In the case of Bank of Baroda vs. MBL Infrastructures Limited1 , the Apex Court has provided the judicial interpretation of Section 29A(h) of the Insolvency and Bankruptcy Code, 2016.
Facts of the case:
On initiation of corporate insolvency resolution process of the Corporate Debtor, two resolution plans were received by the Resolution Professional. Post which Section 29A was introduced in the Code, whereby certain disqualifications were laid down for the resolution applicants.
The resolution plan was approved by the committee of creditors as well as the adjudicating authority.
During the implementation of the plan, one of the financial creditor challenged the eligibility of the resolution applicant, contending that Section 29A has to be given a holistic interpretation as the objective is to weed out undesirable persons.
Statutory Interpretation of the Code:
The Supreme Court has in numerous cases discussed the report of the bankruptcy law reforms committee/ draft bill to understand the object behind a particular provision. At several instances (recently in Arun Kumar Jagatramka v. Jindal Steel & Power Limited1), the Apex Court have emphasised that the ultimate object of the Code is to put the corporate debtor back on the rails. In Arun Kumar (supra), the Court further considered the need for adopting a purposive interpretation to Section 29A with the primary aim to revive and restart the corporate debtor, with liquidation of the corporate debtor being the last resort.
Further, in Ramesh Kymal v. Siemens Gamesa Renewable Power (P) Ltd.2 , the court emphasised on timely resolution of a corporate debtor by an effective legal framework for development of credit markets.
The Apex Court deliberated on the scope of Section 29A, and observed as follows:
If at the time of submission of plan, the resolution applicant was eligible, and thereafter, by operation of the law, the person becomes ineligible, then the subsequent amended provision would govern the question of eligibility of resolution applicant. If there is ineligibility which prohibits a resolution applicant to proceed further and the amendment being in the nature of providing a better process in the interest of the creditors and the debtor, the same is required to be followed as against the provision that stood at an earlier point of time. Thus, date of submission of resolution plan has got no relevance, as it does not create any right in favour of a resolution applicant, i.e. one cannot say, what is good today cannot be applied merely because an applicant was eligible to submit a resolution plan at an earlier point of time.
Further, highlighting the object of Section 29A, it was determined that 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. Accordingly, a resolution applicant can never have an independent right to insist for the protection of its own interest in the resolution process.
Considering the aforementioned, in the instant case, the Apex Court held that the plan submitted by the Resolution Applicant ought not to have been entertained since the Resolution Applicant had executed personal guarantees which were invoked by three of the financial creditors even prior to the filing of application, therefore, the rigor of Section 29A(h) of the Code was attracted. However, due to the following reasons, the Apex Court decided to not interfere with the ongoing implementation of the resolution plan:
The ultimate object of the Code is to put the corporate debtor back on the rails, and the plan is currently being implemented, whereby the Corporate Debtor is an on-going concern having thousands of employees.
Majority of creditors had given their approval to the resolution plan after taking into consideration the techno-economic report pertaining to the viability and feasibility of the plan.
No prejudice would be caused to the dissenting creditors as their interests would otherwise be secured by the resolution plan itself, which permits them to get back the liquidation value of their respective credit limits.
There are many on-going projects of public importance undertaken by the Corporate Debtor (operated by the Resolution Applicant) in the nature of construction activities which are at different stages (some completed and some nearing completion).
In the instant case, the ineligibility of the resolution applicant was ignored and the corporate debtor was not sent to liquidation, considering the broader object of the Code. However, this decision should not be regarded as a precedent or a general rule, and should only be considered as an exceptional instance.
1(2021) 7 SCC 474
2(2021) 3 SCC 224
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