On October 4, 2018, the Hon’ble Supreme Court of India passed a judgment in the matter of ArcelorMittal India Private Limited v. Satish Kumar Gupta (Civil Appeal Nos.9402 – 9405 /2018), interpreting Section 29A of the Insolvency and Bankruptcy Code, 2016.   

Corporate Insolvency proceedings were initiated against Essar Steel India Limited (“ESIL”) pursuant to admission of a petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) before the National Company Law Tribunal, Ahmedabad Bench (“NCLT”). Consequently, the Interim Resolution Professional (Satish Kumar Gupta (“the Respondent”) in the above petition) was appointed and he called for resolution plan proposal from interested parties.  

ArcelorMittal India Private Limited (“AMIPL”) and Numetal Limited (“Numetal”) submitted resolution plans. However, the Resolution Professional found AMIPL and Numetal to be ineligible under Section 29A of the IBC.  

Section 29A was inserted in the IBC vide Amendment Act No.8 of 2018, on January 18, 2018. Section 29A (c) states that 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, inter alia, has an account, or an account of a corporate debtor under the management and 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, 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 the resolution plan. 

The Resolution Professional found AMIPL and Numetal to be ineligible in accordance with Section 29A for the following reasons:  

1. ArcelorMittal Netherlands (AM Netherlands), shown as a connected person of AMIPL in its resolution plan, has been disclosed as the promoter of Uttam Galva Steels Limited whose account has been classified as a non-performing asset (NPA). Although AM Netherlands sold its shareholding in Uttam Galva to the other promoters and applied to the National Stock Exchange and the BSE Limited for declassification as a promoter of Uttam Galva, it had not obtained the Stock Exchange Approvals relating to declassification as promoter and continued to be classified as a promoter of Uttam Galva on the date AMIPL submitted its resolution plan.  

2. Numetal was incorporated 7 (seven) days prior to the date on which it submitted its expression of interest to the Resolution Professional, and relied on its shareholders to comply with the eligibility requirements at the time of expression of interest and for submitting the resolution plan. The Resolution Professional, therefore, considered each of the shareholders of Numetal as joint venture partners for purposes of ensuring compliance with Section 29A of the IBC. The Resolution Professional has noted that one of its shareholders, Aurora Enterprises Limited, is held completely by Mr. Rewant Ruia, whose father, Ravi Ruia, was the promoter of ESIL whose account has been classified as an NPA. Therefore, it is considered that Rewant Ruia is acting in concert with Ravi Ruia and Numetal is ineligible according to Section 29A of the IBC.   

AMIPL and Numetal filed applications before the NCLT challenging the Order of the Resolution Professional finding them ineligible. The NCLT observed that the Resolution Professional had passed the aforesaid order after consulting with legal advisors and, therefore, upheld the same. Thereafter, AMIPL and Numetal filed appeals before the NCLAT which were dismissed, and the issue came for consideration before the Supreme Court.  

The Supreme Court (bench comprising of R.F. Nariman and Indu Malhotra, JJ.), in its judgment passed on October 4, 2018, held as follows:  

1. State of ineligibility as per Section 29A (c) of the IBC attached when the resolution plan is submitted by a resolution applicant and not prior to that, i.e., at the time of submitting expression of interest.  

2. Any person who wishes to submit a resolution plan, if he or it does so acting jointly, or in concert with other persons, which person or other persons happen to either manage or control or be promoters of a corporate debtor, who is classified as a non-performing asset and whose debts have not been paid off for a period of at least one year before commencement of the corporate insolvency resolution process, becomes ineligible to submit a resolution plan. 
3. If a person wishes to submit a resolution plan jointly or in concert with others (as described above), they must first pay off the debt of the said corporate debtor classified as an NPA in order to become eligible under Section 29A (c) of the IBC.           

4. The Court dismissed the argument made by one of the petitioners in the above petitions that, commercially speaking, no person would ever make a speculative bid where he would pay off the debt of another related corporate debtor classified as an NPA, without being certain his resolution plan would be accepted as this would narrow the pool of resolution applicants to nil, and therefore, stultify the object sought to be achieved by the proviso to Section 29A (c).  

5. That the time limit of 270 (two hundred seventy) days for completion of the corporate insolvency process stipulated in Section 12 of the IBC cannot be extended.  

6. The Court, examining the scope of Section 29A as a whole, details the corporate insolvency resolution process from commencement to completion.  

7. The Court observed that the period of time spent in litigation before the NCLT or the NCLAT with respect to any issues arising from the corporate insolvency resolution process shall be excluded from the 270 (two hundred seventy) days time period stipulated under Section 12 of the IBC.  

8. The Court, finally, held that both AMIPL and Numetal were ineligible to submit resolution plans in accordance with Section 29A (c) of the IBC. However, upon the request of the Committee of Creditors of ESIL, the Court has exercised its extraordinary power under Article 142 of the Constitution and has granted one more opportunity to AMIPL and Numetal to pay off the NPAs of their related corporate debtors within a period of 2 (two) weeks from the date of receipt of the Judgment in accordance with the proviso to Section 29A (c) of the IBC. If such payments are made within the aforesaid period, both resolution applicants can re-submit their resolution plans (submitted earlier) to the Committee of Creditors who are required to consider and decide within 8 (eight) weeks from the date of the judgment. In the event the Committee of Creditors fails to make such decision with the requisite majority, ESIL shall go into liquidation.