arbitration Guide

ISDA has recently released the 2018 ISDA Arbitration Guide (“2018 Guide”), which can be termed as an enhancement of the original version (released in 2013). It has been revamped in order to reflect the changes in the arbitration space globally. The changes to the Arbitration Guide are summarised below:

– There has been an addition to the model arbitration clauses, with a London Court of International Arbitration (“LCIA”) Rules clause, which can be used with a Dublin seat when used by the Master Agreement governed by Irish law, in light of Brexit. Also, the new Guide includes model clauses for the following additional institutions: Stockholm Chamber of Commerce Rules (Stockholm seat); Dubai International Finance Centre – London Court of International Arbitration Rules (DIFC seat); and Vienna International Arbitration Centre Rules (Vienna seat).

– The 2018 Guide addresses the issue of summary judgements, which has found a place in some institutional arbitration rules.[2] In a famous English case,[3] an arbitral tribunal summarily dismissed certain fraud-based claims to a guarantee, indicating that tribunals and courts are now willing to support the use of such summary procedures. It is pertinent to note that the 2018 Guide states that as summary procedures can affect rights of parties relating to due process of law, applicants must satisfy a very high threshold to succeed in a demonstration that a claim should be summarily dismissed.

– The 2018 Guide includes a revised section on multi-party and multi-agreements, recognising that certain transactions which take place under a Master Agreement may also involve parties that are not parties to the Master Agreement, thus not binding them to the arbitration agreement therein.

Concluding Observations

Disputes under a Master Agreement often raise complex and difficult questions, and the Arbitration Guide has been fairly successful in facilitating parties to come up with drafting that is market-standard, owing to an increased usage of international arbitration. The issue of a lack of jurisprudence could lead to increased uncertainty, and some parties may prefer a body of case-law which can assist them in the interpretation of the Master Agreement and other ISDA documentation. For such cases, parties may agree to publish their awards (or a redacted version of the award), as is facilitated by the P.R.I.M.E Finance Rules (Panel of Recognised International Market Experts in Finance). Also, the Arbitration Guide has sparked relevant academic discourse on the choice of seat and arbitration institution in matters which are becoming increasingly cross-border in nature.

– Saurav Roy

[1] Section 1(c) of the Agreement states: “All transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties … and the parties would not otherwise enter into any Transactions”.

[2] See Singapore International Arbitration Centre Rules, art 29.

[3] Travis Coal Restructured Holdings v Essar Global Fund [2014] EWHC 2510 (Comm).

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loyallogic · 5 years ago

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IBC proceeding v/s Out of NCLT settlement: Which one’s worth it?

This article is written by Animesh Tiwary.

Introduction

The recent resolution of RattanIndia Power has become one of the first resolutions of stressed power sector outside the IBC mechanism highlighting the significance of such deals to promoters as well as lenders as discussed further. The introduction of Insolvency and Bankruptcy Code (“IBC”), 2016 has brought about a paradigm shift in the sphere of corporate restructuring and debt resolution which has not been witnessed before. One of the most significant effects has been the behavioural change among the promoters. They are now approaching their creditors to address the soaring debt problem before they end up losing the control of their company, which has not been the case earlier. Now, there are two approaches to this problem- going through Corporate Insolvency Resolution Process (“CIRP”) under IBC or making a settlement (pre-admission or post-admission) with the creditors outside of the courts. Both the mechanisms have their own merits and challenges depending upon the interest of various stakeholders.

Need for out-of-court settlements

Recent research data suggests that out of 21000 cases referred to National Company Law Tribunals (“NCLTs”) since inception of IBC, 10000 of them were settled by Tribunal and close to 8500 cases were withdrawn before admission since dispute was settled outside Tribunal. This highlights that there is a growing trend between the parties to prefer settlement among themselves outside the process rather than going in for CIRP especially when the amount involved is ‘small’ or the case is ‘less complex’. With the current number of 15000 cases pending at various stages in Tribunal overheating the whole system, the lenders are finding it more prudent to find a solution outside of NCLT.

Advantages of out-of-court settlement vis-à-vis CIRP under IBC

For creditors

One of the primary objectives of IBC is ‘time-bound’ resolution for which a period of 180-270 days (now 330 days) was mandated under the code. However, the data suggest more than 50% cases have already past the prescribed timeline. Even admission of cases in NCLT is taking longer than 14 days prescribed. Such lengthy timeline discourages lenders to undergo IBC route and drive them towards pre-NCLT settlement.

With majority of cases facing the problem of ‘inordinate delay’ in resolution process, the creditors are concerned this may lead to ‘deterioration of assets’ of corporate debtor affecting their economic interest and chance of resolution significantly, driving away the successful resolution applicant as we witnessed in the resolution of Ruchi Soya and now in the case of Jet Airways. The lenders are then left with no other option than to liquidate the assets.

Most of these out of court settlements being ‘bilateral’ in nature enhance the chances of resolution due to direct involvement of promoters, unlike in IBC, where promoters have to step down and handover the control of the company. Thus, the lenders can avoid the situation like Essar Steel which dragged in litigation for more than 2 years since promoters were adamant to retain control.

The position of operational creditors under IBC is somewhat disadvantageous than secured or financial creditors. Financial creditors enjoy a preferential treatment compared to operational creditors when it comes to distribution of amount under proposed resolution plan as well as in case of liquidation of debtor as per Section 30 read with Section 53, especially after the recent amendment. The Hon’ble SC in Swiss Ribbons (P) Ltd. v. Union of India taking an averse stand from NCLAT’s Binani case position of equal treatment, has justified such differential treatment under the hierarchy of claims as ‘intelligible differentia’.

Therefore, operational creditors who are mainly SMEs and small vendors can expect better results from out of court settlements especially when amount of default is small.

Corporate debtors engaged in the ‘services’ sector, generally, find it hard to attract bidders since they lack underlying fixed assets considered essential for revival of the firm. Moreover, firms engaged in engineering, procurement and construction (EPC) services tend to lose the value of their assets significantly under the Tribunal. As a result, the creditors end up taking huge haircuts on their dues or debtor ultimately faces liquidation in CIRP under IBC. Pre-admission settlements can provide a way out to them to settle their dues and maximize their recovery.

This is a widely accepted fact that there is room for improvement in ‘quality of collected data’ under IBC institutions. Especially with respect to assets of distressed firms, access is much better outside the NCLT mechanism.

Banks can play a vital role in quick resolution of bad debts by entering into inter-creditor agreement (ICA) right at the time of lending before the accounts turn NPA. This mechanism kicks in where the borrower misses the payment and is believed to be in great stress without formally initiating the bankruptcy process. Moreover, restructuring of debt and signing ICA seems more viable to preserve economic value than IBC.

For promoters

It provides an opportunity for promoters to participate in the resolution process unlike IBC where promoters are barred from participating in the CIRP by virtue of Section 29A of the code. Perspective of promoters in the resolution process comes handy in speedy resolution for creditors and enable the former to retain control of the company.

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Concerns with out of court settlement

Out of court settlement being ‘bilateral’ in nature raises some serious concern regarding interest of other creditors. What about the claims of other lenders? One of the objectives being protection of interest of all stakeholders, the IBC mechanism provides for collation of claims of all creditors unlike out of court settlement where only the creditor entering into agreement with debtor realizes the benefit.

It was observed in certain situations that applicants withdrew their applications midway CIRP after entering into a settlement out of court with the promoter. This results in fate of other creditors hanging in balance, ultimately, defeating the objective of the code.

Withdrawal of CIRP application

Before admission

Rule 8 of IBBI rules allowed Adjudicating Authority to permit the withdrawal of application on request made before its admission.

After admission

Considering the objective of the code, NCLAT in Mother’s Pride Dairy case, was of the view that such withdrawal pursuant to settlement cannot be permitted after admission due to involvement of interest of other creditors. However, Hon’ble SC exercising the inherent power under Article 142 allowed the settlement in that case. After the Lokhandwala Kataria and Uttara Foods & Feeds case having similar facts approaching the apex court, it recommended relevant amendment to be introduced in the code.

Introduction of Section 12A

Insolvency Law Committee Report in 2018 suggested that any settlement and consequential withdrawal of CIRP has to be taken collectively by Committee of Creditors (CoC). Thus, Section 12A was introduced providing withdrawal of CIRP permissible with 90% of CoC’s approval, after being admitted. However, it was clarified that such withdrawal was permissible before publication of notice inviting expression of interest (EoI) as per Regulation 30A of IBBI regulations and not after that.

The constitutional validity of Section 12A was challenged in Swiss Ribbon case where Hon’ble SC, upholding the constitutionality, put forth two scenarios – pre CoC formation stage and post CoC formation stage. In pre-CoC stage, the parties can approach NCLT which may allow or disallow withdrawal or settlement under Rule 11 of IBBI rules. On the other hand, withdrawal in the post-CoC stage is permissible with 90% of CoC vote. Parties are free to approach NCLT under Section 60 in case of dispute.

Interestingly, the Hon’ble SC has, recently, held that withdrawal may be allowed in ‘exceptional cases’ even after issuing EoI since Regulation 30A is ‘directory’ and not mandatory. However, it may be argued that ‘exceptional cases’ have not been clarified by the apex court which can make this subject to misuse by promoters.

Looking Ahead

With deals such as Rattan India Power gaining momentum in IBC sphere, it is empirical to note the importance of foreign capital for ensuring success of any such process especially in the present environment of economic slowdown and liquidity crisis which is where the role of Asset Reconstruction Companies (ARCs) become important. They not only provide the promoters a way out in the form of much needed capital by acquiring debt but also helps in turning around the business. Recent trend suggests that majority of lenders, after forming the CoC, have agreed to such a proposal of settlement when they are offered amount greater than what they would receive through CIRP. This would lead to further growth of the nascent asset reconstruction sector and further the overall objective of debt resolution.

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marymosley · 7 years ago

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Insightful interaction on Section 29 of Insolvency and Bankruptcy Code, 2016 with Dikshat Mehra, Senior Associate at Rajani Associates

In an insightful interaction with Mr. Dikshat Mehra, Senior Associate at Rajani Associates, he provides an overview of section 29A under IBC, explains how the Supreme Court ruling in Arcelor Mittal India Private Limited v. Satish Kumar Gupta impact corporate restructuring for prospective Resolution Applicants and the stage of challenge by a Resolution Applicant and timelines under IBC.

Q1. What is section 29A under Insolvency and Bankruptcy Code, 2016 (“Code“)?

A1. The Insolvency & Bankruptcy Code (Amendment) Act, 2018 brought about amendment to the code by the inclusion of Section 29A with retrospective effect from November 23, 2017. Prior to the introduction of 29A of the Code, every person, or body corporate etc. could participate in a bidding process of Corporate Debtor undergoing the Corporate Insolvency Resolution Process (“CIRP“). Typically the persons who, by their misconduct, fraudulent motives, had contributed to the default of the Corporate Debtor, could easily regain control of their company by bidding in the CIRP and forcing banks to take huge haircuts .Section 29A of the Code has been debatable ever since it was introduced;

Section 29A of the Code was enacted so as to protect the interest of creditors of the company by preventing dishonest persons from regaining control of the Company at the expense of creditors;

A person[1] shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person –

Is an undischarged insolvent;

Is a wilful defaulter in accordance with the guidelines of the RBI issued under the Banking Regulation Act, 1949;

At the time of submission of the resolution 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 by the RBI and at least a period of 1 year has lapsed from the date of such classification;

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;

Has been convicted for any offence punishable with imprisonment for 2 years or more;

Is disqualified to act as a Director under the Companies Act, 2013;

Is prohibited by the SEBI from trading in securities or accessing the securities markets;

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;

Has executed an enforceable guarantee in favor 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;

Has been subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or

Has a connected person not eligible under clauses (a) to (i) above.

Q2. How does the Supreme Court ruling in Arcelor Mittal India Private Limited v. Satish Kumar Gupta and Ors[2] (“Judgement“), impact corporate restructuring for prospective Resolution Applicants under the Code?

A2. The Judgement amongst others discusses the concepts like lifting the Corporate Veil, Management and Control, qua Section 29A of the Code:-

In the Judgement, Supreme Court invoked the principle of lifting the corporate veil to determine the ineligibility of the applicant, Numetal submitting a Resolution Plan. The Apex Court in the Judgement held that “Where a statute itself lifts the corporate veil, or where protection of public interest is of paramount importance, or where a company has been formed to evade obligations imposed by the law, the court will disregard the corporate veil. Further, this principle is applied even to group companies, so that one is able to look at the economic entity of the group as a whole.”

Further, it was held that it was imperative to bring to light all the real entities, or individuals who have set up such a corporate vehicle (Numetal in this case) for submission of a Resolution Plan for Essar Steel.

Management and control

It is pertinent to note that sub-clause (c) of Section 29A contains a specific disqualification which states that a person is ineligible to bid for an insolvent company if:

“It has an account, or is in management or control, of a corporate debtor whose account has been classified as a NPA for a period of at least one year from the date of such classification until the date of commencement of the corporate insolvency resolution process.”

In the Judgement the Supreme Court has discussed the definition of control and whether, control can be referred to only positive control or whether control could also mean power to block special resolutions of a company?

In this background, the Apex Court has discussed the case of Subhkam Ventures (I) Private Limited v. Securities and Exchange Board of India[3], wherein the Securities Appellate Tribunal held that the expression control covers positive control as opposed to a mere reactive, or negative control;

The Apex Court concluded that the two words “management” and “control” take colour from each other, based on which the principle of noscitur a sociis[4] should be applied. In view of this, it held that sub-clause (c) of Section 29A only refers to positive control, as opposed to the expansive reading of section 2(27) of the Companies Act, 2013, which covers negative control too.

With respect to management, the Apex Court held that a person is said to be exercising control in cases, where he can command a situation by taking an initiative, control management and policy decisions of a company, or also appoint majority of the directors. On the other hand, if such person prevents the company from doing an act (negative control like veto rights for e.g. in shareholder’s agreement), that cannot be regarded as exercising control within the meaning of section 29A(c) of the Code.

Keeping in view of the aforesaid principles of Corporate Veil, Management and Control qua 29 A of the Code, it becomes vital for prospective Resolution Applicant bidding under the Code to take note of the following:

A prospective Resolution Applicant will need to be careful while restructuring its company affairs and any structuring which attempts to escape the provisions of Section 29A of the Code at the time of submission of the Resolution Plan may be held to be ineligible.

Prospective Resolution Applicants would have to specifically see that they do not directly or indirectly fall under any of one of parameters of Section 29A of the Code and

This Judgement will ensure that persons who are in charge of the corporate debtor, for whom such resolution plan is made, do not come back in some other form to regain control of the company without first paying off its debts which is the objective behind enacting Section 29A of the Code.

Q3. Stage of Challenge by a Resolution Applicant and exclusion of litigation period, whether to be included or excluded from timelines under the Code?

A3.

Maximization of value of assets and strict timelines are the essence of the Code.

Role of the Resolution Professional is only in examining and confirming the plans as held by the Apex Court in the aforesaid Judgement. The Resolution Professional is not required to take a decision on the plans submitted, but is to only place the proposals with his due diligence report, if any before the Committee of Creditors (“COC“), after providing a prima facie opinion on contraventions, if any to the provisions of the Code, including section 29A.

The Judgement now clarifies that a Resolution Applicant can challenge the plan only when the same is rejected by the COC and not before that. This will surely be able to curtail the frivolous litigations which were filed now and then challenging every interim directions of the Resolution Professional. The Apex Court has held that Adjudicating Authority cannot intervene until, the Resolution Professional finalizes, its’ proposals and the CoC makes a decision (post voting) on the bids.

On the question of whether the litigation period be excluded or included from strict timelines under the Code, the Hon’ble Apex Court has in paragraph 83 of the Judgement has held as follows:-

“……. A reasonable and balanced construction of this statute would therefore lead to the result that, where a resolution plan is upheld by the Appellate Authority, either by way of allowing or dismissing an appeal before it, the period of time taken in litigation ought to be excluded. This is not to say that the NCLT and NCLAT will be tardy in decision making. This is only to say that in the event of the NCLT, or the NCLAT, or this Court taking time to decide an application beyond the period of 270 days, the time taken in legal proceedings to decide the matter cannot possibly be excluded, as otherwise a good resolution plan may have to be shelved, resulting in corporate death, and the consequent displacement of employees and workers”.

By the aforesaid paragraph, the Apex Court in our view has firstly held that, if a resolution plan which is upheld by the NCLAT (assuming after been approved by the COC and NCLT), either by way of allowing or dismissing an appeal before it, then time taken in litigation ought to be excluded from the 270-day deadline.

Secondly, when time taken by NCLT, NCLAT and the Apex Court in deciding the application beyond 270 days the time taken in litigation cannot be possibly set to be excluded.

In our view there may be still some uncertainty on the interpretation of the exclusion and inclusion of the time spent on litigation under the Code. Interestingly, the Apex Court has not expressly overruled the NCLAT’s order in the matter of Quinn Logistics India Pvt. Ltd[5], wherein, the Adjudicating Authority had specifically held that the time spent on litigation would be excluded from the 270 day deadline with a caveat that, after exclusion of the period, if further period is allowed the total number of days cannot exceed 270 days which is the maximum time limit prescribed under the Code.

[1] Person under the Code includes (a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a trust; (e) a partnership; (f) a limited liability partnership; and (g) any other entity established under a statute, and includes a person resident outside India.

[2] Civil Appeal Nos. 9402-9405 of 2018

[3] Appeal No. 8 of 2009

[4] Meaning of questionable words or phrases in a statute which may be ascertained by reference to the meaning of words or phrases associated with it.

[5] Company Appeal (AT) (Insolvency) No. 185 of 2018.

Insightful interaction on Section 29 of Insolvency and Bankruptcy Code, 2016 with Dikshat Mehra, Senior Associate at Rajani Associates published first on https://immigrationlawyerto.tumblr.com/

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