The Supreme Court Bench comprising Justices Sanjay Kishan Kaul and Sudhanshu Dhulia was hearing an appeal and held that post-initiation of CIRP, obtaining Micro, Small, and Medium Enterprises (MSME) status does not disqualify the promoters of the Corporate Debtor from submitting a resolution plan under Section 240A of the Insolvency and Bankruptcy Code.
The Supreme Court bench observed that the lack of MSME status at the commencement of CIRP does not bar the CD's promoters from eligibility under Section 29A.
The Apex Court emphasized exemptions for MSMEs to prevent liquidation, allowing non-willful defaulter promoters to bid for MSMEs in insolvency proceedings. The Bench rejected the NCLAT's precedent and remanded the matter to the Adjudicating Authority for reconsideration of the resolution plan.
In the present case, the Shree Aashraya Infra-Con Limited (CD) obtained MSME status after the initiation of Corporate Insolvency Resolution Process (CIRP). The Resolution Professional (RP), Hari Babu Thota, submitted a resolution plan on behalf of the CD's promoters, which was approved by the Committee of Creditors (CoC). However, the Adjudicating Authority (AA) rejected the plan, citing that the MSME certificate was obtained after the CIRP commencement, making the promoters ineligible under Section 240A of the Insolvency and Bankruptcy Code.
The National Company Law Appellate Tribunal (NCLAT) upheld AA's decision, referring to its previous ruling in Digamber Anand Rao Pingle Vs. Shrikant Madanlal Zawar & Ors. The NCLAT held that obtaining an MSME certificate post-CIRP initiation does not authorize the submission of a resolution plan by the CD's promoters to overcome ineligibility under Section 240A.
Challenging these rulings, the RP appealed to the Supreme Court, raising two key issues:
Whether lack of MSME status at the CIRP commencement disqualifies the CD as a resolution applicant under Section 29A of the Code.
Whether promoters of the CD are entitled to benefit from Section 240A when the CD gains MSME registration after CIRP initiation.
The Supreme Court allowed the appeal, overturning the decisions of NCLT and NCLAT. It ruled that even if MSME registration occurs post-CIRP, the CD's promoters remain eligible to submit a resolution plan under Section 240A. Additionally, the Court clarified that the CD's promoters are not disqualified under Section 29A.
In its decision, the Supreme Court referred to the Insolvency Law Committee's 2018 report, emphasizing the importance of MSMEs in the Indian economy and the need to protect them from liquidation. The Court highlighted exemptions granted to MSMEs, allowing non-willful defaulter promoters to bid for MSMEs in insolvency proceedings.
Moreover, the Supreme Court deemed the NCLAT's ruling in Digambar Anandrao Pingle v. Shrikant Madanlal Zawar and Others, REED 2021 NCLAT Del 07529, as incorrect and remanded the matter to the Adjudicating Authority for reconsideration of the resolution plan presented by the CD's promoters.
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