This article has been written by Pulkit Joshi, pursuing the Certificate in Insolvency and Bankruptcy Code from LawSikho.
Table of Contents
Introduction
A resolution plan is something that decides the future survival of the company. The purpose of IBC was to set out the best thing for the company so that the company stand again and see themselves on the field again. This can only be done if the Resolution applicant has some business ethics and they keep one thing in their mind that our plan must satisfy the need of COC and the resolution plan must be under the provisions of IBC.
IBC amended the section of the code so that they can take care of applicant misconduct and this was done through an amendment by which SECTION 29A was inserted from November 23, 2017, with retrospective effect and there were a second amended also on June 6, 2018. Thus these both amendments make the section stronger. The REASONING behind these amendments is before this amendment there was no specification or condition to be a Resolution applicant and by this means any personality irrespective of a director or original promoter connected to them in any manner directly or indirectly. So the person by whom any misconduct or fraudulent motive may contribute to a default of Corporate Debtor and by they can again get the control of the company by bidding in very heavy discounts while the other financial institution is taking the haircut.
SECTION 25[2] Clause[h] mentions that the RP shall invite only those claims in which his mentioned criteria are fulfilled which was approved by COC and that he can lay down and the same approved by the COC. So now who will be the person that will submit the resolution plan first the person is defined under SECTION 5[23] of the IBC. Therefore, a person who is eligible to present a resolution plan
Must fulfil the criteria as prescribed by the resolution professional. Must not suffer from any disqualification as it is mentioned under SECTION 29[A].
Ground for disqualification
Now the condition in which a person can’t be resolution applicant whether acting jointly or in sense of such person who-
- Has classified as NPA [non-performing asset]
- The person himself is a promoter of the corporate debtor of which the account has been termed as NPA
- The person himself is part of the management team of the corporate debtor of which the account has been termed as NPA.
At least 1 year wear on from the date of commencement of insolvency. Therefore any company will not able to appeal for a resolution plan in case its account has been NPA for the last 1 year but IBC is all about giving life to any firm and a chance to stand it again and this text is important in this bullet point because code provides that the firm shall be able to apply for resolution plan if they clear there all dues with interest and all the charges relating to the NPA. Hence after this process, it becomes eligible to apply for a resolution plan.
Judgment on disqualification
Chitra Sharma and others v/Union of India and others (2017) 143 SCL 680(SC). In this case the Supreme Court was dealing with the proposal of JAJ for the CIRP of JIL in this case the Supreme Court observed that:
- JAL is disqualified under section 29A [c] and [g] of the IBC as it was classified under non-performing assets from the last one year and the person is also promoter and part of management control of corporate debtor who was engaged in a fraudulent transaction.
- JAL is also not having the financial capacity to complete the unfinished projects as the Reserve Bank of India is seeking to initiate insolvency proceedings against JAL the reasoning behind this point is now JAL can’t stand up again and hence as i mentioned above. Hence they faced insolvency proceedings.
- The person is convicted by the court for the 2 years and in this bullet point also IBC is taking care of the applicant and said that the applicant can apply for the resolution plan after the completion of the imprisonment of 2 years.
- The person has been disqualified under the companies act 2013 in the virtue of director. Section 164 of companies act 2013 deals with this situation where a person who is director of the company can be terminated under this and the termination effect will be he/she will not be able to appoint as director again for the next 5 years but currently there is a lack in this area. If the director is working as an employee and submits the resolution plan under the identification of the employer then he can proceed for the same and there is no clause binding him well this is a need of the current hour to cut out all these kind of activity that has been adopted by the disqualified director. Henceforth if the promoter of the company wants to present a resolution plan it must be a great plan among the other applicant the reason for this race is to do the corporate insolvency resolution process in a time-bound manner and the maximization of the asset must be there.
- There must not be a preexisting relationship between resolution applicant and corporate debtor because this kind of activity degrades the essence of IBC. For this, there is a famous case of Ruchi Soya Industries Ltd. In this case, the COC declared Adani Wilmar winner for the resolution plan and he is having the highest bid also. The second-highest bid was raised by the Patanjali Ayurveda since Patanjali was not able to make it they raised the ineligibility of Adani Wilmar based on SECTION 29A of the code. Here they said that the Managing Partner of Adani Wilmar is having blood relations with the defaulter promoter means she is the daughter of the defaulter daughter. So Patanjali said that it is a biased selection and for the same, they approached the NCLT challenging the decision.
After taking care of all these conditions the resolution applicant has to submit his identity and the COC can carry out all the necessary procedures to satisfy the need of the company and the plan that has been submitted is credible. Accordingly, COC must take care of the realistically of the plan in the current market because we all live in a dynamic market and a little bit change in market policy can affect the plan at a large cost since the COC is taking care of all these aspects one thing also they have to take care of that is the creditworthiness of the resolution applicant they can’t the plan of anyone who is just offering the lowest resolution haircut they have to see the market creditability of the resolution applicant so that in mere future no complexity arises and the company doesn’t face liquidation in future.
There is a duty of the resolution professional also that he must take care of the plan and present only that plan which is are in the ambit of the code and which satisfy the need of the company with taking care of the demand of creditors and thus after this makes more simple for the COCto take fast decision. Resolution professional plays a vital role and his reasoning and Ardennes is helpful for the corporate insolvency resolution process
Conclusion
The insolvency and bankruptcy board of India made it more clear and adequate about the resolution applicant by the amending of the Section 29A and they also put some additional responsibility in front of the resolution professional and the COC and on important thing I want to mention again the amendment that has been occurred will affect the current pending cases also hence it is having the retrospective effect well all these are done because of current trend that has been taking place where promoter bidding to take the company again and want to run it again by that hand only which are responsible for current situation mere providing plan with effectiveness won’t work there must be a clear-thinking which include the welfare of the company and the creditors as the insolvency cases are increasing the insolvency and bankruptcy board of India has to ensure that the resolution professional provide the best service in term of transferring of ownership from the corporate debtor company to the acquiring company.
Section 29A laid down several numbers of layered and comprehensive sets which led to the disqualification of the resolution applicant all this was done to cut out the bona fide intention of the resolution applicant. As an alternative to the current situation, there must be a middle way that is taken like allowing the promoter to bid for the resolution plan while ensuring the best safeguard. Somewhat of relaxation must be given to the related part also so that if there is any excess of payment is there that cannot be gone in name of morality.
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