Restricting clause Section 29-A of the IBC says an entity connected to the promoters or the management of the company going through the insolvency process cannot submit a bid
NCLT order may allow promoters of Essar, Bhushan Steel back in the bidding game
Mumbai, June 11
In a development that could significantly impact the ongoing insolvency resolution processes, the Mumbai Bench of the National Company Law Tribunal recently ruled that the law banning defaulted promoters from bidding for their own company cannot be applied in cases filed before November 23, 2017.
The order passed by Judicial Member MK Shrawat comes as a relief for the promoters of big defaulting companies such as Essar Steel, Bhushan Steel and Alok Industries as the existing promoters of the companies get an opportunity to join hands with other financial institutions to bid to buy it back.
The Centre had introduced a new section to the Insolvency and Bankruptcy Code on November 23, 2017 through an ordinance. Section 29-A prescribed that an entity that is connected to the promoters or the management of the company going through insolvency process cannot submit a bid.
This rule was cited to disqualify a bid for Essar Steel from a consortium that included one of the scions of the Essar Group promoters. Insolvency proceedings at the NCLT were initiated against Essar Steel on June 27, well before the new section was introduced.
NCLT, in an order dated June 4, 2018 related to the insolvency case of Wig Associates, said “…any amendment to a statute affecting the legal rights of an individual must be presumed to be prospective unless it is made expressly or is impliedly retrospective.”
“… when a repeal of an enactment is followed by fresh legislation, such legislation does not affect the substantive rights of parties on the date of the suit or adjudication of the suit unless such legislation is retrospective and a court of appeal cannot take into consideration a new law brought into existence after the judgement appealed from has been rendered because the rights of the parties in an appeal is determined under the law in force on the date of suit,” Justice MK Shrawat said.
Advocate Amir Arsiwala, who represented the corporate debtor, told BusinessLine that the insolvency resolution processes are continuous proceedings and cannot be halted, altered or changed till their finalisation; hence, an amendment to the IBC law cannot be made retrospective.
“It is unfair to alter the rules of a game in a playground once the game has started,” he added.
The ruling will give an opportunity to Essar Steel and Bhushan Steel promoters — the Ruias and the Singhals — who had almost recast their loan under the Sustainable Structuring of Stressed Assets before their companies were dragged into insolvency proceeding under IBC.