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2021 (6) TMI 646 - AT - Insolvency and BankruptcyLiquidation of Corporate Debtor - resolution of MSME - Corporate Debtor fall under the category of the MSME or not - Section 240 A of the IBC - eligibility of MSME to participate and submit a scheme, to avoid liquidation of the Corporate Debtor - HELD THAT - From the perusal of the extracts of minutes it is seen that the Financial Creditors and the Appellant, the liquidator have participated in the meeting and resolved that the Promoters may submit the scheme and the scheme should be preferred over liquidation - In view of the discussions in the fourth Stakeholders meeting, the liquidator, before the Learned Adjudicating Authority seeking the permission of the Authority to allow this scheme of the Appellant. However, the Learned Adjudicating Authority passed the impugned order. It is settled law that the liquidation is only the last resort and as per the preamble of the IBC the main object of the Code is in resolving corporate insolvencies and not the mere recovery of monies due and outstanding - The Appellant being eligible to submit a scheme by virtue of an amendment to Section 7 of Micro, Small and Medium Enterprises Development Act, 2006 vide notification dated 01.06.2020. The Appellants are allowed to submit a scheme of arrangement to the liquidator of the Corporate Debtor and the liquidator shall consider the scheme of arrangement in accordance with the law - appeal allowed - decided in favor of appellant.
Issues Involved:
1. Eligibility of the Corporate Debtor to submit a scheme under Section 230 of the Companies Act, 2013. 2. Applicability of the MSME classification amendments. 3. Adjudicating Authority’s interpretation of the notification's prospective effect. 4. Liquidation as a last resort under the IBC framework. Issue-wise Detailed Analysis: 1. Eligibility of the Corporate Debtor to submit a scheme under Section 230 of the Companies Act, 2013: The Appellant argued that the Corporate Debtor should be allowed to submit a scheme under Section 230 of the Companies Act, 2013, as there was no restriction on promoters at the time of filing the application under Section 10 of the IBC on 11.01.2018. The restriction under Section 29A of the IBC was introduced later on 19.01.2018. The Appellant further contended that the scheme was approved by stakeholders and should be considered by the liquidator. 2. Applicability of the MSME classification amendments: The Appellant submitted that due to amendments to the MSME Act and changes in the classification criteria, the Corporate Debtor now qualifies as an MSME. The notification dated 01.06.2020, effective from 01.07.2020, revised the limits for MSME classification, making the Corporate Debtor eligible to submit a scheme. The Appellant argued that the notification should be applied prospectively and not retrospectively. 3. Adjudicating Authority’s interpretation of the notification's prospective effect: The Adjudicating Authority dismissed the I.A. No. 496 of 2020 on the grounds that the Corporate Debtor did not fall under the MSME criteria at the time of filing the Section 10 application. The Authority held that the notification dated 01.06.2020 could not be given retrospective effect. The Appellant contended that the Authority misunderstood their request, which was for prospective application of the notification. 4. Liquidation as a last resort under the IBC framework: The Appellant cited Supreme Court judgments emphasizing that liquidation should be a last resort, and efforts should be made to keep the Corporate Debtor as a going concern. The Appellant relied on cases like 'Swiss Ribbons Pvt. Ltd. vs Union of India' and 'Committee of Creditors of Essar Steel India Limited vs Satish Kumar Gupta & Ors.', which highlight the importance of revival over liquidation. Conclusion: The Tribunal concluded that the Appellant is eligible to submit a scheme by virtue of the amendment to Section 7 of the MSME Development Act, 2006, via the notification dated 01.06.2020. The Tribunal set aside the impugned order dated 15.10.2020 passed by the Adjudicating Authority in I.A. No. 496 of 2020. The Appellants are allowed to submit a scheme of arrangement to the liquidator of the Corporate Debtor, which the liquidator shall consider in accordance with the law. The Appellant/Promoter is directed to submit the scheme within one week from the receipt of the order, and the liquidator shall consider it accordingly. The appeal is allowed with no order as to costs.
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