Supreme Court of India · Division Bench · 2018
ArcelorMittal India Pvt Ltd v. Satish Kumar Gupta & Ors
(2019) 2 SCC 1 · Civil Appeal Nos. 9402–9405 of 2018
Court
Supreme Court of India
Bench
Division Bench (Nariman & Indu Malhotra JJ.)
Date
4 October 2018
Citation
(2019) 2 SCC 1
Background & Facts
The Insolvency and Bankruptcy Code, 2016 was enacted with the dual objective of maximising asset value for creditors and promoting the resolution of distressed enterprises as going concerns. However, the legislative framework initially contained a significant lacuna: it did not prevent the very promoters and directors who had driven an enterprise into insolvency — often through mismanagement, fund diversion, or sheer commercial failure — from participating as resolution applicants and buying back their own companies at a fraction of the outstanding debt through the resolution process. Section 29A was inserted into the IBC by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 with effect from 23 November 2017, and re-enacted by the Insolvency and Bankruptcy Code (Amendment) Act, 2017 with effect from the same date; it laid down detailed eligibility criteria for resolution applicants, specifically disqualifying persons who had contributed to the NPA position of a company.
Essar Steel India Limited (ESIL) was admitted to the Corporate Insolvency Resolution Process (CIRP) by the NCLT, Ahmedabad on 2 August 2017, on Section 7 applications by State Bank of India and Standard Chartered Bank. ArcelorMittal India Private Limited (AMIPL) and a competing applicant, Numetal Limited, each submitted resolution plans on 12 February 2018. On 23 March 2018 the Resolution Professional found both applicants ineligible under Section 29A. The NCLT (19 April 2018) remanded the question to the Resolution Professional and the Committee of Creditors; the NCLAT decided the resulting appeals on 7 September 2018; and both AMIPL and Numetal appealed to the Supreme Court, where a Division Bench of R.F. Nariman and Indu Malhotra JJ. interpreted Section 29A — one of the most complex and consequential provisions of the IBC.
Section 29A disqualifies a person if, inter alia, they are undischarged insolvents or wilful defaulters; they have — or a corporate debtor under their management or control, or of which they are a promoter, has — an account classified as NPA where at least one year has lapsed from that classification till the commencement of the CIRP, a disability curable by paying all overdue amounts with interest and charges before submitting the plan (clause (c)); they have been convicted of specified offences; or they have a connected person who is ineligible (clause (j)). The provision applies not only to the resolution applicant directly, but also to all persons acting in concert with the resolution applicant, making it one of the most expansive eligibility filters in commercial law.
Key Issues Before the Court
Holdings of the Court
Paragraph numbers refer to the judgment as pronounced by the Supreme Court; numbering in law reports may differ.
Holding 1 — Authoritative Interpretation of Section 29A
The Division Bench (Nariman and Indu Malhotra JJ.) authoritatively interpreted Section 29A of the IBC, which lays down the eligibility and ineligibility criteria for resolution applicants. The Court explained the structure and reach of the provision and the policy behind it — to keep persons who are in any way responsible for, or connected with, the default of a corporate debtor from re-acquiring distressed assets through the resolution process. Central to the judgment is the meaning given to the concepts of "connected person", "related party" and persons "acting jointly or in concert" with the resolution applicant, which together define how widely the ineligibility under Section 29A operates.
Holding 2 — Section 29A Must be Given a Purposive Interpretation
The Court held that a purposive interpretation of Section 29A, depending both on the text and the context in which it was enacted, must inform its interpretation (para 27). The opening lines of the section refer to a de facto as opposed to a de jure position — a "see through provision" — so that a wooden, literal reading that refuses to look behind a corporate vehicle set up to submit a resolution plan is not permissible; the competent authority must find out who the real individuals or entities acting jointly or in concert are (para 29). "Acting jointly" needs no formal joint venture, and "in concert" takes its meaning from the SEBI Takeover Regulations, 2011 through Section 3(37) of the Code (para 35).
Holding 3 — Persons Acting in Concert and Connected Persons; Both Applicants Held Ineligible
The disqualification under Section 29A is not limited to the resolution applicant alone — it reaches any other person acting jointly or in concert with it, and, under clause (j), a "connected person" who is ineligible: persons who are promoters of, or in management or control of, the applicant; persons who will be in charge of the corporate debtor during implementation of the plan; and the holding, subsidiary or associate companies or related parties of those persons (para 60). Applying this, the Court held both applicants ineligible under Section 29A(c). Numetal was hit because Rewant Ruia, son of ESIL's promoter Ravi Ruia and deemed to be acting in concert with him, stood behind its shareholder AEL; the Court held that both of Numetal's plans were caught (para 95). AMIPL was hit because L.N. Mittal group companies were a promoter of Uttam Galva and in joint control of KSS Petron, both NPAs, and their exits days before the first plan was submitted were made to avoid Section 29A(c) (paras 109–111). Invoking Article 142, the Court gave both applicants two weeks to pay off those NPAs under the proviso and resubmit their plans of 2 April 2018 to the Committee of Creditors (para 113).
Holding 4 — Disqualification Extends to Connected NPAs in Other Companies
One of the most practically significant holdings is that the NPA disqualification under Section 29A(c) is not limited to the specific corporate debtor that is undergoing CIRP. If the resolution applicant, or any person acting jointly or in concert with it, manages, controls or is a promoter of any other corporate debtor whose account has been classified as NPA for at least one year before the commencement of the CIRP, the resolution applicant is ineligible in the CIRP of an entirely different corporate debtor (para 54). This reach of the disqualification — beyond the specific CIRP — ensures that serial defaulters cannot use the resolution process to aggregate distressed assets at depressed values.
Holding 5 — Curing Section 29A(c) Ineligibility via the Proviso Before Plan Submission
The Court held that ineligibility under Section 29A(c) attaches when the resolution plan is submitted (para 43), and that it can be removed only by paying all overdue amounts, with interest thereon and charges relating to the NPA, before the plan is submitted (para 54). It rejected the argument that the NPA dues could instead be paid off as part of the resolution plan, before the plan is accepted and implemented (para 55). Antecedent facts reasonably proximate to the submission can be examined to see whether affairs were arranged to avoid the proviso; if they were, the applicant is ineligible (para 57).
Practical Implications for Creditors
For banks and financial institutions acting as financial creditors in CIRP proceedings, ArcelorMittal provides the doctrinal foundation for challenging the eligibility of resolution applicants who have NPA exposure in other group companies. The Committee of Creditors (CoC) and Resolution Professionals must conduct thorough due diligence on the ownership structure, shareholding, and NPA position of every resolution applicant — not just for the specific corporate debtor, but across the applicant's entire group. Financial creditors should insist on detailed eligibility certificates and obtain legal opinions from specialist IBC counsel before approving any resolution plan. A plan approved from an ineligible applicant can be challenged subsequently, leading to costly delays.
The judgment also significantly empowers creditors during the CIRP timeline. By disqualifying promoters who have driven companies into insolvency from re-acquiring those companies at discounted values, the ruling ensures that bona fide third-party resolution applicants — who bring genuine capital, management expertise, and turnaround capability — compete in a field not distorted by insider promoters with informational advantages. This promotes better resolution plan values for creditors and improves recovery rates in CIRP proceedings.
Practical Implications for Borrowers
For promoters of corporate debtors undergoing CIRP, ArcelorMittal is a significant adverse precedent. Promoters who have NPA accounts in any group company — even unrelated to the corporate debtor under CIRP — are potentially disqualified from submitting resolution plans. The judgment confirms that a clause (c) disqualification can be cured only by actual payment of the overdue amounts in the NPA accounts before the resolution plan is submitted; the Court also noted that ineligibility under clause (g) (avoidance transactions) cannot be cured by paying off the corporate debtor's debts (para 56). Promoters seeking to participate in the CIRP of their own companies must obtain specialist legal advice on the Section 29A eligibility matrix well before the resolution plan submission deadline.
Relevant Statutory Provisions
Practical Application Note
Whether you are a financial creditor seeking to challenge a resolution applicant's eligibility under Section 29A, or a resolution applicant assessing your own eligibility across a complex corporate group structure, Unified Chambers provides specialist IBC advisory. Our partner-led team advises on CIRP strategy, Section 29A eligibility analysis, and resolution plan challenges. Minimum matter value: Rs. 1 crore (Rs. 2 crore for DRT matters).
This case summary is general legal information, not legal advice. The application of Section 29A turns on the facts of each matter; please consult our partner-led team before acting on it.