Insolvency and Bankruptcy Code, 2016 — Section 30(2)(e) — Resolution plan — Contravention of law — Resolution Professional must ensure that resolution plan does not contravene any law in force — Investment by Multi-State Co-operative Society governed by Section 64 of MSCS Act — Ineligibility arising from violation of such provision renders resolution plan non-compliant. (Paras 30–31)

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Insolvency and Bankruptcy Code, 2016 — Section 30(2)(e) — Resolution plan — Contravention of law —

Resolution Professional must ensure that resolution plan does not contravene any law in force — Investment by Multi-State Co-operative Society governed by Section 64 of MSCS Act — Ineligibility arising from violation of such provision renders resolution plan non-compliant.

(Paras 30–31)

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Multi-State Co-operative Societies Act, 2002 — Section 64(d) — Investment of funds — “Same line of business” — Meaning —

Expression “any other institution in the same line of business” introduced as restrictive standard to prevent misuse of funds — Requires substantial, predominant or closely related sameness in core business activities — Not satisfied by remote or incidental connection.

(Paras 33–35, 37)

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“Same line of business” — Determination — Bye-laws — Decisive test —

Determination of line of business must be made with reference to objects and functions in bye-laws of the society — Bye-laws constitute governing charter — Investment must align with such objects.

(Paras 36–37)

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Co-operative society — Predominant business — Financial activity vs industrial activity —

Where society’s bye-laws show predominant activity of:

• accepting deposits,
• advancing loans, and
• member welfare services,

it cannot be treated as engaged in industrial manufacturing — Incidental or limited activity insufficient to establish same line of business.

(Paras 41–43)

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“Same line of business” — Textile sector — Distinction —

Agro-based processing activity permitted under bye-laws is distinct from industrial manufacturing of synthetic/man-made fibre textiles — Mere broad classification under “textile sector” insufficient — Functional and operational distinction decisive.

(Paras 44–45)

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Investment — Subsidiary vs future acquisition — Interpretation —

Requirement that institution be a “subsidiary” must exist at the time of investment — Future acquisition of control cannot satisfy statutory requirement.

(Paras 31–32, implicit reasoning)

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Amendment of bye-laws — Effect —

Amendment incorporating statutory language of Section 64(d) in investment clause does not expand scope of business — In absence of amendment to object clause, requirement of “same line of business” remains unsatisfied.

(Para 49)

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Additional evidence — Appellate stage — Rejection —

Document (certificate of amendment) not produced before lower forums cannot be relied upon at later stage without satisfying requirements under Order XLI Rule 27 CPC — Belated attempt rejected.

(Para 48)

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Legislative intent — Section 64(d) —

Insertion of phrase “same line of business” intended to:

• curb misuse of funds,
• prevent diversion into unrelated investments, and
• ensure financial discipline and protection of members’ deposits.

(Paras 33–35)

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RATIO DECIDENDI 

Under Section 64(d) of the MSCS Act, a co-operative society can invest only in a subsidiary or in an institution having substantial and predominant sameness of business as reflected in its bye-laws; such sameness must be determined from the object clause, and cannot be inferred from incidental activities or broad sectoral similarity.

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RESULT

• Appeal dismissed as withdrawn
• Law on “same line of business” clarified
• CIRP to continue as per IBC

(Paras 50–51)