2023 (2) TMI 237 - AT - Insolvency and Bankruptcy

Tribunal Upholds Decision: Redbrick Consulting Ineligible for MSME Benefits or IBC Resolution Plan

The Tribunal upheld the Adjudicating Authority's decision, determining that Redbrick Consulting Pvt. Ltd. did not qualify as an MSME due to the lack of ... Purposive interpretation of section 29-A of IBC - Eligibility of auction purchaser to bid during the e-auction of the corporate debtor as a going concern - whether the successful e-auction purchaser is an MSME to claim benefit under section 240-A? - HELD THAT:- In the matter of Bank of Baroda v. MBL Infrastructures Ltd. [2022 (1) TMI 811 - SUPREME COURT], where Hon’ble Supreme Court, while reiterating its earlier pronouncements, held that the provisions of Section 29-A continue to permeate section 31(1)(f) which is applicable during the liquidation process and that section 29-A has been enacted to facilitate corporate governance and in larger public interest. It is not in dispute that Mr. Gyandeep Kantipudi is a suspended director of the corporate debtor/UTM Engineering Pvt. Ltd. and is also a director of Redbrick Consulting Pvt. Ltd alongwith Ms. Radika Kantipudi. The Learned Counsel for Appellant/Liquidator has claimed that Mr. Gnyandeep Kantipudi or the successful auction purchaser do not carry any ineligibility under section 29-A of the IBC. The Arun Kumar Jagatramka [2021 (3) TMI 611 - SUPREME COURT] reiterates the need to give a ‘purposive interpretation’ of section 29-A as was held earlier by Hon’ble Supreme Court in the matter of Arcelor Mittal v. Satish Kumar Gupta [2018 (10) TMI 312 - SUPREME COURT] - the judgment of Hon’ble Supreme Court lays down that a ‘purposeful and contextual interpretation’ is necessary in the interpretation of the provision under section 29-A as against a ‘wooden, literal interpretation’. This judgment, therefore, points out to the necessity of piercing of ‘corporate veil’ while examining the eligibility of a successful applicant or an auction bidder (in the case of liquidation). It is thus, seen that in the judgment in Bank of Baroda v. MBL Infrastructures Ltd., the Hon’ble Supreme Court has held that a ‘purposive interpretation’ of section 29-A is required when the primary aim is to restart the corporate debtor, which is also the case in the present appeal since the corporate debtor is being sold as a ‘going concern’ - This judgment, in addition, also clarifies that the management which has ran the company aground, because of which the company has gone into insolvency resolution/liquidation, cannot be allowed to return in a new avatar as a resolution applicant. Thus, Mr. Gnyandeep Kantipudi, who by virtue of being a director of Redbrick Consulting Pvt. Ltd., controls and manages its affairs, cannot be allowed to take over control of the corporate debtor of which he is a suspended director. Relying on the principle of “purposive interpretation” of section 29-A of IBC, Redbrick Consulting Pvt. Ltd. was not eligible to bid for the corporate debtor in liquidation as a ‘going concern’. In view of the findings that the successful auction purchaser Redbrick Consulting Pvt. Ltd. is not entitled to receive benefit under section 240-A as an MSME, and that the liquidator was not correct in giving such a benefit to the Redbrick Consulting Pvt. Ltd., and also that the successful auction purchaser was not eligible to bid for the corporate debtor in liquidation as a going concern, it is opined that the Adjudicating Authority has correctly set aside the e-auction dated 16.6.2021 and directed the liquidator to re-auction the said property after obtaining fresh valuation of the said property from at least two valuers in the present time. Appeal dismissed. Issues Involved:1. Whether the successful e-auction purchaser is an MSME to claim benefit under section 240-A of the IBC.2. Whether the successful e-auction purchaser is ineligible under section 29-A of the IBC to submit a resolution plan.Detailed Analysis:Issue 1: MSME Status and Section 240-A BenefitThe Appellant argued that Redbrick Consulting Pvt. Ltd. (R-1) is an MSME based on its investment in plant and machinery and annual turnover, thus qualifying for benefits under section 240-A of the IBC. The Respondent countered that R-1 did not complete the required 'Udyam Registration' as mandated by the Ministry of MSME's notification dated 26.6.2020, which is essential to claim MSME status.The Tribunal examined the relevant clauses of the notification, which stipulate that an enterprise must complete the Udyam Registration process to be recognized as an MSME. The Tribunal referred to judgments, including the Hon'ble Supreme Court's ruling in Silpi Industries v. Kerala State Road Transport Corporation and Anr., which emphasized the necessity of such registration for claiming MSME benefits. The Tribunal concluded that Redbrick Consulting Pvt. Ltd. did not produce the Udyam Registration Certificate and thus could not claim the benefit under section 240-A of the IBC.Issue 2: Ineligibility under Section 29-AThe Appellant contended that the successful purchaser was not ineligible under section 29-A of the IBC. However, the Respondent argued that Mr. Gnyandeep Kantipudi, a director of both the corporate debtor and Redbrick Consulting Pvt. Ltd., made the latter ineligible under section 29-A(g). The Tribunal noted that section 29-A requires a purposive interpretation to prevent those responsible for the corporate debtor's insolvency from regaining control.The Tribunal referred to the Hon'ble Supreme Court's judgments in Arcelor Mittal India Private Limited v. Satish Kumar Gupta and Bank of Baroda v. MBL Infrastructures Ltd., which emphasized the need for a purposive interpretation of section 29-A to prevent backdoor entries of erstwhile management. The Tribunal concluded that Mr. Gnyandeep Kantipudi's dual role rendered Redbrick Consulting Pvt. Ltd. ineligible to bid for the corporate debtor in liquidation as a 'going concern.'Conclusion:The Tribunal upheld the Adjudicating Authority's decision to set aside the e-auction and directed the liquidator to re-auction the corporate debtor after obtaining fresh valuations. The appeal was disposed of, finding no merit in the Appellant's arguments, and no order as to costs was made.