Tribunal overturns disqualification, supports MSMEs in Resolution Plan appeal

The Tribunal set aside the Adjudicating Authority's observations regarding the Appellant's disqualification under Section 29(A)(e) of the I&B Code, recognizing the restoration of the Appellant's Director Identification Number by the High Court. It emphasized the importance of considering the Corporate Debtor's MSME status and directed the Resolution Professional to evaluate the Appellant's Resolution Plan, allowing submission of a Net Worth Certificate. The Tribunal highlighted the need to support MSMEs and ruled in favor of the Appellant, quashing the previous rejections and allowing the appeal without costs.

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Issues Involved:
1. Eligibility of the Appellant under Section 29(A)(e) of the I&B Code, 2016.
2. Consideration of MSME status of the Corporate Debtor.
3. Compliance with net worth criteria under Section 25(2)(h) of the I&B Code, 2016.

Issue-wise Detailed Analysis:

1. Eligibility of the Appellant under Section 29(A)(e) of the I&B Code, 2016:

The Appellant challenged the rejection of their Resolution Plan on the grounds of disqualification under Section 29(A)(e) of the I&B Code, 2016. The Appellant argued that their Director Identification Number (DIN) had been restored/reactivated pursuant to a judgment by the Hon’ble High Court of Madras, which was not considered by the Resolution Professional or the Adjudicating Authority. The Tribunal noted that the High Court had quashed the disqualification and directed the reactivation of the DIN, which the Adjudicating Authority failed to consider. Consequently, the Tribunal set aside the observations of the Adjudicating Authority regarding the Appellant’s disqualification under Section 29(A)(e).

2. Consideration of MSME status of the Corporate Debtor:

The Appellant claimed that the Corporate Debtor was an MSME and thus eligible to participate in the Resolution Plan. The Adjudicating Authority had dismissed this claim, stating that the MSME certificate was obtained after the initiation of CIRP and that Section 240A of the IBC exempts only certain clauses of Section 29A for MSMEs. However, the Tribunal observed that the Corporate Debtor had been classified as a medium enterprise since 2013, and a subsequent certificate in 2020 recognized it as a micro-enterprise. The Tribunal emphasized that the intention of the legislation is to encourage MSMEs and that promoters of MSMEs should not need to compete with other Resolution Applicants. Therefore, the Tribunal held that the Corporate Debtor’s MSME status should have been considered.

3. Compliance with net worth criteria under Section 25(2)(h) of the I&B Code, 2016:

The Resolution Professional had rejected the Appellant’s Resolution Plan on the grounds that the Appellant did not meet the net worth criteria of Rs. 2 Crores as prescribed by the Committee of Creditors (COC). The Appellant argued that their investments and properties should be considered as net worth and that they were ready to submit a Net Worth Certificate. The Tribunal noted that the COC had set the eligibility criteria based on net worth and experience in the industry, and the Resolution Professional had rejected the Appellant’s application for not meeting these criteria. However, the Tribunal allowed the Appellant to submit the Net Worth Certificate and directed the Resolution Professional to consider it, emphasizing that MSME promoters should not need to compete with other applicants.

Conclusion:

The Tribunal quashed the order of the Adjudicating Authority and the Resolution Professional’s rejection of the Resolution Plan. It directed the Resolution Professional to consider the Appellant’s Resolution Plan, recognizing the Corporate Debtor as an MSME and confirming that the Appellant did not fall under the disqualification of Section 29(A)(e) due to the High Court’s judgment. The appeal was allowed, and no costs were ordered.

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