14 July 2021
Ineligibility to submit resolution plan under the Insolvency and Bankruptcy Code, 2016 (“Code”) is applicable at the time when the resolution plan is submitted by the resolution applicant.
Wig Associates ("Corporate Debtor") filed a petition under the Code for initiating voluntary corporate insolvency resolution process ("CIRP") and the petition was admitted on 24 August 2017. Thereafter, on 23 November 2017, the Government of India introduced Section 29A in the Code which lists conditions rendering a person ineligible to submit a resolution plan. Accordingly, a person who had executed a guarantee in favour of a creditor in respect of a Corporate Debtor was ineligible as a resolution applicant. Mr. Mahendra Wig ("Resolution Applicant"), the guarantor of the Corporate Debtor, submitted his resolution plan, which was approved by the committee of creditors on 20 April 2018 and this resolution plan was placed before the NCLT, which approved the resolution plan on 04 June 2018. NCLT had held that once CIRP has commenced, the provisions of the Code as existing on the date of admission i.e., on 24 August 2017 would continue to apply even though an amendment such as Section 29A has been introduced in the Code.
In appeal, the NCLAT set aside the NCLT’s order and held that the ineligibility under Section 29A of the Code would be attracted from the time when the resolution plan was submitted by the Resolution Applicant. NCLAT further held that as the Resolution Applicant was ineligible under Section 29A of the Code, he was barred from submitting any resolution plan in the first place. The fact that the Resolution Applicant was not ineligible on the date of the admission of CIRP cannot be an excuse for non-applicability of Section 29A, even though the same was implemented after commencement of CIRP.
