2022 (9) TMI 142 - AT - Insolvency and Bankruptcy

Appeal allowed, order of liquidation set aside. Extension granted for Information Memorandum preparation.

The appeal was allowed, setting aside the order of liquidation. The Resolution Professional and the CoC were granted a 90-day extension to prepare an ... Liquidation of the Corporate Debtor - Validity of decision of Committee of Creditors - Section 33(2) of the Insolvency and Bankruptcy Code, 2016 - Whether the Corporate Debtor on the strength of acknowledgement declaration filed in Part II before the District Industries Centre on 29.01.2007/30.01.2007 can be treated to be an MSME registered under Micro, Small and Medium Enterprises Development Act, 2006? - HELD THAT:- From the materials on the record and the minutes of the CoC meeting, it is apparent that the Resolution Professional did not form any clear opinion that Appellant is a Registered MSME nor advised the CoC to treat the Appellant as Registered MSME. We, thus, are of the opinion that the Appellant is a Registered MSME within the meaning of Act, 2006 and the filing of Entrepreneurs’ Memorandum in Part II which was acknowledged on 30.01.2007 is sufficient to treat the Appellant as a Registered MSME. In event it is found that the Corporate Debtor is an MSME, whether it was entitled to file Resolution Plan to revive Corporate Debtor as per Section 240A of the I&B Code? - Whether the CoC which permitted the Corporate Debtor to file a Resolution Plan erred in not considering the Resolution Plan of the Appellant on the ground that no plan having been invited by the CoC, hence, the Resolution Plan of the Corporate Debtor cannot be considered? - Whether in the facts and circumstances of the present case, the decision of the CoC taken in the 5thCoC meeting to liquidate the Corporate Debtor is a sustainable decision? - HELD THAT:- The I&B Code provide for special protection of MSME by inserting Section 240A w.e.f. 06.06.2018 where provision of clause (c) and (h) of Section 29A had been made not applicable to in respect of CIRP of any Micro, Small and Medium Enterprise. In the present case, although in 5th CoC meeting, the CoC had taken a decision to liquidate the Corporate Debtor but subsequently in the 6th CoC meeting, the Appellant appeared before the CoC and claimed to file a plan to revive the Corporate Debtor. In the Agenda Item No. 12, in the 6th CoC meeting, the CoC and Resolution Professional advised the Appellant to file Resolution Plan by August 14, 2020 - It is relevant to notice that the permission was granted to the Appellant to file plan in 6th CoC meeting held on 23.07.2020 subsequent to the 5th CoC meeting held on 24.02.2020 when CoC had decided to liquidate. The permission granted by the CoC itself indicate that the Appellant was treated to be eligible to file Resolution Plan to revive the Corporate Debtor. When in the CoC meeting Appellant was permitted to file a Resolution Plan, it cannot be said that Appellant was not invited to submit a Resolution Plan. It is another issue that CoC ought to have given opportunity to others to submit Resolution Plan by directing for issuance of Form G which was never done - the Appellant was not considered as MSME during the proceedings of the CoC and the Liquidators view as reflected in the meeting of CoC and as submitted before us is clearly refuting the claim of the Appellant as Registered MSME. Non-acceptance of Corporate Debtor as a Registered MSME is a material irregularity which has been committed in the Insolvency Resolution Process. The entire object and purpose of the I&B Code is to revive the Corporate Debtor and put it back on the track. The CoC had not taken any effort to issue any Form G to find out as to whether there can be resolution of the Corporate Debtor by any Resolution Applicant. Without even making one effort, CoC jumped on conclusion to liquidate. It is true that under the statute CoC is empowered to take a decision to liquidate the Corporate Debtor. Material irregularity has been committed in the process - the sufficient ground exist within the meaning of Section 61(4) to assail the order directing for liquidation. The Adjudicating Authority in the impugned order only relying on the resolution of the CoC in 5th meeting has directed for liquidation without even taking into consideration minutes of subsequent 6th, 7th and 8th meetings of CoC, the steps taken by CoC to invite plan from the Appellant, discussion of the plan and ultimately decision thereon. The decision of the CoC in the 5th meeting to liquidate the Corporate Debtor is unsustainable - appeal allowed. Issues Involved:1. Whether the Corporate Debtor can be treated as an MSME based on the acknowledgment declaration filed.2. If the Corporate Debtor is an MSME, whether it was entitled to file a Resolution Plan under Section 240A of the I&B Code.3. Whether the CoC erred in not considering the Resolution Plan of the Appellant on the ground that no plan was invited.4. Whether the decision of the CoC to liquidate the Corporate Debtor is sustainable.Issue-wise Detailed Analysis:Issue I: Whether the Corporate Debtor can be treated as an MSME based on the acknowledgment declaration filed.Under the Micro, Small and Medium Enterprises Development Act, 2006, Section 8 allows a person intending to establish an MSME to file a memorandum with the specified authority. The Appellant filed the Entrepreneur Memorandum in the prescribed form on 29.01.2007, which was acknowledged by the District Industries Centre on 30.01.2007. The Liquidator argued that the acknowledgment should be canceled if the unit is closed for more than six months, as per the Notification dated 16.01.2009. However, no cancellation proceedings were undertaken, and the acknowledgment was not canceled. Therefore, the Appellant is considered a Registered MSME.Issue II: If the Corporate Debtor is an MSME, whether it was entitled to file a Resolution Plan under Section 240A of the I&B Code.Section 240A of the I&B Code provides special protection to MSMEs, exempting them from certain provisions of Section 29A. The Supreme Court has emphasized that liquidation should be a last resort, and efforts should be made to revive the Corporate Debtor. The CoC permitted the Appellant to file a Resolution Plan in the 6th CoC meeting, indicating that the Appellant was eligible to submit a plan to revive the Corporate Debtor.Issue III: Whether the CoC erred in not considering the Resolution Plan of the Appellant on the ground that no plan was invited.Despite the 5th CoC meeting's decision to liquidate the Corporate Debtor, the CoC allowed the Appellant to submit a Resolution Plan in the 6th CoC meeting. However, in the 8th CoC meeting, the CoC refused to consider the plan on the ground that no plan was invited. This refusal was erroneous since the CoC had permitted the Appellant to submit a plan, and the Appellant should have been considered as invited to submit a Resolution Plan. The non-acceptance of the Corporate Debtor as a Registered MSME was a material irregularity in the process.Issue IV: Whether the decision of the CoC to liquidate the Corporate Debtor is sustainable.The CoC's decision in the 5th CoC meeting to liquidate the Corporate Debtor was not adhered to in subsequent meetings where the Appellant was permitted to submit a plan. The CoC did not make any effort to issue Form G to invite other Resolution Plans, and the decision to liquidate was taken without appointing Valuers or preparing an Information Memorandum. The Adjudicating Authority's order directing liquidation was based solely on the 5th CoC meeting's decision, ignoring subsequent meetings and discussions. Therefore, the decision to liquidate the Corporate Debtor was unsustainable.Conclusion:The appeal is allowed, setting aside the order of liquidation. The Resolution Professional and the CoC are granted an extension of 90 days to prepare an Information Memorandum, issue Form G, and consider any Resolution Plans, including the Appellant's plan. The CoC should complete the process within 90 days, and any further steps in the CIRP can be addressed by the Adjudicating Authority as needed. Parties shall bear their own costs.