Ineligibility Of Successful Resolution Applicant U/S 29A Of IBC Has To Be Seen On Date Of Submission Of Resolution Plan: NCLAT New Delhi

The NCLAT New Delhi Bench of Justices Ashok Bhushan and Barun Mitra held that the eligibility/ineligibility of Successful Resolution Applicant under section 29A of the Insolvency and Bankruptcy Code (IBC) has to be seen on the date of submission of Resolution Plan.

Brief Facts

On an Application filed by a Financial Creditor of the Corporate Debtor – Dilwara Leasing and Investment Ltd., Corporate Insolvency Resolution Process (“CIRP”) against the CD commenced by order dated 22.02.2022 passed by Adjudicating Authority in C.P.No.(IB)-983 of 2020.

In the 6th Meeting of the CoC, held on 14.07.2022, i.e., in response to the Form-G, the RP has received Resolution Plans from six prospective Resolution Applicants, which also included Bishwanath Traders & Investment Ltd.On result of voting, the Resolution Plan of Bishwanath Traders & Investment Ltd. was approved with 100% votes.

Raj Kumar Sahani, the Suspended Director and Shareholder of the CD filed an IA No.4173 of 2023 on 04.08.2023, objecting to the Resolution Plan submitted by Bishwanath Traders. The Applicant contended that Bishwanath Traders is not eligible to submit a Resolution Plan under Section 29A, hence the Application praying for approval of Resolution Plan be rejected.

By the impugned order dated 24.01.2024, the Adjudicating Authority allowed IA No.4173 of 2023 filed by Raj Kumar Sahani and held that Bishwanath Traders as ineligible under Section 29A (c) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “IBC”). Aggrieved by the aforesaid order, the RP, CoC of the CD as well as SRA have filed these Appeal(s), challenging order dated 24.01.2024.

Contentions

The appellant submitted that registration of MSME, after initiation of CIRP against the CD is inconsequential and the benefit under Section 240A is also available to Corporate Debtor, who has registered as MSME during the CIRP. It is submitted that law is now well settled by judgment of the Hon'ble Supreme Court in Hari Babu Thota that even after the CD is registered as MSME after the commencement of CIRP, the benefit of Section 240A, cannot be denied.

It was further submitted that Raj Kumar Sahani, the Suspended Director was throughout present in all the Meetings of the CoC and never raised any objection regarding the Corporate Debtor as MSME and further no objection regarding eligibility of Bishwanath Traders was raised by Raj Kumar Sahani.

It was submitted that Section 240A, which has been inserted in IBC by legislature, the object and purpose of legislation has to be given effect by all concerned. The benefit, which ensues to a Corporate Debtor under Section 240A, cannot be denied.

Per contra, the respondents submitted that present is a case where SRA with design to take control of the CD, has got the CD registered as MSME. It was further submitted that Shri Birendra Kumar Pasari is a person acting jointly or in consult with the SRA, which clearly attracts the ineligibility under Section 29A(c). Birendra Kumar Pasari is also a person, who manage and control the Corporate Debtor.

It was further submitted that commercial wisdom of the CoC is not unlimited, which cannot be exercised arbitrarily and in derogation of the Code and the Regulations framed thereunder. The Adjudicating Authority has rightly rejected the Resolution Plan of the SRA.

NCLAT's Analysis

The tribunal firstly analysed sections 240A and 29A of the IBC and observed that Section 240A was inserted subsequent to insertion of Section 29A in the IBC. The clear intendment of Section 240A was to take out applicability of Section 29A, clauses (c) and (h) for micro, small and medium enterprises. The Report of the Insolvency Law Committee, March 2018 recommended the Central Government to exempt MSME from application of certain provisions of the Code, including Section 29A.

The tribunal further noted that in the present case, CD was registered as MSME, which registration was issued on 24.05.2022. The Resolution Plan was submitted by Bishwanath Traders & Investment Ltd. in the CIRP of the Corporate Debtor on 11.07.2022.

The Hon'ble Supreme Court in Arcelormittal India (P) Ltd. Vs. Satish Kumar Gupta (2019) has settled the law regarding relevant date for ascertaining the eligibility of a Resolution Applicant. It was held by the Hon'ble Supreme Court that ineligibility attaches when the Resolution Plan is submitted by a Resolution Applicant.

Based on the above, the tribunal further observed that the facts of the present case as noted above, clearly indicate that the Corporate Debtor was registered as MSME much prior to the submission of the Resolution Plan by Bishwanath Traders & Investment Ltd. Thus, the eligibility of SRA has to be seen on the date of submission of Resolution Plan.

The tribunal further referred to the Supreme Court judgment in Hari Babu Thota in Civil Appeal No.4422/2023 wherein it was held that the aforesaid provision also was introduced as an Amendment in 2018 effective from 06.06.2018. It begins with a “notwithstanding clause”. Clauses (c) and (h) of Section 29-A which apply to the promoters and exempts them to apply for a plan is not applicable qua any micro, small and medium enterprises. The objective obviously was to due to the nature of business carried out by such entities.”

The Supreme Court in the above case further relied on the Insolvency Law Committee Report of March 2018 wherein it was observed that the aforesaid thus, makes it clear as opined in the said judgments also, that excluding such industries from disqualification under 29A (c) and (h) is because qua such industries other resolution applicants may not be forthcoming which thus would inevitably lead not to resolution but to liquidation.”

The tribunal further observed that the law declared by the Hon'ble Supreme Court in Hari Babu Thota (supra) clearly support the submissions of the Appellant that no ineligibility shall attach to the SRA by virtue of Section 240A.

The tribunal further observed that when the legislative enactment, i.e. 240A was inserted to give relief to the MSME for the purpose and object, as noted above by the Insolvency Law Committee Report, denying the benefit of Section 240A to a Corporate Debtor, which is a MSME, shall be against the intendment and purpose of legislative enactment.

Based on the above, the tribunal concluded that in any view of the matter, we having found that the Corporate Debtor having been registered as MSME on 22.05.2022, the benefit of Section 240A shall be extended and ineligibility under Section 29A(c) cannot be relied for declaring the SRA ineligible.

The tribunal further relied on the judgment of the Supreme Court in Kalpraj Dharmashi and Anr. vs. Kotak Investment Advisors Ltd. and Anr. (2020) wherein it was observed that It will therefore be clear, that this Court, in unequivocal terms, held, that the appeal is a creature of statute and that the statute has not invested jurisdiction and authority either with NCLT or NCLAT, to review the commercial decision exercised by CoC of approving the resolution plan or rejecting the same.

The tribunal finally concluded that when Section 240A is applied, ineligibility in the Resolution Applicant, under whose management and control, the account of the CD was declared non-performing, cannot be reckoned.

No other ineligibility of the SRA has been pointed out or pressed, we are thus satisfied that SRA Bishwanath Traders & Investment Ltd. did not suffer from any ineligibility from submitting the Resolution Plan on 11.07.2022, on which date Plan was submitted.

Case Title: Ashish Singh, Resolution Professional for Vibrant Buildwell Pvt. Ltd. v. Raj Kumar Sahani & Ors.

Case Reference: Company Appeal (AT) (Insolvency) No. 253-254 of 2024

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