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of <h1>High Court Halts NCLT Insolvency Order on MSME, Cites Jurisdictional Error</h1> The court stayed the NCLT order initiating insolvency proceedings against a company falling under the MSME category, due to jurisdictional concerns. The ... Maintainability of petition - NCLT has entertained a petition against the Company M/s. VMA Enterprises Pvt Ltd. of which the Petitioner is one of the Promoter-Directors, under Section 9 of the Insolvency and Bankruptcy Code, 2016 - scope of Micro, Small and Medium Enterprise (MSME) - HELD THAT:- It is clear that the purpose of increasing the jurisdiction of the NCLT to ₹ 1 crore was to ensure that MSMEs are not inflicted with sudden insolvency proceedings, as they may have faced a set-back to their businesses during the lockdown period. The NCLT’s order records that the default amount is to the tune of ₹ 1 lakh, and hence the petition under Section 9 is being entertained. The notification dated 24th March 2020 has changed the `minimum amount of default’ from one lakh rupees to one crore rupees in respect of `Insolvency Resolution and Liquidation for corporate persons’ in Part II of the Code. The proceedings in the present case have been commenced under Section 9 of the IBC which is in Part II of the Code. The purpose of the notification was to ensure that Small and Medium Enterprises viz., SMEs and MSMEs are not subjected to Insolvency proceedings during the lockdown or immediately thereafter. The present writ petition accordingly deserves consideration. This is an error by the NCLT, as the notification dated 24th March 2020 was clearly applicable. Subject to the Petitioner depositing an amount of ₹ 10 lakhs with the ld. Registrar General of this Court, the order of the NCLT dated 29th May, 2020 shall remain stayed till the next date of hearing. List on 13th August, 2020. Issues Involved:Challenge to NCLT order under IBC Section 9 regarding insolvency proceedings against a company falling under MSME category with jurisdictional concerns.Analysis:The petition challenges an NCLT order dated 29th May, 2020, initiating insolvency proceedings against a company, of which the petitioner is a Promoter-Director, under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC). The petitioner argues that the company falls under the MSME category and would face severe consequences if insolvency proceedings continue, affecting numerous employees and vendors. The petitioner highlights that the NCLT failed to consider the increased jurisdiction to Rs. 1 crore effective from 24th March, 2020, as the order proceeded on the basis of a defaulted amount exceeding Rs. 1 lakh. The petitioner also points out discrepancies in the amount owed to the operational creditor, which is significantly less than the threshold amount mentioned in the order.Upon reviewing the records and pleadings, the court notes that the purpose of raising the NCLT's jurisdictional limit to Rs. 1 crore was to protect MSMEs from abrupt insolvency actions during the lockdown period. However, the NCLT entertained the petition based on a default amount of Rs. 1 lakh, leading to the initiation of Corporate Insolvency Resolution Process (CIRP) and declaration of moratorium under Section 14 of the IBC. The court acknowledges that the NCLT's decision may have overlooked the impact of the notification dated 24th March 2020, which raised the minimum default amount to Rs. 1 crore for insolvency proceedings. Consequently, the court stays the NCLT order subject to the petitioner depositing Rs. 10 lakhs with the Registrar General, allowing the company to continue its operations. The IRP is granted the liberty to seek further directions from the court if necessary.The court directs the ASG representing the Union of India to inform the NCLT about the notification dated 24th March, 2020, emphasizing the importance of adhering to the revised threshold for initiating insolvency proceedings. The case is scheduled for the next hearing on 13th August, 2020, indicating a need for further deliberation on the jurisdictional issues and compliance with the updated regulations to safeguard MSMEs from unwarranted insolvency actions.
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