Former Directors Challenge Disqualification Under IBC 2016, Assert MSME Status

The Applicants, former Board of Directors of the Corporate Debtor, challenged the Resolution Professional's disqualification under Section 29A of the IBC, 2016, due to a Personal Guarantee invocation. They argued that Section 29A(h) does not apply to MSMEs. The Applicants claimed MSME status for the Corporate Debtor and highlighted obtaining an MSME Certificate post-CIRP initiation. The Resolution Professional was directed to consider their MSME eligibility at the time of the Resolution Plan submission. Concerns were raised over unauthorized MSME Certificate acquisition by an Employee, leading to directions for rectification and action against the Employee without disrupting the Resolution Process.

---

---

Issues:
1. Disqualification of applicants by Resolution Professional
2. Classification of Corporate Debtor as MSME
3. Eligibility of applicants under Section 29A of IBC, 2016
4. Obtaining MSME Certificate post commencement of CIRP
5. Actions to be taken against Employee obtaining MSME Certificate

Disqualification of Applicants by Resolution Professional:
The Applicants, former Board of Directors of the Corporate Debtor, filed applications seeking to set aside the decision of the Resolution Professional disqualifying them and to participate in the Corporate Insolvency Resolution Process (CIRP). The Resolution Professional disqualified the Applicants citing Section 29A of the Insolvency & Bankruptcy Code, 2016, due to the invocation of a Personal Guarantee by a member of the CoC. The Applicants contended that Section 29A(h) does not apply to MSME enterprises under Section 240A of the IBC, 2016.

Classification of Corporate Debtor as MSME:
The Applicants claimed that the Corporate Debtor qualified as a Micro Small and Medium Enterprise (MSME) under the MSME Development Act, 2006. They submitted that the Accounts Manager and General Manager had applied for an MSME Certificate, which was obtained post initiation of CIRP. The RP was informed about the MSME registration, and the Applicants argued that they were eligible as an MSME entity at the time of submitting the Resolution Plan.

Eligibility of Applicants under Section 29A of IBC, 2016:
The Resolution Professional rejected the Applicants' Expression of Interest (EoI) based on Section 29A of the IBC, 2016. The Applicants were disqualified due to the invocation of a Personal Guarantee by a CoC member. The RP was directed to consider the Applicants' eligibility based on their MSME status at the time of submitting the Resolution Plan, as the disqualification clauses under Section 29A might not apply to them.

Obtaining MSME Certificate post commencement of CIRP:
The RP raised concerns about the MSME Certificate obtained after the initiation of CIRP without her knowledge. It was noted that the registration was done by an Employee without proper authorization, which was viewed seriously. However, the Tribunal directed the RP to ratify the MSME registration and take action against the Employee responsible, emphasizing that the Corporate Debtor's eligibility under Section 29A should be determined at the time of submitting the Resolution Plan.

Actions to be taken against Employee obtaining MSME Certificate:
The Tribunal acknowledged the unauthorized obtaining of the MSME Certificate post-CIRP initiation and directed the RP to rectify the registration. The RP was authorized to take appropriate action against the Employee for obtaining the certificate without proper authorization, ensuring that such actions do not adversely affect the Corporate Debtor's Resolution Process. Both applications were disposed of with the aforementioned directions.

---