TaxTMI 
TaxTMI 
2023 (12) TMI 1255
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....ribunal, Bengaluru as propounded by the promoters and approved by the Committee of Creditors [COC] but in terms of the order dated 28.02.2023, the application was dismissed on the ground that the promoters could not have presented the plan. It is the say of the appellant before us that this has far reaching consequences for him and his role as the Resolution Professional as: a) the appellant is ineligible to continue as a Resolution Professional; b) the applicant is ineligible to be considered as Board is liquidator of the corporate debtor; c) the case of the appellant is required to be referred to the Insolvency and Bankruptcy Board of India (IBBI) for further action in accordance with law on the ground that the appellant had erred in putting up a plan that was not in consonance with law for consideration of the adjudicating authority. 2. Since there was really no representation on behalf of the other side, we appointed Mr. Bishwajit Dubey, learned counsel as Amicus in the matter. 3. We have heard learned counsel for the appellant/Resolution Professional and the learned Amicus not only because it would affect the professional abilities of the appel....
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....or the purposes of this proviso, the expression "related party" shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares or completion of such transactions as may be prescribed, prior to the insolvency commencement date. Explanation II -For the purposes of this clause, where a resolution applicant has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset and such account was acquired pursuant to a prior resolution plan approved under this Code, then, the provisions of this clause shall not apply to such resolution applicant for a period of three years from the date of approval of such resolution plan by the Adjudicating Authority under this Code. (g) has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transac....
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.... Code. 10. The aforesaid discussion thus, shows that as per the factual scenario on record, there is no per say disqualification under Section 29A and we could have left the matter at that. However, we proceed further as it is pointed out that the plea based on Section 240A needs the opinion of this Court as there are a number of such cases arising and the orders earlier passed are being followed. 11. In this behalf learned Amicus has drawn our attention to the judgment of this Court in Arcelormittal India Private Limited v. Satish Kumar Gupta & Ors. Comp. App. (AT) (Ins.) No. 43-43A/2021. The discussion in this behalf is contained in paras 46, 47 and 57 which are reproduced as under: 46. According to us, it is clear that the opening words of Section 29-A furnish a clue as to the time at which clause (c) is to operate. The opening words of Section 29-A state: "a person shall not be eligible to submit a resolution plan...". It is clear therefore that the stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant. The contrary view expressed by Shri Rohatgi is obviously incorrect, as the date of commencement of the corporat....
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....e debts have not been paid off for a period of at least one year before commencement of the corporate insolvency resolution process, becomes ineligible to submit a resolution plan. This provision therefore ensures that if a person wishes to submit a resolution plan, and if such person or any person acting jointly or any person in concert with such person, happens to either manage, control, or be promoter of a corporate debtor declared as a non-performing asset one year before the corporate insolvency resolution process begins, is ineligible to submit a resolution plan. The first proviso to clause (c) makes it clear that the ineligibility can only be removed if the person submitting a resolution plan makes payment of all overdue amounts with interest thereon and charges relating to the non-performing asset in question before submission of a resolution plan. The position in law is thus clear. Any person who wishes to submit a resolution plan acting jointly or in concert with other persons, any of who may either manage, control or be a promoter of a corporate debtor classified as a non-performing asset in the period abovementioned, must first pay off the debt of the said corp....
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....s" means any class or classes of enterprises classified as such under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006).] 14. The aforesaid provision also was introduced as an Amendment in 2018 effective from 06.06.2018. It begins with a "notwithstanding clause". Clauses (c) and (h) of Section 29-A which apply to the promoters and exempts them to apply for a plan is not applicable qua any micro, small and medium enterprises. The objective obviously was to due to the nature of business carried out by such entities. 15. Learned counsel has referred to the judgment in Swiss Ribbons Private Limited and Anr. v. Union of India & Ors. (2019) 4 SCC 17. The relevant paras are as reproduced under: Exemption Of micro, small, and medium enterprises from Section 29A 111. The ILC Report of March 2018 found that micro, small, and medium enterprises form the foundation of the economy and are key 112. Section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 classifies enterprises depending upon whether they manufacture or produce goods, or are engaged in providing and rendering services as micro, smal....
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....mmittee sought it fit to explicitly grant exemptions to corporate debtors which are MSMEs by permitting a promoter who is not a wilful defaulter, to bid for the MSME in insolvency. The rationale for this relaxation is that a business of an MSME attracts interest primarily from a promoter of an MSME and may not be of interest to other resolution applicants. (emphasis supplied) 114. Thus, the rationale for excluding such industries from the eligibility criteria laid down in Section 29A(c) and 29A(h) is because qua such industries, other resolution applicants may not be forthcoming, which then will inevitably lead not to resolution, but to liquidation. Following upon the Insolvency Law Committee's Report, Section 240A has been inserted in the Code with retrospective effect from 06.06.2018 as follows: "Section 240A: Application of this Code to micro, small and medium enterprises.- (1) Notwithstanding anything to the contrary contained in this Code, the provisions of clauses (c) and (h) of section 29A shall not apply to the resolution applicant in respect of corporate insolvency resolution process or pre-packaged insolvency resolution process of any micro, sma....
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....king of the Code and steps in to rectify them." 16. Under the heading "exemption of Micro, Small and Medium Enterprises from Section 29-A" the discussion begins. It is referred to the ILC report of March, 2018 and its finding that Micro, Small and Medium Enterprises form the foundation of the economy and are key drivers of employment, production, economic growth, entrepreneurship and financial inclusion. The ILC report 2018 exempted these industries from Section 29-A (c) and (h) and the rationale for the same was contained in para 27.4 of the report which reads as under: "27.4 Regarding the first issue, the Code is clear that default of INR one lakh or above triggers the right of a financial creditor or an operational creditor to file for insolvency. Thus, the financial creditor or operational creditors of MSMEs may take it to insolvency under the Code. However, given that MSMEs are the bedrock of the Indian economy, and the intent is not to push them into liquidation and affect the livelihood of employees and workers of MSMEs, the Committee sought it fit to explicitly grant exemptions to corporate debtors which are MSMEs by permitting a promoter who is not a wilful def....
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....en brought in with that purpose in mind." (emphasis supplied) 19. The aforesaid statement, while giving the objective of interpretation of Section 29A and referring to the disqualification in Clause (c), is in regard to those who are corporate debtor and provides the cut off "as on date of the application making a bid". 20. The common submission thus, is that while interpreting Section 240A, the reason for carving out an exception in micro, small and medium industries is set out on the date of application for making the bid as the crucial date. The submission is that while for some other aspects the initiation of the CIRP proceedings would be the cut off date, the same would not apply in the case of Section 240A, in view of the statement by the Minister themselves while introducing the amendment Bill. 21. We are inclined to accept the aforesaid plea as it is quite obvious that while seeking to protect this category of industries, the disqualification is not to be incurred, especially in view of the "notwithstanding clause". 22. We certainly can look to the statement of the Minister for purposes of a cut off date that "there is no other specific provision provid....