Resolution plan rejected as applicant deemed ineligible under Section 29A despite proposing full statutory dues payment

The NCLT Bengaluru rejected a resolution plan under Section 31(2) read with Section 30(2)(e) of IBC, 2016. Despite the Resolution Professional confirming no outstanding debts to government authorities and no employee claims after two years of CIRP initiation, and the resolution applicant proposing 100% payment of statutory dues, the Tribunal found the successful resolution applicants ineligible under Section 29A read with Section 240A of IBC. The MSME UDYAM Certificate obtained post-CIRP initiation was deemed irrelevant, rendering the resolution plan legally untenable.

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Issues Involved:
1. Approval of the Resolution Plan under Section 30(6) read with Section 31 of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Compliance with Section 29A of the IBC, 2016, regarding the eligibility of the Resolution Applicants.
3. Validity of MSME registration obtained during the Corporate Insolvency Resolution Process (CIRP).
4. Handling of preferential transactions under Section 43 of the IBC, 2016.
5. Distribution of funds from avoidance transactions as per IBBI Notification dated 14.06.2022.
6. Compliance with statutory dues and regulatory fees.

Issue-wise Detailed Analysis:

1. Approval of the Resolution Plan under Section 30(6) read with Section 31 of the IBC, 2016:
The application was filed by the Resolution Professional (RP) seeking approval of the Resolution Plan submitted by the promoters of the Corporate Debtor. The plan was approved by the Committee of Creditors (CoC) with a 100% voting share. The RP certified that the Resolution Plan complied with all provisions of the IBC, 2016, and the CIRP Regulations, and did not contravene any provisions of the law. The CoC authorized the RP to submit the Resolution Plan to the Adjudicating Authority for approval.

2. Compliance with Section 29A of the IBC, 2016, regarding the eligibility of the Resolution Applicants:
Section 29A of the IBC, 2016, specifies the persons not eligible to be Resolution Applicants. The Resolution Applicant must submit an affidavit stating their eligibility under Section 29A. In this case, the affidavit was initially given by the RP instead of the Resolution Applicant. Upon direction from the Adjudicating Authority, the required affidavit was later filed by the Resolution Applicants. However, the MSME registration certificate, which was crucial for claiming eligibility under Section 29A read with Section 240A, was obtained after the initiation of CIRP, raising questions about its validity.

3. Validity of MSME registration obtained during the CIRP:
The MSME registration certificate was obtained after the initiation of CIRP. Judicial precedents, including the NCLAT judgment in the case of Digambar Anandrao Pingle vs. Shrikant Madanlal Zawar & Ors, and the NCLT, New Delhi decision in Harbans Singh & Ors. vs. Shri Deveander Singh and Anr, have held that MSME certificates obtained during the CIRP period are to be ignored. The Adjudicating Authority concluded that the MSME certificate obtained subsequent to the initiation of CIRP is impermissible and the Resolution Applicants are not eligible under Section 29A r.w.s. 240A of IBC.

4. Handling of preferential transactions under Section 43 of the IBC, 2016:
The RP identified certain transactions amounting to Rs. 1,70,74,000/- as preferential in nature and filed an application under Section 43 of the IBC, 2016, which was pending before the Tribunal. The Resolution Applicants stated that they would undertake to infuse the amount specified by the Adjudicating Authority towards the business operations of the Corporate Debtor if the application is allowed.

5. Distribution of funds from avoidance transactions as per IBBI Notification dated 14.06.2022:
The RP filed a compliance affidavit regarding the distribution of funds from avoidance transactions. The Resolution Applicants stated that they had not previously submitted any resolution plan for revival of a corporate debtor and had not failed to implement any approved resolution plan. They also stated that no further payout towards the stakeholders would arise from the amount realized in the avoidance application as 100% payout was proposed in the resolution plan.

6. Compliance with statutory dues and regulatory fees:
The RP stated that there were no debts or liabilities due to the Central or State Government or any statutory authority. No claims were received from government departments or statutory authorities. The resolution plan proposed to make 100% payment towards any outstanding statutory dues. The RP also addressed the issue of regulatory fees, stating that since the resolution plan value was lesser than the liquidation value, the payment of regulatory fees as per Regulation 31A did not arise.

Conclusion:
The Adjudicating Authority concluded that the Resolution Plan submitted by the Resolution Applicants was not tenable in law due to the ineligibility under Section 29A r.w.s. 240A of IBC. The MSME certificate obtained during the CIRP period was ignored, and the Resolution Plan was rejected under Section 31(2) r.w.s. 30(2)(e) of IBC. The application IA No.192 of 2022 in CP IB 196 of 2020 was accordingly disposed of.

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