Gujarat NRE Coke promoter ineligible to negotiate with creditors: NCLAT

Allowing the appeal of Jindal Steel and Power, the National Company Law Appellate Tribunal (NCLAT) has held Arun Kumar Jagatramka, the promotor of Gujarat NRE Coke, not eligible to negotiate with the creditors of the debt-ridden company.

A two-member bench of NCLAT headed by Chairperson Justice S J Mukhopadjaya said that as Jagatramka, who was ineligible to be a Resolution Applicant of the company under the Insolvency & Bankruptcy Code (IBC), cannot be allowed at this stage to negotiate with the creditors of Gujarat NRE Coke.

Jindal Steel and Power, which is an unsecured creditor of Gujarat NRE Coke, had challenged an NCLT order that allowed the promoters to settle debts with its creditors.

NCLT had given a go ahead to Jagatramka for "Financial Scheme of Compromise and Arrangement" with him and the company through its Liquidator, after holding the debts of shareholders, creditors etc.

The appellate tribunal set aside the order passed on May 15, 2018, by the Kolkata bench of National Company Law Tribunal (NCLT).

"... it is clear that the Promoter, if ineligible under Section 29A cannot make an application for Compromise and Arrangement for taking back the immovable and movable property or actionable claims of the Corporate Debtor'," said NCLAT.

Section 29A of IBC defines the persons, who are not eligible to submit bids for a company going through corporate insolvency resolution process.

"The NCLT by impugned order dated May 15, 2018, though ordered to proceed under Section 230 to 232 of the Companies Act, failed to notice that such application was not maintainable at the instance of 1st Respondent-Arun Kumar Jagatramka (Promoter), who was ineligible under Section 29A to be a Resolution Applicant'," said NCLAT.

It further added: "For the reasons aforesaid, we set-aside the impugned order dated May 15, 2018 and remit the case to Liquidator'/ Adjudicating Authority to proceed in terms of the decision of this Appellate Tribunal..."

The NCLAT said that Supreme Court in Swiss Ribbons case has held that the primary focus of IBC is to ensure revival and continuation of the corporate debtor by "protecting it from its own management and from a corporate death by liquidation".

"The aforesaid judgment makes it clear that even during the period of Liquidation, for the purpose of Section 230 to 232 of the Companies Act, the Corporate Debtor' is to be saved from its own management, meaning thereby the Promoters, who are ineligible under Section 29A, are not entitled to file application for Compromise and Arrangement in their favour under Section 230 to 232 of the Companies Act," said NCLAT.

Gujarat NRE Coke had voluntarily moved a plea before Kolkata NCLT to initiate insolvency proceedings on account of various defaults committed by it. NCLT admitted the plea on April 7, 2017.

However, the company could not attract any bids/resolution plan within the mandated 270 days under IBC, hence order for liquidation was passed by NCLT January 11, 2018.

Jagatramka had challenged liquidation order and his ineligibility before the NCLAT earlier as the resolution plan submitted by him was not accepted.

However, the NCLAT had allowed the liquidation proceeding to continue.

In the meantime, Jagatramka had moved an application under Sections 230 to 232 of the Companies Act before NCLT for Compromise and Arrangement between erstwhile Promoters and the Creditors, in which order was passed on May 15, 2018.

ICIJ-Mauritius leaks: Jindal Steel, GMR Holdings among firms named

While investments in India through the Mauritius route have been on the wane, the tax haven has still seen a sizeable amount of funds getting routed by entities operating or investing in India. Data released by International Consortium of Investigative Journalists (ICIJ) showed that as many as 50 companies or one-fourth of those disclosed in the Mauritius leaks, had India as their only country or one of the countries of activity.

After adjusting the data for defunct entities, the share fell marginally to 22 per cent of the total entities disclosed in the Mauritius leaks. Among individual companies, GMR Holdings, Apollo Hospitals, Jindal Steel and Power (Mauritius), Kolte Patil Developers, have been named in the disclosures for their links or transactions with some of these Mauritius-incorporated entities.

To be sure, the disclaimer on ICIJ's website reads: "There are legitimate uses for offshore companies and trusts. We do not intend to suggest or imply that any people, companies or other entities included in the ICIJ Offshore Leaks Database have broken the law or acted improperly." The documents procured by ICIJ from the offshore specialist law firm -- Conyers Dill & Pearman -- formed the basis of the recent findings.

In some of the cases, there are instances of complex holding structures. For instance, in the case of Jindal Steel & Power (Mauritius), the company held shares in another Mauritius entity Panacore Investments until 2014, as per ICIJ's findings. Panacore Investments ordered four bulk carriers from Chinese shipbuilding companies, at a cost of $27 million each in 2012. Part of the financing came from a loan by Jindal Steel & Power (Mauritius), through Dubai-based Panacore Resources DMCC.

For registration of each ship, Panacore Investments owned subsidiaries in Marshall Islands, one for the registration of each ship: Core Ambition, Core Forte, Core Integrity and Core Vision. Both Panacore or Jindal Steel and Power (Mauritius) did not respond to ICIJ's queries. Panacore Investments and the other four Marshall Islands-entities were named as subsidiaries in Delhi-based Jindal Steel & Power's 2014 annual report.

Meanwhile, GMR Holdings and Apollo Hospitals are mentioned in the list for a 2013 transaction that involved buying Mayo Mauritius' stake in AMG Healthcare Destination. The latter was established "to develop, operate and manage the project hospital at the Rajiv Gandhi International Airport at Shamshabad, Hyderabad", as per ICIJ's findings.

Pune-based real estate firm Kolte Patil Developers appears in the data leaks as it was a co-investor in a Mauritius-based real estate fund sponsored by US-based Portman Holdings. According ICIJ's findings, "Portman, as a sponsor along with other offshore investors, would invest in Indian Investee companies through a feeder fund incorporated in Mauritius". The findings showed that the fund would invest in Indian real estate projects in Pune such as Margosa Heights project. Further, the investments would be made "through intermediate holding companies, also incorporated in Mauritius."

While the above leaks don't necessarily indicate impropriety, they gain significance in the light of the government's efforts to renegotiate tax treaties with offshore jurisdictions such as Mauritius and Singapore.

The Double Taxation Avoidance Agreement was signed between India and Mauritius in 1982. The pact allowed any Indian company to seek tax residency in Mauritius and thus pay zero capital gains tax. The treaty also made Mauritius, a suitable route for foreign funds looking to invest in India.