RP Can Obtain MSME Certificate For The Corporate Debtor Only To Avail Business Advantage Available Under MSMED Act, 2006: NCLT Delhi

“Now, we would like to examine whether the RP/CoC members can obtain an MSME Certificate. The answer could be Yes; if it is for the purpose of availing the business advantages available under the MSME Act, 2006 such as - to avail preference in the marketing of its product, price preference, or benefit in the payment terms, which are in the overall interest of maximizing the value of assets of the Corporate Debtor under CIRP, which is a going concern.”

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 Resolution Professional or CoC members can obtain an MSME Certificate for the Corporate Debtor.

NCLT Verdict

The Bench opined that the Resolution Professional can indeed obtain a MSME certificate for the Corporate Debtor but it could only be for the purpose of availing business advantages under the MSME Act.

“Now, we would like to examine whether the RP/CoC members can obtain an MSME Certificate. The answer could be Yes; if it is for the purpose of availing the business advantages available under the MSME Act, 2006 such as - to avail preference in the marketing of its product, price preference, or benefit in the payment terms, which are in the overall interest of maximizing the value of assets of the Corporate Debtor under CIRP, which is a going concern.”

While considering the facts, the Bench took the view that the Corporate Debtor was incorporated in 1996 and for 24 years no need for MSME registration was felt. Further, it is only 12 days prior to the last date for submission of ‘Expression of Interest’ that the MSME certificate was obtained by the Resolution Professional.

“The abovementioned chronology clearly reflects that the MSME Certificate, which was not obtained by the Corporate Debtor or its promoters for around “24 years” for the purpose of carrying out business as per the objects of its MoA, was obtained on 12.11.2021 i.e., within “03 days” from the date of publication of Form-G on 09.11.2021. Evidently, the SRA herein, being a Defaulter Ex-Director of the Corporate Debtor, given the pre-MSME certificate status of CD being of a non-MSME, was ineligible to submit an EOI/Resolution Plan.”

It was concluded that the Resolution Professional obtained the MSME certificate just to enable the Promoter/Suspended Management to submit a resolution plan for the Corporate Debtor.

“Thus, the RP/CoC by obtaining an MSME Certificate on their initiative, opened the doors, that were otherwise shut, to the Defaulter Promoter(s)/ Suspended Board of Director(s)/ ExManagement just to enable them to submit EOI/Resolution Plan to regain entry and control/management over the Corporate Debtor through the backdoor.”

Also, in the minutes of meeting of the 5th CoC meeting dated 01.11.2021, it was categorically recorded that the MSME Certificate would enable the Ex-Promoters to submit their EOI/Resolution Plan. But no mention of any business advantage relating to such certification or any formal resolution passed by CoC authorizing Resolution Professional to obtain such certificate can be found.

Thus, the Resolution Professional did not obtain the MSME certificate to avail any business advantage.

Parallelly, it was concluded that 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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