SRA was Eligible for MSME Benefits as Registration Pre-dated Resolution Plan Submission | NCLAT

Case Details: Ramesh Shah v. Central Bank of India - [2024] 160 taxmann.com 449 (NCLAT-New Delhi)

Judiciary and Counsel Details

• Ashok Bhushan, Chairperson, Barun Mitra & Arun Baroka, Technical Member
• Mukesh Jain, Ayush J. Rajani & Anuj Tiwari, Advs. for the Appellant.
• Ravi Raghunath, Rathina Maravarman, Utkarsh Kumar, Arvind Kr. Gupta & Ms Henna George, Advs. for the Respondent.

Facts of the Case

In the instant case, the corporate debtor went into CIRP and RP was appointed. Thereafter, the corporate debtor received an MSME certificate on 23.10.2020. Based on the said MSME certificate, the ex-promoter of the corporate debtor, in consortium with one company, submitted a resolution plan which was approved by the CoC with 77.56% voting share.

A resolution plan was submitted before the Adjudicating Authority (NCLT) by RP, however, the same was rejected by the NCLT on the ground that the resolution applicant was ineligible to submit a plan in terms of section 29A of the IBC. Thereafter, an appeal was filed before the National Company Law Appellate Tribunal (NCLAT).

The NCLAT noted that MSME registration was done by a competent authority under the MSME Act on 23.10.2020 which was subsequent to the date of the MSME Notification of 26.06.2020. Thus, the certificate prima facie was issued on the basis of a new Notification issued by the Ministry of MSME.

Further, the NCLAT noted that MSME registration could only be revoked by the competent authority and the NCLT could not arrogate this jurisdiction upon itself to modify/revise/revoke or interfere in any manner with MSME registration granted by the competent authority.

The NCLAT also noted that the CoC was all along kept apprised by RP in regard to the MSME valuation of the corporate debtor and CoC had found SRA to be eligible for MSME status and to submit a resolution plan.

NCLAT Held

The NCLAT held that not having MSME status at the time of commencement of CIRP proceedings does not disqualify a corporate debtor from being a resolution applicant u/s 29A as long as this status is attained well before the submission of the resolution plan.

The NCLAT, further held that the NCLT cannot enter upon adjudicating into merits of a business decision which has been taken by the CoC with the requisite majority in its commercial wisdom as it has only been bestowed with limited jurisdiction in terms of the statutory framework of the IBC.

Therefore, the NCLT committed gross error in rejecting an application for approval of the resolution plan of SRA and, the impugned orders passed by the NCLT were unsustainable.

List of Cases Reviewed

• Central Bank of India v. Nandkishore Despande [2024] 160 taxmann.com (NCLT-Mum.) (para 34 ) reversed See Annex