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Supreme Court explains judicial interpretation of Sec. 29A(h) of the insolvency & Bankruptcy Code

The Supreme Court bench comprising Justices Sanjay Kishan Kaul and M.M. Sundresh was yesterday hearing a case where a judicial interpretation of Section 29A(h) of the Insolvency and Bankruptcy Code, 2016 as amended by the Act 26 of 2018 was sought.

The Respondent No.3 has executed personal guarantees which were invoked by three of the financial creditors even prior to the application filed. The rigor of Section 29A(h) of the Code obviously gets attracted. The eligibility could never be restricted to the aforesaid three creditors, but also to other financial creditors in view of the import of Section 7 of the Code.

"In pursuance of the invocation, an application invoking Section 7 indeed was filed by one such creditor. It was invoked even at the time of submitting a resolution plan by Respondent No.3. Thus, in the touchstone of the Apex Court’s interpretation of Section 29A(h), the Court held that the plan submitted by the Respondent No.3 ought not to have been entertained. The Adjudicating Authority and the Appellate Tribunal were not right in rejecting the contentions of the appellant on the ground that the earlier appeals having been withdrawn without liberty, the issue qua eligibility cannot be raised for the second time", the Supreme Court bench observed.

The Bench noted, "the Appellant was not a party to the decision of the AA on the first occasion, in the appeal, the Appellant merely filed an application for impleadment. The AA did not decide the matter on merit. In fact, the question of law was left open. The principle governing res judicata and issue estoppel would never get attracted in such a scenario. Thus, the reasoning rendered by the Appellate Tribunal to that extent could not be sustained in law."

On the question of limitation, the Supreme Court were in agreement with the views expressed by the AA as confirmed by the Appellate Tribunal. There were earlier rounds of litigation with the interim orders. The delay of 106 days has been rightly condoned and excluded by the AA by invoking Section 12(3) of the Code. It was done only on one occasion. The AA was right in holding that there was a marked difference between extension and exclusion. The exclusion would come into play when the decision was challenged before a higher forum. The extension was one that is to be exercised by the authority constituted.

The Supreme Court concluded that though the very resolution plan submitted by Respondent No. 3, being ineligible was not maintainable, much water has flown under the bridge. The requisite percentage of voting share had been achieved. It was also the fact that the percentage had been brought down from 75% to 66% by way of an amendment to Section 30(4) of the Code.

Secondly, the majority of the creditors had given their approval to the resolution plan. The AA had rightly noted that it was accordingly approved after taking into consideration, the techno-economic report pertaining to the viability and feasibility of the plan. The plan was also put into operation on 18.04.2018, and as of now the Respondent No. 1 was an ongoing concern.

Though Respondent No.11 has taken up the plea that its offer was conditional, it had got a very minor share which may not be sufficient to impact by adding it with that of the appellant and Respondent No.7. Respondent No.7 and Respondent No.11 did not choose to challenge the order of the appellate tribunal.

The Supreme Court once again reminded that the ultimate object of the Code, which is to put the corporate debtor back on the rails. Incidentally, the Court also noted that no prejudice would be caused to the dissenting creditors as their interests would otherwise be secured by the resolution plan itself, which permitted them to get back the liquidation value of their respective credit limits.

Thus, on the peculiar facts of the present case, the Apex Court did not wish to disturb the resolution plan leading to the ongoing operation of Respondent No.1. The appeal stands disposed of.

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