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SC: Resolution applicant eligibility under S.240A determined by plan submission date - Pallavi Mishra.

Last Updated: 14-12-2023 10:53:52pm
 SC: Resolution applicant eligibility under S.240A determined by plan submission date - Pallavi Mishra.

The Supreme Court has clarified that, according to Section 240A of the Insolvency and Bankruptcy Code, 2016 (IBC), the crucial date for determining a resolution applicant's eligibility to submit a resolution plan is the date of plan submission, not the commencement date of the Corporate Insolvency Resolution Process (CIRP). Justices Sanjay Kishan Kaul and Sudhanshu Dhulia overturned a National Company Law Appellate Tribunal (NCLAT) decision that deemed a Promoter of a Micro, Small, and Medium Enterprise (MSME) Corporate Debtor ineligible based on obtaining an MSME certificate post-CIRP commencement.

The case involved Shree Aashraya Infra-Con Limited, admitted into CIRP on 06.04.2021, and subsequently registered as an MSME on 15.07.2021. Mr. Hari Babu Thota served as the Resolution Professional. Section 29A, added to the IBC in 2017, lists those ineligible to submit a resolution plan, including Corporate Debtor Promoters and Related Parties. Section 240A, added in 2018, exempts MSMEs from Section 29A, allowing MSME Corporate Debtor Promoters to submit plans.

In the case, Promoters submitted a plan, approved by the Committee of Creditors. However, on 28.02.2023, the NCLT rejected it, citing the MSME certificate's post-CIRP acquisition. The NCLAT upheld this decision on 02.06.2023, relying on a previous judgment (Digamber Anand Rao Pingle v Shrikant Madanlal Zawar & Ors) that deemed post-CIRP MSME certification a bar to Promoters availing Section 240A benefits.

The Supreme Court highlighted the legislative intent behind Section 29A, introduced to prevent those responsible for a company's financial issues from submitting plans. Section 240A exempted MSMEs from Section 29A due to their unique business nature. The Court referenced the Finance Minister's statement during the amendment introduction, emphasizing that disqualifications applied "as on the date of the application making a bid."

The Court rejected the NCLAT's interpretation and held that the resolution applicant's eligibility cut-off for Section 240A wasn't the CIRP commencement date but the plan submission date. It emphasized the Minister's statement, indicating that the disqualification's cut-off, especially for MSMEs, was the bid application date.

In conclusion, the Court set aside NCLT and NCLAT decisions, affirming that even if MSME registration occurred post-CIRP, MSME Corporate Debtor Promoters could submit resolution plans under Section 240A of the IBC. This decision aligns with the objective of protecting MSMEs and clarifies the specific cut-off date for determining eligibility under Section 240A.

TAGS: Supreme Court Section 240A Insolvency and Bankruptcy Code (IBC) resolution applicant eligibility resolution plan


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