MD of a Successful Resolution Applicant being an Ex-independent Director of NPA-Co. was not Ineligible u/s 29A

Case Details: Jindal Steel & Power Ltd. v. IDBI Bank Ltd. - [2023] 150 taxmann.com 61 (NCLT - Ahd.) (SB)

Judiciary and Counsel Details

• • Dr Deepti Mukesh, Judicial Member & Kaushalendra Kumar Singh, Technical Member
  • Monaal Davawala, Adv. for the Applicant.
  • Navin Pahwa, Ramji Srinivasan, Sr. Advs. & Amir Arsiwala, Adv. for the Respondent.

Facts of the Case

In the instant case, the financial creditor filed an application for initiation of the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor which was admitted by the Adjudicating Authority (NCLT).

The Resolution Professional (RP) of the corporate debtor invited expression of interest for the submission of resolution plans and received three resolution plans from prospective resolution applicants.

The Resolution Plan submitted by a consortium of ‘H’ (Respondent 1) and ‘S’ (Respondent 2) i.e., successful Resolution Applicants was approved by the Committee of Creditors (CoC).

Consequently, the Unsuccessful resolution applicants contended that successful resolution applicants were disqualified under section 29A of the IBC. Thus, the resolution plan submitted by them could not be considered by the CoC for approval and the same needed to be rejected.

The unsuccessful resolution applicants contended that successful resolution applicants were disqualified under section 29A because ‘R,’ director of R2, was a suspended director of a company which was undergoing liquidation.

Further, unsuccessful resolution applicants submitted that the ineligibility of successful resolution applicants was because NM, managing director of Respondent 2, was also an ex-director of a company, which had been classified as a non-performing asset during the subsistence of his directorship.

The unsuccessful resolution applicants also submitted that ‘V’, whose name appeared in a wilful defaulters list and was a director of a company which was undergoing liquidation. He was also a director of R1 company. Thereby, R1 was ineligible under section 29A(b) of the IBC.

It was also submitted that successful resolution applicants were disqualified u/s 29A because its connected person ‘VP’ was the daughter of NM i.e. managing director of R2 and she was married to the nephew of the erstwhile promoter of the corporate debtor.

NCLT Held

The NCLT observed that since, ‘R,’ was an independent director in R2 company, he could not be treated as a connected person of R2 and, therefore, his ineligibility would have no bearing on the eligibility of the resolution applicant under section 29A and R2 was not ineligible under section 29A of the IBC.

The NCLT, further observed that since NM was an independent director of said company and an independent director is a non-executive director and cannot be held responsible for leading the account of a company to NPA, due to the ex-directorship of NM in said company, R2 was not ineligible u/s 29A of the IBC.

The NCLT held that since ‘V’ resigned from R1 and being an independent director was not a connected person of R1, R1 was not ineligible under section 29A of the IBC.

The NCLT held that merely on the ground of ‘VP’ being in a distant relationship with the erstwhile promoter of the corporate debtor, successful resolution applicants could not be disqualified under section 29A of the IBC.

List of Cases Referred to

• • Venilaxmi Import and Export Ltd. v. Hydroair Tectonics (PCD) Ltd. [Company Petition No. 523 of 2012, dated 5-2-2015] (para 7)
  • Arcelormittal India (P.) Ltd. v. Satish Kumar Gupta [2018] 98 taxmann.com 91/150 SCL 354 (SC) (para 8)
  • Swiss Ribbons (P.) Ltd. v. Union of India [2019] 101 taxmann.com 389/152 SCL 365 (SC) (para 8)
  • Chintalapati Srinivasa Raju v. SEBI [2018] 93 taxmann.com 202/148 SCL 1 (SC) (para 8).