BANK OF BARODA vs. M/s MBL INFRASTRUCTURES (2022)

 

BANK OF BARODA vs. M/s MBL INFRASTRUCTURES (2022): JUDICIAL INTERPRETATION OF SECTION 29A(h) OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016

 

BANK OF BARODA & ANR                                  ..…Appellant(S)

                                                                      V

MBL INFRASTRUCTURES LIMITED & ORS          …Respondent(S)

BRIEF FACTS:

The facts of the case inter alia state that -

M / s MBL Infrastructures Ltd. was established under the Companies Act of 1956 and was established by Mr. Anjanee Kumar, the guarantor of this case. MBL Infrastructure raised loans and credit facilities from banks. The MBL infrastructure did not act in accordance with repayment terms, some banks relied on personal guarantees, and some banks, including RBL banks, initiated the procedure under Section 13 (2) of the SARFAESI Act.

The RBL Bank then submitted a u / s 7 application from IBC to NCLT Kolkata and started CIRP against MBL. This was approved and the IRP was appointed by the ruling party authorities. The settlement expert then received two settlement plans, including a plan written by the company's guarantor (Anjanee Kumar). This all happened before the implementation of Section 29A of the code.

In 2017, Section 29A was introduced by an ordinance that imposes restrictions on certain categories of people submitting resolution plans. Following this change, the COC discussed the implications of the same and stated that the guarantor approached NCLT and was not prevented from submitting a code 29A settlement plan, fearing that the plan would be cancelled.

The order was challenged by PNB Bank prior to NCLAT, and on the same day the settlement plan presented by the guarantor was voted on and received a 68.50% vote from CoC. RBL Bank also appealed to NCLT's order and issued an order instructing NCLT to continue, but instructed not to accept the Settlement Plan without prior consent.

The final decision of NCLAT was issued later and plaintiffs were able to withdraw their complaints about NCLT's decision. The decision-making body later approved the Settlement Plan because it met the CoC's mandatory 75% voting requirement, noting that the rigor of Section 12 of the Code would not be strengthened.

Bank of Baroda requested enforcement in this complaint as a party to NCLAT's previous proceedings, but this was not taken into account and the order was groundless. Banks were disagreeing with the decision made by the arbitrage body. Meanwhile, Section 29A has undergone some changes through later legal regulations. The Court of Appeals considered other options, ultimately upheld the NCLT's order, and approved the settlement plan submitted by the guarantor.

Hence, the present appeal lies.

SUBMISSIONS MADE BY THE APPELLANT

1.     Defendant 3 (the guarantor of the company) is not eligible to submit the Settlement Plan for Code 29A (h) as the personal guarantee performed by the guarantor is enforced prior to the commencement of CIRP.

2.     In either case, no clear concealment of the facts by the guarantor was pointed out by the guarantor, and the liquidator could not emphasize this fact to the guarantor.

3.     Exclusions are imposed at the time of application must be taken into account, and Section 30 (4) as well as Section 29A (h) must be interpreted by analogy.

4.     The revised plan in the Court of Appeals was never approved by the decision-making body.

SUBMISSIONS MADE BY THE RESPONDENT

• CoC decisions made in good faith do not need to be influenced by the Court and the purpose of the Code should be read in Section 29A (h).

• The Petitioner was aware of the decision-making body's decision and was barred from challenged Defendant No. 3's eligibility to submit a settlement plan under Section 29A (h) of the Code.

• In the literal interpretation of the provisions, personal guarantees are based on Section 29A (h) only if the creditor exercising jurisdiction over the arbitration body relies on personal guarantees made in his favour, Will be excluded.

• At the time of application, personal guarantees by RBL Bank u / s 7 are not used and the use of syndicated guarantees by some banks is illegal under expert contracts signed between members of the banking consortium.

• Respondent 3 has pervadedRs. 63 Crore when the settlement plan was operational and has further been approved by shareholders to raise Rs 300 Crore for revival of the Company .

• Both forums, i.e., NCLT and NCLAT correctly interpreted the extension and exclusion issues.

ISSUES FRAMED BY THE COURT

1. Whether Section 29A (h) of the Code rightly interpreted in this case ?

2. Whether the personal guarantor excluded only if the guarantor executed in the creditor's favour calls the guarantor before the start of CIRP?

 

ANALYSIS OF THE SUPREME COURT

Statutory Interpretation:

It is the intention of the Court to interpret the principles in accordance with the nature of the law and its provisions and it's emphasis should be placed on avoiding interpretations that could undermine or destroy the basis of the law. The Hon'ble Supreme Court of India referred to various rules regarding the interpretation of the law and related cases and finally concluded that the Code had been interpreted many times in the past by that Court. The articles of incorporation have been adopted.

Insolvency and Bankruptcy Code, 2016:

The Honorary Supreme Court discussed the purpose of the Code that is the rehabilitation and revitalization of corporate debtors through the active participation of creditors. The Supreme Court observed two major players throughout the process, the CoC and the corporate debtor, and relied on the Swiss Ribbons v. Union of India proceedings to uphold this claim. The main purpose of the law is to ensure the vitalization and continuity of a company's debtors by protecting the debtors from the death of the company due to liquidation.

Section 29A and its Purposive Interpretation:

The Hon'ble Supreme Court has adhered to the objectives behind this provision (Section 29A). That is, avoiding protecting the solution plan from unjust people who want to indulge in the solution plan for personal gain. I'm not confident in the resolution process because they are excluded.The purpose of this provision is to exclude those who are under the control of a corporate debtor subject to IBC and who has gone bankrupt on their behalf. If these individuals are allowed to participate in the resolution process, they will certainly regain control of the corporate debtor, and the entire process will ultimately defeat the intent of the law.

The Supreme Court accepted the ruling(Chitra Sharma v. Union of India and Arun Kumar Jagatramka v. Jindal Steel & Power Ltd.) was previously held where the Supreme Court considered the purpose of the Code . The purpose of the Code is to rejuvenate corporate debtors, as well as the importance of a focused interpretation of the provisions of the Code. In these cases, the Supreme Court interpreted the purpose and need for the introduction of Section 29A and found that Parliament corrected the error permitting administrative backdoor access to CIRP through this Section.

Scope of Section 29A(h):

The Supreme Court's view regarding Section - 29 A ( h ) isto create an additional class of persons who are not eligible to be liquidation applicants, and if a bankruptcy filing is granted and a guarantor's guarantee is invoked, a freeze will occur. The only requirement is a guarantee in favour of the creditors, and once the bankruptcy filing is granted, all creditors have the same rights as all creditors.

The Supreme Court has also determined that - ineligibility should be viewed in terms of the corporate debtor's resolution process. In short, ineligibility aims to enable you to participate in the debtor's resolution process in a fair and transparent manner. In the Supreme Court's view, the same importance should be given to the last part of the clause stating that such guarantees have been summoned by the debtor and in whole or in part remain unpaid.

In this case, the Supreme Court ruled that at the time of guarantee was invoked by some creditors, the materiality of Section 29A (h) would act and, in accordance with the broader meaning of Section 7, would not be limited to these creditors. But covers the creditor's class.

However, the Supreme Court did not dismiss the settlement plan submitted by Respondent No. 3.

CONCLUDING REMARKS

In this case, the Supreme Court has correctly followed the contours of Section 29A (h) of the Code and has not granted a guarantor as a motion for dissolution. The rules themselves are two rules, one is to enforce the bond on behalf of the corporate debtor who has been granted bankruptcy filing, and the other is to call the bond. The difference in this provision is the meaning of Section 7, and once the bankruptcy petition is approved by the decision-making authorities, all financial creditors are asked when the blocking problem arises. It clearly states that it has the same rights as. And through this ruling, the Supreme Court has revealed the true intent and meaning of the provisions.

The final conclusion is to understand the Supreme Court's position not to reject a settlement plan submitted by a person who is itself ineligible under the provisions, but the reason given is the actual purpose of the code. And the purpose is the payment process. But the problem is controversial. That is, if it is a scenario, it cannot be used as a precedent for future proceedings, and the Supreme Court will consider such aspects each time the issue of human disqualification is raised under the provisions of Section 29A. The interpretation applied in this case is sufficient to retain water, but the final conclusion should not be set as a precedent in the event of a dispute situation.