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TMI Blog2024 (10) TMI 1407X X X X Extracts X X X X X X X X Extracts X X X X ..... ement 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 ineligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 24.01.2024, these three sets of the Appeal(s) have been filed. 2. Brief facts of the case necessary to be noticed for deciding the Appeal(s) are: (i) On an Application filed by a Financial Creditor of the Corporate Debtor Dilwara Leasing and Investment Ltd., Corporate Insolvency Resolution Process ( CIRP ) against the CD commenced by order dated 22.02.2022 passed by Adjudicating Authority in C.P.No.(IB)-983 of 2020. In the CIRP, Shri Ashish Singh was appointed as RP, who issued Form-G on 05.05.2022. (ii) In 4th CoC Meeting held on 20.05.2022, the RP informed the Members of the CoC that RP is considering registering the Corporate Debtor as MSME after contemplating the benefits of the same, which eventually would be beneficial for the CD. The RP got the CD registered as MSME and a certificate of registration was issued to the CD dated 24.05.2022. (iii) In pursuance of Form-G, the RP received Expression of Interests ( EoI ) from eight Resolution Applicants. In the 6th Meeting of the CoC, held on 14.07.2022, i.e., in response to the Form-G, the RP has received Resolution Plans from six prospective Resolution Applicants, which also included Bishwanath Traders Investment Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pended Director and Shareholder of the Corporate Debtor, who had filed IA No.4173 of 2023. 4. The submission advanced by the Appellant(s) in all these Appeal(s) being common, we proceed the note the submission, as submissions on behalf of learned Counsel for the Appellant. 5. Learned Counsel for the Appellant challenging the impugned order submits that Corporate Debtor having registered as MSME, much before submission of Resolution Plan by Bishwanath Traders, no ineligibility shall attach on the SRA by virtue of Section 240A of the IBC. It is submitted that registration of MSME, after initiation of CIRP against the CD is inconsequential and the benefit under Section 240A is also available to Corporate Debtor, who has registered as MSME during the CIRP. It is submitted that law is now well settled by judgment of the Hon ble Supreme Court in Hari Babu Thota in Civil Appeal No.4422/2023 decided by Hon ble Supreme Court on 29.11.2023. It is held by the Hon ble Supreme Court that even after the CD is registered as MSME after the commencement of CIRP, the benefit of Section 240A, cannot be denied. It is further submitted that the account of Corporate Debtor was not declared by Financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared by the Hon ble Supreme Court in Hari Babu Thota vide order dated 29.11.2023, is binding on all concerned and has to be given due effect. 6. Shri Ramji Srinivasan, learned Senior Counsel appearing for the Suspended Director, refuting the submissions of learned Counsel of the Appellant submits that present is a case where SRA with design to take control of the CD, has got the CD registered as MSME. It is submitted that Shri Birendra Kumar Pasari is a person acting jointly or in consult with the SRA, which clearly attracts the ineligibility under Section 29A(c). Birendra Kumar Pasari is also a person, who manage and control the Corporate Debtor. The NPA of Corporate Debtor was declared on 14.06.2020, whose debts have not been paid off for a period of one year before commencement of CIRP, which makes the SRA ineligible to submit a Resolution Plan. It is submitted that Birendra Kumar Pasari is Managing Director of CD. Shri Pasari along with his other family members and other associated companies holds majority shareholding in the Financial Creditor, CD and SRA. The Resolution Plan is, thus, a mechanism to take control of the CD, ousting the other shareholders including Raj Kum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 24.01.2024 after noticing the submission of Application in IA No.4173 of 2023, reply of RP, reply of SRA and the rejoinder submissions of the Applicant in IA No.4173 of 2023, has noted the issue, which came for consideration before the Adjudicating Authority in paragraph 39 of the judgment. Paragraph 39 of the judgment is as follows: 39. This Adjudicating Authority has carefully heard the arguments advanced by Learned Counsels for the parties and minutely perused the averments made in the application, reply, rejoinder and written submissions filed by the parties. The relevant documents annexed with the respective submissions have also been meticulously perused. In view of the facts and averments made on behalf of the parties, the issue which arises for this Adjudicating Authority s consideration: Whether M/s. Bishwanath Traders and Investment Limited i.e., the Successful Resolution Applicant (hereinafter SRA / BTIL ) is ineligible as per Section 29-A (c) of the IBC, to submit the Resolution Plan in the matter of the Corporate Insolvency Resolution Process of M/s. Vibrant Buildwell Private Limited ( Corporate Debtor‟)? 10. From the above, it is clear that only issue, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 31(1) of the Insolvency Bankruptcy Code, 2016 (‗the Code ) read with Regulation 39(4) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‗Regulations ) on behalf of Mr. Ashish Singh, Resolution Professional (RP) of M/s. Vibrant Buildwell Private Limited (Corporate Debtor ), seeking approval of the Resolution Plan submitted by M/s. Bishwanath Traders and Investment Limited. 51. In view of the fact that this Adjudicating Authority had rejected the Resolution Plan submitted by M/s. Bishwanath Traders and Investment Limited, therefore, consequently, in exercise of its powers under Section 33(1)(b) of the Insolvency Bankruptcy Code, 2016, this Adjudicating Authority hereby directs the Resolution Professional that appropriate application for initiation of liquidation of the Corporate Debtor may be filed before this Adjudicating Authority within two weeks. 12. We, thus, first need to notice the grounds given by the Adjudicating Authority for declaring SRA as ineligible to submit a Resolution Plan under Section 29A(c) of the IBC. Section 29A(c) provides as follows: 29A. Persons not eligible to be resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or of whom such person is a promoter, classified and nonperforming asset, in accordance with the guidelines of Reserve Bank of India. The Adjudicating Authority has returned a finding that the account of the Corporate Debtor was automatically declared as NPA on 14.06.2020, after 90 days of the default and the SRA, who has filed Resolution Plan was under the management and control of such person. The applicability of Section 29A (c) is thus, depended on a person or other person, acting jointly, who has submitted a Resolution Plan, who has an account of Corporate Debtor under the management and control of such person, it is classified as non-performing asset. The present is a case, where the eligibility has sought to be attached on the ground that account of CD has been declared as NPA on 14.06.2020, and the CD, who was under the management and control of SRA and its family members, who are majority shareholder of the SRA. There cannot be any dispute to the legal position and embargo imposed by Section 29A, to keep the Promoters and Directors, who led the CD, so as to declare its account non-performing asset. Such persons, were held to be ineligible, which was the object and purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relationship of persons acting in concert to come into being. (emphasis supplied) When coming to the presumption created by the provision, this Court held that the deeming provision is left open to rebuttal as indicated by the words unless the contrary is established (see para 54 of Daiichi [Daiichi Sankyo Co. Ltd. v. Jayaram Chigurupati, (2010) 7 SCC 449] ). Finally, this Court held that whether a person is or is not acting in concert would depend upon the facts of each case (see para 57 of Daiichi [Daiichi Sankyo Co. Ltd. v. Jayaram Chigurupati, (2010) 7 SCC 449] ). 14. The submissions, which have been pressed by learned Counsel for the Appellant is on the basis of Section 240A, where by virtue of Section 240A, ineligibility which is attached by Section 29A(c) is not applicable, which in the present case, is a question which need to be answered. Section 240A was inserted in the IBC by Act No.26 of 2018 with effect from 06.06.2018. Section 29A was inserted by the Act No.8 of 2018 w.e.f. 23.11.2017. Section 240A is a provision, which makes certain provisions of Section 29A not applicable on a Resolution Applicant in respect of CIRP of a micro, small and medium enterprises. Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the importance of Micro, Small and Medium Enterprises (MSMEs) to the Indian economy and the unique challenges faced by them, it has been recommended to allow the Central Government to exempt MSMEs from application of certain provisions of the Code. Illustratively, since usually only promoters of an MSME are likely to be interested in acquiring it, applicability of section 29A has been restricted only to disqualify wilful defaulters from bidding for MSMEs; 16. In the present case, CD was registered as MSME, which registration was issued on 24.05.2022. The Resolution Plan was submitted by Bishwanath Traders Investment Ltd. in the CIRP of the Corporate Debtor on 11.07.2022. The Hon ble Supreme Court in Arcelormittal India (P) Ltd. (supra) has settled the law regarding relevant date for ascertaining the eligibility of a Resolution Applicant. It was held by the Hon ble Supreme Court that ineligibility attaches when the Resolution Plan is submitted by a Resolution Applicant. Following was held by the Hon ble Supreme Court in paragraph 46 of the judgment: 46. According to us, it is clear that the opening words of Section 29-A furnish a clue as to the time at which clause (c) is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate Tribunal of Chennai Bench in Hari Babu Thota came to be challenged before the Hon ble Supreme Court in Civil Appeal No.4422 of 2023. The question, which arose to be examined by the Hon ble Supreme Court in Hari Babu Thota has been noticed in paragraph 4 of the judgment, which is as follows: 4. There are two aspects to be examined out of the contours of the submissions: Firstly: Whether the resolution applicant was disqualified under the primary conditions as specified under Section 29 A of the Code; and Secondly: Whether the corporate debtor not having an MSME status at the time of commencement of CIRP proceedings would disqualify the Resolution applicant under Section 29A of the Code as benefit of Section 240A would not be available. It is the say of learned Amicus that if the MSME certificate is obtained prior to the presentation of the plan such disqualification would not be incurred and benefit of the provision would be available. 18. The Hon ble Supreme Court in context of the above issue noted the provisions of Section 29A and its objective. The Appellate Tribunal, Chennai Bench has relied on an earlier judgment in Digamber Anand Rao Pingle vs. Shrikant Madanlal Zawa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n MSME attracts interest primarily from a promoter of an MSME and may not be of interest to other resolution applicants . 17. The aforesaid thus, makes it clear as opined in the said judgments also, that excluding such industries from disqualification under 29A (c) and (h) is because qua such industries other resolution applicants may not be forthcoming which thus would inevitably lead not to resolution but to liquidation. 20. In paragraphs 20, 21, 22, 23 and 24, the Hon ble Supreme Court laid down following: 20. The common submission thus, is that while interpreting Section 240A, the reason for carving out an exception in micro, small and medium industries is set out on the date of application for making the bid as the crucial date. The submission is that while for some other aspects the initiation of the CIRP proceedings would be the cut off date, the same would not apply in the case of Section 240A, in view of the statement by the Minister themselves while introducing the amendment Bill. 21. We are inclined to accept the aforesaid plea as it is quite obvious that while seeking to protect this category of industries, the disqualification is not to be incurred, especially in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hari Babu Thota s case decided on 29.11.2023. Grounds (H) and (I) of the Appeal are as follows: H. BECAUSE the Ld. Adjudicating Authority whilst passing the Impugned Order placed reliance on the judgment passed by the Hon'ble NCLAT, Chennai bench in Hari Babu Thota RP of Shree Aashraya Infracon Ltd Company Appeal(AT) (CH) (Ins) No. 110 of 2023. However, the said judgments stand set aside recently by the judgment dated 29.11.2023 passed by the Hon'ble Supreme Court in in Civil Appeal bearing No. 4422/2023. I. BECAUSE issue with respect of attachment of ineligibility under Section 29A of the Code viz a viz Section 240A of the Code is not res integra as the Hon'ble Supreme Court recently in Civil Appeal bearing No. 4422/2023 in the matter titled as Hari Babu Thota, vide judgment dated 29.11.2023 held that if the MSME Certificate is obtained by the Resolution Applicant prior to submission of Resolution Plan, the Resolution Applicant does not incur any ineligibility in terms of Section 29 A(c) of the Code. The relevant extracts from the above said judgment dated 29.11.2023 have been reproduced below for the ready reference of this Hon ble Appellate Tribunal:- 20. The common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistration of Corporate Debtor as MSME on 22.05.2022. 25. When the legislative enactment, i.e. 240A was inserted to give relief to the MSME for the purpose and object, as noted above by the Insolvency Law Committee Report, denying the benefit of Section 240A to a Corporate Debtor, which is a MSME, shall be against the intendment and purpose of legislative enactment. We have further noticed that list of eligible PRAs was circulated to the Members of the CoC as well as the Suspended Director Raj Kumar Kumar Sahani and at no point of time, any objection was raised. It is further relevant to notice that the RP has appointed DGA IB Resolution LLP to submit a Report regarding status of six Resolution Plans received, which Report was also taken note by the CoC in 7th Meeting of the CoC held on 03.08.2022. It is contended by learned Counsel for the RP that in due diligence Report, Resolution Applicants were found eligible and Resolution Plans were placed before the CoC in the 7th CoC Meeting and no issue of eligibility was raised at any point of time. It is further on the record that list of PRAs was also circulated in the CoC Meeting and no objection regarding ineligibility of any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r than specified in Sections 30(2) or 61(3) of the I B Code. It has further been held, that the commercial wisdom of CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the I B Code. This Court thus, in unequivocal terms, held, that there is an intrinsic assumption, that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. It has been held, that the opinion expressed by CoC after due deliberations in the meetings through voting, as per voting shares, is a collective business decision. It has been held, that the legislature has consciously not provided any ground to challenge the commercial wisdom of the individual financial creditors or their collective decision before the Adjudicating Authority and that the decision of CoC s commercial wisdom is made non-justiciable. 143. This Court in Committee of Creditors of Essar Steel India Limited through Authorised Signatory (supra) after ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45. The view taken in the case of K. Sashidhar (supra) and Committee of Creditors of Essar Steel India Limited through Authorised Signatory (supra) has been reiterated by another three Judges Bench of this Court in the case of Maharashtra Seamless Limited (supra) 146. In all the aforesaid three judgments of this Court, the scope of jurisdiction of the Adjudicating Authority (NCLT) and the Appellate Authority (NCLAT) has also been elaborately considered. It will be relevant to refer to paragraph 55 of the judgment in the case of K. Sashidhar (supra), which reads thus: 55. Whereas, the discretion of the adjudicating authority (NCLT) is circumscribed by Section 31 limited to scrutiny of the resolution plan as approved by the requisite per cent of voting share of financial creditors. Even in that enquiry, the grounds on which the adjudicating authority can reject the resolution plan is in reference to matters specified in Section 30(2), when the resolution plan does not conform to the stated requirements. Reverting to Section 30(2), the enquiry to be done is in respect of whether the resolution plan provides: (i) the payment of insolvency resolution process costs in a specified manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d jurisdiction and authority either with NCLT and NCLAT, to review the commercial decision exercised by CoC of approving the resolution plan or rejecting the same. In paragraphs 149 and 150 the Hon ble Supreme Court has held following: 149. It will therefore be clear, that this Court, in unequivocal terms, held, that the appeal is a creature of statute and that the statute has not invested jurisdiction and authority either with NCLT or NCLAT, to review the commercial decision exercised by CoC of approving the resolution plan or rejecting the same. 150. The position is clarified by the following observations in paragraph 59 of the judgment in the case of K. Sashidhar (supra), which reads thus: 59. In our view, neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors .. 29. The present is not a case where any argument is raised that Resolution Plan is not in conformity with the provisions of Section 30, subsection (2) of the IBC. 30. The learned Counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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