2020 (2) TMI 1077 - AT - Insolvency and Bankruptcy

Appeal rejected due to failure to prove MSME status, comply with EOI, and valid section 10 application.

The Tribunal rejected the Appeal, finding no merit in the Appellant's claims. The Appellant failed to establish the Corporate Debtor's MSME status, did ... Revision of Resolution plan - direction to revise expression of interest (EOI) issued and float new revised EOI by making changes suggested and extending date - section 10 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT:- It is stated for the Appellant that section 240A was inserted in the IBC with effect from 6th June, 2018 and provided that notwithstanding anything to the contrary contained in the Code, the provisions of Clause 'c' and 'h' of section 29A shall not apply to the Resolution Applicant in respect of Corporate Insolvency Resolution Process of any Micro, Small and Medium Enterprise - the Adjudicating Authority found that the Applicant had failed to establish that Corporate Debtor was MSME. It also observed that the Applicant had not raised any such issue of being MSME before COC (Committee of Creditors) and that issue was raised when CIRP (Corporate Insolvency Resolution Process) period was to expire. It also found that the Appellant had not raised any concrete Resolution Plan before COC. In the present matter, the Resolution Professional has raised disputes with regard to the claim of MSME. Even in the Reply (para - 12) filed in this Appeal, issue has been raised with regard to the claim to be small enterprise and reference is being made to the valuation report. Under section 29B of the Industries (Development & Regulation) Act, 1951, Central Government has powers to exempt any industrial undertaking in public interest from applying all or any of the provision of that Act, subject to conditions as it may think fit. The learned Counsel for the Appellant has not been able to show us as to how Resolution Professional when he receives expression of interest could be expected to go into accounts and other factors or facts and go into Notifications to apply law and hold under which classification an applicant would or not fall. It is not shown how Resolution Professional with time bound milestones fixed in IBC can decide if or not the Corporate Debtor fits into classifications under section 7 or is not covered by MSME Act at all - Section 7 itself shows that the Central Government has to 'classify' any class or classes or enterprises either as micro or small or medium on the basis of parameters fixed in section 7. The Appellant has not brought on record that the Corporate Debtor has been classified by Central Government and if yes, under which parameter. In the Summary Procedure under IBC, the Resolution Professional and Adjudicating Authority are not expected to go into accounts and investigate if and in which category an application falls under section 7 examining Notifications under Explanation 2 or sub-section 9 of section 7 of MSME Act. There is no reason why, looking to the nature of proceedings under the IBC the prospective Resolution Applicant who claims eligibility on the basis that the Corporate Debtor is MSME, should not provide necessary Memorandum Certificate. The Resolution Professional cannot be going into investigations and enquiries and findings whether or not a Corporate Debtor falls under the classifications of MSME and Adjudicating Authority is also not expected to make such investigations, enquiries on such evidence or give findings on such issues, which may not be accurate without assistance of an opposite side or Government Counsel bringing forth which or the other Notification etc. applies. Under sections of MSME Act, even if getting Memorandum Certificated for a given enterprise may be optional, if advantage is to be taken of MSME Act, the Applicant must take pains to get the Memorandum Certificate to seek benefits under IBC - Under the statutory law, the requirement to get a special Resolution passed by AGM or EGM was provided on 6th June, 2018 in section 10 of IBC vide Second Amendment Act, 2018 and thus, it is not found that the admitting of proceedings under section 10 in the present matter on 26th April, 2018 (which was prior in time) to be bad. The Counsel for Respondent submitted that the Appellant having moved section 10 Application with his shareholding of 93.30% got the CIRP put into motion and enjoyed the protection which moratorium attracts to the Corporate Debtor and having taken advantage, is now trying to wriggle out on some or the other ground as Resolution Plan with benefit of haircut has not come forward and is creating obstructions in the CIRP process. We find substance in submissions of Counsel for Respondent. Process of IBC cannot be allowed to be abused under section 10 of IBC. Appeal dismissed - decided against appellant. Issues Involved:1. Whether the Corporate Debtor qualifies as a Micro, Small, and Medium Enterprise (MSME).2. Compliance with the requirements for submitting an Expression of Interest (EOI) under the Insolvency and Bankruptcy Code (IBC).3. Validity of the section 10 application filed without a resolution of the General Body.4. Timeliness and adequacy of the Appellant's submissions and communications.5. Role and responsibilities of the Resolution Professional in verifying MSME status and EOI compliance.Detailed Analysis:1. Whether the Corporate Debtor qualifies as a Micro, Small, and Medium Enterprise (MSME):The Appellant claimed that the Corporate Debtor was an MSME and thus eligible under section 240-A of the IBC, which exempts MSMEs from certain disqualifications under section 29A. The Appellant relied on sections 7 and 8 of the MSME Act to argue that the Corporate Debtor qualified as a small enterprise. However, the Resolution Professional disputed this claim, stating that there was no supporting material or registration details to substantiate the MSME status. The Adjudicating Authority found that the Appellant failed to establish that the Corporate Debtor was an MSME, noting that the Appellant did not raise this issue before the Committee of Creditors (COC) and did not provide a concrete Resolution Plan.2. Compliance with the requirements for submitting an Expression of Interest (EOI) under the Insolvency and Bankruptcy Code (IBC):The Appellant's EOI was found non-compliant with the requirements specified in the invitation issued by the Resolution Professional. The EOI was submitted via email on the last date and was found lacking necessary documents and undertakings as required under Regulation 36-A of the IBC. The Adjudicating Authority noted that the EOI was received after the specified deadline and did not meet the criteria set by the COC. The Resolution Professional's rejection of the EOI was upheld as it did not comply with the procedural and substantive requirements.3. Validity of the section 10 application filed without a resolution of the General Body:The Appellant argued that the section 10 application was filed without a resolution of the General Body, citing judgments that required such a resolution. However, the Tribunal noted that the requirement for a special resolution by the AGM or EGM was introduced by an amendment on 6th June 2018, which was after the application was admitted on 26th April 2018. Therefore, the Tribunal found the section 10 application valid as it was filed before the amendment took effect.4. Timeliness and adequacy of the Appellant's submissions and communications:The Appellant's communications with the Resolution Professional were found to be untimely and inadequate. The initial EOI email was sent on the deadline date and lacked the required documents and undertakings. Subsequent communications from the Appellant requesting clarification on deficiencies were also delayed. The Tribunal noted that the Appellant failed to provide necessary information and documents within the stipulated time, affecting the resolution process's efficiency.5. Role and responsibilities of the Resolution Professional in verifying MSME status and EOI compliance:The Tribunal emphasized that the Resolution Professional is not expected to conduct detailed investigations to verify MSME status within the summary and time-bound procedure of the IBC. The Resolution Professional's role is to ensure compliance with the procedural requirements for EOI submissions. The Tribunal found that the Resolution Professional acted appropriately by rejecting the non-compliant EOI and that the Appellant should have provided necessary documentation to substantiate the MSME claim.Conclusion:The Tribunal rejected the Appeal, finding no merit in the Appellant's claims. The Appellant failed to establish the Corporate Debtor's MSME status, did not comply with EOI requirements, and the section 10 application was validly admitted. The Tribunal upheld the Resolution Professional's actions and emphasized the need for compliance with procedural requirements under the IBC.