Judgement Briefs

Company Law

ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta

(2019) 2 SCC 1

Citation
(2019) 2 SCC 1
Court
Supreme Court of India
Date
4 October 2018
Bench
R.F. Nariman and Indu Malhotra JJ.

Facts

  • Essar Steel India Ltd. entered the corporate insolvency resolution process.
  • ArcelorMittal India and Numetal submitted competing resolution plans.
  • Section 29A of the IBC disqualified certain persons connected with companies whose accounts had become non-performing assets.
  • ArcelorMittal was linked with Uttam Galva Steels, whose account was an NPA.
  • Before submitting its plan, it attempted to divest the shareholding that created the connection.
  • Numetal’s structure included entities associated with the Ruia family, the former promoters of Essar Steel.
  • Its shareholding structure was altered during the process.
  • The resolution professional and CoC had to decide whether the applicants were eligible.
  • Litigation reached the Supreme Court regarding the interpretation of:
  • “control”;
  • “connected person”;
  • acting jointly or in concert;
  • the relevant date for eligibility; and
  • the ability to cure disqualification.

Issues

  • When must Section 29A eligibility be tested?
  • What degree of control or connection makes an applicant ineligible?
  • Whether last-minute sale or restructuring of interests removes disqualification.
  • Whether an applicant can cure ineligibility by paying overdue amounts.

Rule

  • Eligibility is assessed when the resolution plan is submitted.
  • Section 29A must be applied according to substance, not merely formal corporate structure.
  • “Control” includes the ability to direct management or policy decisions and is not confined to majority share ownership.
  • The tribunal may examine:
  • promoters;
  • persons acting jointly or in concert;
  • connected persons;
  • corporate groups; and
  • the real beneficiaries behind special-purpose entities.
  • A person cannot avoid disqualification through a colourable or last-minute arrangement.
  • The proviso to Section 29A(c) permits curing by payment of all overdue amounts, interest and charges relating to the NPA account before plan eligibility is accepted.

Application

  • The Supreme Court rejected a narrow interpretation limited to the immediate entity submitting the plan.
  • Section 29A was enacted to prevent persons responsible for corporate default from indirectly regaining the debtor at a reduced value.
  • The Court therefore looked through the ownership and control structures of both applicants.
  • ArcelorMittal’s relationship with Uttam Galva could not be dismissed merely because it sold its shares shortly before submitting the plan.
  • The Court examined whether the divestment genuinely ended control and whether overdue NPA amounts had been cleared.
  • A strategic exit undertaken to cross the eligibility threshold did not automatically erase the statutory connection.
  • Numetal’s eligibility likewise depended on who stood behind its consortium.
  • Because interests associated with Essar Steel’s former promoters formed part of its original structure, the Court examined the complete arrangement rather than only its later revised shareholding.
  • The phrase “acting jointly or in concert” permitted scrutiny of coordinated economic participation.
  • The Court held that both applicants were initially affected by Section 29A.
  • However, the Code allowed a limited opportunity to cure the NPA-related disqualification through full payment.
  • This balanced two objectives:
  • preventing defaulting persons from exploiting insolvency; and
  • maximising competition and value where defaults were genuinely remedied.
  • The CoC and resolution professional were required to reassess eligibility after the permitted cure period.

Held

  • The Supreme Court held both ArcelorMittal and Numetal ineligible in their existing form at the relevant stage.
  • It granted an opportunity to cure disqualification in accordance with the statutory proviso.
  • The case established a purposive and substance-based interpretation of Section 29A.
  • Corporate layers, consortium structures and last-minute divestments cannot be used to conceal control or connection.
  • Use this case for: resolution-applicant eligibility is determined by the real controlling and connected persons, not merely the formal name submitting the plan.