Corporate debtor which fell under category of MSME prior to 1-6-2020 was eligible to submit arrangement scheme

Case details: Rakesh Kumar Agarwal v. Devendra P. Jain - [2021] 128 taxmann.com 330 (NCLAT- New Delhi)

Judiciary and Counsel Details

• • Jarat Kumar Jain, Judicial Member, and Kanthi Narahari, Technical Member.
  • Rajesh Bohra, Adv. for the Appellant.
  • Kunal Godhwani, Adv. and Abhishek Anand for the Respondent.

Facts of the Case

In the instant case, the Appellant/promoters of corporate debtor filed an application under section 10 of the IBC code, 2016 which was admitted on 11-1-2018. The Adjudicating Authority appointed Resolution Professional (RP) and declared a moratorium.

By virtue of admission, the Adjudicating Authority appointed IRP and the IRP had taken over the charge and conducted the proceedings. While so the IRP issued an Expression of Interest (EOI) on 15-2-2018 and only one application was received from ‘G’. However, they had not filed any Resolution Plan to the EOI.

Thereupon the Second EOI was issued on 9-8-2018 and in pursuance thereof one ‘I’ filed application along with other applicants. However, none of the Prospective Resolution Applicants submitted a Resolution Plan.

In view of the situation, a Resolution was passed for the Liquidation of the corporate debtor by approving 97.37 percent of the voting share.

Pursuant to the liquidation order, a public announcement inviting a claim from the creditors of the corporate debtor was published. 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 was filed before the Adjudicating Authority.

However, the said application was dismissed as withdrawn in view of notification dated 6-1-2020 issued by the Government of India whereby an amendment was made in Regulation 2B of the IBBI, Regulations 2016, by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 ineligible to submit a scheme of the liquidation process of the corporate debtor.

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. In view of the amendment, the appellants became eligible to submit a scheme in the liquidation process. Hence, the appellant filed an application before the Adjudicating Authority seeking permission to propose a scheme and a direction to consider the said scheme in view of the amendment.

However, the Adjudicating Authority passed impugned order, dismissing the above application as it was of the view that though, the corporate debtor fell under the category of MSME and thereby the promoters were eligible to submit the scheme, but the corporate debtor was not MSME at the time of filing of section 10 Application.

On being aggrieved by the order of Adjudicating Authority, an appeal was filed before the Appellant Tribunal. The Appellant Tribunal held that the appellant was 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 1-6-2020. Accordingly, the impugned order passed by the Adjudicating Authority was to be set aside. Thus, the appellants were allowed to submit a scheme of arrangement to the liquidator of the corporate debtor.

Case Review

• • Rakesh Kumar Agarwal v. Devender P. Jain [2021] 128 taxmann.com 329 (NCLT – Ahd.) (para 50) set aside.
  • Swiss Ribbons (P.) Ltd. v. Union of India [2019] 101 taxmann.com 389/152 SCL 365 (SC)
  • Kridhan Infrastructure (P.) Ltd. v. Venkatesan Sankaranarayana [2020] 122 taxmann.com 88/[2021] 163 SCL 198 (SC)
  • S.C. Sekaran v. Amit Gupta [2019] 103 taxmann.com 222/152 SCL 536 (NCL – AT)
  • Ajay Agarwal v. Ashok Magnetic Ltd. [2020] 116 taxmann.com 348 (NCL – AT) (para 50)
  • Siva Rama Krishna Prasad v. S. Rajendran, official liquiator [Co. Appeal(AT) (Insolvency) Nos. 751 and 752 of 2020, dated 4-9-2020]
  • Arokiasamy Joseb Raj v. Pathukasahasram Raghunathan Raman [2019] 109 taxmann.com 217 (NCL – AT) (para 50) followed.

List of Cases Referred to

• • Swiss Ribbons (P.) Ltd. v. Union of India [2019] 101 taxmann.com 389/152 SCL 365 (SC) (para 18)
  • Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [2019] 111 taxmann.com 234 (SC) (para 19)
  • S.C. Sekaran v. Amit Gupta [2019] 103 taxmann.com 222/152 SCL 536 (NCL – AT) (para 21)
  • Siva Rama Krishna Prasad v. S. Rajendran, official liquiator [Co. Appeal(AT) (Insolvency) Nos. 751 and 752 of 2020, dated 4-9-2020] (para 21)
  • Y Shivram Prasad v. S. Dhanapal [2019] 104 taxmann.com 377/153 SCL 294 (NCL – AT) (para 21)
  • Kridhan Infrastructure (P.) Ltd. v. Venkatesan Sankaranarayan [2020] 122 taxmann.com 88/[2021] 163 SCL 198 (SC) (para 44)
  • Arcelormittal India (P.) Ltd. v. Satish Kumar Gupta [2018] 98 taxmann.com 99/150 SCL 354 (SC) (para 45)
  • Meghal Homes (P.) Ltd. v. Shree Niwas Girni K.K. Samiti[2007] 78 SCL 482 (SC) (para 45)
  • Ajay Agarwal v. Ashok Magnetic Ltd. [2020] 116 taxmann.com 348 (NCL – AT) (para 46)
  • Arokiasamy Joseb Raj v. Pathukasahasram Raghunathan Raman[2019] 109 taxmann.com 217 (NCL – AT) (para 48).