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2024 (3) TMI 82
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....in , Mr. Ayush J. Rajani , Advocates JUDGMENT [ Per : Barun Mitra , Member ( Technical ) ] Present is a set of two appeals filed under Section 61 of Insolvency and Bankruptcy Code, 2016 ("IBC" in short) arising out of two separate orders dated 08.12.2023 passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court- III) in IA No. 2895/2021 & 317/2022 in Company Petition No. 126/MB/C-III/2019. By the first impugned order passed by the Adjudicating Authority in I.A. No. 317/2022 filed by the Central Bank of India, it has been held that the ex-promoter/Corporate Debtor is not eligible under Section 29A read with Section 240A of the IBC to submit a resolution plan claiming the benefits of MSME. By the second impugned order, the Adjudicating Authority has rejected I.A. No. 2895/2021 filed by the Resolution Professional seeking the approval of the resolution plan submitted by the successful resolution applicant - ex-promoter/Corporate Debtor. Aggrieved by the said impugned orders, the present appeals have been preferred by the Appellants. While one appeal vide Company Appeal (AT) (Ins) No. 1672-1673 of 2023 has been preferred by the successful resolut....
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....oth the Appellants in their respective appeals are found to largely overlap, therefore, for reasons of convenience, we would like to take note of their submissions conjointly. 4. The Learned Counsel for the Appellants making their submissions stated that the Corporate Debtor had been issued MSME certificate by the competent authority on the basis of an online application filed by an employee of the Corporate Debtor on the instructions of the RP. Since this MSME Registration Certificate was obtained on 23.10.2020 which date was before the date of submission of the resolution plan, the SRA was eligible to file a resolution plan and seek the benefits of Section 240A of the IBC. It was pointed out that the impugned order had been passed on the wrong premise that since the status of the Corporate Debtor had changed to MSME after the insolvency commencement date it was ineligible to file the resolution plan. It was asserted that in terms of the recent judgment of the Hon'ble Supreme Court in the matter of Hari Babu Thota in CA No. 4422 of 2023 wherein it has been held that even if MSME registration is made after the initiation of CIRP but before the date of submission of resolution pl....
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.... only when the voting was undertaken on the resolution plan in the 26th CoC meeting that the Central Bank of India did not vote in favour of the plan of the SRA. The objection raised by the Central Bank of India at a belated stage is only an attempt to thwart the revival process of the Corporate Debtor. 9. It has been contended by the Learned Counsel for the RP that the Adjudicating Authority has ignored the fact that the Union Bank of India which had an overwhelming majority in the CoC had expressed its complete satisfaction with the registration of the Corporate Debtor as an MSME and had actively engaged in prolonged negotiation with them for stitching up the best possible resolution plan. The Central Bank of India which held only 22.44% vote share and therefore as a dissenting financial creditor it has to fall in line with the other creditors who have approved the resolution plan with majority voting. In support of their contention, it is submitted that the Hon'ble Supreme Court in Committee of Creditors of Essar Steel India Ltd versus Satish kumar Gupta and others (2020) 8 SCC 531 has held that it is the commercial wisdom of the CoC ....
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....rn, the MSME certificate was obtained by SRA purely for own benefit to take-over the assets of the Corporate Debtor with a haircut of 71.90% of the claims of the financial creditors and that this step did not pave way for maximisation of the value of assets. It was therefore contended that the Adjudicating Authority had rightly rejected the resolution plan of the SRA. 12. We have duly considered the arguments advanced by the Learned Counsel for the parties and perused the records carefully. 13. The first issue for consideration before us is the eligibility of the Corporate Debtor to submit a resolution plan in the present facts of the case when it has acquired a change in its status to that of an MSME after initiation of the CIRP proceedings. 14. Before we dwell into this issue, we may notice how the Adjudicating Authority has dealt with this issue and the relevant findings in the first impugned order are as extracted below: " 29...... In this regard, this Tribunal draws attention towards certain observations made by Hon'ble NCLAT, Chennai Bench in its order dated 02.06.2023 in Re Hari Babu Thota [Company Appeal (AT) (Ins) No. 110 of 2023: "2... 'Corporat....
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.... later on seek to claim the benefit under section 240A of the I&B Code by reason of subsequent status." 15. It has been contended by the Appellants that the above findings of the Adjudicating Authority do not stand the test of law anymore since it relied on the judgement of this Tribunal in Hari Babu Thota in Company Appeal (AT) (Ins) No. 110 of 2023 which has since been overruled by the Hon'ble Supreme Court in the matter of Hari Babu Thota in Civil Appeal No. 4422 of 2023 (2024) 242 Comp Cas 1 wherein it has held: "20. ..... The submission is that while for some other aspects the initiation of the corporate insolvency proceedings would be the cut off date, the same would not apply in the case of Section 240A, in view of the statement of 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....
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.... had been misconstrued by the RP and SRA in calculating the investment in plant and machinery. It is also their case that the certificate issued by the Chartered Engineer is bereft of details on how the WDV figures were arrived at therein. It is contended that the exercise carried out by the Chartered Engineer is not substantiated by purchase orders/invoices etc and is based on random data which led to drastic reduction in valuation of plant and machinery. Further as the subsequent Chartered Accountant's certificate also was not based on any independent valuation or investigation but premised on the faulty certificate of the Chartered Engineer and hence cannot be relied upon. 19. We notice that the Adjudicating Authority in the first impugned order has felt the necessity to look into the records relied upon by the RP and SRA to claim MSME status for the Corporate Debtor which is to the effect: "15. The main issue arising out of the present case is whether the Corporate Debtor is an MSME in accordance with the Notification No. SO 1702(E) dated 01.06.2020. In this light, the Tribunal has to accentuate whether the records relied upon by the Respondents that enable....
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....ompetent authority under MSME Act on 23.10.2020 which was subsequent to the date of MSME Notification of 26.06.2020. Hence the certificate prima-facie was issued on the basis of the new Notification. Also in the present case, admittedly, the application has been filed online and the registration was done online on the basis of ITRs and hence there lies no case of any patent procedural violation or deviation from the normal practice. Any infirmity or defect in the MSME registration certificate could have therefore been corrected only by the competent authority or any other designated authority as specified in the notification. 24. The MSME Act as it stands clearly does not provide any supervisory role on the Adjudicating Authority to revise/modify/revoke/interfere with MSME registration at its level. Clearly the notification framed thereunder also does not bestow upon the Adjudicating Authority with any such authority to hold an MSME registration certificate to be null and void on its own. Even if Adjudicating Authority was suo motu convinced or persuaded to believe that there were errors in the calculation of the WDV in the grant of MSME status, to our minds, before embarking on....
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....approval given by the CoC as regards application for MSME certificate....." 26. For better appreciation of this issue it may be constructive to note the minutes of the various CoC meetings wherein the MSME status of the Corporate Debtor was discussed to find out if the CoC was actually unaware of the MSME registration aspect. The relevant minutes are as culled out below : 4th Meeting of the CoC held on 27.07.2020 Item No.: 5 - To discuss on the possibilities of utilization of assets of CD for generating cashflows- "......Suspended Director asserted that the CD is eligible to get registered under as a MSME, in line with the amended definition. RP stated that as a prerequisite, the CD has to complete the filing of FY2020 audited statements subsequent ITR filings to qualify for the MSME registration under amended definitions and guidelines." 5th Meeting of the CoC held on 03.11.2020 Item No. 5: To take of the relevant updates on the Corporate Debtor "RP apprised that the CD has received registration certificate under the provisions of MSME with UDYAM-MH- 18-0020176 dated 23rd October 2020. CoC took note of the same." 11....
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....re discussed and the entire process & steps taken by RP for obtaining the MSME has also been laid down in line with latest rules & regulations. RP further stated that in the 16th CoC meeting held on 24th May 2021, the Rep. of UBI had confirmed that they have no objections regarding the eligibility of Mr. Ramesh Shah. CoC took note of the same. Subsequently, the CoC observed that Mr. Ramesh Shah (RA) has increased the amount to Rs. 66.60 crores and reduced the payment period to 2 years. However, the CoC felt that the amount should be increased further, and the payment period should be reduced. Rep. of UBI stated that they are expecting a much higher amount in the Resolution Plan, since the RA, being the promoter of CD, is in a better position to turnaround the CD. Mr. Ramesh Shah stated that he needs to speak with his investor for committing any changes in the payment amount and period therein." 22nd Meeting of CoC held on 26.08.2021 Item No. 5- To conclude the discussions and commence voting on the Final Resolution Plans "..........After due deliberation, the COC requested Mr. Ramesh Shah to submit his Final Resolution Plan by Tuesday 31st August....
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....ention of the Respondent that the RP was required to seek permission of the CoC under Section 28(h) of IBC does not carry much force since the CoC was all along kept apprised by the RP in this regard. More specifically the MSME valuation of the Corporate Debtor was discussed by the CoC in the 22nd and 23rd meetings and held that the Corporate Debtor had been correctly classified as MSME. The CoC had therefore clearly found the SRA to be eligible for MSME status and to submit a resolution plan. It is an undisputed fact that the application for MSME registration was made at the instance of RP. RP who is running the business of the Corporate Debtor is the best suited to take such a decision. We feel that the RP is entitled to make such applications as long as it is not inimical to the continued business operations of the Corporate Debtor. 28. In the present case, the CoC never passed any resolution questioning the registration of the Corporate Debtor as an MSME. During these deliberations in the CoC, we also find that the Central Bank of India did not raise any objections. Only when the voting was undertaken in the 26th CoC meeting that the Central Bank of India did not vote in fav....
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....stituting an appeal that too against an order "approving a resolution plan" under Section 31. First, that the approved resolution plan is in contravention of the provisions of any law for the time being in force. Second, there has been material irregularity in exercise of powers "by the resolution professional" during the corporate insolvency resolution period. Third, the debts owed to operational creditors have not been provided for in the resolution plan in the prescribed manner. Fourth, the insolvency resolution plan costs have not been provided for repayment in priority to all other debts. Fifth, the resolution plan does not comply with any other criteria specified by the Board. Significantly, the matters or grounds- be it under Section 30(2) or under Section 61(3) of the I&B Code -are regarding testing the validity of the "approved" resolution plan by CoC; and not for approving the resolution plan which has been disapproved or deemed to have been rejected by CoC in exercise of its business decision." 165. It will therefore be clear, that this Court, in unequivocal terms, held, that the appeal is a creature of statute and that the statute has not invested jurisdiction ....
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....es within the timelines prescribed by the IBC. It has been consistently held that it is not open to the Adjudicating Authority (the NCLT) or the Appellate Authority (the NCLAT) to take into consideration any other factor other than the one specified in Section 30(2) or Section 61(3) of the IBC. It has been held that the opinion expressed by the CoC after due deliberations in the meetings through voting, as per voting shares, is the collective business decision and that the decision of the CoC's 'commercial wisdom' is non justiciable, except on limited grounds as are available for challenge under Section 30(2) or Section 61(3) of the IBC. This position of law has been consistently reiterated in a catena of judgments of this Court, including: (i) K. Sashidhar v. Indian Overseas Bank and Others (ii) Committee of Creditors of Essar Steel India Limited Through Authorized Signatory v. Satish Kumar Gupta and Others, (iii) Maharashtra Seamless Limited v. Padmanabhan Venkatesh and others, (iv) Kalpraj Dharamshi and Another v. Kotak Investment Advisors Limited and Another. (v) Ghanashyam Mishra and Sons Private Limited Through the Authori....