2020 (12) TMI 421 - AT - Insolvency and Bankruptcy

Tribunal dismisses Appeal due to Appellant's violation of IBC Section 29-A and illegal MSME Certificate.

The Tribunal dismissed the Appeal, finding the Appellant's schemes violated Section 29-A of the IBC and the MSME Certificate obtained during Liquidation ... Liquidation of Corporate Debtor - Scheme of Settlement - Valuation of Plant and Machinery - Applicant application for MSME registration showing the value ₹ 2 Lakhs while the schemes proposed itself stated the value of the property itself to be around ₹ 67 crores. - the Appellant is only a facilitator of the development of the property - HELD THAT:- There is no substance in the submissions made by the Learned Counsel for Appellant that the Appellant was merely facilitator of the two schemes as stated. Having gone through the contents of the schemes, it is quite clear that the Appellant was to remain in command. We do not find it can be said that the Appellant is only a mere facilitator. The Schemes were of Appellant and were fully centered and linked with Appellant who was ineligible under Section 29-A of IBC. We find substance in the submissions of the Learned Sr. Counsel for the Liquidator that when Order of Liquidation is passed it would amount to discharge the officers/employees/workmen of the Corporate Debtor, except when and to the extent of the business of the Corporate Debtor to be continued during the Liquidation Process by the Liquidator. Apart from this once CIRP is initiated under IBC, the management vests in IRP/RP and if Liquidation Order gets passed the Powers and Duties of the Liquidator as in Section 35 of IBC vest with Liquidator. Without liquidator taking steps no such application to obtain Certificate of MSME could have been filed by the Appellant. The Learned Counsel for the Appellant has submitted that this was not the reason for the Adjudicating Authority to hold against the Appellant. If just by filing application Certificate is obtained and there are no verifications or checks, it would be matter of concern. We find that it is a matter of record in the present matter and matter of applying the law. We find that the Applicant/Appellant could not have moved the Authorities for Certificate under MSME by-passing the Liquidator and such action must be held as illegal. Appeal dismissed. Issues Involved:1. Legitimacy of schemes proposed by the Appellant under Section 230 of the Companies Act, 2013.2. Validity of MSME Certificate obtained by the Appellant during Liquidation Proceedings.3. Compliance with Section 29-A of the Insolvency and Bankruptcy Code (IBC), 2016.4. Authority of the Appellant to act during Liquidation Proceedings.Issue-wise Detailed Analysis:1. Legitimacy of Schemes Proposed by the Appellant:The Appellant, a promoter of the Corporate Debtor under liquidation, proposed two schemes under Section 230 of the Companies Act, 2013. The schemes involved M/s. Sri Ram Properties and M/s. Vijay Raja Homes Pvt. Ltd. as investors. The Adjudicating Authority found that the Appellant, who was ineligible under Section 29-A of IBC, was trying to make a back-door entry by projecting himself as a mere facilitator. The schemes were deemed centered around the Appellant, who was to remain in command, thus violating the provisions of Section 29-A.2. Validity of MSME Certificate Obtained by the Appellant:The Appellant obtained an MSME Certificate during the pendency of Liquidation Proceedings, showing an investment of Rs. 2 lakhs in Plant & Machinery/Equipment, while the liquidation value was around Rs. 67 crores. The Adjudicating Authority observed that this was an attempt to deceive the Tribunal and gain backdoor entry to the assets of the Corporate Debtor. The Tribunal held that the Appellant could not have legally obtained the MSME Certificate bypassing the Liquidator, rendering the action illegal.3. Compliance with Section 29-A of IBC, 2016:Section 29-A of IBC disqualifies certain persons, including promoters, from submitting a resolution plan. The Appellant, being a promoter, was ineligible under this section. The Adjudicating Authority found that the schemes proposed by the Appellant were an attempt to circumvent this disqualification, as the Appellant was not merely a facilitator but intended to remain in control, thus violating Section 29-A.4. Authority of the Appellant to Act During Liquidation Proceedings:The Appellant, during Liquidation Proceedings, made an application for an MSME Certificate without the Liquidator's authorization. Section 33(7) of IBC states that the order for liquidation serves as a notice of discharge to the officers, employees, and workmen of the Corporate Debtor. The Tribunal held that the Appellant had no authority to make such an application once the Corporate Debtor was under CIRP or Liquidation Proceedings, and any such action bypassing the Liquidator was illegal.Conclusion:The Tribunal dismissed the Appeal, finding no substance in the Appellant's claims. The schemes proposed by the Appellant were rejected for violating Section 29-A of IBC, and the MSME Certificate obtained during Liquidation Proceedings was deemed illegal. The Tribunal upheld the Liquidator's actions and found that the Appellant had no authority to act independently during Liquidation Proceedings. The Appeal was dismissed with no costs.