Supreme Court: In an appeal by the Resolution Professional (‘RP’) apprehending far reaching consequences after the resolution plan presented before the National Company Law Tribunal (‘NCLT’) got rejected on the grounds that the promoters could not present the plan, the Division Bench of Sanjay Kishan Kaul and Sudhanshu Dhulia, JJ. set aside the impugned orders clarifying that the disqualification under Section 29-A of the Insolvency and Bankruptcy Code, 2016 (‘IBC Code’) against promotors applying for resolution plan was not applicable to Micro, Small and Medium Enterprises (‘MSMEs’).
Factual Matrix
Shree Aashraya Infra-Con Limited went into Corporate Insolvency Resolution Process (CIRP) under IBC Code and the appellant in the instant matter got appointed as the RP for the said CIRP. The said RP came up with a resolution plan before the as propounded by the promoters and approved by the Committee of Creditors (‘CoC’). However, the application got dismissed vide order dated 28-02-2023 on the grounds that the promoters could not present the plan.
The appellant being the RP in the instant matter urged that such an order would have far reaching consequences for him making him ineligible to continue as an RP, ineligible to be considered as Board is liquidator of the corporate debtor, and that his case must be referred to the Insolvency and Bankruptcy Board of India (‘IBBI’) for further action for RP erred in putting up a plan that was not in consonance with the law for consideration by the adjudicating authority.
Court’s Analysis
In the absence of any representation from the other side, the Court appointed an Amicus in the instant matter, not only for the matter affecting the appellant RP, but because “certain issues required adjudication by us, more so, in view of the impugned order relying on an earlier order of the National Company Law Appellant Tribunal (‘NCLAT’) in Digambar Anandrao Pingle v. Shrikant Madanlal Zawar, 2021 SCC OnLine NCLAT 1449.”
The Court considered the following aspects:
- Whether the resolution applicant was disqualified under the primary conditions of Section 29A of the IBC Code?
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Whether the corporate debtor not having an MSME status at the time of commencement of CIRP proceedings would disqualify the Resolution applicant under Section 29A of IBC Code as benefit of Section 240A would not be available?
Analysis of Section 29A of IBC Code
The Court analysed clauses (c), (g) and (h) of Section 29A of IBC Code and pointed out that the Section was added vide Amendment Act 8 of 2018 w.e.f. 23-11-2017 with an object to cure the mischiefs of persons responsible for the financial situation of a company against trying to submit a plan and take over the company. Section 29A (c) provides for a lapse of 1 year from the date of classification as a nonperforming asset (‘NPA’). The Court noted that in the instant facts, there were no bank dues to attract a concept of NPA much less than the 1-year period. Coming to Section 29A (g), the Court acknowledged that one preferential transaction was identified by the RP, but no order was passed by the adjudicating authority as on the date of impugned order, Section 29A (h) again had no factual application.
The Court noted the submission that the three clauses to Section 29A were specific to the promoters, and that the company’s promoter was not disqualified/disentitled from presenting the plan. As pointed out by the Court, the said issue was noted in the impugned judgment by but there was no finding in this behalf, since the said order was based only on the issue of Section 240A of IBC Code.
Court’s Opinion on Section 240A of IBC Code
The Court considered whether the NCLAT’s view in Digambar Anandrao Pingle (supra) set forth correct proposition of law. In the said facts, application for MSME certificate was made after commencement of CIRP and the opinion said that such unauthorized application could not be considered and could not tide over the ineligibility under Section 29A. The Court therefore perused Section 240A of the IBC Code, which was also introduced vide an Amendment in 2018 w.e.f. 6-06-2018.
The Court explained that clauses (c) and (h) of Section 29-A which were applicable to promoters, exempting them from applying for a plan, was not applicable qua any micro, small and medium enterprises, and that the object was due to the nature of the business carried out by the said entities. The Court noted that “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)”.
The Court observed that “excluding such industries from disqualification under 29A (c) and (h) is because qua such industries other resolution applicants may not be forthcoming which thus would inevitably lead not to resolution but to liquidation.” The Court further noted that the challenge to Section 29A was repelled in Digambar Anandrao Pingle (supra) while extracting the statement of the then Finance Minister, while moving the Amendment Bill, giving the object of interpretation of Section 29A and referring to the disqualification clause under Section 29A(c) – was for those who were corporate debtors, and provided the cut off as the date of application making a bid.
Conclusion
Taking note of the submission 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” and 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.” The Court accepted the same in view of the ‘notwithstanding clause’, acknowledging that it was obvious that while seeking to protect this category of industries, the disqualification is not to be incurred.
The Court expressed that the date of initiation of CIRP proceedings being the relevant date was not correct legal view and observed that the law laid in Digambar Anandrao Pingle (supra) by NCLAT was not correct, and that the date of submission of resolution plan has to be the cut off date. The Court thereby explained that the plan submitted in the instant matter did not incur disqualification, and such intent was reflected in the statutory provision itself that in Section 29A (c) which began at the time of submission of resolution plan.
The Court set aside the impugned orders of NCLT dated 28-02-2023 and NCLAT dated 2-06-2023 and allowed the instant appeal. It further restored the IA discussed above to be reconsidered by NCLAT, and clarified that any consequential action taken by IBBI against the appellant RP in pursuance to the impugned order did not survive.
[Hari Babu Thota v. X, 2023 SCC OnLine SC 1642, decided on 29-11-2023]
Judgment authored by: Justice Sanjay Kishan Kaul
Justice Sanjay Kishan Kaul — A torch bearer of Freedom of Speech and Expression
Advocates who appeared in this case :
Amicus Curiae Advocate Bishwaji Dubey, Advocate Adhitya Srinivasan, Advocate Nikhil Saran, Advocate on Record Pritha Srikumar Iyer, Advocate Arun Srikumar, Advocate Neha Mathem, Advocate Shubhansh Thakur, Advocate on Record Praveen Kumar Jha, Advocate S. Thennavan, Advocate Bholle Taguru Phanendra, Advocate N. Sakthivel, Advocate Chembugari Abheeshna, Advocate Sunil Fernandes, Advocate Zeeshan Diwan, Advocate Priyansha Indira Sharma, Advocate Faraz Ahmed, Advocate on Record Praveen Kumar Jha
