MSME reclassification and Section 230 revival scheme can be considered during ongoing liquidation before asset sale.

An amended MSME classification notified on 01.06.2020, effective from 01.07.2020, was treated as applicable to an ongoing liquidation, so a corporate debtor that satisfied the revised criteria could be regarded as an MSME and its promoters could propose a scheme of arrangement. The liquidator was also required to consider a scheme under Section 230 of the Companies Act, 2013 during liquidation before moving to auction or sale of assets, because liquidation is a last-resort process and the insolvency framework favours revival and value maximisation where feasible.

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Issues: (i) Whether the amended MSME classification notified on 01.06.2020, operating from 01.07.2020, applied to a corporate debtor already under liquidation so as to make its promoters eligible to propose a scheme of arrangement. (ii) Whether the liquidator was bound to consider a scheme under Section 230 of the Companies Act, 2013 during liquidation in preference to sale of assets.

Issue (i): Whether the amended MSME classification notified on 01.06.2020, operating from 01.07.2020, applied to a corporate debtor already under liquidation so as to make its promoters eligible to propose a scheme of arrangement.

Analysis: The notification enhancing the MSME thresholds was held to be applicable during the pendency of liquidation. The corporate debtor, on the revised criteria, fell within the MSME category, and the change was treated as operative prospectively from 01.07.2020 while still governing the ongoing liquidation process. On that basis, the promoters were treated as eligible to seek consideration of a scheme.

Conclusion: The amended MSME classification applied to the ongoing liquidation process and the promoters were eligible to propose a scheme.

Issue (ii): Whether the liquidator was bound to consider a scheme under Section 230 of the Companies Act, 2013 during liquidation in preference to sale of assets.

Analysis: The decision proceeded on the principle that liquidation is a last resort and that the insolvency framework favours revival, continuation of the corporate debtor, and sale of the business as a going concern where possible. The scheme route under Section 230 was treated as available during liquidation, and the liquidator was required to consider the proposal in accordance with law before proceeding to auction or outright sale.

Conclusion: The liquidator was directed to consider the scheme under Section 230 before proceeding further with liquidation sale measures.

Final Conclusion: The impugned rejection was set aside and the promoters were permitted to submit a scheme of arrangement for consideration by the liquidator, thereby keeping revival measures open during the liquidation process.

Ratio Decidendi: Where liquidation is ongoing and an amended statutory classification enlarges eligibility, a scheme of arrangement under Section 230 may be considered if it advances revival and maximisation of value, since liquidation remains a measure of last resort under the insolvency regime.

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