NCLT: Benefit Of IBC For MSME Isn't Applicable After Resolution Plan Approval

NCLT: Benefit Of IBC For MSME Isn't Applicable After Resolution Plan Approval

Tribunal's Kerala bench held that since Corporate Insolvency Resolution Process is a time-bound measure, value maximization has also to be in a time-bound manner

The National Company Law Tribunal (NCLT) dismissed an application to set aside the approved Resolution Plan and allow the Applicants to submit a Resolution Plan as per Section 240A of the Insolvency Bankruptcy Code (IBC).

The Division Bench of the National Company Law Tribunal at Kochi Bench, comprising of Justice Ashok Kumar Borah and Satya Ranjan Prasad, dealt with this matter titled Joseph Joseph & Ors v Churakulam Tea Estate Pvt Ltd & Ors.

The facts of the case are that the Applicants are the ex-directors of the Corporate Debtor, which was registered under the Micro, Small or Medium Enterprise (MSME) on 23 March 2015. The Applicants – Ex Directors, filed this Application to direct the Respondent – Former Resolution Professional to consider the Resolution Plan submitted by the Applicants in terms of the provisions of the IBC and to set aside the approved Resolution Plan.

The Applicants – Ex Directors, contended that being a Micro, Small or Medium Enterprise, they are entitled to file the Resolution Plan, since the Section 240A of the Code, which specifically dispenses the applicability of Section 29A clause (c) to (h) of the Code, in case the Corporate Debtor is a Micro, Small or Medium Enterprise. The Respondent – The former Resolution Professional, submitted that he had filed a Memo when this Tribunal had approved the Resolution Professional on 8 January 2021 and the existing Committee of Creditors (CoC) was decided to continue as the Monitoring Committee in the 9th CoC meeting. Therefore, the Resolution Professional was absolved from all statutory duties.

The bench after going through the records placed before them noticed that the Applicants could not produce any valid Certificate issued with regard to MSME Status of the Corporate Debtor since the original acknowledgement issued on 23 March 2015 by the Department of Industries, Government of Kerala which was valid for a period of two years, had already expired.

The bench further stated the intention behind the enactment of Section 240A, was to grant exemptions to the Corporate Debtor, which are MSME(s), by permitting a promoter who is not a wilful defaulter or covered under any other specific disqualification as provided under Section 29A, to bid for the Resolution Plan of an MSME. It reiterated the following:

"If the Corporate Debtor is a Micro, Small or Medium Enterprise is entitled to file the Resolution Plan, Section 240 A which specifically dispenses the applicability of Section 29A clause (c) to (h) in case the Corporate Debtor is a Micro, Small or Medium Enterprise as per the Amendment Act 26 of 2018."

It was observed that the Corporate Debtor was put under Corporate Insolvency Resolution Process (CIRP) vide order dated 28 November 2019. The Resolution Plan was approved in compliance with the IBC in the 10th CoC Meeting dated 20 November 2020 and the Applicants who were also a member of the CoC were silent during the CIRP period. They chose to submit the plan after the approval of the Resolution Plan by the Adjudicating Authority on 8 January 2021.

"As Corporate Insolvency Resolution Process is a time-bound measure, value maximization has also to be in time-bound manner. At this late stage, this Tribunal cannot allow this application to set aside the approved Resolution Plan and allow the applicants to submit a Resolution Plan," The bench while dismissing this Application, observed.