The NCLAT upheld the disqualification under Section 29A(c) of the IBC, rejecting MSME status as a valid defence.
The National Company Law Appellate Tribunal (NCLAST), Principal Bench headed by Justice Ashok Bhushan (Chairperson) and Technical Member Mr. Barun Mitra reviewed three appeals and held that Section 29A(c) of the IBC disqualifies entities managed by individuals involved with a corporate debtor classified as an NPA for more than a year prior to CIRP. It emphasized that MSME status obtained post-default could not override such disqualification when overlapping management roles compromised eligibility.
This brief summarizes the judgment delivered by the National Company Law Appellate Tribunal (NCLAT) in appeals filed by the Resolution Professional (RP), the Committee of Creditors (CoC), and the Successful Resolution Applicant (SRA) of Vibrant Buildwell Pvt. Ltd. against the order dated 24.01.2024 passed by the National Company Law Tribunal (NCLT), New Delhi Bench, Court-IV.
The NCLAT upheld the NCLT’s decision to reject the resolution plan submitted by Bishwanath Traders & Investment Ltd., declaring it ineligible under Section 29A(c) of the Insolvency and Bankruptcy Code, 2016 (IBC). The Tribunal emphasized that the Corporate Debtor’s (CD) account had been classified as a Non-Performing Asset (NPA) on 14.06.2020 and remained unpaid for over a year before the initiation of the Corporate Insolvency Resolution Process (CIRP) on 22.02.2022. It was determined that Bishwanath Traders, managed and controlled by Mr. Birendra Kumar Pasari—who was also involved in the management of the CD—was disqualified from submitting a resolution plan under the Code.
The Tribunal ruled that Section 29A(c) of the IBC disqualifies entities managed by individuals involved with a corporate debtor classified as an NPA for more than a year prior to CIRP. It emphasized that MSME status obtained post-default could not override such disqualification when overlapping management roles compromised eligibility.
The case originated when Dilwara Leasing and Investment Ltd., a financial creditor, initiated CIRP proceedings against Vibrant Buildwell Pvt. Ltd. on 22.02.2022. Mr. Ashish Singh was appointed as the RP. During the fourth CoC meeting held on 20.05.2022, the RP informed stakeholders about the potential benefits of registering the CD as a Micro, Small, and Medium Enterprise (MSME), a process completed on 24.05.2022. Subsequently, Form-G was issued on 05.05.2022, attracting Expressions of Interest (EoIs) from eight applicants. Bishwanath Traders was selected as the SRA after its resolution plan secured unanimous approval from the CoC.
The resolution process faced a significant challenge when Raj Kumar Sahani, a suspended director and shareholder of the CD, filed an application contesting the eligibility of Bishwanath Traders under Section 29A(c) of the IBC. Sahani argued that Bishwanath Traders, acting in concert with Mr. Pasari, who controlled both the CD and the SRA, was disqualified. Additionally, Sahani highlighted an alleged illegal financial arrangement involving the setting off of Rs. 12 crores owed by the financial creditor to the SRA.
The NCLT accepted Sahani’s objections, declared Bishwanath Traders ineligible, and rejected the resolution plan application. The tribunal directed liquidation of the CD under Section 33(1)(b) of the IBC. The RP, CoC, and SRA appealed this order, arguing that MSME registration during CIRP entitled the CD to protections under Section 240A of the IBC. They contended that Bishwanath Traders was eligible since the CD’s account had not been officially declared an NPA by a financial sector regulator. The appellants also relied on judicial precedents, including Hari Babu Thota, REEDLAW 2023 SC 11576 and Gajendra Sharma v. Union of India and Another, REEDLAW 2020 SC 8353, to assert the validity of MSME registration.
However, the NCLAT dismissed these contentions, ruling that the real estate business of the CD did not qualify for MSME classification under the Industries (Development and Regulation) Act, 1951. The Tribunal reaffirmed that Bishwanath Traders’ disqualification was valid due to the CD’s NPA status and Mr. Pasari’s overlapping management roles.
In conclusion, the NCLAT upheld the NCLT’s decision to reject the resolution plan submitted by Bishwanath Traders and directed the RP to proceed with the liquidation of Vibrant Buildwell Pvt. Ltd. in accordance with the provisions of the IBC. This judgment reinforces the strict application of Section 29A disqualifications and underscores the importance of maintaining transparency and fairness in CIRP proceedings.
Mr. Abhijeet Sinha, Sr. Advocate Mr. Ashutosh Gupta, Mr. Gaurav Rana, Mr. Ajitesh Kumar and Mr. Shresth Garg, Advocates represented the Appellant.
Mr. Ramji Srinivasan, Sr. Advocate with Mr. Anirban Bhattacharya, Ms. Namrata Saraogi, Mr. Rajeev Chowdhary, Ms. Priyanka Bhatt, Advocates appeared for Respondent No.1.
Mr. Gurjot Singh, Advocate appeared for Respondent No. 3.
Mr. Abhishek Anand, Mr. Karan Kohli and Mr. Palak Kalra, Advocates for appeared the RP.
Mr. Sunil Fernandes, Sr. Advocate with Ms. Rajshree Chaudhary and Ms. Diksha Dadu, Advocates appeared for Interveners in I.A. No. 2763 / 2024.
Subscribers can access the Case, including Case Analysis, Ratio Decidendi, Headnotes, Briefs, Case Research, Cited Case Laws, Case Law Cross-references, and the latest updates on Statutes, Notifications, Circulars, Guidelines, Press Releases and more.
Click on the Citation/Link to access these resources
REEDLAW 2024 NCLAT Del 10603
Comments