2023 (10) TMI 72 - SC - Insolvency and Bankruptcy

CIRP - Status of the entity (Corporate debtor) as MSME or not - certificate being procured after the process started - NCLAT held the status of entity as MSME - Contempt proceedings against the Resolution professional for not folloiwng the decision of NCLAT - HELD THAT - Reliance placed in the case of SARAVANA GLOBAL HOLDINGS LTD. AND ANR. VERSUS BAFNA PHARMACEUTICALS LTD. AND ORS. 2019 (9) TMI 841 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI where it was held that Admittedly, the Corporate Debtor is a MSME and the promoters are not ineligible in terms of Section 29A of the I B Code . Therefore, it is not necessary for the Committee of Creditors to find out whether the Resolution Applicant is ineligible in terms of Section 29A or not. In the impugned judgment, it can hardly be disputed that there is no discussion on the special circumstances other than the reference to judgment in Bafna s case. The impugned judgment is predicated on a broad reasoning as if ipso facto there is no need to call other proposals if it is an MSME. In view of the larger context it would have, we clearly observe and hold that this is not the correct position of law - This is more so as in the factual scenario of Bafna s case, the observations were made in the context of (a) before the constitution of CoCs or (b) in terms of Section 12A of the Code on the basis of an offer given by the promoter in such a case. The appellant cannot be faulted for calling for other proposals in which the proposal given by respondent No.1 was also to be examined, put them to voting before the CoCs and declare the results - impugned order set aside - appeal allowed.

Summary

Issues involved:
The judgment deals with the status of a company as a Micro, Small & Medium Enterprise (MSME) under the Insolvency and Bankruptcy Code, 2016, and the eligibility of a plan submitted by the respondent who is a promoter of the company. The judgment also addresses a contempt proceeding filed against the Resolution Professional for not acting in accordance with a previous order.

Details of the Judgment:

1. Status of the Company as an MSME:
The National Company Law Appellate Tribunal (NCLAT) initially questioned the MSME status of the company due to the timing of the certificate procurement. However, the NCLAT later found that the company was indeed an MSME before the insolvency proceedings began, making it eligible for benefits under the MSME Act. This finding allowed the plan submitted by the respondent, who is a promoter, to be considered for approval.

2. Eligibility of the Plan Submitted:
The NCLT had deemed the plan submitted by the respondent as ineligible due to their status as a promoter, leading to disqualification under Section 29(A)(e) of the Code. However, with the NCLAT confirming the company's MSME status predating the proceedings, the plan became eligible for consideration. This change in status necessitated the Resolution Professional to act accordingly.

3. Contempt Proceedings:
The Resolution Professional faced a contempt proceeding initiated by the respondent due to alleged non-compliance with a previous order. The respondent cited specific observations from the impugned order regarding the MSME status of the company and the control of the corporate debtor. These observations were made in reference to a previous judgment titled "Saravana Global Holdings Ltd. & Anr. Vs. Bafna Pharmaceuticals Ltd. & Ors."

4. Interpretation of Previous Judgment:
The judgment in question referred to a previous case involving an MSME where it was held that, in exceptional circumstances, promoters of an MSME need not compete with other resolution applicants to regain control of the corporate debtor. However, the Supreme Court clarified that the broader reasoning in the impugned judgment, suggesting no need for other proposals if it is an MSME, was not the correct interpretation of the law.

5. Decision and Future Proceedings:
The Supreme Court set aside the impugned order's observations and allowed a two-month window for the respondent to persuade financial creditors with an OTS proposal. If the proposal is not accepted within this timeframe, the Resolution Professional is free to declare the results of the e-voting on all proposals. The judgment emphasized the need for a quick resolution in insolvency matters and clarified the legal principles for future reference.