Introduction:
It is to be mentioned with greater pre-eminence that Section-29A of Insolvency & Bankruptcy Code, 2016 (Code) with its profound contentious nature has witnessed a purposive interpretation of its clause – (h). The Supreme Court (SC) of India in the recent dispute of Bank of Baroda & Anr v. MBL Infrastructures Limited & Ors.[i] had passed the landmark explication by stating that the Guarantor or group of Guarantors involved in instrumenting the guarantee for the creditor pertaining to the transaction with the corporate debtor stands completely barred from submitting its resolution plan to the resolution professional even though the insolvency resolution process had been initiated by another creditor. This ruling under the purposive interpretation of Section-29A(h) of IBC, 2016 stands as a greater significance as this matter primarily for the considered the scope and explanation of Section-29A(h) and paved the way to a landmark precedence for adjudication of future disputes under the relevant regime.
It is well established and understood that the legislative objective behind incorporating Section 29A to the IBC, 2016 was to ensure that the essence and purpose of IBC stands preserved through the mandatory statutory prohibition against the former management and promoters of the corporate debtor to break down the practice of entering the corporate insolvency resolution as the resolution applicants, such restrictive provision entailing the disqualification criterias provides relief not only to the financial and operational creditors but also to the sick corporate debtor.[ii] Further in Arun Kumar Jagatramka v. Jindal Steel & Power Limited[iii] along with other dictums have shown that the adjudicating authority is not focused on the interest of the resolution applicants or other facilitators of the insolvency resolution process, the primary focus is on the maximization of the value of the assets with a suitable resolution plan which ultimately survives the corporate debtor.
Scope and Eligibility:
The issue that was under the scrutiny for the first time and was never specifically considered by this court was whether the word “such creditor” imbibed Section-29A (h) will include under its radar all the creditors of the corporate debtor or just the specific and mentioned creditor who after the consistent default has applied for the start of the much important insolvency resolution process.[iv]
Outcome pertaining to merits of the disagreement was penned after the critical spadework of interpreting the statute in accordance to the laudable objectives of IBC, 2016. The interpretation of statute is governed by the core principle of non-destruction of intent of the statute critically computed by the legislator.[v]
The Supreme Court of India through Renaissance Hotel Holdings Inc. v. B. Vijaya Sai[vi] opined that whenever the scope of interpreting the provisions of a statute arise, the textual interpretation needs to be accurately harmonizing with the corresponding contextual matter in question, such mandatorily needs to be construed in a manner which advances the remedy leading to everything falling to its place.
Eminent Jurist Lord Denning through his celebrated book rooted that the upcoming and modern method of interpreting the notions of law provided for chasing the intention of law and regulation rather than blindly abiding by the literal rule of decipher.[vii] This was also significantly adopted by the Apex Court in Charan Lal Sahu vs Union of India[viii]
Legal mind perspective:
The court therefore while navigating through the present matter (Bank of Baroda & MBL Infrastructures Limited case) took a logical and reasoning view of the statute by adopting the fair and reasonable principle accompanying the primary notion of purposive interpretation. Purposive interpretation had been prima facie considered due to the established principle of “resolution rather than liquidation” where the intent of NCLT is always to make some arrangement based on the pre-determined parameters to revive corporate debtor with equal interest consideration and sufficient payout to the creditors thereby keeping the liquidation as the far-fetched ultimatum consequence.
Simple perusal of Section 29A (h) brings the thinking mind to the point that when the guarantor draws a promise or guarantee in support to the corporate debtor and for satisfying the creditors for the debts released and consequently due to various events the corporate debtor is on the threshold of corporate insolvency resolution process due to the admission of application by the NCLT with the further reality of the guarantee being invoked by the creditor to whom it was drawn, then automatically with direct consequential and binding effect, Section 29A (h) of the Code is attracted and will govern the submission of resolution plan.
The purposive deciphering of Section 29A (h) by the Apex Court has embodied boldness and clarity, the court has mentioned that the term “said creditor” mentioned in the disputed provision has to be considered and deemed as equally considered creditors post admission of the application requesting the adjudicating authority to initiate the insolvency resolution process by portraying the existence of default. Such similar placing of all class of creditors before the eyes of NCLT will lead to the consequence of disqualification under Sec 29A (h) by the mere presence of a personal guarantee drawn by the guarantor which had been invoked by the creditor in spite of the reality that the application filed under Section 7 or 9 is by any different creditor of the corporate debtor. The court also believed and consequently declared in accordance to Swiss Ribbons Case[ix] that the application for the insolvency resolution process filed by any class of creditors whether under Section 7 or 9 of IBC, 2016 is that of a rem proceeding and not of personam. Classifying the admission of application for CIRP as rem sufficiently concludes that such is directed against the entire world and not under personal regime leading to the firm fact that every class of creditors are equally stationed and have their rights to recover the defaults against the corporate debtor at par with each other with no downgrade classification. It is of firm believe of the Apex Court that the term “ineligibility” which is the heart and soul of Section 29A needs to be versioned from the view of resolution process and not one creditor against another class of creditor which will therefore uphold the sanctity of resolution process with equal fairness and transparency leading to direct restriction on the negative interest hampering the rights of corporate debtor and every class of creditors.
Conclusion
The Hon’ble Supreme Court of India’s judgement in this present Bank of Baroda matter specifically considering Section 29A (h) of IBC, 2016 will stand as a valid precedence which has cleared the air concerning the rights of the creditor and to what extent can the guarantor enter the field of insolvency resolution process through the submission of resolution plan. The Court prominently ensured that to make the insolvency resolution framework in consonance to the objective of ensuring survival of vulnerable yet viable corporate debtor and every class of creditors, the purposive interpretation applied is the only recourse and any other application of law will lead to absurdity and will defeat the very provisions of law. The purposive interpretation applied by the court has also rightfully remarked the ineligibility of the guarantor despite the application for the initiation of the IRP has been initiated by another creditor. To ensure transparency and to restrict the control of the management from such ineligible individuals, such has actually uphold the true essence of IBC with which it was incorporated in 2016.
AUTHOR
Name -Ritodeep Bhattacharyya, College – ICFAI LAW SCHOOL HYDERABAD
[i] Bank of Baroda & Anr v. MBL Infrastructures Limited & Ors, 2022 SCC OnLine SC 48
[ii] Swarnendu Chatterjee and Chetna Alagh, Delusion in unfolding Section 29A of IBC to liquidation of a corporate debtor, THE DAILY GUARDIAN, (Apr 23, 2022 5:30pm), https://thedailyguardian.com/delusion-in-unfolding-Section-29a-of-ibc-to-liquidation-of-a-corporate-debtor/
[iii] Arun Kumar Jagatramka v. Jindal Steel and Power Ltd 2021 SCC OnLine SC 220
[iv] Amay Bahri, Fallacy in Extending Section 29A of IBC to Liquidation, INDIACORPLAW, (Apr 23, 2022 5:47pm), https://indiacorplaw.in/2021/09/fallacy-in-extending-Section-29a-of-ibc-to-liquidation.html#:~:text=Further%2C%20there%20are%20numerous%20Supreme,primary%20aim%20of%20the%20IBC.&text=Section%2029A%20was%20introduced%20in,regaining%20control%20over%20the%20CD.
[v] GEORGETOWN UNIVERSITY LAW CENTER: A GUIDE TO READING, INTERPRETING AND APPLYING STATUTES, https://www.law.georgetown.edu/wp-content/uploads/2018/12/A-Guide-to-Reading-Interpreting-and-Applying-Statutes-1.pdf, (Apr 23, 2022 6:22 pm)
[vi] Renaissance Hotel Holdings Inc. v. B. Vijaya Sai, 2022 SCC OnLine SC 61
[vii] Justice Markandey Katju, The Mimansa Principles of Interpretation, EBC INDIA, (Apr 23, 2022 5:23pm), https://www.ebc-india.com/lawyer/articles/93v1a4.htm
[viii] Charan Lal Sahu vs Union of India 1990 AIR 1480
[ix] Swiss Ribbons Pvt. Ltd. v. Union of India, 2019 SCC Online SC 73.