MSME registration after insolvency proceedings valid, resolution plan approval cannot be rejected on registration timing

NCLAT Principal Bench allowed appeal against rejection of resolution plan by Corporate Debtor claiming MSME benefits. The Adjudicating Authority had rejected the plan arguing MSME registration was obtained after CIRP commencement and was wrongly obtained. NCLAT held that Adjudicating Authority lacked jurisdiction to revoke MSME registration granted by competent authority, and MSME status obtained after CIRP initiation was valid. The resolution plan was approved by CoC with requisite majority, and Adjudicating Authority's commercial wisdom review exceeded statutory boundaries under Section 30(2) IBC. Both impugned orders were deemed unsustainable.

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Issues Involved:
1. Eligibility of the Corporate Debtor to submit a resolution plan after acquiring MSME status post-CIRP initiation.
2. Validity of the MSME registration obtained by the Corporate Debtor.
3. Authority of the Adjudicating Authority to review and revoke MSME registration.
4. Commercial wisdom of the Committee of Creditors (CoC) in approving the resolution plan.

Summary:

1. Eligibility of Corporate Debtor to Submit Resolution Plan:
The primary issue was whether the Corporate Debtor, having acquired MSME status after the initiation of CIRP, was eligible to submit a resolution plan. The Adjudicating Authority had initially ruled that the ex-promoter/Corporate Debtor was ineligible under Section 29A read with Section 240A of the IBC. However, the Appellate Tribunal noted that the Supreme Court in Hari Babu Thota (CA No. 4422 of 2023) clarified that MSME status obtained before the submission of the resolution plan, even if after CIRP initiation, does not disqualify the Corporate Debtor. Thus, the Corporate Debtor was eligible to submit the resolution plan.

2. Validity of MSME Registration:
The Adjudicating Authority questioned the MSME registration, suggesting it was unauthorized as it was obtained post-CIRP initiation. The Appellate Tribunal highlighted that the MSME registration was acquired through proper channels and procedures, including online application and verification by competent authorities. The Tribunal emphasized that any discrepancies should be addressed by the designated MSME authorities, not the Adjudicating Authority.

3. Authority of Adjudicating Authority to Review MSME Registration:
The Appellate Tribunal underscored that the Adjudicating Authority does not have the jurisdiction to unilaterally review or revoke MSME registration. The MSME Act and related notifications do not confer such powers on the Adjudicating Authority. The Tribunal noted that only the competent MSME authorities could address any grievances or discrepancies regarding MSME registration.

4. Commercial Wisdom of CoC:
The Tribunal reiterated the established legal principle that the commercial wisdom of the CoC is paramount and not subject to judicial review, except on limited grounds specified in Section 30(2) or Section 61(3) of the IBC. The CoC had approved the resolution plan with a 77.56% vote share, and the Tribunal held that the Adjudicating Authority erred in rejecting the plan based on its assessment of MSME registration validity. The Tribunal cited multiple Supreme Court judgments affirming the primacy of CoC's commercial decisions.

Conclusion:
The Appellate Tribunal allowed the appeals, setting aside the Adjudicating Authority's orders. It held the Corporate Debtor eligible to submit a resolution plan as an MSME and directed the Adjudicating Authority to pass a fresh order on the resolution plan within three months. The Tribunal emphasized adherence to the commercial wisdom of the CoC and the proper jurisdictional boundaries concerning MSME registration.

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