If MSME Certificate Obtained Post Initiation Of CIRP, Promoter/Suspended Management Of Corporate Debtor Ineligible To Submit Resolution Plan: NCLT Delhi

“Hence, in the light of the provision under Section 17(1) (a) and (b) of IBC 2016, and Judgement of the Hon’ble NCLAT (ibid), we find that an MSME Certificate obtained by Promoter(s)/Ex-Director(s) post-commencement of the CIRP is invalid and it will not make them eligible to submit an EOI or the Resolution Plan by taking benefit of Section 240A of IBC 2016.”

Background Facts

On 02.03.2020, Overnite Express Limited (“Corporate Debtor”) was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT.

Subsequently on 12.11.2021, the Resolution Professional with the consent of Committee of Creditors (“CoC”) obtained a Micro Small and Medium Enterprise (“MSME”) certificate for the Corporate Debtor.

Mr. Om Prakash Raj Ghoria (“Successful Resolution Applicant/SRA”) is a member of the Suspended Board of the Corporate Debtor. Section 29A of IBC prohibits the Promoter and Suspended Management of Corporate Debtor from submitting a resolution plan for the same. However, Section 240A of IBC states that the prohibition under Section 29A would be inapplicable to a Promoter/Suspended Management of a Corporate Debtor registered as a MSME.

Thereafter, the Suspended Management submitted a resolution plan for the Corporate Debtor. The said Plan was approved by the Committee of Creditors (CoC) and was pending before the NCLT for approval.

Deutsche Bank A.G (“Applicant”) is a Secured Financial Creditor of the Corporate Debtor. The Applicant filed an objection to the resolution plan while contending that the Corporate Debtor is fraudulently vying to take advantage available to an MSME under Section 240A of IBC.

Issue

Whether the MSME Certificate obtained after the commencement of CIRP is valid for making a Defaulter Promoter eligible to submit a Resolution Plan under Section 240A of IBC.

NCLT Verdict

The Bench noted that the following parties could be interested in obtaining the MSME Certificate of the Corporate Debtor after commencement of CIRP:

• Promoter or Suspended Board of Directors, who intends to be a Prospective Resolution Applicant (PRA) and who is otherwise barred under Section 29A (c) &/or (h) of IBC to submit the Resolution Plan; or

• Resolution Professional/CoC to avail the business advantages under MSME Act such as preference in the marketing of product, price preference, or benefit in the payment terms.

The Bench then examined the validity of an MSME Certificate obtained by both the category of persons mentioned above post-commencement of CIRP.

It was noted that a MSME Certificate obtained by a Promoter/Suspended Director of Corporate Debtor after CIRP commencement shall be violative of Section 17(1)(b) of IBC. Reason being, when CIRP is initiated then the powers of Board of Directors of Corporate Debtor stand suspended and can be exercised by Interim Resolution Professional or Resolution Professional only.

It was held that if MSME certificate is obtained by the Suspended Management post initiation of CIRP then the same would be an ultra vires act. Such certificate would make the Promoter/Suspended Management eligible to submit a plan by taking benefit of Section 240A of IBC.

“Hence, in the light of the provision under Section 17(1) (a) and (b) of IBC 2016, and Judgement of the Hon’ble NCLAT (ibid), we find that an MSME Certificate obtained by Promoter(s)/Ex-Director(s) post-commencement of the CIRP is invalid and it will not make them eligible to submit an EOI or the Resolution Plan by taking benefit of Section 240A of IBC 2016.”

Further, the benefit of Section 240A of IBC can only be availed by a genuine MSME Enterprise, whose registration or MSME Certification is done prior to the commencement of CIRP of a Corporate Debtor.

The plan submitted by the SRA has been rejected and the Corporate Debtor has been sent into liquidation.

Case Title: M/s Hi-Tech Resource Management Limited v M/s Overnite Express Limited

Case No.: Company Petition No. (IB)-2240(ND)/2019

Counsel For Applicant: Adv. Rahul Tyagi

Counsel for Respondent: Adv. Sumant Batra, Adv. Ruchi Goyal, and Mr. Devendra Umrao, Adv. Aishwarya.

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