2019 (9) TMI 841 - AT - Insolvency and Bankruptcy

Appellate Tribunal Affirms MSME Resolution Plan Approval, Emphasizes Entrepreneurship & Asset Value

The Appellate Tribunal upheld the decision of the Adjudicating Authority, finding no merit in the appeal. The Tribunal emphasized that in exceptional ... Maintainability of petition - initiation of CIRP - Corporate Debtor - Approval of Resolution plan without complying the mandatory provisions of the ‘I&B Code’ - HELD THAT:- It is clear that ‘I&B Code’ envisages maximization of value of the assets of the ‘Corporate Debtor’ so that they are efficiently run as going concerns and in turn, will promote entrepreneurship. The preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no ‘Resolution Plan’ or the ‘Resolution Plan’s submitted are not up to the mark - Admittedly, the ‘Corporate Debtor’ is a ‘MSME’ and the promoters are not ineligible in terms of Section 29A of the ‘I&B Code’. Therefore, it is not necessary for the ‘Committee of Creditors’ to find out whether the ‘Resolution Applicant’ is ineligible in terms of Section 29A or not. If the ‘Corporate Debtor’ is MSME, it is not necessary for the Promoters to compete with other ‘Resolution Applicants’ to regain the control of the ‘Corporate Debtor’ - it is open to the ‘Committee of Creditors’ to defer the process of issuance of ‘Information Memorandum’, if the Promoter of MSME offers a viable and feasible plan maximising the assets of the ‘Corporate Debtor’ and balancing all the stakeholders. Appeal dismissed. Issues Involved:1. Whether the mandatory provisions of the Insolvency and Bankruptcy Code, 2016 (I&B Code) were complied with in approving the Resolution Plan.2. Whether the deferral of the publication of the Expression of Interest (EOI) was justified.3. Eligibility and feasibility of the Resolution Plan submitted by the promoter of the Corporate Debtor.4. Consideration of the interests of all stakeholders in the Resolution Plan.5. The role of MSME status in the approval of the Resolution Plan.Detailed Analysis:1. Compliance with Mandatory Provisions of the I&B Code:The appellants argued that the Resolution Plan was approved without complying with the mandatory provisions of the I&B Code, specifically under Section 25(2)(h), which mandates the Resolution Professional to invite prospective Resolution Applicants who fulfill criteria laid down by the Committee of Creditors (CoC). The appellants contended that the Information Memorandum was not circulated, and the publication of the EOI was deferred improperly.2. Justification for Deferral of EOI Publication:The CoC, in its 3rd and 4th meetings, decided to defer the publication of the EOI due to active consideration of a Resolution Plan with the Corporate Debtor itself. The CoC members discussed the reasons for deferring the issue of EOI, and the Resolution Professional confirmed the eligibility of the Resolution Applicant, who is the promoter of the Corporate Debtor, as an MSME and eligible under Section 29A of the I&B Code.3. Eligibility and Feasibility of the Resolution Plan:The Resolution Plan submitted by the promoter of the Corporate Debtor was discussed and approved by the CoC with a 74.84% voting share. The plan was found to be viable, feasible, and compliant with Section 30(2) of the I&B Code and other relevant regulations. The plan provided for the payment to operational creditors, financial creditors, and other stakeholders, ensuring no discrimination among creditors.4. Consideration of Stakeholders' Interests:The Resolution Plan addressed the claims of various stakeholders, including financial creditors, operational creditors, employees, and statutory dues. The plan proposed a capital reduction for equity shareholders and provided for the reconstitution of the Board of Directors. A monitoring committee was constituted to ensure successful implementation of the Resolution Plan.5. Role of MSME Status:The Corporate Debtor being an MSME, the promoters were not ineligible under Section 29A of the I&B Code. The CoC is not required to follow all procedures under the Corporate Insolvency Resolution Process (CIRP) if the promoter of an MSME offers a viable and feasible plan. The Parliament amended the I&B Code to encourage MSME promoters to regain control of the Corporate Debtor by filing a Resolution Plan that satisfies the CoC.Conclusion:The Appellate Tribunal upheld the decision of the Adjudicating Authority, finding no merit in the appeal. The Tribunal emphasized that in exceptional circumstances involving MSMEs, it is not necessary for promoters to compete with other Resolution Applicants. The Tribunal dismissed the appeal, affirming the approval of the Resolution Plan submitted by the promoter of the Corporate Debtor, an MSME, and highlighted the legislative intent to promote entrepreneurship and maximize asset value.