India: Recent Updates: Insolvency And Bankruptcy Code

Last Updated: 2 November 2018
Article by Yashika Sarvaria
  1. Interpretation of Section 29A: In order to prevent unscrupulous promoters from buying back the corporate debtor at low discounted prices, Section 29A was incorporated in the Insolvency and Bankruptcy Code ("Code") with retrospective effect from 23rd November 2017 and then amended on 6th June 2018. Section 29A provides for the eligibility criteria to determine persons who are eligible to submit a Resolution Plan.

    While considering the eligibility of Arcelor Mittal India Private Limited and Numetal Limited to submit a resolution plan for Essar Steel India Limited, the Supreme Court of India vide its recent decision in the matter of Arcelor Mittal India Private Limited v. Satish Kumar Gupta interpreted a number of provisions and issues concerning Section 29A of the Code. The key highlights of the judgment are as under:

    1. The opening lines of Section 29A refer to a de facto as opposed to a de jure position of the persons mentioned therein. This is a typical instance of a "see through provision", so that one is able to arrive at persons who are actually in "control", whether jointly, or in concert, with other persons. A purposeful and contextual interpretation of section 29A is imperative to find out the real individuals or entities who are acting jointly or in concert for submission of a resolution plan.
    2. Meaning of "acting jointly": For "acting jointly", what is to be ascertained is whether certain persons have got together and are acting jointly in the sense of acting together. If this is made out on the facts, no added element of 'joint venture' is to be seen.
    3. Definition of "in concert": The Code adopts definitions from the SEBI Act, 1992. As such the definition of 'acting in concert' from the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 is consequently applicable. The term "Acting in concert" includes any understanding, even if it is informal, and even if it is to indirectly co-operate to exercise control over a target company.
    4. Stage of ineligibility: The question before the Court was whether the ineligibility is to be seen on the date of commencement of Corporate Insolvency Resolution Process ("CIRP") or when the plan is submitted by the resolution applicant. The Court observed that the opening words of Section 29A state that, "a person shall not be eligible to submit a resolution plan...", which shows that the stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant. The date of commencement of the CIRP is only relevant for the purpose of calculating whether one year has lapsed from the date of classification of a person as a non-performing asset. Consequently, the amendment of 2018 introducing the words "at the time of submission of the resolution plan" is clarificatory, as this was always the correct interpretation as to the point of time at which the disqualification in sub-clause (c) of Section 29A will attach.
    5. Management and control:  The ingredients of sub-clause (c) are that, the ineligibility to submit a resolution plan attaches if any person, as is referred to in the opening lines of Section 29A, either itself has an account, or is a promoter of, or in the management or control of, a corporate debtor which has an account, which account has been classified as a non-performing asset, for a period of at least one year from the date of such classification till the date of commencement of the CIRP. For the purpose of applying this sub-section, any one of three things, which are disjunctive, needs to be established. The corporate debtor may be under the management of the person referred to in Section 29A, the corporate debtor may be a person under the control of such person, or the corporate debtor may be a person of whom such person is a promoter. The expression "management" would refer to the de jure management of a corporate debtor. The de jure management of a corporate debtor would ordinarily vest in a Board of Directors, and would include, in accord with the definitions of "manager","managing director" and "officer" in Sections 2(53), 2(54) and 2(59) respectively of the Companies Act, 2013, the persons mentioned therein.

      The expression "control", in Section 29A(c), denotes only positive control, which means that the mere power to block special resolutions of a company cannot amount to control. "Control" here, as contrasted with "management", means de facto control of actual management or policy decisions that can be or are in fact taken. Section 29A(c) speaks of a corporate debtor "under the management or control of such person". The expression "under" would seem to suggest positive or proactive control, as opposed to mere negative or reactive control. This becomes even clearer when sub-clause (g) of Section 29A is read, wherein the expression used is "in the management or control of a corporate debtor". Under sub-clause (g), only a person who is in proactive or positive control of a corporate debtor can take the proactive decisions mentioned in sub-clause (g), such as, entering into preferential, undervalued, extortionate credit, or fraudulent transactions.

      It is thus clear that in the expression "management or control", the two words take colour from each other, in which case the principle of noscitur a sociis must also be held to apply. Thus, what is referred to in sub-clauses (c) and (g) is de jure or de facto proactive or positive control, and not mere negative control which may flow from an expansive reading of the definition of the word "control" contained in Section 2(27) of the Companies Act, 2013, which is inclusive and not exhaustive in nature.
    6. Challenge by a Resolution Applicant: Where a resolution plan is turned down at the threshold by a Resolution Professional, no challenge can be preferred to the Adjudicating Authority at this stage. A writ petition under Article 226 filed before a High Court would also be turned down on the ground that no right, much less a fundamental right, is affected at this stage. An aggrieved resolution applicant can approach the NCLT for relief only after a resolution plan has been considered by the Committee of Creditors ("CoC") after voting and not prior to that.
    7. Examination of resolution plan by Resolution Applicant- The Resolution Professional is required to examine that the resolution plan submitted by various applicants is complete in all respects, before submitting it to the CoC. He is not required to take any decision, but merely to ensure that the resolution plans submitted are complete in all respects before they are placed before the CoC, who may or may not approve it. The fact that the Resolution Professional is also to confirm that a resolution plan does not contravene any of the provisions of law for the time-being in force, including Section 29A of the Code, only means that his prima facie opinion is to be given to the CoC that a law has or has not been contravened. Section 30(2)(e) does not empower the Resolution Professional to 'decide' whether the resolution plan does or does not contravene the provisions of law. Even though it is not necessary for the Resolution Professional to give reasons while submitting a resolution plan to the CoC, it would be in the fitness of things if he appends the due diligence report carried out by him with respect to each of the resolution plans under consideration, and to state briefly as to why it does or does not conform to the law.

      It is the CoC which will approve or disapprove a resolution plan, given the statutory parameters of section 30. The disapproval of the CoC on the ground that the resolution plan violates the provisions of any law, including the ground that a resolution applicant is ineligible under Section 29A, is not final. The Adjudicating Authority, acting quasi-judicially, can determine whether the resolution plan is violative of the provisions of any law, including section 29A of the Code, after hearing arguments from the resolution applicant as well as the CoC, after which an appeal can be preferred from the decision of the Adjudicating Authority to the Appellate Authority under section 61. If, on the other hand, a resolution plan has been approved by the CoC, and has passed muster before the Adjudicating Authority, this determination can be challenged before the Appellate Authority under section 61 and may further be challenged before the Supreme Court under section 62, if there is a question of law arising out of such order.
    8. Scope of interference by NCLT – Section 60(5) of the Code does not invest the NCLT with the jurisdiction to interfere at an applicant's behest at a stage before the quasi-judicial determination made by the Adjudicating Authority. The non-obstante clause in section 60(5) is designed for a different purpose i.e. to ensure that the NCLT alone has jurisdiction when it comes to applications and proceedings by or against a corporate debtor.
  2. Retrospective effect of Section 238A Section 238A was inserted by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 with effect from 06.06.2018. Section 238A provides that the provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be. In B.K. Educational Services Private Limited v. Parag Gupta and Associates, the question before the Apex Court was whether the Limitation Act, 1963 will apply to applications that were made under Section 7 and/or Section 9 of the Code on and from its commencement on 01.12.2016 till 06.06.2018, where the Appellate Authority had held that the provisions of Limitation Act, 1963 are not applicable. The Supreme Court held that the amendment of Section 238A would not serve its object unless it is construed as being retrospective, as otherwise, applications seeking to resurrect time-barred claims would have to be allowed, not being governed by the law of limitation.
  3. Continuation of the suit proceedings as per Section 14 of the Code includes taking procedural steps such as filing of written statement - In M/s. Golden Jubilee Hotels Limited v. M/s. EIH Ltd. and another, 2018 SCC OnLine Hyd 315, the trial Court had opined that mere filing of written statements would not violate the order of the NCLT and observed that though the Civil Court could not pass any adverse order fastening any liability, the mere making of an appearance by the defendants and putting forth their case would not be violative of the moratorium. The trial Court had further opined that it had discretion to receive the written statements and pass any procedural orders which would not be in conflict with the order of the NCLT. Another justification that was given by the trial court was that the written statements of the defendants would assist the interim resolution professional to resolve the dispute for which the defendants were using delaying tactics. Negating the observations and decision of the trial Court, the High Court of Andhra Pradesh inter alia held that requiring the filing of a written statement would be a step in continuation of the suit proceedings and the same would be violative of Section 14 of the Code. Continuation of the suit proceedings would encompass every step therein, which would include not only adjudicatory steps but also procedural ones. Upon the moratorium order being passed, the pending suit proceedings necessarily had to come to a complete halt. It was further observed that the interim resolution professional is not required to play an adjudicatory role in terms of testing the claims of the creditors against the corporate debtor and the question of the written statements filed by the defendants assisting him in resolving the dispute does not arise.
  4. Continuation of proceedings against the Director of the Corporate Debtor not permissible where the cause of action against the Corporate Debtor and the Director are inextricably linked - Another issue in M/s. Golden Jubilee Hotels Limited v. M/s. EIH Ltd. and another, was with regard to the continuation of suit against the Director of the company. In this case, the company was impleaded as the first defendant and the second defendant in the suit was the Director and CEO of the defendant company. The trial Court, in its order had observed that as he is an individual, the moratorium order would not apply to him. The High Court however noted that the plaint averments clearly demonstrate that the suit claim was directed against the first defendant company and it is only in the capacity of being its CEO that the second defendant was impleaded. It was also noted that the cheques on the strength of which the summary suit was filed were issued by the first defendant company.  Accordingly, the High Court held that Section 14 of the Code of 2016, as it presently reads after its amendment, vide the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, with retrospective effect from 06.06.2018, only excludes the surety in a contract of guarantee to a corporate debtor from the ambit of a moratorium order. There is no mention of individual Directors of the corporate debtor being immune from the moratorium order. The Court noted that it is the normal practice to implead in a suit or proceeding not only the corporate entity but also its Managing Director or Chief Executive Officer. This would not mean that the cause of action against such Managing Director or Chief Executive Officer is independent of and separate from the claim against the corporate entity itself. The claim of the plaintiff company is essentially directed against the first defendant company and the acts imputed to the second defendant, its Director & CEO, are inextricably linked therewith. It was accordingly held that the question of allowing the suit proceedings to go on independently against the second defendant, while giving effect to the moratorium order dated 27.02.2018 against the first defendant company alone, would not arise.
  5. Voting threshold for decision of the committee of creditor by sixty six percent would not be mandatory where the prospective buyers of Real Estate (Commercial & Residential) alone constitute the CoC: In Nikhil Mehta & Sons (HUF) & others v. M/s AMR Infrastructures Ltd., an application was filed under Section 60(5) of the Code by the interim resolution professional regarding the deadlock created by low percentage of votes casted by a new category of financial creditor recognised by Amendment Act of 2018. In the CIRP:

    • With regard to ratification of cost of interim resolution professional, 55.48% of the votes were casted in favour of the resolution and 44.16% of the votes were casted against the resolution.
    • With regard to appointment of interim resolution professional as resolution professional, 61.69% of the votes were casted in favour of the resolution and 38.31% of the votes were casted against the resolution.
    • With regard to the fixing of expenses to be incurred on or by the resolution professional and source of finding for the expenses, 59.25% of the votes were casted in favour of the resolution and 40.75% of the votes were casted against the resolution.
    • With regard to raising of interim finance to fund CIRP cost, 62.56% of the votes were casted in favour of the resolution and 37.44% of the votes were casted against the resolution.
    • With regard to decision regarding change of management, 98.79% of the votes were casted in favour of the resolution and 1.21% of the votes were casted against the resolution.
    • With regard to banking arrangements for AMR Infrastructures Ltd., 97.39% of the votes were casted in favour of the resolution and 2.61% of the votes were casted against the resolution.
    In view of the aforesaid deadlock, the interim resolution professional expressed his inability to proceed further as neither the Code nor the Regulations framed there under provided any specific guidance for Resolution of the deadlock. Given the circumstances the NCLT observed that the Real estate (Commercial & Residential) creditors are a class of creditors distinct from the well organised financial creditors like banks, financial institutions, asset reconstruction companies etc. Merging of categories of all financial creditors and treating them one would amount to treating unequals as equals which may result in violation of Article 14 of the Constitution. As such providing the same threshold for both categories may result to a declaration that those provisions are ultra vires of Article 14 of the Constitution. Accordingly, the NCLT while adopting a workable interpretation of the Code inter alia held that the threshold voting share for decision of the CoC by sixty six percent would not be mandatory in the cases of class of creditors where the prospective buyers of Real Estate (Commercial & Residential) alone constitute the CoC. It was further held that in case of deadlock the preference can be given to the decisions taken by the highest percentage in the CoC and Section 22(2) must be regarded as directory in nature in case CoC is comprised 100% of class of creditors Real Estate (Commercial & Residential). It was held:

    "Therefore, we are of the view that in the case of Real Estate (Commercial & Residential) comprising 100% voting share in the CoC the aforesaid provision must be read to mean that a resolution would be deemed to be passed if it is voted by highest number of financial creditors in the class of Real Estate (Commercial & Residential). It would make the Code workable and would also advance the object of this progressive legislation rather than defeating it..."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Vaish Associates Advocates
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Vaish Associates Advocates
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions