Promoter Of A Corporate Debtor Not Disqualified From Submitting A Resolution Plan Where MSME Registration Certificate Is Obtained

• Published date: 04 April 2024
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-Structuring, Corporate and Company Law, Insolvency/Bankruptcy, Trials & Appeals & Compensation
• Law Firm: Argus Partners
• Author: Mr Ranjit Shetty and Rahul Dev

On November 29, 2023, the Supreme Court of India in the case of Hari Babu Thota v. [None] [Civil Appeal No. 4422/2023] held that a promoter of a Corporate Debtor shall not be disqualified under Section 29A of the Insolvency and Bankruptcy Code, 2016 ("Code") from submitting a resolution plan even where MSME registration certificate is obtained post commencement of the corporate insolvency resolution process ("CIRP") but prior to submission of resolution plan. The Hon'ble Supreme Court overruled the judgement of the Hon'ble National Company Law Appellate Tribunal, New Delhi ("NCLAT") in Digamber Anandrao Pingle v. Shrikant Madanlal Zawar,[Company Appeal (AT) (Ins) No. 43-43A of 2021], wherein the NCLAT had observed that where application for MSME certificate is made after commencement of CIRP, the same cannot tide over ineligibility under Section 29A of the Code.

Background:

Shree Aashraya Infra-Con Limited ("Corporate Debtor") was admitted into CIRP on April 6, 2021. The Corporate Debtor obtained its MSME Registration Certificate on July 15, 2021, i.e. after initiation of CIRP.

The Resolution Professional ("Appellant") of Corporate Debtor filed an application presenting a resolution plan before the National Company Law Tribunal, Bengaluru ("NCLT") as submitted by the promoters of the Corporate Debtor and approved by the Committee of Creditors. The NCLT dismissed the application vide Order dated February 28, 2023 by holding that since the MSME Certificate was obtained subsequent to the initiation of CIRP, such Certificate was required to be ignored and the promoters were not eligible to file resolution plan under Section 29-A of the Code. The NCLAT relying upon the judgement of Digamber Anandrao Pingle (supra) affirmed the order passed by the NCLT.

Aggrieved by the Order passed by NCLAT, the Resolution Professional filed an appeal before the Supreme Court.

Issue:

The issue before the Supreme Court was whether a 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 even when such MSME status is accorded before submission of resolution plan.

Since there was no opposing party, the Supreme Court appointed an amicus curiae to assist the Court.

Contentions of the Appellant/ Amicus:

The Appellant contended that the issue shall have far reaching consequences in so far as his role/status as Resolution Professional is concerned. The Appellant also argued that...