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2025 (2) TMI 523 - AT - IBCAdmission of Pre-Packed Insolvency Resolution Process (PPIRP) against the CD - Corporate Debtor (CD) qualifies as a Micro Small and Medium Enterprise (MSME) based on its registration or not - value of its plant machinery and equipment is more than Rs.50 crores as submitted by the Appellant in the year 2021-22 or not - period of 14 days as referred to in sub-section (3) of Section 11A of the IBC is a directory or mandatory - Appellant has made out a case to set aside the orders dated 19.04.2023 admitting Application under Section 54C or not - payment to the Appellant i.e. dissenting Financial Creditor in the Resolution Plan is in accordance with Section 30 sub-section (2) (b) of the IBC or not. Whether the CD on the strength of registration dated 21.07.2020 issued by Ministry of Micro Small and Medium Enterprises can be treated to be a MSME? - Whether value of its plant machinery and equipment is more than Rs.50 crores as submitted by the Appellant in the year 2021-22? - HELD THAT - There are no error in classification of the CD as MSME. Learned Counsel for the Respondent has also placed reliance of the judgment of this tribunal in Amit Guptaq vs. Yogesh Gupta RP (Company Appeal (AT) (Ins) No.903 of 2019) decided on 20.12.2019 wherein it is held that in the summary procedure under IBC the Adjudicating Authority is not expected to go into account and investigate if and in which category an application falls under Section 7 examining Notifications under the MSME Act. This Tribunal in Ramesh Shah vs. Central Bank of India Ors. 2024 (3) TMI 82 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH NEW DELHI - LB had occasion to consider the issue and this Tribunal had clearly laid down that the Adjudicating Authority is not expected to go into accounts and examination of certificates issued by the competent authority under MSME Act and notification issued thereunder or modify/ revise/ revoke or interfere in any manner with the MSME registration granted etc. CD had valid MSME registration certificate dated 21.07.2020 and CD as MSME was eligible to file Application under Section 54C. Whether period of 14 days as referred to in sub-section (3) of Section 11A of the IBC is a directory i.e. whether an Application under Section 54C is filed even after 14 days of filing of Section 7 Application the Adjudicating Authority can proceed to decide Section 54C Application first?; What is the intent and purpose of 14 days provided in sub-section (3) of Section 11A? - In event it is held that period of 14 days as mentioned in sub- section (3) of Section 11A is mandatory what is the consequence on the order dated 19.04.2023 passed by Adjudicating Authority which has been challenged in these two Appeal(s)? - HELD THAT - The statutory scheme delineated by Section 11A provides the same priorities as recommended by the Insolvency Law Committee. In the present case the relevant dates for filing of the Application under Section 7 or Section 54C are not disputed. Section 7 Application was filed by the Bank of Baroda on 18.04.2022 whereas Application under Section 54C was filed by the CD on 25.07.2022. The submission which has been pressed by the Appellant is that Application under Section 7 having been filed on 18.04.2022 and the Application under Section 54C having been filed much beyond 14 days period Application under Section 7 ought to have been first disposed of which is mandatory requirement under Section 11A (3) and the Adjudicating Authority erred in first considering Section 54C Application and admitted the same. Provision for PPIRP was inserted in IBC when amendment in Code was found necessary to provide for PPIRP. When Chapter III-A was inserted by Act No.26 of 2021 legislator was well aware that against the CD there might be Applications under Section 7 9 and 10 pending or will be filed. Chapter III-A and Section 11A after Chapter II was inserted by the same amending Act No.26 of 2021 - The entire scheme delineated by Section 11A by sub-section (1) (2) and (3) provides for priority of disposal of different Applications under Section 54C in respect of Application under Section 7 9 and 10. Application under Section 54C was filed after 14 days from filing of Section 7 Application and as per Section 11A sub-section (3) the Adjudicating Authority was obliged to consider the Application under Section 7 before proceeding to dispose of Section 54A Application. Whether in the facts of the present case when Resolution Plan has been approved in the PPIRP of the CD which Plan also stand implemented the Appellant has made out a case to set aside the orders dated 19.04.2023 admitting Application under Section 54C and order dated 22.08.2023 approving the Base Resolution Plan? - Whether in the facts of the present case the Appellant has made out a case for directing Section 7 Application (filed by the Appellant on 18.04.2022) to be heard and decided on merits by setting aside all actions taken in Application under Section 54C? - HELD THAT - The CD is a MSME. The IBC provide for special protection to the MSME and Chapter III-A inserted by Act No.26 of 2021 was with purpose and object of quick resolution of MSME - There is no dispute between the parties that Consortium of Lenders including SBI IDBI Bank and Bank of Baroda has extended Financial Facilities to the CD. After the accounts having been declared NPA the CD had submitted the proposal for negotiated settlement to all the three Banks. In the affidavit which has been filed by the CD dated 31.07.2023 in Company Appeal (AT) (Ins.) No.888 and 890 of 2023 the CD has brought on record a reply Application filed by the SBI to Section 54C Application filed by the CD. The object of the IBC is Resolution of the CD. The present is a case which consist of three Consortium Members of the Bank SBI being 47.21% vote share; IDBI Bank 26.70% vote share and Bank of Baroda with 26.09% vote share. Both the Lenders i.e. SBI and IDBI had also granted approval of negotiated settlement much prior to filing of Section 7 Application - no useful purpose shall be served in setting aside order dated 19.04.2023 passed by Adjudicating Authority admitting Section 54C Application and directing for fresh consideration of Section 7 Application - CD having been resolved by making payments to all the Lenders including the Appellant it is not in the interest of all the stakeholders or the CD to set aside the entire action taken under Section 54C and direct for hearing of Section 7 Application filed by the Bank of Baroda which was for the purpose of resolution of the CD. Whether the payment to the Appellant i.e. dissenting Financial Creditor in the Resolution Plan is in accordance with Section 30 sub-section (2) (b) of the IBC? - HELD THAT - The Learned Counsel for the Appellant is right in his submission that the Resolution Plan provides for same payment to assenting and dissenting Financial Creditors. The Appellant was thus clearly entitled for payment in the Resolution Plan as per Section 30 sub-section (2) (b) in reference to Section 53(1) (b) i.e. whatever amount was payable to the dissenting Financial Creditor in event of liquidation the said amount would be required to be paid - The Bank of Baroda which has total exposure of 13.61 10.09 percentage i.e. 23.70% of outstanding debt of total exposure. The Appellant has already been 30.02 percent of outstanding amount. There may be little difference between amount if computed as per amount payable to the dissenting Financial Creditor under Section 30 sub-section (2) (b). But whatever may be the difference if the said amount is greater to the amount paid to the Appellant the same is entitled to be paid. The ends of justice will be served in directing the SRA to make the payment of differential amount if any to the Appellant as per Section 30 sub-section (2) (b) which payments be made within a period of 30 days from today. Conclusion - i) CD had valid MSME registration certificate dated 21.07.2020 and CD as MSME was eligible to file Application under Section 54C. ii) Application under Section 54C was filed after 14 days from filing of Section 7 Application and as per Section 11A sub-section (3) the Adjudicating Authority was obliged to consider the Application under Section 7 before proceeding to dispose of Section 54A Application. iii) CD having been resolved by making payments to all the Lenders including the Appellant it is not in the interest of all the stakeholders or the CD to set aside the entire action taken under Section 54C and direct for hearing of Section 7 Application filed by the Bank of Baroda which was for the purpose of resolution of the CD. iv) The ends of justice will be served in directing the SRA to make the payment of differential amount if any to the Appellant as per Section 30 sub-section (2) (b) which payments be made within a period of 30 days from today. Appeal disposed off.
1. **Issues Presented and Considered**
The Tribunal identified several key issues for consideration: (1) Whether the Corporate Debtor (CD) qualifies as a Micro, Small, and Medium Enterprise (MSME) based on its registration. (2) Whether the investment in the CD's plant, machinery, and equipment exceeds Rs.50 crores, thus affecting its MSME status. (3) Whether the 14-day period mentioned in Section 11A(3) of the Insolvency and Bankruptcy Code (IBC) is mandatory or directory, and the implications of this on the adjudication process. (4) The consequences of considering the 14-day period as mandatory on the orders passed by the Adjudicating Authority. (5) Whether the approved Resolution Plan, which has been implemented, should be set aside due to procedural issues. (6) Whether the Section 7 Application filed by the Bank of Baroda should be heard on merits, potentially invalidating actions taken under Section 54C. (7) Whether the payment to the dissenting financial creditor, Bank of Baroda, complies with Section 30(2)(b) of the IBC. (8) The appropriate relief for the appellant in these appeals. 2. **Issue-Wise Detailed Analysis** **Issues (1) and (2): MSME Status of the Corporate Debtor** The Tribunal examined the MSME registration of the CD, which was issued on 21.07.2020. Under the MSME Development Act, 2006, an enterprise is classified based on investment in plant and machinery or equipment and turnover. The Tribunal referenced the Notification dated 26.06.2020, which provides that the calculation of investment is linked to the Income Tax Return (ITR) of the previous year. The CD provided evidence that its classification as an MSME was automatically updated based on ITR data. The Tribunal concluded that the CD's MSME registration was valid and that it was eligible to file an application under Section 54C. **Issues (3) and (4): Interpretation of the 14-Day Period in Section 11A(3)** The Tribunal considered whether the 14-day period in Section 11A(3) was mandatory. The statutory scheme of Section 11A provides a sequence for disposing of applications under Sections 54C and 7. The Tribunal noted the literal interpretation principle, emphasizing that when a statute prescribes a consequence for non-compliance, it is generally deemed mandatory. The Tribunal concluded that the 14-day period is mandatory, requiring the Adjudicating Authority to first dispose of a Section 7 application if a Section 54C application is filed after 14 days. **Issues (5) and (6): Consequences of the Mandatory 14-Day Period** Despite the mandatory nature of the 14-day period, the Tribunal decided not to set aside the Resolution Plan, which had already been implemented. The Tribunal recognized the special protection afforded to MSMEs and the efforts made by the CD for resolution through a negotiated settlement. The Resolution Plan had been approved by a majority of creditors and implemented, with payments made to all financial creditors. The Tribunal concluded that setting aside the actions taken under Section 54C would not serve the interests of stakeholders or the CD. **Issues (7) and (8): Compliance with Section 30(2)(b) and Relief** The Tribunal addressed the appellant's contention that the payment to dissenting financial creditors was not in accordance with Section 30(2)(b) of the IBC. The Tribunal agreed that dissenting creditors should receive at least the amount they would have received in liquidation, as per Section 53(1). The Tribunal directed the Successful Resolution Applicant (SRA) to pay any differential amount owed to the appellant under Section 30(2)(b) within 30 days, with the Resolution Professional (RP) to compute and notify the SRA of the amount. 3. **Significant Holdings** The Tribunal held that the 14-day period in Section 11A(3) is mandatory, requiring the Adjudicating Authority to prioritize the disposal of Section 7 applications if a Section 54C application is filed after 14 days. However, due to the implementation of the Resolution Plan and the special status of the CD as an MSME, the Tribunal decided not to disrupt the resolution process. The Tribunal directed the SRA to address any payment discrepancies to the dissenting creditor, ensuring compliance with Section 30(2)(b). The Tribunal's decision emphasizes the importance of adhering to statutory timelines while balancing the need for efficient resolution processes, especially for MSMEs. The Tribunal's directive for additional payments to dissenting creditors underscores the requirement for equitable treatment under the IBC.
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