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2020 (2) TMI 1072 - Tri - Insolvency and BankruptcyStatus of corporate debtor claiming as MSME - CIRP proceedings - Persons not eligible to be Resolution Applicant u/s 29A - Directions to the Resolution Professional to conduct the Corporate Insolvency Resolution Process (CIRP) in accordance with the provision of I B Code - main grievance of the applicant in this application is that EOI floated is defective and it is not in accordance with the provisions of the IBC - Section 60(5) read with section 20(2)(e) of the Insolvency Bankruptcy Code, 2016 read with rule II of NCLT Rules. HELD THAT - Section 7 of the MSME Development Act, 2006 deals with classification of enterprises. section 7(1)(a) deals with enterprises engaged in the manufacturer or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951. section 7(1)(b) deals with enterprises engaged in providing or rendering of services. The Corporate Debtor in the case on hand, is engaged in providing or rendering of services. Therefore, it is section 7(1)(b) of Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 mat is applicable to the facts on hand. Section 8 states, any person who intends to establish micro or small enterprises is given discretion to file memorandum of Micro Small Enterprise with such authority as may be specified by the State Government under sub-section 4 of section 8 or the Central Government under sub-section (3) of section 8. A similar discretion is also given to medium enterprises engaged in providing or rendering services, whereas a medium enterprise engaged in manufacture production of goods is not given such discretion to file memorandum of enterprises with the prescribed authority is under sub-section (3) or sub-section 4 of section 8 - The proviso to section 8(1) also says that a small scale industry that obtained a registration certificate may also at his discretion, file memorandum, even it is i established before the commencement of MSME Development Act, 2006. The proviso (b) says, an industry engaged in the manufacturer or production of goods pertaining to any industry specified in the Fist Schedule to the Industries (Development and Regulation) Act, 1951 having investment in plant and machinery of more than one crore rupees but not exceeding ten crore rupees and, in pursuance of a notification of the Government of India in the erstwhile Ministry of Industry (Department of Industrial Development) within 180 days from the commencement of this Act, file the memorandum, in accordance with the provisions of MSME Act. In the case on hand, the industry is not an industry in manufacturer of production of goods. Therefore, the proviso to section 8 is not applicable to the Corporate Debtor. Therefore, in order to claim benefits under the MSME Act, the Corporate Debtor must get itself registered under the MSME Act by filing a memorandum. No doubt an option is given to micro or small enterprises or to the medium enterprises engaged in rendering of services. If the person who established the enterprises, is not exercised the option of filing the memorandum with the specified authority under sub-section (3) or (4) of section 8, then the person who is running the enterprises, is not entitled for the benefits under the MSME Act. Therefore, applicant having failed to establish that it is a MSME. The Micro, Small and Medium Enterprise Development Amendment) Bill, 2018 is not yet passed by the Parliament and it has not come into force. Further Applicant being the participant of the CoC did not raise such issue before CoC. It is when CIRP Period was to expire, Applicant raised such issue without bringing concrete Resolution plan before CoC - the applicant is not able to establish that corporate debtor comes under the MSME, It cannot urge that it is within the knowledge of the RP that the Corporate Debtor is MSME. Moreover, applicant even in its email dated 18.08.2018 did not state that it is MSME Even thereafter, applicant did not bring to the notice of the RP that it is MSME. Moreover, it is not on the ground that applicant is disqualified U/s 29A, its offer to bid for resolution of the Corporate Debtor is rejected. The RP did not act upon the email dated 18.08.2018 issued by the applicant on the ground that the requirement The Promoter, Director is not qualified U/s 29A of the Code to present the resolution plan. Above all the applicant did not approach the IRP or this Authority till the closure of the CIRP period - there are no merits in this application - application disposed off.
Issues Involved:
1. Allegation that the Resolution Professional (RP) is not conducting the Corporate Insolvency Resolution Process (CIRP) in accordance with the provisions of the Insolvency & Bankruptcy Code (IBC). 2. Claim that the eligibility criteria and terms stipulated in the Expression of Interest (EOI) are irrational and discriminatory. 3. Assertion that the Corporate Debtor qualifies as a Micro, Small, and Medium Enterprise (MSME) and should be exempt from certain provisions of Section 29A of the IBC. 4. Allegations of mismanagement and increased costs by the RP. 5. Request for specific directions to the RP regarding the CIRP process and EOI. Detailed Analysis: 1. Allegation that the RP is not conducting CIRP in accordance with IBC: The applicant, a promoter and director of the Corporate Debtor, filed an application under Section 60(5) read with Section 20(2)(e) of the Insolvency & Bankruptcy Code, 2016, alleging that the RP was not conducting the CIRP in accordance with the provisions of the IBC. The applicant provided several instances where they believed the RP's actions were not compliant with the IBC, including the setting of irrational and discriminatory eligibility criteria in the EOI. 2. Claim that the eligibility criteria and terms in the EOI are irrational and discriminatory: The applicant argued that the terms and conditions in the EOI, including the Bid Bond requirement of ?2,00,00,000, were irrational and unreasonable, deterring potential bidders. The applicant also contended that the eligibility criteria were set artificially high to exclude certain bidders, including the promoters of the Corporate Debtor, contrary to the provisions of Section 240A of the IBC, which exempts MSMEs from certain disqualifications under Section 29A. 3. Assertion that the Corporate Debtor qualifies as an MSME: The applicant claimed that the Corporate Debtor qualifies as an MSME and therefore should be exempt from the provisions of Section 29A(c) and (h) of the IBC, as per Section 240A. The applicant submitted various documents, including an MSME acknowledgment and financial statements, to support this claim. However, the RP countered that the Corporate Debtor did not provide sufficient registration details to substantiate its MSME status. 4. Allegations of mismanagement and increased costs by the RP: The applicant alleged that the RP was deliberately increasing the CIRP costs, neglecting legal matters, causing erosion of the company's assets, and not paying statutory dues, legal fees, or staff salaries. The RP denied these allegations, stating that the applicant did not provide proper details of the Corporate Debtor's assets and that there were questionable entries in the financial statements. 5. Request for specific directions to the RP: The applicant sought several directions from the Tribunal, including revising the EOI, accepting the applicant as a Resolution Applicant, conducting the CIRP in a just and unbiased manner, and returning illegitimate money withdrawn from the Corporate Debtor. The Tribunal, after examining the submissions and evidence, found that the applicant failed to establish the Corporate Debtor's MSME status and that the RP acted within the legal framework of the IBC. Conclusion: The Tribunal concluded that the applicant did not provide sufficient evidence to prove that the Corporate Debtor was an MSME and therefore exempt from certain provisions of Section 29A of the IBC. The RP's actions were found to be in compliance with the IBC, and the applicant's request for specific directions was denied. The application was accordingly disposed of.
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