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 FactsOn 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.ContentionsThe 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 AnalysisThe 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...

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

Mohd Malik Chauhan

Tags