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2022 (7) TMI 1070 - AT - Insolvency and BankruptcySeeking direction to proposed Resolution Applicant to approach the Committee of Creditors (CoC) for deciding his eligibility under section 29A to submit a resolution plan for consideration - MSME status of the corporate debtor - Eligibility under section 29A to furnish a resolution plan in CIRP of the CD - HELD THAT - It is noted that the CIRP was initiated against the corporate debtor GEI Industrial Systems Ltd. vide order dated 20.7.2017. While the CIRP was continuing, resolution plans were sought from proposed resolution applicants, and during this process the appellant Mr. C.E. Fernandes, who is a promoter of the corporate debtor, was considered ineligible to submit a resolution plan. The Resolution Professional filed an additional affidavit before the Adjudicating Authority on 22.6.2020, wherein he stated that the corporate debtor would be eligible to be classified as MSME prospectively w.e.f. 1.7.2020. This averment was based on the information received from District Industries Centre, Bhopal vide letter dated 23.5.2019 (attached at pg. 139 of the appeal paperbook) and letter dated 27.5.2019 (attached at pg. 140 of the appeal paperbook). The Resolution Professional also took into account the total investment in the plant and machinery by the corporate debtor to be as Rs. 45.90 crores, and also the definition of MSME which had been modified vide gazette notification dated 1.6.2020 for classification of the corporate debtor as an MSME w.e.f. 1.7.2020. Again, in the 9th meeting of CoC held on 10.2.2020, the CoC deliberated on the feasibility and viability of modified resolution plan dated 30.1.2020 presented by Mr. C.E. Fernandes. The minutes record that while the representatives of ICICI bank and Axis Bank did raise the issue of ineligibility of Mr. C.E. Fernandes under section 29-A of the IBC, the CoC as a body went ahead to consider the modified resolution plan presented by Mr. Fernandes. Thereafter the proposed resolution plan was put for electronic voting and the result of the electronic voting is tabulated at page 43 of the reply of Respondent No. 2/CoC, whereby the resolution plan was rejected with a voting share of 70.60%. Thus it is unambiguously clear from the consideration of the proposed resolution plan of Mr. C.E. Fernandes in its many modified forms which were duly discussed by the CoC in detail. It is worth noting that the CIRP against the corporate debtor was initiated vide order dated 20.7.2017 and the 10th meeting of the CoC took place on 16.6.2020, which is after almost 3 years of the initiation of the CIRP. This time period spent in the CIRP is much more than the time period stipulated under the IBC. Moreover, the CoC, which is constituted of the financial creditors of the corporate debtor, decided in the 10th meeting of the CoC to go for CD s liquidation, directing the Resolution Professional to take next steps as considerable time had already been lost after the completion of stipulated CIRP period, which has resulted in increase in CIRP costs and erosion of assets value of the corporate debtor. As sufficient opportunity had been given to Mr. C.E. Fernandes for presenting a feasible and viable resolution plan but he eventually failed and withdrew his proposed plan, the next step under section 33 of IBC was undertaken by the Resolution Professional. Thus, the CoC, without any prejudice regarding the eligibility of the Appellant under section 29A of IBC, did consider the resolution plan submitted by Mr. C.E. Fernandes and offered suggestions for its modifications/improvements - appeal dismissed.
Issues Involved:
1. Eligibility of the Appellant under Section 29A of the Insolvency and Bankruptcy Code (IBC) to submit a resolution plan. 2. Determination of the MSME status of the Corporate Debtor (CD). 3. Consideration and approval of the resolution plan by the Committee of Creditors (CoC). 4. Initiation of liquidation proceedings against the Corporate Debtor. Issue-wise Detailed Analysis: 1. Eligibility of the Appellant under Section 29A of the Insolvency and Bankruptcy Code (IBC) to submit a resolution plan: The Appellant, a promoter of the Corporate Debtor (CD), submitted a resolution plan during the CIRP. The CoC initially considered the Appellant ineligible under Section 29A of the IBC. The Appellant contested this, leading to an order from the Adjudicating Authority directing the Resolution Professional (RP) and CoC to re-examine the eligibility issue. The RP's affidavit stated that the CD could be classified as an MSME prospectively from 1.7.2020, based on letters from the District Industries Centre, Bhopal. Despite this, the CoC discussed the Appellant's resolution plan in detail, ultimately rejecting it due to insufficient financial offers and compliance issues, not explicitly due to Section 29A ineligibility. 2. Determination of the MSME status of the Corporate Debtor (CD): The Appellant claimed the CD was an MSME since 2007, which would impact his eligibility to submit a resolution plan. The Adjudicating Authority had previously directed the CoC/RP to determine the MSME status. The RP's affidavit, based on information from the District Industries Centre, stated the CD could be classified as an MSME from 1.7.2020. This created ambiguity, affecting the CoC's consideration of the resolution plan. The CoC's minutes reflected ongoing discussions about the MSME status, with some members opposing the classification, ultimately leading to the rejection of the Appellant's plan. 3. Consideration and approval of the resolution plan by the Committee of Creditors (CoC): The CoC held multiple meetings to deliberate on the Appellant's resolution plan. During these meetings, the CoC requested modifications to the plan, including increased financial offers and compliance with IBC provisions. Despite these discussions, the plan was ultimately rejected with a 70.60% vote against it. The CoC's decision was based on the plan's financial inadequacy and non-compliance with IBC regulations, rather than the Appellant's eligibility under Section 29A. 4. Initiation of liquidation proceedings against the Corporate Debtor: Following the rejection of the resolution plan and the Appellant's subsequent withdrawal of the plan due to investor backing issues, the CoC decided to initiate liquidation proceedings. The CoC cited the prolonged CIRP duration, increased costs, and asset value erosion as reasons for this decision. The Adjudicating Authority's Impugned Order directed the Appellant to approach the CoC, and with no viable resolution plan left, the CoC moved towards liquidation under Section 33 of the IBC. Conclusion: The Appellant's appeal was dismissed as the CoC had duly considered the resolution plan without prejudice regarding Section 29A eligibility. The ambiguity around the MSME status and the Appellant's withdrawal of the resolution plan led to the initiation of liquidation proceedings. The judgment upheld the CoC's decision, emphasizing the extended CIRP duration and the necessity to proceed with liquidation.
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