Introduction

The National Company Law Tribunal (NCLT) Chandigarh Bench delivered a landmark judgment on May 24, 2022, in the case of Sumat Kumar Gupta R.P. VTCL vs. M/s Aggarsain Spinners Limited. This case scrutinizes the eligibility criteria for corporate resolution applicants under Section 29A(f) of the Insolvency and Bankruptcy Code, 2016 (IBC), focusing on the prohibition imposed by the Securities and Exchange Board of India (SEBI).

The primary parties involved include Punjab National Bank as the financial creditor and Aggarsain Spinners Limited along with Mr. Ramesh Kumar as the respondents seeking to submit a resolution plan. The crux of the case revolves around allegations that the respondents submitted false affidavits declaring compliance with Section 29A(f) while being prohibited by SEBI from accessing the securities market.

Summary of the Judgment

The Tribunal meticulously examined three interconnected applications related to the Corporate Insolvency Resolution Process (CIRP) of Vallabh Textiles Company Limited. The Resolution Professional filed applications under Section 60(5) of the IBC to declare the respondents ineligible to submit a resolution plan due to non-compliance with Section 29A(f) of the Code.

After thorough deliberation, the NCLT Chandigarh Bench concluded that Aggarsain Spinners Limited and Mr. Ramesh Kumar were indeed ineligible under Section 29A(f) at the time of submitting their resolution plan on February 13, 2020. The tribunal found that the respondents were debarred by SEBI, through the Bombay Stock Exchange (BSE), from accessing the securities market for ten years. Consequently, the resolution plan submitted by the respondents was rejected, and the CIRP period was extended by 90 days to allow the Committee of Creditors another opportunity to consider alternative resolution plans.

Analysis

Precedents Cited

The judgment references several pivotal cases that influenced its decision:

• Arcelormittal India (P) Ltd vs. Satish Kumar Gupta (2019) 2 SCC 1: Affirmed that Resolution Professionals must confirm no contravention of legal provisions, including Section 29A of the IBC.
• Essar Steel India Limited vs. Satish Kumar Gupta (Civil Appeal No.8411 of 2019): Reinforced the role of Resolution Professionals in verifying eligibility criteria.
• Canara Bank vs. Ms. Mamta Binani and Others (2022): Highlighted the diligence required by Resolution Professionals in scrutinizing resolution plans.
• JSW Steel Ltd. vs. Mahender Kumar Khandelwal and Others (2020): Clarified the competent authorities for deciding ineligibility under Section 29A of the Code.
• National Securities Depositories Ltd. vs. SEBI (2006) and Province of Bombay vs. Kushaldar S. Advani (1950): Discussed the quasi-judicial powers of SEBI and the distinction between administrative and prohibitory actions.
• Kasturi vs. Uyyamperumal and Others (2005) 6 SCC 733: Provided tests to determine necessary parties in court proceedings, relevant to IA No.455 of 2021.

Legal Reasoning

The Tribunal's legal reasoning hinged on several key aspects:

• Interpretation of Section 29A(f) of the IBC: The section disqualifies individuals prohibited by SEBI from accessing securities markets from submitting resolution plans. The Tribunal scrutinized whether SEBI had indeed imposed such a prohibition.
• SEBI's Regulatory Powers: The judgment clarified that SEBI, under Section 11 of the SEBI Act, possesses broad regulatory and quasi-judicial powers. SEBI can delegate its regulatory functions to stock exchanges like BSE, enabling actions such as debarment without issuing individual prohibitory orders.
• Delegation Evidence: Circulars dated October 10, 2016, and August 1, 2017, issued by SEBI, mandated stock exchanges to take specific actions against non-compliant Exclusively Listed Companies (ELCs). The Tribunal affirmed that these circulars effectively delegated SEBI's prohibitory powers to BSE.
• Admission and Estoppel: The respondents admitted being debarred by BSE, which the Tribunal considered as de facto prohibition by SEBI. This admission invoked the doctrine of estoppel, preventing the respondents from denying the prohibition retrospectively.
• Role of the Resolution Professional: The Tribunal noted that the Resolution Professional failed to diligently verify the eligibility of the resolution applicants before submitting the resolution plan. This oversight contributed to the declaration of ineligibility.
• Impact of RTI Information: The Tribunal dismissed the relevance of information obtained under the Right to Information Act (IA No.154/2022), as it did not pertain to the eligibility criteria at the time of resolution plan submission.

Impact

This judgment sets a precedent emphasizing the stringent adherence to Section 29A(f) of the IBC. Key impacts include:

• Enhanced Due Diligence: Resolution Professionals must undertake comprehensive due diligence to verify the eligibility of resolution applicants, particularly concerning SEBI's prohibitions.
• Clarity on SEBI's Delegated Powers: The ruling clarifies that SEBI can delegate its regulatory functions to stock exchanges, which can enforce prohibitions without direct orders from SEBI itself.
• Doctrine of Estoppel: Parties cannot retroactively deny admissions or facts that have been established during legal proceedings.
• Role of Committees of Creditors: The Tribunal reinforced the authority of Committees of Creditors in approving or rejecting resolution plans based on compliance with legal provisions.
• Impact on Future CIRPs: Corporate entities and their promoters must ensure full compliance with SEBI regulations to avoid disqualification from the CIRP process.

Complex Concepts Simplified

Conclusion

The NCLT Chandigarh Bench's judgment in the case of Sumat Kumar Gupta R.P. VTCL vs. M/s Aggarsain Spinners Limited underscores the imperative for absolute compliance with Section 29A(f) of the IBC. By diligently scrutinizing the eligibility of resolution applicants and affirming the delegated regulatory powers of SEBI, the Tribunal has reinforced the integrity of the CIRP framework.

This ruling serves as a crucial reminder to corporate entities and their promoters about the consequences of non-compliance with securities regulations. Moreover, it delineates the responsibilities of Resolution Professionals in ensuring that resolution plans adhere strictly to statutory requirements, thereby safeguarding the interests of creditors and maintaining the robustness of the insolvency resolution mechanism.

In essence, the judgment fortifies the legal safeguards within the insolvency ecosystem, promoting transparency, accountability, and adherence to regulatory norms.