Ghanashyam Mishra and Sons Private Limited through the Authorized Signatory vs Edelweiss Asset Reconstruction Company Limited through the Director & Ors.

HELD: 1. Once a resolution plan is duly approved by the Adjudicating Authority under sub-section (1) of Section 31 of the Insolvency and Bankruptcy Code, 2016, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan; that 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect; and consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued. [Para 95] [805-D-H; 806-A]

2.1 It could thus be seen, that one of the dominant objects of Insolvency and Bankruptcy Code, 2016 is to see to it, that an attempt has to be made to revive the Corporate Debtor and make it a running concern. For that, a resolution applicant has to prepare a resolution plan on the basis of the Information Memorandum. The Information Memorandum, which is required to be prepared in accordance with Section 29 of I&B Code along with Regulation

36 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, is required to contain various details, which have been gathered by RP after receipt of various claims in response to the statutorily mandated public notice. The resolution plan is required to provide for the payment of insolvency resolution process costs, management of the affairs of the Corporate Debtor after approval of the resolution plan; the implementation and supervision of the resolution plan. It is only after the Adjudicating Authority satisfies itself, that the plan as approved by CoC with the requisite voting share of financial creditors meets the requirement as referred to in sub-section (2) of Section 30, grants its approval to it. It is only thereafter, that the said plan is binding on the Corporate Debtor as well as its employees, members, creditors, guarantors and other stakeholders involved in the resolution Plan. The moratorium order passed by the Adjudicating Authority under Section 14 shall cease to operate, once the Adjudicating Authority approves the resolution plan. The scheme of I&B Code therefore is, to make an attempt, by divesting the erstwhile management of its powers and vesting it in a professional agency, to continue the business of the Corporate Debtor as a going concern until a resolution plan is drawn up. Once the resolution plan is approved, the management is handed over under the plan to the successful applicant so that the Corporate Debtor is able to pay back its debts and get back on its feet. [Para 54][771-G-H; 772-A-E]

2.2 It could be seen, that the legislature has given paramount importance to the commercial wisdom of CoC and the scope of judicial review by Adjudicating Authority is limited to the extent provided under Section 31 of I&B Code and of the Appellate Authority is limited to the extent provided under subsection (3) of Section 61 of the I&B Code, is no more res integra. [Para 57][781-F-G]

2.3 Bare reading of Section 31 of the I&B Code would also make it abundantly clear, that once the resolution plan is approved by the Adjudicating Authority, after it is satisfied, that the resolution plan as approved by CoC meets the requirements as referred to in sub-section (2) of Section 30, it shall be binding on the Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders. Such a provision is necessitated since one of the dominant purposes of the I&B Code is, revival of the Corporate Debtor and to make it a running concern. [Para 58][781-G-H; 782-A]

2.4 The resolution plan submitted by successful resolution applicant is required to contain various provisions, viz., provision for payment of insolvency resolution process costs, provision for payment of debts of operational creditors, which shall not be less than the amount to be paid to such creditors in the event of liquidation of the Corporate Debtor under section 53; or the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53, whichever is higher. The resolution plan is also required to provide for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, which also shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the Corporate Debtor. Explanation 1 to clause (b) of sub-section

(2) of Section 30 of the I&B Code clarifies for the removal of doubts, that a distribution in accordance with the provisions of the said clause shall be fair and equitable to such creditors. The resolution plan is also required to provide for the management of the affairs of the Corporate Debtor after approval of the resolution plan and also the implementation and supervision of the resolution plan. Clause (e) of sub-section (2) of Section 30 of I&B Code also casts a duty on RP to examine, that the resolution plan does not contravene any of the provisions of the law for the time being in force. [Para 59][782-B-E]

2.5 Perusal of Section 29 of the I&B Code read with Regulation 36 of the Regulations would reveal, that it requires RP to prepare an information memorandum containing various details of the Corporate Debtor so that the resolution applicant submitting a plan is aware of the assets and liabilities of the Corporate Debtor, including the details about the creditors and the amounts claimed by them. It is also required to contain the details of guarantees that have been given in relation to the debts of the corporate debtor by other persons. The details with regard to all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities are also required to be contained in the information memorandum. So also the details regarding the number of workers and employees and liabilities of the Corporate Debtor towards them are required to be contained in the information memorandum. [Para 60] [782-F-H]

2.6 All these details are required to be contained in the information memorandum so that the resolution applicant is aware, as to what are the liabilities, that he may have to face and provide for a plan, which apart from satisfying a part of such liabilities would also ensure, that the Corporate Debtor is revived and made a running establishment. The legislative intent of making the resolution plan binding on all the stake-holders after it gets the seal of approval from the Adjudicating Authority upon its satisfaction, that the resolution plan approved by CoC meets the requirement as referred to in sub-section (2) of Section 30 is, that after the approval of the resolution plan, no surprise claims should be flung on the successful resolution applicant. The dominant purpose is, that he should start with fresh slate on the basis of the resolution plan approved. [Para 61][783-A-C]

2.7 As such, with respect to the proceedings, which arise after 16.8.2019, there will be no difficulty. After the amendment, any debt in respect of the payment of dues arising under any law for the time being in force including the ones owed to the Central Government, any State Government or any local authority, which does not form a part of the approved resolution plan, shall stand extinguished. [Para 67][784-E-F]

2.8 If it is held, that the amendment is declaratory or clarificatory in nature, it will have to be held, that such an amendment is retrospective in nature and exists on the statute book since inception. However, if the answer is otherwise, the amendment will have to be held to be prospective in nature, having force from the date on which the amendment is effected in the statute. [Para 69][784-G-H; 785-A]

2.9 Perusal of the “Statement of Objects and Reasons” of the Insolvency and Bankruptcy Code (Amendment) Bill, 2019SOR would reveal, that one of the prime objects of I&B Code was to provide for implementation of insolvency resolution process in a time bound manner for maximisation of value of assets in order to balance the interests of all stakeholders. However, it was noticed, that in some cases there was extensive litigation causing undue delays resultantly hampering the value maximisation. It was also found necessary to ensure, that all creditors are treated fairly. It was therefore in view of the various difficulties faced and in order to fill the critical gaps in the corporate insolvency framework, it was necessary to amend certain provisions of the I&B Code. Clause (f) of para 3 of the SOR of the Insolvency and Bankruptcy Code (Amendment) Bill, 2019 would amply make it clear, that the legislative intent in amending sub-section (1) of Section 31 of I&B Code was to clarify, that the resolution plan approved by the Adjudicating Authority shall also be binding on the Central Government, any State Government or any local authority to whom a debt is owed in respect of payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, including tax authorities. [Para 71][786-D-G]

2.10 It could be seen, that in the speech the Hon’ble Finance Minister has categorically stated, that Section 238 provides that I&B Code will prevail in case of inconsistency between two laws. She also stated, that there was question about indemnity for successful resolution applicant and that the amendment was clearly making it binding on the Government. She stated, that the Government will not make any further claim after resolution plan is approved. So, that is going to be a major sense of assurance for the people who are using the resolution plan. She has categorically stated, that she would want all the Hon’ble Members to recognize this message and communicate further that I&B Code gives that comfort to all new bidders. They need not be scared that the taxman will come after them for the faults of the earlier promoters. She further states, that once the resolution plan is accepted, the earlier promoters will be dealt with as individuals for their criminality but not the new bidder who is trying to restore the company. It could thus be seen, that the speech made by Hon’ble Finance Minister while explaining the amendment could be referred to for ascertaining what was the reason for moving the Bill. The speech can be used for finding out: what were the circumstances in which the amendment was carried out; what was the mischief for which the unamended section did not provide; and what was sought to be remedied by amended enactment. [Paras 73, 76][787-E-H; 789-B-C]

2.11 It is clear, that the mischief, which was noticed prior to amendment of Section 31 of I&B Code was, that though the legislative intent was to extinguish all such debts owed to the Central Government, any State Government or any local authority, including the tax authorities once an approval was granted to the resolution plan by NCLT; on account of there being some ambiguity, the State/Central Government authorities continued with the proceedings in respect of the debts owed to them. In order to remedy the said mischief, the legislature thought it appropriate to clarify the position, that once such a resolution plan was approved by the Adjudicating Authority, all such claims/dues owed to the State/Central Government or any local authority including tax authorities, which were not part of the resolution plan shall stand extinguished. [Para 77][789-D-E]

2.12 The faulty drafting in the provision was capable of being interpreted, that the legislative embargo imposed on a person from procreating and giving birth to a third child in the context of holding the office of a member of a municipality remained in operation for a period of one year only and thereafter it was lifted. It could be interpreted, that on the date on which Section 13-A was brought on the statute book i.e. dated 5.4.1994, even if a person became disqualified, the disqualification ceased to operate and he became qualified once again to contest the election and hold the office of member of a municipality on the expiry of one year from 5-4-1994. After realizing the error, Section 13-A came to be amended. It could thus be seen, that what is material is, to ascertain the legislative intent. If legislature by an amendment supplies an obvious omission in a former statute or explains a former statute, the subsequent statute has a relation back to the time when the prior Act was passed. [Paras 80, 82][793-E-F; 798-D]

2.13 One of the principal objects of I&B Code is, providing for revival of the Corporate Debtor and to make it a going concern. I&B Code is a complete Code in itself. Upon admission of petition under Section 7, there are various important duties and functions entrusted to RP and CoC. RP is required to issue a publication inviting claims from all the stakeholders. He is required to collate the said information and submit necessary details in the information memorandum. The resolution applicants submit their plans on the basis of the details provided in the information memorandum. The resolution plans undergo deep scrutiny by RP as well as CoC. In the negotiations that may be held between CoC and the resolution applicant, various modifications may be made so as to ensure, that while paying part of the dues of financial creditors as well as operational creditors and other stakeholders, the Corporate Debtor is revived and is made an on-going concern. After CoC approves the plan, the Adjudicating Authority is required to arrive at a subjective satisfaction, that the plan conforms to the requirements as are provided in sub-section (2) of Section 30 of the I&B Code. Only thereafter, the Adjudicating Authority can grant its approval to the plan. It is at this stage, that the plan becomes binding on Corporate Debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution Plan. The legislative intent behind this is, to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims. If that is permitted, the very calculations on the basis of which the resolution applicant submits its plans, would go haywire and the plan would be unworkable. [Para 86][802-F-H; 803-A-C]

2.14 The word “other stakeholders” would squarely cover the Central Government, any State Government or any local authorities. The legislature, noticing that on account of obvious omission, certain tax authorities were not abiding by the mandate of I&B Code and continuing with the proceedings, has brought out the 2019 amendment so as to cure the said mischief. Thus, the 2019 amendment is declaratory and clarificatory in nature and therefore retrospective in operation. “Creditor” therefore has been defined to mean ‘any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder’. “Operational creditor” has been defined to mean a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. “Operational debt” has been defined to mean a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority. [Paras 87, 90] [803-C-D; 804-A-C]

2.15 It is a cardinal principle of law, that a statute has to be read as a whole. Harmonious construction of sub-section (10) of Section 3 of the I&B Code read with sub-sections (20) and (21) of Section 5 thereof would reveal, that even a claim in respect of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority would come within the ambit of ‘operational debt’. The Central Government, any State Government or any local authority to whom an operational debt is owed would come within the ambit of ‘operational creditor’ as defined under sub-section (20) of Section 5 of the I&B Code. Consequently, a person to whom a debt is owed would be covered by the definition of ‘creditor’ as defined under sub-section (10) of Section 3 of the I&B Code. As such, even without the 2019 amendment, the Central Government, any State Government or any local authority to whom a debt is owed, including the statutory dues, would be covered by the term ‘creditor’ and in any case, by the term ‘other stakeholders’ as provided in sub-section (1) of Section 31 of the I&B Code. The said provisions leave no manner of doubt to hold, that the 2019 amendment is declaratory and clarificatory in nature. Even if 2019 amendment was not effected, still in light of the view taken by us, the Central Government, any State Government or any local authority would be bound by the resolution plan, once it is approved by the Adjudicating Authority (i.e. NCLT). [Paras

91 and 94][804-C-F; 805-B-C]

3.1 As regards CA No.8129 of 2019, vide the impugned judgment and order dated 23.4.2019, NCLAT found, that as no ground was made out in terms of Section 61(3) of I&B Code, no relief could be granted in the appeals. The observations by NCLAT are beyond the scope of the powers available with NCLAT under sub-section (3) of s. 61 of I & B Code. [Paras 109 and 110][810-C-D; 811-C-D]

3.2 NCLAT categorically found that no ground as is available under sub-section (3) of Section 61 of I&B Code has been made out and has also categorically found, that the resolution plan submitted by GMSPL was a better offer than the other two resolution applicants, including EARC and that the Adjudicating Authority has rightly approved the resolution plan of GMSPL. After coming to such finding, the only option available with NCLAT was to dismiss the appeals. The observations made, if permitted to remain, would totally frustrate the object of I&B Code of revival of a Corporate Debtor and to resurrect it as a going concern. The successful resolution applicant cannot be flung with surprise claims which are not part of the resolution plan.Thus, it is thus clear, that according to the resolution plan submitted by EARC itself, had it been a successful applicant, then in that event, the claims made by it would have been irrevocably waived and permanently extinguished and written off in full with effect from the Effective Date. Had the resolution plan of EARC been approved, then all such debts would have stood extinguished without any further act or deed and approval of the said plan by NCLT would have been a sufficient notice required to be given to any person for such matter. Undisputedly, the resolution plan submitted by EARC was on the basis of the information memorandum submitted by RP wherein, it was specifically clarified, that the claims of EARC were not admitted by RP. It is thus clear, that EARC is trying to blow hot and cold at the same time. According to it, had its resolution plan been approved by CoC and NCLT, then the claims, which are now insisted by EARC would have stood extinguished. However, on its failure to become a successful resolution applicant and approval of other applicant as a successful resolution applicant, its claim would survive. A party cannot be permitted to apply two different yardsticks. [Paras

111 and 114][811-D-F; 813-D-G]

3.3 In the instant case, the claim of EARC was rejected on 22.1.2018. Instead of challenging the said rejection, EARC participated in the proceedings and was one of the resolution applicants. Not only that, in the first round, it was a successful bidder being ranked H1 bidder. However, since in the negotiations it failed to satisfy CoC, fresh bids were invited from the resolution applicants, which had submitted their EOI. In the 12th meeting of CoC held on 25.4.2018, the resolution plan of GMSPL was approved by 89.23% of the voting shares. Only thereafter, EARC filed two applications; one challenging the approval of resolution plan of GMSPL by CoC and another challenging rejection of its claims by RP/CoC. It could thus be clearly seen, that EARC was taking chances. After rejection of its claim, it did not choose to challenge the same by an application under Section 60(5) but waited till the decision of CoC. During this period, it was actually pursuing its resolution plan. Only after its resolution plan was not approved and the resolution plan of GMSPL was approved, it filed the aforesaid two applications. Apart from that, as already observed in the resolution plan of EARC itself, it has provided for extinguishment of all claims not forming part of resolution plan. [Paras 120-121][815-B-E]

3.4 Even otherwise, if for the sake of argument, it is held, that EARC was entitled to be treated as a ‘financial creditor’ and entitled for a participation in CoC, still its share was about 9% and as such, the resolution plan of GMSPL would have been passed by a majority of 80%, which is much above the statutory requirement. Therefore, the observation made by NCLAT giving liberty to EARC to take recourse to such proceedings as available in law for raising its claims is totally unsustainable. [Paras 122, 123][815-F-G]

3.5 Insofar as, the observation made with regard to claim of the Jharkhand Government is concerned, it is to be noted, that the State of Jharkhand has not even appealed against the order passed by NCLT. Insofar as, the claims of Labour and Workmen are concerned, RP has specifically stated before NCLAT, that whatever claims were received from the workmen were duly considered in the resolution plan. Despite that, observing that a liberty is available to the workmen to raise their claims before a Civil Court or Labour Court, is totally in conflict with the provisions of I&B Code. The same would equally apply to the observation made in the appeal of DS, claiming to be ‘operational creditor’. Therefore, the appeal is allowed by expunging the paragraphs nos. 28, 42, 43, 51 and 52 from the judgment of NCLAT dated 23.4.2019. The judgment and order passed by NCLT dated 22.6.2018 is upheld. [Paras 124 and 125][815-G-H; 816-A-C]

3.6 2019 amendment to Section 31 of I&B Code is clarificatory and declaratory in nature and therefore will have a retrospective operation. As such, when the resolution plan is approved by NCLT, the claims, which are not part of the resolution plan, shall stand extinguished and the proceedings related thereto shall stand terminated. Since the subject matter of the petition are the proceedings, which relate to the claims of the respondents prior to the approval of the plan, same cannot be continued. Equally the claims, which are not part of the resolution plan, shall stand extinguished. [Para 130][818-C-D]

4. In CA arising out of SLP 11232 of 2020, relegating the appellant to the alternative remedy would serve no purpose. A party cannot be made to run from one forum to another forum in respect of the proceedings and the claims, which are not permissible in law.The impugned judgment and order passed by the High Court is quashed and set aside. The respondents are not entitled to recover any claims or claim any debts owed to them from the Corporate Debtor accruing prior to the transfer date. [Paras 131, 132][818-E-F]

5. In ordinary course, WP (C) 117 of 2020 would not have entertained such a petition directly under Article 32 of the Constitution. However, a question of law, which arises for consideration in the instant petition has been considered in this batch of matters. In that view of the matter, it would not be in the interest of justice to non-suit the instant petitioner, when the question of law have been specifically decided, which would govern the present case also. The respondents are not entitled to recover any claims or claim any debts owed to them from the Corporate Debtor accruing prior to the transfer date. [Paras 139, 140] [820-A-C]

6.1 As regards CA arising out of SLP (C) 7147-50 of 2020, it is found that the finding of the High Court, that the dues owed to the State Government and Central Government would not come within the definition of ‘operational debt’, is incorrect in law. So also the finding, that since the order of NCLT is prior to the date on which Section 31(1) of I&B Code was amended, the provisions of Section 31 would not be applicable, also cannot stand. [Para 144][821-A-B]

6.2 The High Court erred in holding, that the AppellantCompany does not have locus to file the writ petitions inasmuch as, the management has been taken over by V Co. The resolution plan is in respect of the Corporate Debtor and the successful resolution applicant only takes over the management of the Corporate Debtor in accordance with the resolution plan. The resolution applicant steps into the shoes of the Corporate Debtor. As such, the finding in this respect would also not be sustainable in law. [Para 145][821-B-D]

6.3 It was submitted that RP/CoC had acted in a fraudulent manner; and that though a notice inviting claim was required to be published in local newspapers where the registered office of the Corporate Debtor was situated, the notice was published in the newspaper of Kolkata edition. As per Regulation 6(2)(b) of the 2016 Regulations, the said notice is required to be published in one English and one regional language newspaper with wide circulation at the location of the registered office and corporate office of the Corporate Debtor. Perusal of the record would reveal, that the notice was published in Business Standard and Ananda Bazar Patrika newspapers of the Kolkata edition, which have wide circulation in Ranchi. The corporate office of the Corporate Debtor is at Kolkata whereas its registered office is at Ranchi. In any case, it is to be noticed, that the Forest Department of the State Government had filed intervention application before NCLT as well as NCLAT. When one of the wings of the State Government has approached NCLT and NCLAT, it is difficult to believe, that other organ of the State was not aware about the said proceedings. [Para 146][821-D-G]

6.4 The submission that finding with regard to noncompliance of Section 13 is not challenged by the ES Company, is also incorrect, inasmuch as, ES Company has raised the specific ground in Grounds ‘U’ to ‘ AA’ to that effect in the appeal memo. [Para 147][821-G-H]

6.5 The impugned judgment and order of the High Court is quashed and set aside. The respondents are not entitled to recover any claims or claim any debts owed to them from the Corporate Debtor accruing prior to the transfer date. [Paras 148149][822-A-B]

Committee of Creditors of Essar Steel India Limited Through Authorized Signatory v. Satish Kumar Gupta and Others (2020) 8 SCC 531 : [2019] 16 SCR 275; K. Shashidhar vs. Indian Overseas Bank and Others (2019) 12 SCC 150 : [2019] 3 SCR 845; Maharashtra Seamless Limited vs. Padmanabhan Venkatesh and others (2020) 11 SCC 467; Karad Urban Cooperative Bank Ltd. vs. Swwapnil Bhingardevay & Ors. (2020) 9 SCC 729; Kalpraj Dharamshi and Another vs. Kotak Investment Advisors Limited and Another 2021 SCC OnLine SC 204; Banarasi and Another v. Ram Phal (2003) 9 SCC 606 : [2003] 2 SCR 22; State Bank of India vs. V. Ramakrishnan and Another (2018) 17 SCC

394 : [2018] 10 SCR 974; B.K. Educational Services Private Limited v. Parag Gupta and Associates (2019)

11 SCC 633 : [2018] 12 SCR 794; Innoventive

Industries Ltd. vs. ICICI Bank & Anr (2018) 1 SCC

407 : [2017] 8 SCR 33; Pr. Commissioner of Income Tax vs. Monnet Ispat and Energy Ltd. 2018 (18) SCC 786; K.P. Varghese v. Income Tax Officer, Ernakulam and Another (1981) 4 SCC 173 : [1982] 1 SCR 629; Union of India and others vs. Martin Lottery Agencies Ltd. (2009) 12 SCC 209 : [2009] 7 SCR 946; Zile Singh vs. State of Haryana and others (2004) 8 SCC 1 : [2004]

5 Suppl. SCR 272; Commissioner of Income Tax I, Ahmedabad vs. Gold Coin Health Food Private Limited (2008) 9 SCC 622 : [2008] 12 SCR 179; State Bank of India vs. V. Ramakrishnan and another (2018) 17 SCC

394 : [2018] 10 SCR 974; Akshay Jhunjhunwala & Anr. vs. Union of India through the Ministry of Corporate Affairs & Ors. 2018 SCC OnLine Cal. 142; Export Import Bank of India vs. Resolution Professional JEKPL Private Limited Company Appeal (AT) (Insolvency) No. 304 of 2017; Babu Ram Prakash Chandra

Maheshwari vs. Antarim Zilla Parishad Muzaffar Nagar [1969] 1 SCR 518; Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai & Ors. (1998) 8 SCC 1 : [1998] 2 Suppl. SCR 359; Nivedita Sharma vs. Cellular Operators Association of India & Ors. (2011) 14 SCC 337; Embassy Property Developments Pvt. Ltd. vs. State of Karnataka and Others (2020) 13 SCC 308 – referred to.

Justice G.P. Singh treatise on “The principles of Statutory Interpretation”, 14th Edition – referred to.