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2024 (10) TMI 1407 - AT - IBCApproval of Resolution Plan - Applicability of Section 240A of the IBC to the Corporate Debtor registered as MSME - whether SRA was ineligible as per Section 29A (c) of the IBC, to submit the Resolution Plan in the CIRP of the Corporate Debtor? - HELD THAT - The Adjudicating Authority has held that Birendra Kumar Pasari, who is Managing Director of the SRA is also the Promoter and in control and management of the CD, hence, he shall be deemed to be in management and control of the SRA. It was also noted and observed that Birendra Kumar Pasari and his family members are also in management and control of the Financial Creditor. After considering the RBI Circular dated 01.07.2015; clarification dated 12.11.2021; provisions of Section 29A and judgment of the Hon ble Supreme Court in ARCELORMITTAL INDIA PRIVATE LIMITED VERSUS SATISH KUMAR GUPTA ORS. 2018 (10) TMI 312 - SUPREME COURT , the Adjudicating Authority has come to the conclusion in paragraph 48 that account of CD having become Non-Performing asset on 14.06.2020, whose debt could not have been paid for a period of at least one year before commencement of CIRP, by virtue of Section 29A, the SRA becomes ineligible to submit the Resolution Plan. The facts of the present case, clearly indicate that the Corporate Debtor was registered as MSME much prior to the submission of the Resolution Plan by Bishwanath Traders Investment Ltd. Thus, the eligibility of SRA has to be seen on the date of submission of Resolution Plan. A perusal of the judgment of the Adjudicating Authority indicate that Adjudicating Authority has not adverted to Section 240A of the IBC and declared the SRA ineligible on the strength of Section 29A(c). On looking into the scheme of Section 29A(c), which is relied by the Suspended Director, the scheme itself contemplate ineligibility on the ground that Resolution Applicant is a person under whose management or control the Corporate Debtor s account has become non-performing. Thus, when Section 240A is applied, ineligibility in the Resolution Applicant, under whose management and control, the account of the CD was declared non-performing, cannot be reckoned. No other ineligibility of the SRA has been pointed out or pressed, SRA Bishwanath Traders Investment Ltd. did not suffer from any ineligibility from submitting the Resolution Plan on 11.07.2022, on which date Plan was submitted. The Adjudicating Authority committed error in allowing IA No.4173 of 2023 filed by the Suspended Director and rejecting IA No.5458 of 2022 filed by the RP for approval of the Resolution Plan. The order dated 24.01.2024 impugned in these Appeal(s) are set aside. IA No.4173 of 2023 is dismissed and IA No.5458 of 2022 is allowed, approving the Resolution Plan - appeal allowed.
Issues Involved:
1. Eligibility of the Successful Resolution Applicant (SRA) under Section 29A(c) of the Insolvency and Bankruptcy Code, 2016 (IBC). 2. Applicability of Section 240A of the IBC to the Corporate Debtor registered as MSME. 3. Validity of the Resolution Plan approved by the Committee of Creditors (CoC). 4. Commercial wisdom of the CoC in approving the Resolution Plan. Detailed Analysis: 1. Eligibility of the SRA under Section 29A(c) of the IBC: The primary issue was whether Bishwanath Traders and Investment Limited, the SRA, was ineligible under Section 29A(c) of the IBC. This section disqualifies a person from submitting a resolution plan if they have an account classified as a non-performing asset (NPA) for at least one year before the commencement of the CIRP. The Adjudicating Authority found that the SRA was ineligible because the account of the Corporate Debtor (CD) was deemed an NPA on 14.06.2020, and the SRA was under the management and control of the same person managing the CD. 2. Applicability of Section 240A of the IBC: The judgment emphasized the applicability of Section 240A, which exempts MSMEs from certain disqualifications under Section 29A, including clauses (c) and (h). The Corporate Debtor was registered as an MSME before the submission of the Resolution Plan. The Supreme Court in Hari Babu Thota clarified that the relevant date for determining eligibility under Section 29A is the date of submission of the resolution plan, not the initiation of CIRP. The MSME registration of the Corporate Debtor allowed the SRA to bypass the ineligibility under Section 29A(c). 3. Validity of the Resolution Plan approved by the CoC: The Resolution Plan submitted by Bishwanath Traders was approved by the CoC with 100% votes. The Suspended Director objected to the plan, arguing that it included an illegal set-off of Rs.12 crores due from the Financial Creditor to the SRA, which would reduce the plan value below the liquidation value. However, the CoC's commercial wisdom in approving the plan was supported by the Supreme Court's precedents, which restrict judicial intervention in CoC's commercial decisions unless they contravene Section 30(2) of the IBC. 4. Commercial wisdom of the CoC: The judgment reiterated the principle that the commercial wisdom of the CoC is paramount and non-justiciable, as established in K. Sashidhar vs. Indian Overseas Bank and Committee of Creditors of Essar Steel India Ltd. vs. Satish Kumar Gupta. The CoC's decision to approve the Resolution Plan, including the set-off clause, was within its domain and could not be overturned by the Adjudicating Authority or the Appellate Tribunal unless it violated specific provisions of the IBC. Conclusion: The Appellate Tribunal allowed the appeals, set aside the order of the Adjudicating Authority, and approved the Resolution Plan submitted by Bishwanath Traders & Investment Ltd. The Tribunal concluded that the SRA was not ineligible under Section 29A(c) due to the MSME status of the Corporate Debtor, which invoked Section 240A. The Tribunal directed the Adjudicating Authority to pass consequential orders for the approval of the Resolution Plan within 60 days.
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