ARCELORMITTAL INDIA PVT LTD VS SATISH KUMAR GUPTA : CASE SUMMARY
The Supreme Court in ArcelorMittal India Pvt Ltd. Vs Satish Kumar Gupta (2019) 2 SCC 1 held that stage of ineligibility under 29A attaches when Resolution Plan is submitted but proximate factors can be taken into consideration. The Supreme Court also held that Resolution Professional is not empowered to take a decision on Resolution Plan but has to ensure that Resolution Plan are complete in all respects before it is submitted before CoC.
FACTS OF THE CASE
The NCLT, Ahmadabad Bench admitted Section 7 Petition against Essar Steels India Ltd on 02.08.2017 and Sh. Satish Kumar Gupta was appointed as Interim Resolution Professional. Resolution Professional invited expression of interest from prospective Resolution Applicant. Pursuant to EOI, Arcellor Mittal India Pvt. Ltd. and Numetal Ltd. submitted expression of interest. Arcelor Mittal Indian Pvt. Ltd. (AMIPL) and Numetal also submitted their Resolution Plans. The Resolution Professional found both AMIPL and Numetal to be ineligible under Section 29A.
AMIPL was disqualified under Section 29A (c). Numetal was also disqualified under Section 29 A (c) and (h).
AMIPL and Numetal challenged disqualification before NCLT. NCLT remanded back to RP and CoC as Resolution Plans had not been considered by the CoC.
Appeals were field before NCLAT wherein NCLAT held that Numetal was held eligible while AMIPL was held ineligible under Section 29A.
FINDINGS OF THE SUPREME COURT
The issue before the Supreme Court was whether AMIPL and Numetal were ineligible under Section 29 A.
The Scope of 29A IBC
The Supreme Court observed that opening lines of Section 29A of the Amendment Act refer to de facto as opposed to a de jure position of the persons mentioned therein. This is typical instance of see through provision so that one is able to arrive at persons who are actually “in control” whether jointly, or in concert, with other persons.
The expression “acting jointly” cannot be confused with “joint venture agreements”. All that is to be seen by the expression “acting jointly” is whether certain persons have got together and acting jointly in the sense of acting together.
Other important phrase has been “in concert”. Section 2 (1) (q) defines takeover regulations. Under the said definition any understanding, even if it is informal and even if it is to indirectly cooperate to exercise control over a target company is included. Immediate relatives have also been covered which will include father and son.
Wherever persons act jointly or in concert with the person who summits Resolution Plan is covered under Section 29A.
The Supreme Court held that stage of ineligibility attaches when the Resolution Plan is submitted by a Resolution Applicant. Ineligibility does not attach the time of commencement of CIRP.
In respect of Section 29 A (c), the Supreme Court noted that any one of three disjunctive things need to be established – (i) the Corporate Debtor may be under the management of a person referred to under Section 29A (ii) the Corporate Debtor may be under control of such person (iii) Corporate Debtor may be a person or whom such person is a promotor.
The term “management” refers to de jure management of the Corporate Debtor. De jure management would vest in the Board of Directors and would include manager, managing director and officer in Section 2 (53), 2 (54) and 2 (59) respectively of the Companies Act, 2013.
Section 2 (27) of the Companies Act, 2013 defines “control”. Control is defined in two parts. The first part refers to de jure control which includes the right to appoint majority of directors of the company. The second part is de facto control. So long a person or persons acting in concert, directly or indirectly, can positively influence, in any manner, management of policy decisions, they could be said to be in “control”. Section 29A (c) speaks of Corporate Debtor under the management of control of such person. The expression “under” would seem to suggest positive or proactive control rather than mere negative or reactive control. What is referred inn 29A (c) and (g) is de jure and de facto proactive or positive control and not mere negative control which may flow from an expansive reading of definition of the word “control” contained in Section 2 (27) of Companies Act, 2013, which is inclusive and not exhaustive in nature.
Promotor is defined by Section 2 (69) of the Companies Act, 2013. Sub-clause (a) refers to de jure position, where a person is expressly named in prospectus or identified by company in an annual return as a promotor. Sub clause (b) and (c) speaks of de facto position. Under sub-clause (b) as long a person has control over the affairs of the company, directly or indirectly, he can be said to be promotor of the company. Under sub-clause (c) such person need not be a member of Board of Directors but can be a person who in fact advises, directs or instructs the Board to act.
Since 29A (c) is a see through provision, great care must be taken to 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.
The Code has bifurcated persons in two groups for this purpose as is evident from clauses (c) and (g) of Section 29A. If a person has been promotor or in the management, or control of the Corporate Debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place in respect of which an order has been made by the Adjudicating Authority, such person is ineligible to present Resolution Plan under 29 A (g). This ineligibility cannot be cured by paying off debts of the Corporate Debtor.
Despite the fact that relevant time for the ineligibility under sub-clause (c) to attach is the time of submission of the Resolution Plan, antecedent facts reasonably proximate to this point of time can always be seen, to determine whether the persons referred to in Section 29A are, in substance, seeking to avoid the consequences of the proviso to sub-clause (c).
If it is shown that at a reasonable proximate point of time before the submission of Resolution Plan, the affairs of the persons referred to in Section 29A are so arranged as to avoid paying off debts of non-performing assets, such persons must be held to be ineligible to submit a Resolution Plan.
The Power of Resolution Professional qua Resolution Plan
The Supreme Court after surveying all the relevant provisions observed that the Resolution Professional is required to examine that the Resolution Plans submitted by the various applicants and ensure that the they are complete in all respects before submitting them to the Committee of Creditors. The Resolution Professional is not required to take any decision, but merely to ensure that Resolution Plans submitted are complete in all respects before they are placed before the Committee of Creditors. Resolution has only to give prima facie opinion to CoC whether a law has or has not been contravened. Resolution Professional himself cannot decide.
Exclusion of Litigation Period
The Supreme Court observed that a large volume of litigation has to be handled by the NCLT and NCLAT. Even if NCLT or NCLAT decide a matter after 180 days or 270 days, such litigation should be excluded. A balance has to be maintained between timely completion of CIRP and the Corporate Debtor otherwise put into liquidation.
The Case of Numetal
Numetal was incorporated in Mauritius on 13.10.2017 expressly for the purpose of submission of Resolution Plan.. Two other companies AHL and AEL were also incorporated on the same day in Mauritius. Shri Rewant Ruia , son of Shri Ravi Ruia , who was promotor of the Corporate Debtor, held entire share capital of AHL , which in turn held entire share capital of AEL, which in turn held entire share capital of Numetal. On 18.10.2017, AEL transferred its shareholding of 26.1% in Numetal to a group company , viz, ECL. This group company is ultimately owned by Virgo Trust and Triton Trust, the beneficiaries of which are companies owned by Ravi Ruia and his immediate family members. Shri Rewant Ruia settled an irrevocable and discretionary trust, viz, the Crescent Trust and settled the entire share capital of AHL into the trust at a par value of USD 10,000. The beneficiaries of these trusts were general charities as well as entities owned by Shashikant Ruia and entities owned by Shri Rewant Ruia. On 20.11.2017 , Sh. Rewant Ruia settled Prisma Trust whose beneficieries are general charities and Solis Enterprises Ltd whose share capital is held by Rewant Ruia. Shri Rewant Ruia was the ultimate person who held beneficial interest in AEL.
The trustees of Plasma Trust acquired 100% of shareholding of AHL for a par value of approximately USD 10,000 from the trustees of the Crescent Trust. Merely one day before promulgation of Section 29A, ECL transferred the its shareholding of 26.1 % of the share capital of Numetal to Crinium Bay, indirect wholly owned subsidiary of VTB Bank. AEL transferred 25.1 % of share capital of Numetal to Indo, 9.9% of shares of Numetal to TPE.
The earnest money of 500 Crore deposited by Numetal has been provided by AEL. This amount remained with the Resolution Professional despite AEL existing from shareholding of Numetal.
On 29.03.2018 AEL transferred tis 25% share in Numetal to its three other constituents.
The Supreme Court observed that Shri Rewant Ruia is a person deemed to be acting in concert with his father Shri Ravi Ruia (Promotor of ESIL) there is no doubt that Section 29 A (c) was attracted as on the date of submission of First Resolution Plan i.e. 12.02.2018, as AEL was held by Prisma Trust, whose ultimate beneficiary is Shri Rewant Ruia himself.
The case of AMIPL
AMSA is a listed company in Luxemberg. This company is ultimate parent company of the AMIPL (Resolution Applicant) through its wholly owned subsidiary AMBD, which in turn holds 100% of the shares in Oakey Holding BV , a company incorporated in Netherlands , which in turn holds 99.99% shares in AMIPL a company incorporated in India.
AMSA has another 100% subsidiary AMNLBV incorporated in the Netherlands. It is this group company of Sh. L. N. Mittal that held 29.05% of shareholding in Uttam Galva as on 07.02.2018. On 04.09.2009, a co-promotion agreement was signed between AMNLBW and Indian Promotors of Uttam Galva. As per the agreement foreign promotors were to nominate one half of the non-independent directors on the Board and other half was to nominated by Indian Promotors. Co-promotion agreement not only disclosed that AMNLBV was foreign promotor but also jointly managing Uttam Galva.
Account of Uttam Galva was declared NPA on 31.03.2016. All annual returns of Uttam Galva showed AMNLBV as promotors. All annual reports showed AMNLBV as promotor. That no control was actually exercised by AMNLBV or AMNLBV never appointed any directors or exercised its voting rights cannot be accepted as that makes no difference to the “de jure” position of AMNLBV being promoter. On 07.02.2018, a few days before AMIPL submitted its first Resolution Plan, AMNLBV sold its entire shareholding in Uttam Galva by was of an off market sale to Srinath Trading Company Ltd. Share that were purchased at price of Rs. 120 each was sold at Rs 1 each when market value of share was Rs. 19.50 each.
The Court observed that Sh. L. N. Mittal is the ultimate shareholder of Resolution Applicant as well as AMNLBV. AMNLBV shares were only sold to get out of ineligibility mentioned by 29A (c) .
Fraseli an entity registered and incorporated in Luxemburg and managed and controlled by L. N. Mittal held 32.22 % shareholding of KSS Global a company domiciled in Netherlands. By shareholders agreement entered into between KSS holdings, KSS Infra EALQ, Fraseli and KSS Global, the first three companies each were given a right to appoint an equal number of directors on the board of directors of KSS Global. KSS Global held 100% share capital of KSS petron. KSS Petron was declared NPA on 09.02.2018. As in case of Uttam Galva, Fraseli divested its shareholding in KSS Petron on 9.2.2018 only three days before AMIPL submitted it Resolution Plan.
The Supreme Court found AMIPL ineligible on both counts.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.