2021 (12) TMI 85 - AT - Insolvency and Bankruptcy

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, ... Maintainability of application - disqualification under Section 29(A)(e) of the I&B Code, 2016 - it is observed that Appellant is trying to gain a backdoor entry on the guise of presenting themselves as MSME - eligibility to be considered as one of the Prospective Resolution Applicant - Amendment was brought to Section 240-A of the IBC, 2016, whereby some of the clauses of the Provisions of this Code not made applicable to Micro, Small and Medium Enterprises - HELD THAT:- It is a fact that the Appellant stated that he will provide Net Worth Certificate at the time of submission of Resolution Plan. It is also pertinent to note that the Resolution Professional vide his order dated 20.11.2020 also recorded the reason given by the Appellant that the Appellant will be providing suitable Net Worth Certificate issued by the Chartered Accountant at the time of submission of Resolution Plan, as it will be done with other Investors. Further, the Appellant in its Written Submissions at Para 5 has stated the reasons regarding Net Worth criteria of ₹ 2 Crores stated that the appellant was unable to submit the same on account of the wrongful disqualification under Section 29A(e) which rendered the Appellant ineligible to submit the Resolution Plan/EOI. Taking into consideration the Appellant’s Averments (as recorded by the Resolution Professional in his order dated 20.11.2020) this Tribunal permits the Appellant to file/submit Net Worth Certificate to the Resolution Professional and the Resolution Professional may consider the same. It is unequivocal that the Corporate Debtor is an MSME and as held by this Tribunal that it is not necessary for the Promoters to compete with other Resolution Applicants to regain the control of the Corporate Debtor - It is apt to mention that the Appellant in Grounds of Appeal stated that the Appellant is ready to bring ₹ 45 Crore in various forms and settle the liabilities and stated that this amount is much more than the submissions made by other two applicants in the first Expression of Interest and submitted that the same has been communicated to the Resolution Professional several times. The Maximization of the Value of the Assets of Corporate Debtor is to be kept in mind in achieving its object. To give an opportunity to regain the control of the Corporate Debtor, the Management/Promoters/Erstwhile Directors of the Corporate Debtor being an MSME, not necessary to compete with other Resolution Applicants - Resolution Professional is hereby directed to consider the Resolution Plan of the Appellant being erstwhile Director/Promoter of the Corporate Debtor (admittedly an MSME). Appeal allowed. 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.