Eligibility /Ineligibility of Successful Resolution Applicant u/s 29A of IBC must be based on Date of Submission of Resolution Plan: NCLAT [Read Order]

The Delhi bench of National Company Law Appellate Tribunal ( NCLAT ) 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.

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.

Become a PF & ESIC expert with our comprehensive course - Enroll Now

The Adjudicating Authority allowed the appeal 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.

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 was 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 and 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.

Become a PF & ESIC expert with our comprehensive course - Enroll Now

The tribunal 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 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 bench comprising of Justices Ashok Bhushan and Barun Mitra 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.

The tribunal 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.

Become a PF & ESIC expert with our comprehensive course - Enroll Now

It was viewed 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.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates