TaxTMI 
TaxTMI 
2024 (3) TMI 291
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....eal. 2. Brief facts necessary to be noticed for deciding the Appeal are : (i) The Appellant, a registered MSME, in its Board Meeting dated 09.08.2021 approved filing of an Application for initiation of Pre-Packaged Insolvency Resolution Process as required under Section 54A. Extra Ordinary General Meeting was held on 17.09.2021 for filing an application for initiating Pre-Packaged Insolvency Resolution Process. Written consent was obtained from Insolvency Professionals in Form P1. The Financial Creditor also approved the proposal. (ii) On 21.08.2023, a Report was also filed by Insolvency Professional. On 12.09.2023, Corporate Debtor filed its Base Resolution Plan before the Adjudicating Authority. On 08.11.2023, the Adjudicating Authority by the impugned order has rejected the Application. Aggrieved by which order , this Appeal has been filed. 3. We have heard Shri Abhijeet Sinha, learned Senior Counsel for the Appellant. 4. Learned Senior Counsel challenging the impugned order submits that the Adjudicating Authority committed error in rejecting the Application of the Appellant by entering into adjudication with regard to Base Resolution Plan, which was n....
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....cation for initiating pre-packaged insolvency resolution process may be made in respect of a corporate debtor classified as a micro, small or medium enterprise under sub-section (1) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006. (2) Without prejudice to sub-section (1), an application for initiating pre-packaged insolvency resolution process may be made in respect of a corporate debtor, who commits a default referred to in section 4, subject to the following conditions, that-- (a) it has not undergone pre-packaged insolvency resolution process or completed corporate insolvency resolution process, as the case may be, during the period of three years preceding the initiation date; (b) it is not undergoing a corporate insolvency resolution process; (c) no order requiring it to be liquidated is passed under section 33; (d) it is eligible to submit a resolution plan under section 29A; (e) the financial creditors of the corporate debtor, not being its related parties, representing such number and in such manner as may be specified, have proposed the name of the insolvency professional to be appointed as....
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....n plan which conforms to the requirements referred to in section 54K, and such other conditions as may be specified; and (d) such other information and documents as may be specified" 7. Sub-section (4) of Section 54A also requires the Corporate Debtor to provide Base Resolution Plan to the Financial Creditor, prior to seeking approval from the Financial Creditor. Section 54B, enumerates the 'Duties of insolvency professional before initiation of pre-packaged insolvency resolution process'. Section 54C provides for 'Application to initiate prepackaged insolvency resolution process'. Section 54C is as follows: "54C. Application to initiate pre-packaged insolvency resolution process. (1) Where a corporate debtor meets the requirements of section 54A, a corporate applicant thereof may file an application with the Adjudicating Authority for initiating prepackaged insolvency resolution process. (2) The application under sub-section (1) shall be filed in such form, containing such particulars, in such manner and accompanied with such fee as may be prescribed. (3) The corporate applicant shall, along with the application, furnish- (a....
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....ory compliance, which are as follows: "10. The Corporate Debtor is a duly registered MSME (Micro, Small & Medium Enterprise) under the MSME Development Act, 2006 in the category "Micro Enterprise" and the copy of the UDYAM (Udyog Aadhar Memorandum) Registration Certificate dated 29.07.2020 is annexed as Annexure D with the Petition. The Corporate Debtor is eligible to file this Petition as per Section 54A(l) of the Code. 11. A copy of the special resolution by the Members of the Corporate Debtor to initiate the PPIRP under Section 54A(2)(g) of the Code was passed on 17.09.2021 and the same is annexed as Annexure F with the Petition. 12. A copy of the declaration given by majority of the directors of the Corporate Debtor pursuant to their meeting on 09.08.2021 as per Section 54A (1) (f) of the Code in Form P6 is annexed as Annexure B with the Petition. 13. The Financial Creditor i.e. M /s. WZ Enterprises Private Limited holding 100% voting share has approved the decision of the directors to file this Petition as contemplated under Section 54A(3) of the Code after considering the formalities completed by the Corporate Debtor including submission of....
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....tor has furnished name of Insolvency Professional to be appointed as Resolution Professional as per the provision of Section 54C(3)(b) of the Code and the consent of such Insolvency Professional has also been filed." 10. The Adjudicating Authority itself, thus, noticed in above paragraph that Application filed by the Appellant under 54C fulfils all necessary compliances as required by Section 54A and 54B. The Adjudicating Authority even after noticing the necessary compliances has rejected the Application, for the reasons as noticed in paragraphs 20 and 21, which are as follows: "20. On perusal of Financial Statements, it is seen that the Corporate Debtor has reported Nil Revenue in the Financial Year ended on 31st March, 2021, 31st March, 2022 and 31st March 2023. Further, these Financial Statements indicate that the Corporate Applicant owes mainly to the related parties and M/s WZ Enterprises Private Limited. It is further seen that the Base Resolution Plan has been submitted jointly in consortium by M/s Garodia Chemicals Limited through Mr. Mahesh Gordhandas Garodia and Mr. Ravindra Subhash Salunkhe who is a director of M/ s WZ Enterprises Private Limited. The Base R....
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....nt for a purpose other than its resolution cannot be maintained even under Sec. 54 (C) in the garb of Insolvency Resolution Process." 11. When we look into paragraphs 20 and 21 of the impugned order, there are two main reasons given by the Adjudicating Authority by which the application has been rejected are: (I) Base Resolution Plan has been devised as a mechanism to transfer control to Mr. Ravindra Subhash Salunkhe of a listed entity (II) Which takeover would have otherwise attracted the rigor of the SEBI Takeover Code in respect of acquisition of shareholding in a listed entity beyond the specified threshold limit. 12. After making the aforesaid observations and reasons, the Adjudicating Authority further observed that "Accordingly, we are of considered view that the Application by Corporate Applicant for a purpose other than its resolution cannot be maintained even under Sec. 54(C) in the garb of Insolvency Resolution Process". We, thus, need to examine the correctness of the impugned order on the basis of reasons given by Adjudicating Authority for rejecting the Application under Section 54C. 13. We have already noticed the provisions of Section 54A ....
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....priateness of the base resolution plan". When we look into the Scheme of Chapter III-A, the question of approval of Resolution Plan arises under Section 54K, i.e., after constitution of Committee of Creditors ("CoC"). The constitution of CoC is contemplated after commencement of Pre-packaged Insolvency Resolution Process. Section 54-I, which deals with constitution of 'Committee of creditors' is as follows: "54-I. Committee of creditors. (1) The resolution professional shall, within seven days of the pre-packaged insolvency commencement date, constitute a committee of creditors, based on the list of claims confirmed under clause (a) of sub-section (2) of section 54F: Provided that the composition of the committee of creditors shall be altered on the basis of the updated list of claims, in such manner as may be specified, and any such alteration shall not affect the validity of any past decision of the committee of creditors. (2) The first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors. (3) The provisions of section 21, except sub-section (1) thereof, shall, mutatis ....
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....specified. (7) The resolution professional shall provide to the resolution applicants, - (a) the basis for evaluation of resolution plans for the purposes of sub-section (9), as approved by the committee of creditors subject to such conditions as may be specified; and (b) the relevant information referred to in section 29, which shall, mutatis mutandis apply, to the proceedings under this Chapter, in such manner as may be specified. (8) The resolution professional shall present to the committee of creditors, for its evaluation, resolution plans which conform to the requirements referred to in sub-section (2) of section 30. (9) The committee of creditors shall evaluate the resolution plans presented by the resolution professional and select a resolution plan from amongst them. (10) Where, on the basis of such criteria as may be laid down by it, the committee of creditors decides that the resolution plan selected under sub-section (9) is significantly better than the base resolution plan, such resolution plan may be selected for approval under subsection (12): Provided that the criteria laid down by the committee of creditors unde....
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....at, the corporate debtor being a resolution applicant under clause (25) of section 5, may submit the base resolution plan either individually or jointly with any other person. Explanation II.--For the purposes of sub-sections (4) and (14), claims shall be considered to be impaired where the resolution plan does not provide for the full payment of the confirmed claims as per the updated list of claims maintained by the resolution professional." 17. The approval by Adjudicating Authority is contemplated under Section 54L(1), which is as follows: "54L. Approval of resolution plan. (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) or sub-section (12), as the case may be of section 54K, subject to the conditions provided therein, meets the requirements as referred to in subsection (2) of section 30, it shall, within thirty days of the receipt of such resolution plan, by order, approve the resolution plan : Provided that the Adjudicating Authority shall, before passing an order for approval of a resolution plan under this sub-section, satisfy itself that the....
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....n place of the existing promoter group. 20. Section 54A, sub-clause (4) provides that Financial Creditor be provided with Base Resolution Plan which conforms to the requirements referred to in Section 54K. Section 54K, sub-section (1) provides: "54K (1) The corporate debtor shall submit the base resolution plan, referred to in clause (c) of sub-section (4) of section 54A, to the resolution professional within two days of the prepackaged insolvency commencement date, and the resolution professional shall present it to the committee of creditors." 21. The first question is as to whether M/s WZ Enterprises Pvt. Ltd. could not have submitted the Base Resolution Plan along with the Corporate Applicant. The issue is squarely answered by provisions of Section 5 subsection (25), where Resolution Plan has been defined. Section 5, subsection (25) has been amended by Act 26 of 2021, where Section 54K has also been inserted. Section 5, sub-section (25) as amended by Act 26 of 2021 is as follows: "5(25) "resolution applicant" means a person, who individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to the invitat....