2021 (2) TMI 1027 - Tri - Insolvency and Bankruptcy

Validity of decision of the first respondent/RP in rejecting the Expression of Interest (EOI) submitted by the applicant for submission of resolution plan in respect of the corporate debtor - Section 60(5) of the I B Code, 2016 - undischarged insolvent and an undischarged insolvent - relevant date for excess investment in the plant and machinery of the corporate debtor - HELD THAT - Section 240A exempted the promoters of the MSME to be the resolution applicants of the same corporate debtor for which the resolution plans are sought to be invited. Section 240A has not exempted the corporate debtor itself, even though it happens to be an MSME, to be a resolution applicant to itself. In the present case, M/s Bhandari Deepak Industries Private Limited which is the corporate debtor itself submitted EOI for submitting resolution plan to itself i.e. for Bhandari Deepak Industries Private Limited. This is not permissible under the Scheme of I B Code, 2016. The applicant has not disputed the fact of submission of EOI by the corporate debtor itself, i.e. Bhandari Deepak Industries Private Limited itself, and not by its promoters, i.e. Mr. Deepak Bhandari and Mrs. Anita Bhandari. It is also not the case of the applicant at any stage that submitting the EOI on behalf of the corporate debtor Bhandari Deepak Industries Private Limited was a mistake and that the actual persons submitting the EOI were Mr. Deepak Bhandari and Mrs. Anita Bhandari, the promoters of the corporate debtor. Once a CP is admitted, the corporate debtor is to be represented by the RP alone and none else such as Suspended Directors of the Board of the corporate debtor. Therefore, we do not find any illegality in the RP rejecting the EOI submitted on behalf of the corporate debtor, M/s Bhandari Deepak Industries Private Limited itself. Admittedly, the corporate debtor Bhandari Deepak Industries Private Limited is an undischarged insolvent and an undischarged insolvent is ineligible to be the resolution applicant under Clause (a) of Section 29A and Section 240A has not exempted any person including MSME from the applicability of Clause (a) of Section 29A - the action of RP upheld. Relevant date for excess investment in the plant and machinery of the corporate debtor - Another reason for rejection of the EOI of the applicant given by the RP was that the corporate debtor does not fall under the definition of MSME or ME as defined in MSME Development Act, 2006, since the investment in plant and machinery as on the date of commencement of CIRP was ₹ 14,14,82,754/-, which is beyond the prescribed limit - HELD THAT - The relevant date for consideration of exemption from applicability of Clauses (c) and (h) of Section 29A, in terms of Section 240A is the date of submission of EOI but not the date of consideration of the plan by the COC. Hence, the contention of the applicant, that the issue with regard to excess investment in the plant and machinery of the corporate debtor cannot be considered as on the date of submission of EOI, is untenable. Application dismissed.

Summary

Issues Involved:
1. Rejection of Expression of Interest (EOI) by the Resolution Professional (RP).
2. Applicability of Section 29A and Section 240A of the I&B Code, 2016.
3. Eligibility of the corporate debtor as an MSME under the MSME Development Act, 2006.

Issue-wise Detailed Analysis:

1. Rejection of Expression of Interest (EOI) by the Resolution Professional (RP):
The applicant, a Suspended Director of the corporate debtor, challenged the RP's decision to reject his EOI for submitting a resolution plan. The RP rejected the EOI on the grounds that it was submitted on behalf of the corporate debtor, M/s Bhandari Deepak Industries Private Limited, rather than in the applicant's individual capacity as a promoter. The Tribunal found that under the Insolvency & Bankruptcy Code, only the RP can act on behalf of the corporate debtor once a Corporate Insolvency Resolution Process (CIRP) is initiated. The Tribunal upheld the RP's decision, stating that the corporate debtor itself cannot submit an EOI for its own resolution plan, as this is not permissible under the I&B Code.

2. Applicability of Section 29A and Section 240A of the I&B Code, 2016:
The applicant argued that as the corporate debtor is an MSME, the disqualifications under Section 29A(c) and (h) do not apply, citing Section 240A of the I&B Code, which exempts MSMEs from these clauses. The Tribunal clarified that while Section 240A exempts MSME promoters from the disqualifications under Section 29A(c) and (h), it does not exempt the corporate debtor itself from being a resolution applicant. Additionally, the Tribunal noted that the corporate debtor is an undischarged insolvent, making it ineligible to submit a resolution plan under Section 29A(a), which is not exempted by Section 240A. Therefore, the Tribunal found no illegality in the RP's rejection of the EOI on these grounds.

3. Eligibility of the corporate debtor as an MSME under the MSME Development Act, 2006:
The RP also rejected the EOI on the basis that the corporate debtor did not qualify as an MSME, as its investment in plant and machinery exceeded the threshold limits defined in the MSME Development Act. The applicant contended that the investment should be considered only in productive plant and machinery, which would classify the corporate debtor as a Medium Enterprise. However, the Tribunal held that the relevant date for determining MSME status is the date of submission of the EOI, not the date of consideration by the Committee of Creditors (COC). The Tribunal found the RP's assessment of the investment in plant and machinery to be correct and upheld the rejection of the EOI on this basis as well.

Conclusion:
The Tribunal dismissed the IA No. 304/2020, finding no merit in the applicant's arguments. The interim orders granted on 14.08.2020 were vacated. The Tribunal upheld the RP's decision to reject the EOI submitted by the corporate debtor itself, citing the ineligibility under Section 29A and the non-qualification as an MSME under the MSME Development Act.