Summary
The Court held that a guarantor was ineligible to submit a resolution plan where a creditor had invoked his guarantee and it remained unpaid, even if another creditor initiated insolvency. Earlier withdrawal of appeals did not bar this appellant’s challenge. Although the plan ought not to have been entertained, the Court declined to disturb its long-running implementation on the peculiar facts, considering creditor support, employees, shareholders and public projects. The legal ruling on ineligibility therefore did not result in setting aside the plan.
Issues
- Whether Section 29A(h) required the creditor invoking a guarantee to be the same creditor initiating insolvency.
- Whether prior appeal withdrawal or the timing of statutory changes defeated the eligibility challenge.
- Whether the implemented plan should be disturbed despite the applicant’s ineligibility.
Provisions considered
- Section 29A(h), as amended in 2018, Insolvency and Bankruptcy Code, 2016An invoked guarantee remaining unpaid to a creditor attracted process-wide ineligibility; the initiating creditor need not be the same. (¶ 51-58)
- Section 12(3), as applicable to the proceedings, Insolvency and Bankruptcy Code, 2016The exclusion of 106 days spent in litigation was sustained, distinguishing exclusion from an additional extension. (¶ 60)
Held
- Insolvency becomes a collective proceeding in rem upon admission. An invoked personal guarantee remaining unpaid to one creditor could disqualify the applicant from the resolution process as a whole; eligibility could not differ creditor by creditor. Restricting the bar to the creditor who initiated insolvency would defeat Section 29A(h). (¶ 51-55)
- Submission of a plan did not create a vested right insulating the applicant from a subsequent disqualification continuing at approval or adjudication. Eligibility had to comply with the governing provision at the relevant later stage. The Court expressly left Section 29A(c) uninterpreted. (¶¶ 44, 50, 56)
- Guarantees had been invoked by financial creditors before the proceedings and plan submission. The applicant was ineligible and the plan should not have been entertained. Res judicata or issue estoppel did not bar this appellant, which had not been a party to the initial adjudication; the withdrawn appeals had not decided the legal issue on merits. (¶ 58-59)
- The 106-day litigation-related exclusion was upheld. The distinction between exclusion occasioned by proceedings before a higher forum and an extension of the ordinary process period was material. (¶ 60)
- Despite ineligibility, the plan had operated since April 2018 with requisite creditor support, financial infusion and ongoing projects. Considering employees, shareholders, the revival objective and protection of dissenting creditors under the plan, the Court exceptionally declined to disturb it on these peculiar facts. (¶ 61-65)
Result
Appeal disposed of with the interpretation of Section 29A(h); implemented resolution plan left undisturbed on the peculiar facts; no costs.