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TMI Blog2021 (6) TMI 646X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate 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. - Company Appeal (AT) (Insolvency) No. 1034 of 2020 - - - Dated:- 1-6-2021 - [Justice Jarat Kumar Jain] Member (Judicial) And [Kanthi Narahari] Member (Technical) For the Appellants : Mr. Rajesh Bohra, Advocate For the Respondent : Mr. Kunal Godhwani, Advocate. Mr. Abhishek Anand (For Liquidator) JUDGMENT KANTHI NARAHARI, MEMBER (TECHNICAL) Preamble: The Present Appeal filed challenging the order dated 15.10.2020, passed by the Adjudicating Authority (NCLT Ahmedabad) Ahmedabad Bench Court No. II whereby the Adjudicating Authority rejected the I.A No. 496 of 2020 filed by the Appellants hearing. Brief Facts: 2. Learned Counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, the Appellant filed I.A No. 496 of 2020 was filed before the Adjudicating Authority seeking permission to propose a scheme and a direction to consider the said scheme in view of the amendment. 8. Learned Counsel further submitted that the Adjudicating Authority passed the above impugned order on 15.10.2020 dismissing the said I.A. 9. Learned Counsel submitted that the notification issued by the Government of India dated 01.06.2020 notifying the criteria for classification of MSME shall come into effect from 01.07.2020. Even on plain reading though the notification was issued on 01.06.2020. However, same shall come into force with effect from 01.07.2020 i.e. prospectively. 10. Learned Counsel submitted that the Hon ble Adjudicating Authority held that the Corporate Debtor at this stage cannot claim to be fall under the classification of MSME and take the benefit of MSME in view of amendment vide notification on 01.06.2020 with effect from 01.07.2020 by having its retrospective effect when admittedly on the date of filing of Application under Section 10 of the I B Code, the Corporate Debtor does not fall under the criteria of MSME, in view of aforesaid reasons, the Appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible to submit the scheme. However, the Corporate Debtor was not MSME at the time of filing of Section 10 Application. Therefore, the Hon ble Adjudicating Authority rejected the I.A No. 496 of 2020 by passing the impugned order. 16. Learned Counsel submitted that for filing scheme under Section 230 of the Companies Act, 2013 the Corporate Debtor is not required to be MSME. The scheme under Section 230 of the Companies Act, 2013 can be filed at any stage of liquidation and if the promoters filing the scheme the relaxation is given, if it is MSME. As per the latest notification issued by the Government of India the Appellants being the promoters are eligible and there is no bar on the promoters at this stage for filing this scheme under Section 230 of the Companies Act, 2013 before the liquidator. 17. Learned Counsel submitted that the promoters had earlier complied the 90 day s limit when the liquidation order was passed. 18. Learned Counsel for the Appellant relied on the Judgment of the Hon ble Supreme Court in the matter of Swiss Ribbons Pvt. Ltd. vs Union of India dated 25.01.2019, at para 26,27. 19. Learned Counsel also relied upon the Judgment of the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der, public announcement inviting claim from the Creditors of the Corporate Debtor was published in form B. In response thereof the Creditors submitted their claims which were duly verified by the liquidator. The Appellant/ Promoters of the Corporate Debtor submitted their scheme under Section 230 of the Companies Act, 2013 for sale of the Corporate Debtor as a going concern. The scheme submitted by the Appellant was approved by stakeholders of the Corporate Debtor and accordingly an Application bearing I. A No. 66 of 2020 was filed before the Adjudicating Authority. 25. However, the said I.A was dismissed as withdrawn in view of notification dated 06.01.2020 issued by the Government of India whereby an amendment was made in Regulation 2B of the IBBI, Regulations 2016, by virtue of which the Appellants became in eligible to submit a scheme of the liquidation process of the Corporate Debtor. 26. Subsequently an amendment was made by the Government of India to MSME Act and changes were made in the criteria for classifying entities as MSME. 27. After rejecting the Application filed by the Appellants bearing I.A No. 496 of 2020, the liquidator on 25.11.2020 published auction n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amendment to Section 29 of the IBC an amendment was made by inserting Section 29(A) by Act 8 of 2018 w.e.f. 23.11.2017. By virtue of above amendment a Promoter of the Corporate Debtor is not eligible to be Resolution Applicant. In view of the aforesaid reasons the Appellant/Promoter did not submit the Resolution Plan. Since, there were no Plan received pursuant to the public announcement inviting EOI dated 15.02.2018 a fresh EOI was issued on 09.08.2019. However, no Resolution Plans have been submitted despite receiving EOI. 32. Having not received any Prospective Resolution Applicants by submitting their Resolution Plan. The CoC in their 7th Meeting convened on 26.10.2018 passed a Resolution for liquidation of the Corporate Debtor. The Resolution Professional filed Application before the Adjudicating Authority and the Adjudicating Authority allowed the Application vide its order dated 28.08.2019 and the liquidation proceedings were initiated against the Corporate Debtor. Pursuant to the liquidation proceedings against the Corporate Debtor. While so the Appellant/Promoter submitted scheme under Section 230 of the Companies Act, 2013 for sale of the Corporate Debtor as a goin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the enterprises engaged in providing or rendering of services, as- (i) a micro enterprise, where the investment in equipment does not exceed ten lakh rupees; (ii) a small enterprise, where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees; or (iii) a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees. Explanation 1.- For the removal of doubts, it is hereby clarified that in calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification, shall be excluded. Explanation 2. It is clarified that the provisions of section 29B of the Industries (Development and Regulation) Act, 1951 (65 of 1951), shall be applicable to the enterprises specified in sub- clauses (i) and (ii) of clause (a) of subsection (1) of this section. 37. As per the notification dated 01.06.2020 (S.O. 1702 (E)). The Section 7 of Micro, Small and Medium Enterprises, Development Act 2006 notifies certain changes and enhanced the limit thereby makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The relevant operative part is extracted here under: After due discussions, the stakeholders were of the view that earlier also they had allowed scheme submitted by promoters and any such scheme should be preferred over liquidation as it is permissible now due to change in definition of MSME. Stakeholders allowed a period of 15 days for the outcome of the Application before Hon ble NCLT. If there is no development in NCLT during the above given period, then auction notice for selling of the vehicles (which only assets available for sale) will be processed as per liquidation process under Insolvency and Bankruptcy Code, 2016. The meeting concluded with a vote of thanks. 41. In view of the discussions in the fourth Stakeholders meeting, the liquidator filed I.A. No. 496 of 2020, before the Learned Adjudicating Authority seeking the permission of the Authority to allow this scheme of the Appellant. However, the Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends. In Arcelormittal India Pvt. Ltd. vs. Satish kumar Gupta Ors. at paragraph 83, footnote 3 is mentioned. The Hon ble Supreme Court noticed that: 3. Regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, states that the liquidator may also sell the corporate debtor as a going concern. 44. Further, the Hon ble Supreme Court in the matter of Kridhan Infrastructure Pvt. Ltd.(Now Known as Krish Steel and Trading Pvt. Ltd) vs. Venkatesan Sankaranarayan Ors. in Civil Appeal No. 3299/2020 dated 09th October, 2020 held as under: 9. Liquidation of the Corporate Debtor should be a matter of last resort. The IBC recognizes a wider public interest in resolving corporate insolvencies and its object is not mere recove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidation etc. As prescribed under Section 35 of the I B Code. The Liquidator will access information under Section 33 and will consolidate the claim under Section 38 and after verification of claim in terms of Section 39 will either admit or reject the claim, as required under Section 40. Before taking steps to sell the assets of the corporate debtor(s) (companies herein), the Liquidator will take steps in terms of Section 230 of the Companies Act, 2013. The Adjudicating Authority, if so required, will pass appropriate order. Only on failure of revival, the Adjudicating Authority and the Liquidator will first proceed with the sale of company s assets wholly and thereafter, if not possible to sell the company in part and in accordance with law. 9. The Liquidator if initiates, will complete the process under Section 230 of the Companies Act within 90 days. For the purpose of counting the period of liquidation, the pendency of the appeal(s) preferred by the Eight Finance Pvt. Ltd. that is from 12th July, 2018 and till date should be excluded. In the circumstances, while we are not inclined to interfere with the impugned order(s) both dated 25th June, 2018 direct the Liq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act, 2013. As the liquidation so taken up under the I B Code, the arrangement of scheme should be in consonance with the statement and object of the I B Code. Meaning thereby, the scheme must ensure maximisation of the assets of the Corporate Debtor and balance the stakeholders such as, the Financial Creditors , Operational Creditors , Secured Creditors and Unsecured Creditors without any discrimination. Before approval of an arrangement or Scheme, the Adjudicating Authority (National Company Law Tribunal) should follow the same principle and should allow the Liquidator to constitute a Committee of Creditors for its opinion to find out whether the arrangement of Scheme is viable, feasible and having appropriate financial matrix. It will be open for the Adjudicating Authority as a Tribunal to approve the arrangement or Scheme in spite of some irrelevant objections as may be raised by one or other creditor or member keeping in mind the object of the Insolvency and Bankruptcy Code, 2016. 19. In view of the observations aforesaid, we hold that the liquidator is required to act in terms of the aforesaid directions of the Appellate Tribunal and take steps ..... X X X X Extracts X X X X X X X X Extracts X X X X
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