It’s a general perception that erstwhile promoters/directors of CD (under CIRP) are disqualified from submitting resolution plan under the provisions of Section 29A(c), except for the exemption granted in case of MSME units under Section 240A. Let’s look into the provisions of the Code & rulings of Hon’ble Supreme Court of India on this aspect.
# Section 29A. Persons not eligible to be resolution applicant. -
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(c) at the time of submission of the resolution plan 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 accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) or the guidelines of a financial sector regulator issued under any other law for the time being in force, 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 resolution plan:
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(d) has been convicted for any offence punishable with imprisonment –
(i) for two years or more under any Act specified under the Twelfth Schedule; or
(ii) for seven years or more under any law for the time being in force:
Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment:
Provided further that this clause shall not apply in relation to a connected person referred to in clause(iii) of Explanation I];
Hon’ble Supreme Court of India in ArcelorMittal India Private Limited Vs. Satish Kumar Gupta and Ors. (Civil Appeal Nos. 9402 – 9405 of 2018) observed as under;
# 42. When we come to sub-clause (c) of Section 29A, the first thing that was argued, at which the parties were at loggerheads, was the time at which sub-clause (c) can be said to operate. According to Shri Rohatgi, in the original sub-clause (c), preamendment, the time must necessarily be the date of commencement of the corporate insolvency resolution process, as is mentioned by the Section itself. According to Messrs Salve and Singhvi, it is clear that since submission of a resolution plan is spoken of, it is the time of submission of such plan and not any anterior stage.
# 43. According to us, it is clear that the opening words of Section 29A furnish a clue as to the time at which sub-clause (c) is to operate. The opening words of Section 29A state: “a person shall not be eligible to submit a resolution plan…”. It is clear therefore that the stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant. The contrary view expressed by Shri Rohatgi is obviously incorrect, as the date of commencement of the corporate insolvency resolution process is only relevant for the purpose of calculating whether one year has lapsed from the date of classification of a person as a non performing asset. Further, the expression used is “has”, which as Dr. Singhvi has correctly argued, is in praesenti. This is to be contrasted with the expression “has been”, which is used in subclauses (d) and (g), which refers to an anterior point of time. Consequently, the amendment of 2018 introducing the words “at the time of submission of the resolution plan” is clarificatory, as this was always the correct interpretation as to the point of time at which the disqualification in sub-clause (c) of Section 29A will attach. In fact, the amendment was made pursuant to the Insolvency Law Committee Report of March, 2018. That report clearly stated:
-“In relation to applicability of section 29A(c), the Committee also discussed that it must be clarified that the disqualification pursuant to section 29A(c) shall be applicable if such NPA accounts are held by the resolution applicant or its connected persons at the time of submission of the resolution plan to the RP.”
The ruling of the Hon’ble Supreme Court of India has clarified as to the time frame the disqualification attaches to the resolution applicant under Section 29A(c), and have made it clear that the disqualification has to be seen at the time of submission of the resolution plan, not at an anterior point of time.
Here, it is worth noting that with the commencement of the insolvency process, the erstwhile promoters/directors are divested of the management and control of the CD and the same (management & control of CD) passes on to IRP/RP. As such, at the time of filing of resolution plan, erstwhile promoters/directors, are not having the control/management of the CD.
Secondly the proviso to the sub-section (c) provides 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, which shows that disability under Section 29A(c) is not of permanent in nature, and is curable.
Thus with the above observations Hon’ble Supreme Court of India has rendered the clause (c) of Section 29A infructuous/meaningless as far as the promoters/directors etc. of CD are concerned, as at the time of submission of resolution plan CD is not under the management or control of its erstwhile promoters/directors, rather CD, during insolvency (CIRP), is under the management & control of IRP/RP.
Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.
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