Time to time change in the IBC Section 29A
Table of Contents
Introduction
- One of the important laws in establishing the eligibility of Resolution Applicants in the CIRP is Section 29A of the IBC 2016 (“).
- In its original form, the Code did not contain any clauses that would have prohibited defaulting promoters from repurchasing the corporate debtor at substantial discounts. Section 29A was subsequently added with retrospective effect as of November 23, 2017, via an amendment to the Code.
- Section 29A of the Code underwent changes as part of a second amendment that became law on June 6, 2018. Among other things, Regulation 36A(8) of the CIRP Regulations requires that the insolvency professional conduct due diligence on prospective Resolution Applicants in accordance with Section 29A.
- The most recent judgement from the Honourable Supreme Court of India, dated October 4, 2018, emphasizes and reiterates the significance of carrying out comprehensive due diligence in accordance with Section 29A.
- The Honourable Supreme Court of India stated that “extreme care must be taken to ensure that those in-charge of the corporate debtor, for whom such resolution plan is developed, do not come back in some other form to regain control of the company without first paying off its obligations.” Additionally, the Supreme Court decision asserts that the Resolution
- A professional must attest that a resolution plan does not, among other things, breach Section 29A’s requirements.
Time to time change in the IBC Section 29A
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IBC Code 2016 (Applicable on May 28, 2016)
- In this amendments law maker defined a “Resolution Applicant” as any person who submits a resolution plan to the appointed Insolvency professional.
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The IBC Code (Amendment) Act, 2018 (Applicable with retrospective effect from Nov 23, 2017)
- In this amendments law maker make change Section 29A via newly inserted for ‘Persons not eligible to be Resolution Applicant’ that listed the situations/ criteria when a person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person met those
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IBC Code (2nd Amendment) Act, 2018 (Applicable with effect from June 6, 2018)
- In this amendments law maker mandated the Resolution Applicant to file a resolution plan, along with an affidavit stating that Resolution Applicant is eligible U/s
- So, this changes added additional responsibility on Resolution Applicant to confirm and to determine if its eligibility to filling a resolution plan in the respective case.
- Moreover the law maker also make amendments via specified that a Resolution Applicant would not be disqualified, subject to certain conditions, if Resolution Applicant acquired a NPA via a Last
- In the similar line changes also come to effect that laid out the requirement or conditions for disqualification of persons (resolution applicant) convicted for any offence punishable with
- Amended via widened the scope of connected persons of Resolution Applicant by including their family members of connected persons who are individuals.
- As per the above amendment they explain about a meaning of a connected person comprises –
(1) Any person who is the promoter or in control or in the management of the Resolution Applicant;
(2) Any person who shall be the promoter or in control or in management the business of the corporate debtor during the implementation of the resolution plan and;
(3) the subsidiary company, holding company, associate company or any other related party of a person referred to in class 1 & 2 above, except a Resolution Applicant which is a financial entity & who is not a related party of the corporate debtor.
Key outcome of Hon’ble Supreme Court of India Judgment relevant Impacting related to IBC Section 29A:
- Hon’ble Supreme Court of India addressed a multitude of challenges relating to CIRP under IBC 2016 in its judgement from October 4, 2018 while determining the eligibility of Resolution Applicants, Numetal LTD. and Arcelor Mittal India Pvt Ltd, to submit a resolution plan for Essar Steel India LTD. The following is an overview of the judgment’s key aspects relating to Section 29A:
Clarification on responsibilities of the Insolvency professional
- Hon’ble Supreme Court of India judgment given clarity & direction on duties & role of Insolvency professional, when examining each resolution plan u/s 30(2) to confirm the ineligibility or eligibility of Resolution Applicants according to the IBC Section 29A.
- The Hon’ble Supreme Court judgment requires the Insolvency professional to ensure Section 29A compliance.
- Before presenting the resolution plans to the CoC, who may or may not approve them, the insolvency professional must make sure that they are complete in every way. The CoC must get the insolvency professional’s “prima facie opinion” confirming whether or not any laws, including Section 29A, have been violated.
- The Supreme Court’s decision further emphasises that it would be appropriate if the insolvency professional appended a due diligence report for each of the resolution plans being considered and provided a brief explanation of why each resolution plan complies with or violates the law.
Clarification on responsibilities of the CoC
- The CoC will decide whether to approve or disapprove a resolution plan (relating to submission of resolution plan) Given the statutory restrictions of Section 30, When a Resolution Applicant is found to be ineligible at the time of submitting the resolution plan in accordance with Section 29A(c), the CoC shall grant the Resolution Applicant such period, not to exceed 30 days, to pay any overdue sums in accordance with Section 29A(c).
- It is not final whenever the CoC rejection a resolution plan on the basis that it “violates the provisions of any law,” including the ground that a Resolution Applicant is ineligible under Section 29A.
- After hearing the arguments made by the Resolution Applicant and the CoC, the Adjudicating Authority, acting quasi-judicially (where this relates to an issue of law), can decide whether the resolution plan violates any laws specifically, including Section 29A of the IBC Code. After that, a decision made by the adjudicating authority (NCLT) may be appealed to the NCLAT.
Lifting the corporate veil and knowing the real persons
- It is “imperative” to establish who the “actual” people or organisations are that are working together or in concert and who have created this corporate vehicle with the purpose of submitting a resolution plan.
- In order to identify whether two or more people are functioning jointly, it must be established whether they have joined hands. Any agreement, no matter how informal, to work together and to indirectly exercise control on the Corporate Debtor has been included. Each case’s concrete details will determine whether a person is or is not acting in concert.
Curing the ineligibility
- If the Resolution Applicant proposing to submit the resolution plan settles all overdue amounts before submission of a resolution plan within the stipulated period in accordance with Section 29A, the ineligibility under Section 29A(c) may be cured/ remedied. Moreover, Extra case/caution must be exercised to prevent the people in charge of the corporate debtor from getting control of the company without first settling its debts
- A person is ineligible to present a resolution plan under Section 29A if they have ever encouraged, managed, or controlled a corporate debtor in which extortionate credit transaction, or a preferential transaction, undervalued transaction, or fraudulent transaction occurred & for which an order has been made by the Adjudicating Authority under the Code (g). This ineligibility cannot be waived off or cured by paying off the debts of the corporate debtor.
Disapproval of resolution plans
- Hon’ble Supreme Court of India decision also affirms that, in cases where there are no other resolution plans available, the Resolution Professional must invite a new resolution plan within the allocated time frames if the CoC does not approve a resolution plan with the requisite 66 % of the voting share of financial creditors.
- A Resolved Complaint Only after the CoC has evaluated a resolution plan following voting may the applicant seek relief from the adjudicating authority, and not before.
- More about 29A certificate
Conclusion
- An insolvency professional who will supervise the proceedings, run the process, examine & confirm to see if the resolution plan does not contravene provision of Section 29A of the IBC Code, & provide a due diligence report.
- A resolution plan will be approved or rejected by the Committee of Creditors.
- The NCLT or NCLAT shall, by order, approve the resolution plan if satisfied that the resolution plan, as approved by the Committee of Creditors, complies with the requirements of the Code.
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