NCLT Kochi Allows Promoter Of Corporate Debtor MSME To File Resolution Plan In Individual Capacity

Judicial Member Ashok Kumar Borah of the NCLT Bench at Kochi recently made this pronouncement on an application made by the promoter of a corporate debtor.

Facts

Prayag Polytech Private Limited, Operational Creditor, sought the initiation of Corporate Insolvency Resolution Process against the Corporate Debtor Propyl Packaging Limited in February last year.

K Satheesh Babu Rajesh, a promoter in Propyl Packaging, however, wished to restart Propyl's business operations and sought to submit a Resolution Plan.

However, the eligibility criterion for an individual to submit Expression of Interest (EoI) prescribed a Minimum 'Tangible Net Worth of INR 10 Crores'. Citing this reason, the Resolution Professional rejected his EoI in January 2021.

Submissions

Rajesh's Counsel Advocate Shivshankar R. Panicker relied on a Gazette Notification dated June 26, 2020 to argue that a Corporate Debtor would now come within the purview of an MSME. He went on to point out that Rajesh was eligible to apply as a Prospective Resolution Applicant under Section 240A of IBC since he was not a wilful defaulter. The lawyer buttressed his submissions by relying on Saravana Global Holdings Ltd. v. Bafna Pharmaceuticals Limited and others, where it was stated that it is not necessary for the promoters to compete with other Resolution Applicants to regain the control of the Corporate Debtor.

On the other hand, the lawyer for the Corporate Resolution Professional, Advocate Vinod P.V. iterated that Rajesh's EoI did not meet the eligibility criteria, since he did not prove his net worth with a certificate. Moreover, he stated, the eligibility criterion for the presentation of a Resolution Plan was approved by the Committee of Creditors in a meeting held in September 2020.

Despite an opportunity being given to rectify the defect, this was not corrected, with Rajesh instead requesting a waiver on the eligibility criteria. This request was subsequently rejected by the Committee of Creditors in January this year, Advocate Vinod averred.

As far as the Circular went, the Resolution Professional was willing to act according to the direction of the NCLT, the lawyer informed the Tribunal. He stressed, however, that the new MSME Circular that Rajesh relied upon was issued after the admission of the CIRP application, even though Propyl would qualify as an MSME in terms of the Circular.

What the NCLT held

Ruling that the Corporate Debtor could be registered as an MSME in terms of Saravana and the Circular, the Kochi Bench directed the Resolution Professional to consider the Resolution Plan if the promoter submitted a "viable and feasible" Resolution Plan that "maximises the value of assets of the Corporate Debtor in a way that prevents liquidation".

The Tribunal referred the Saravana decision where it was emphasised,

"The intention of the legislature shows that the Promoters of 'MSME' should be encouraged to pay back the amount with the satisfaction of the 'Committee of Creditors' to regain the control of the 'Corporate Debtor' and entrepreneurship by filing 'Resolution Plan' which is viable, feasible and fulfils other criteria as laid down by the 'Insolvency and Bankruptcy Board of India'."

However, the Tribunal agreed with the Resolution Professional that a Corporate Debtor could not submit a resolution as per the IBBI regulations, at which the promoter agreed to submit the Resolution in his individual capacity.

Therefore, the Tribunal directed that –

• Rajesh submit an EoI/Resolution Plan in his individual capacity within two weeks from the date of the NCLT's order,
• If Rajesh did so, the Resolution Professional was to register the Corporate Debtor as an MSME, provided he produces the certificate of Registration as an MSME under the "Udhayam Registration" of the Ministry of Micro Small and Medium Enterprises.
• After considering the Expression of Interest of the applicant, the Reesolution Professional was to publish a list of Prospective Resolution Applicants, without further delay

CASE: K Satheesh Babu Rajesh v George Varkey

COUNSEL: Advocate Shivshankar R Panicker for Rajesh, Advocate Vinod PV for Varkey.

Click here to download the order