2022 (1) TMI 617 - Tri - Insolvency and Bankruptcy

Revival of Corporate Debtor - Seeking direction to allow the Applicants a fair opportunity to submit their Resolution Plan and participate in the CIRP - registration as MSME was obtained by the employee - HELD THAT - It is admitted that MSME Certification was obtained behind the back of the RP and the person who applied for the said registration was never authorised either of board of directors or by the RP. Nowhere in the response, the RP has questioned the basic criteria based on which an enterprise can be registered as an MSME unit and whether the Company is eligible to be registered as MSME Unit at all. Admittedly it is not in dispute that the CIRP in relation to the Corporate Debtor was ordered by this Tribunal vide order dated 13.11.2020 and the Applicant through its employees have obtained the MSME Certificate on 02.12.2020 i.e. much after initiation of the CIRP by this Adjudicating Authority. Once the CIRP has been ordered, the Board of Corporate Debtor stands suspended and the entire management of the Corporate Debtor vest with the RP and hence the act of the Employee acting under the instructions of the suspended Board is viewed seriously by this Tribunal and such practice is required to be deprecated. It is required to be noted that the eligibility of the Corporate Debtor under Section 29A of IBC, 2016 is required to be determined at the time of submission of the Resolution Plan and in the present case it is the case of the Applicant that at the date of submission of the Resolution Plan, they were MSME and as such the ineligibility clause under Section 29A(c) and (h) of IBC, 2016 would not apply to them. This Tribunal feels that the act of an Employee of the Corporate Debtor should not adversely affect the Resolution Process of the Corporate Debtor and in such a circumstances, the RP is directed to ratify the action taken by the person who has applied for the registration under the MSME Act - application disposed off.

Summary

Issues:
1. Disqualification of applicants by Resolution Professional
2. Classification of Corporate Debtor as MSME
3. Eligibility of applicants under Section 29A of IBC, 2016
4. Obtaining MSME Certificate post commencement of CIRP
5. Actions to be taken against Employee obtaining MSME Certificate

Disqualification of Applicants by Resolution Professional:
The Applicants, former Board of Directors of the Corporate Debtor, filed applications seeking to set aside the decision of the Resolution Professional disqualifying them and to participate in the Corporate Insolvency Resolution Process (CIRP). The Resolution Professional disqualified the Applicants citing Section 29A of the Insolvency & Bankruptcy Code, 2016, due to the invocation of a Personal Guarantee by a member of the CoC. The Applicants contended that Section 29A(h) does not apply to MSME enterprises under Section 240A of the IBC, 2016.

Classification of Corporate Debtor as MSME:
The Applicants claimed that the Corporate Debtor qualified as a Micro Small and Medium Enterprise (MSME) under the MSME Development Act, 2006. They submitted that the Accounts Manager and General Manager had applied for an MSME Certificate, which was obtained post initiation of CIRP. The RP was informed about the MSME registration, and the Applicants argued that they were eligible as an MSME entity at the time of submitting the Resolution Plan.

Eligibility of Applicants under Section 29A of IBC, 2016:
The Resolution Professional rejected the Applicants' Expression of Interest (EoI) based on Section 29A of the IBC, 2016. The Applicants were disqualified due to the invocation of a Personal Guarantee by a CoC member. The RP was directed to consider the Applicants' eligibility based on their MSME status at the time of submitting the Resolution Plan, as the disqualification clauses under Section 29A might not apply to them.

Obtaining MSME Certificate post commencement of CIRP:
The RP raised concerns about the MSME Certificate obtained after the initiation of CIRP without her knowledge. It was noted that the registration was done by an Employee without proper authorization, which was viewed seriously. However, the Tribunal directed the RP to ratify the MSME registration and take action against the Employee responsible, emphasizing that the Corporate Debtor's eligibility under Section 29A should be determined at the time of submitting the Resolution Plan.

Actions to be taken against Employee obtaining MSME Certificate:
The Tribunal acknowledged the unauthorized obtaining of the MSME Certificate post-CIRP initiation and directed the RP to rectify the registration. The RP was authorized to take appropriate action against the Employee for obtaining the certificate without proper authorization, ensuring that such actions do not adversely affect the Corporate Debtor's Resolution Process. Both applications were disposed of with the aforementioned directions.