Judgement under Section 12A of the Code can be allowed, even if promoter is ineligible under Section 29A of the Code.

Case Summary :

An application under Section 12A of the Code can be allowed, even if the Promoter is not eligible to file the Resolution Plan under Section 29A of the Code.

Facts of the case :

1. The application under Section 12A of the Code was filed at the instance of the Promoter approved with more than 90% voting share of the Committee of Creditors, but it was rejected by the Adjudicating Authority (NCLT), Mumbai Bench, Mumbai on the ground that the Promoter not eligible to file the Resolution Plan under Section 29A cannot file the application under Section 12A of the Code.

2. The question arises for consideration in these appeals is whether Section 29A of the Code is applicable to the applicant, if he intends to withdraw the petition under Section 7 or 9, if the Committee of Creditor, approves a proposal with 90% voting share, in terms of Section 12A.

3. If any person, including the Promoter/Director is ineligible in terms of any one or more clauses of Section 29A, he/she is not entitled to file any ‘resolution plan’ individually or jointly or in concert with another.

4. In so far Section 12A is concerned, it relates to withdrawal of the application filed by an “applicant” under Section 7 or Section 9 of the IBC, 2016, if the ‘Committee of Creditors’ with more than 90% voting share approves the proposal submitted by the Promoter.

NCLAT’s Decision

1. From Section 12A and the decision of the Hon’ble Supreme Court in ‘Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors’. it is clear that the Promoters/Shareholders are entitled to settle the matter in terms of Section 12A and in such case, it is always open to an applicant to withdraw the application under Section 9 of the Code on the basis of which the CIRP was initiated.

2. In view of the above, NCLAT held that Section 29A is not applicable for entertaining an application under Section 12A as the Applicants are not entitled to file application under Section 29A as ‘resolution applicant’.

3. In so far the assets of the ‘Corporate Debtor’ is concerned, if it is based on the proceeds of crime, it is always open to the ‘Enforcement Directorate’ to seize the assets of the ‘Corporate Debtor’ and act in accordance with the ‘Prevention of Money Laundering Act, 2002’ (for short, ‘the PMLA’).

4. However, it will not come in the way of the individual such as ‘Promoter’ or ‘Shareholder’ or ‘Director’, if he pays not from the proceeds of crime but in his individual capacity the amount from his account and not from the account/assets of the ‘Corporate Debtor’ and satisfies all the stakeholders, including the ‘Financial Creditors’ and the ‘Operational Creditors’. There is nothing on the record to suggest that the individual property of the ‘Promoter’ / ‘Shareholder’/ ‘Director’ who proposed to pay the amount has been subjected to restraint by the ‘Enforcement Directorate’. Therefore, even if the asset of the ‘Corporate Debtor’ is held to be proceeds of crime, the Adjudicating Authority cannot reject the prayer for withdrawal of application under Section 7, if the ‘Promoter’ / ‘Director’ or ‘Shareholder’ in their individual capacity satisfy the creditors.

5. For the reason aforesaid, while we hold that the order of ‘Liquidation’ was uncalled for, we set aside the impugned order dated 8th May, 2019 passed by the Adjudicating Authority and allow the Appellant (who filed the application of Section 7 – ‘Andhra Bank’) to withdraw the application.

6. In the result, the CIRP initiated against the ‘Corporate Debtor’ namely— ‘M/s. Sterling Biotech Ltd.’ stands set aside subject to the payment of the amount as payable by the ‘Promoters’/Shareholders to all the stakeholders/financial creditors and operational creditors in terms of Section 12A as approved with 90% voting share of the ‘Committee of Creditors’. However, setting aside the order of initiation of ‘Corporate Insolvency Resolution Process’ will not amount to interference with any of the order passed by the ‘Enforcement Directorate’ with regard to the assets of the ‘Corporate Debtor’ and the proceedings under ‘PMLA’ will continue against the ‘Corporate Debtor’ etc. in accordance with law.

7. In view of the fact that the impugned order dated 8th May, 2019 is set aside, all the observations made against Mr. Sundaresh Bhat, ‘Resolution Professional’ also stand expunged. All these appeals stand disposed of with liberty to the ‘Enforcement Directorate’, the ‘Central Bureau of Investigation’, the ‘Ministry of Corporate Affairs’, ‘Securities and Exchange Board of India’ and the other Authorities to continue/take any action against the Company, ‘Promoter’/ ‘Shareholder’/ ‘Director’ under the existing laws and will continue irrespective of the settlement made by the individual ‘Promoter’/ ‘Shareholder’/ ‘Director’ with the creditors under Section 12A of the ‘IBC, 2016’.

8. So far as the fees and resolution cost of the ‘Resolution Professional’/ ‘Liquidator’ are concerned, the ‘Committee of Creditors’ will determine the same and will be paid by ‘Andhra Bank’ on behalf of the ‘Committee of Creditors’ and may adjust the same with other members. Till the ‘terms and conditions’ under Section 12A is complied, the ‘Resolution Professional’ will manage the company and ensure that the company remains a going concern and protect its assets.

9. All the appeals stand disposed of with aforesaid observations and directions.