TMI Blog2024 (3) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CIRP proceedings - HELD THAT:- As the subsequent Chartered Accountant s certificate was not based on any independent valuation or investigation but premised on the faulty certificate of the Chartered Engineer and hence cannot be relied upon. Whether the Adjudicating Authority could have raised concern over the plausibility of the reports of the Chartered Engineer and other the valuation reports which had validated the MSME entitlement of the Corporate Debtor by going under the skin of the computation exercise conducted by them in rejecting the MSME status of the Corporate Debtor? - HELD THAT:- The MSME registration was done by the competent authority under MSME Act on 23.10.2020 which was subsequent to the date of MSME Notification of 26.06.2020. Hence the certificate prima-facie was issued on the basis of the new Notification. Also in the present case, admittedly, the application has been filed online and the registration was done online on the basis of ITRs and hence there lies no case of any patent procedural violation or deviation from the normal practice. Any infirmity or defect in the MSME registration certificate could have therefore been corrected only by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejecting the resolution plan which has been recommended by the CoC with requisite majority. The Adjudicating Authority committed gross error in rejecting the application for approval of the resolution plan of the SRA on the ground that the MSME registration was obtained after commencement of the insolvency proceedings and that the registration was wrongly obtained - both the impugned orders of the Adjudicating Authority are unsustainable - Appeal allowed. - [ Justice Ashok Bhushan ] Chairperson , [ Barun Mitra ] Member ( Technical ) And [ Arun Baroka ] Member ( Technical ) For the Appellant : Mr. Arvind Kr. Gupta and Ms. Henna George , Advocates For the Respondents : Mr. Ravi Raghunath , Mrs. Rathina Maravarman , Mr. Utkarsh Kumar , Advocates for R - 1. Mr. Mukesh Jain , Mr. Ayush J. Rajani , Advocates JUDGMENT [ Per : Barun Mitra , Member ( Technical ) ] Present is a set of two appeals filed under Section 61 of Insolvency and Bankruptcy Code, 2016 ( IBC in short) arising out of two separate orders dated 08.12.2023 passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court- III) in IA No. 2895/2021 317/2022 in Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oval of the said resolution plan which was dismissed by the Adjudicating Authority and the proposal for approval of the resolution plan rejected. The Central Bank of India, as a dissenting financial creditor, had filed I.A. No. 317/2022 seeking stay of the approval of the resolution plan before the Adjudicating Authority and challenged the eligibility of the ex- promotor as a Successful Resolution Applicant ( SRA in short). The Adjudicating Authority on 08.12.2023 allowed the I.A. No. 317/2022 and held the SRA to be ineligible under Section 29A read with Section 240A of the IBC to submit a resolution plan. Aggrieved by these two orders, the present appeals have been preferred. 3. Since the facts in both the appeals are inter-connected, and the issues raised by the Learned Counsels for both the Appellants in their respective appeals are found to largely overlap, therefore, for reasons of convenience, we would like to take note of their submissions conjointly. 4. The Learned Counsel for the Appellants making their submissions stated that the Corporate Debtor had been issued MSME certificate by the competent authority on the basis of an online application filed by an employee o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enjoy the jurisdiction to examine and review the computation at its own level and unilaterally revoke the certificate. Echoing the same argument, the Learned Counsel for the RP submitted that a similar view has been taken by this Tribunal in the matter of Amit Gupta versus Yogesh Gupta in CA(AT)(Ins)No93 of 2019 vide which it was held that in the summary procedure under the IBC, the RP and Adjudicating Authority are not expected to go into accounts, investigations, enquiries and findings on whether or not a Corporate Debtor falls under the classification of MSME under Section 7 of MSME Act and related notifications issued thereunder. 8. It was contended that during the deliberations in the CoC, the Central Bank of India did not raise any objections on the MSME status of the SRA. However, only when the voting was undertaken on the resolution plan in the 26th CoC meeting that the Central Bank of India did not vote in favour of the plan of the SRA. The objection raised by the Central Bank of India at a belated stage is only an attempt to thwart the revival process of the Corporate Debtor. 9. It has been contended by the Learned Counsel for the RP that the Adjudicating Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... status claimed by the SRA was rightly disregarded by the Adjudicating Authority. 11. It was also contended by Learned Counsel for the Respondent that the MSME registration was unauthorised since the RP neither informed nor sought prior approval of the CoC before obtaining the MSME registration which it was required to do under the provisions of IBC. No explanation has also been provided as to why an employee of the Corporate Debtor was made to apply for the MSME registration. It was also stressed that the CoC had repeatedly entertained doubts regarding the propriety of MSME registration as is seen from the proceedings of the 21st and 22nd CoC meetings. Moreover, as the Corporate Debtor was under shutdown with no cashflow and therefore not a going concern, the MSME certificate was obtained by SRA purely for own benefit to take-over the assets of the Corporate Debtor with a haircut of 71.90% of the claims of the financial creditors and that this step did not pave way for maximisation of the value of assets. It was therefore contended that the Adjudicating Authority had rightly rejected the resolution plan of the SRA. 12. We have duly considered the arguments advanced by the Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unauthorised and therefore invalid. 32. Therefore, in view of the aforesaid Judgements and the observations of Hon ble NCLAT in Re Hari Babu Thota (supra) in particular, the Tribunal holds that the Ex- Promoter/Director/Management of the Corporate Debtor cannot take advantage under the section 240A of the Insolvency Bankruptcy Code, 2016 when the Corporate Debtor gets registered as MSME post the initiation of CIRP in conformity with the Notification No. SO 1702(E) dated 01.06.2020. This Tribunal is of the view that when a Company, not being a MSME, enters into CIRP process prior to 01.07.2020 i.e. the effective date as mentioned in the said notification, as is the case in the present matter, it cannot later on seek to claim the benefit under section 240A of the I B Code by reason of subsequent status. 15. It has been contended by the Appellants that the above findings of the Adjudicating Authority do not stand the test of law anymore since it relied on the judgement of this Tribunal in Hari Babu Thota in Company Appeal (AT) (Ins) No. 110 of 2023 which has since been overruled by the Hon ble Supreme Court in the matter of Hari Babu Thota in Civil Appeal No. 4422 of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present facts of the case, there was no dispute regarding the calculation basis which MSME registration was obtained. 18. It is the case of Respondent that in terms of the new notification dated 26.06.2020 issued by the Ministry of MSME which expressly superseded the earlier notification of 05.10.2006, a new methodology for calculating the investment in plant and machinery had come into effect. Under the new notification, the definition of plant and machinery was given the same meaning as under the Income Tax Rules, 1962 and the calculation linked to Income Tax returns. Moreover, the number of items to be excluded for calculating the WDV under both notifications were different but this aspect had been misconstrued by the RP and SRA in calculating the investment in plant and machinery. It is also their case that the certificate issued by the Chartered Engineer is bereft of details on how the WDV figures were arrived at therein. It is contended that the exercise carried out by the Chartered Engineer is not substantiated by purchase orders/invoices etc and is based on random data which led to drastic reduction in valuation of plant and machinery. Further as the subsequent Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Centre of the concerned District shall undertake an enquiry for verification of the details of Udyam Registration submitted by the enterprise and thereafter forward the matter with necessary remarks to the Director or Commissioner or Industry Secretary concerned of the State Government who after issuing a notice to the enterprise and after giving an opportunity to present its case and based on the findings, may amend the details or recommend to the Ministry of Micro, Small or Medium Enterprises, Government of India, for cancellation of the Udyam Registration Certificate. (Emphasis Supplied) 23. In the instant case, we notice that the MSME registration was done by the competent authority under MSME Act on 23.10.2020 which was subsequent to the date of MSME Notification of 26.06.2020. Hence the certificate prima-facie was issued on the basis of the new Notification. Also in the present case, admittedly, the application has been filed online and the registration was done online on the basis of ITRs and hence there lies no case of any patent procedural violation or deviation from the normal practice. Any infirmity or defect in the MSME registration certificate could have the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ex- promoter to gain backdoor entry in the insolvency proceedings. In this context, it is also pertinent to note here that in the present case, the committee of Creditors (CoC) was also not consulted before obtaining such certificate. The CoC was informed about the change in the status only after its effectivity. Upon perusal of the documents on record, it is observed that the CoC members were elaborated on the revised MSME criteria, that allowed the Ex-Promoter to participate in the CIRP process, only in the 13th CoC meeting dated 08.04.2021 whereas the certificate was obtained on 23.10.2020. Thus, it is evident that there was no approval given by the CoC as regards application for MSME certificate .. 26. For better appreciation of this issue it may be constructive to note the minutes of the various CoC meetings wherein the MSME status of the Corporate Debtor was discussed to find out if the CoC was actually unaware of the MSME registration aspect. The relevant minutes are as culled out below : 4th Meeting of the CoC held on 27.07.2020 Item No.: 5 To discuss on the possibilities of utilization of assets of CD for generating cashflows- Suspended Dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Item No. 5 To discuss on the Revised Resolution Plans Therefore, the CoC considered the revised resolution plan submitted by Mr. Ramesh Shah. Rep. of Union Bank of India (UBI) informed that their head office has to understand about the obtainment of MSME status for the CD during the CIRP period by Resolution Professional . Resolution Professional pointed out the discussions which took place in the earlier CoC meetings, especially in the 11th 13th CoC meeting, wherein the various legal pronouncements allowing the CD to get MSME registration during CIRP were discussed and the entire process steps taken by RP for obtaining the MSME has also been laid down in line with latest rules regulations. RP further stated that in the 16th CoC meeting held on 24th May 2021, the Rep. of UBI had confirmed that they have no objections regarding the eligibility of Mr. Ramesh Shah. CoC took note of the same. Subsequently, the CoC observed that Mr. Ramesh Shah (RA) has increased the amount to Rs. 66.60 crores and reduced the payment period to 2 years. However, the CoC felt that the amount should be increased further, and the payment period should be reduced. Rep. of UBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had received registration certification and the resolution plan received from the Corporate Debtor was also discussed along with others. No objection was raised by any CoC member including the Central Bank of India. In the 11th CoC meeting also there were no discussions on the eligibility of Corporate Debtor for filing a resolution plan. In the 20th, 21st and 22nd CoC meetings, the eligibility of the Corporate Debtor with reference to Section 29 A of IBC was also discussed and it was agreed that they may submit their resolution plan for consideration of CoC. The contention of the Respondent that the RP was required to seek permission of the CoC under Section 28(h) of IBC does not carry much force since the CoC was all along kept apprised by the RP in this regard. More specifically the MSME valuation of the Corporate Debtor was discussed by the CoC in the 22nd and 23rd meetings and held that the Corporate Debtor had been correctly classified as MSME. The CoC had therefore clearly found the SRA to be eligible for MSME status and to submit a resolution plan. It is an undisputed fact that the application for MSME registration was made at the instance of RP. RP who is running the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... har [K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150 : (2019) 4 SCC (Civ) 222] : (SCC pp. 186-87, para 57) 57. Indubitably, the remedy of appeal including the width of jurisdiction of the appellate authority and the grounds of appeal, is a creature of statute. The provisions investing jurisdiction and authority in NCLT or Nclat as noticed earlier, have not made the commercial decision exercised by CoC of not approving the resolution plan or rejecting the same, justiciable. This position is reinforced from the limited grounds specified for instituting an appeal that too against an order approving a resolution plan under Section 31. First, that the approved resolution plan is in contravention of the provisions of any law for the time being in force. Second, there has been material irregularity in exercise of powers by the resolution professional during the corporate insolvency resolution period. Third, the debts owed to operational creditors have not been provided for in the resolution plan in the prescribed manner. Fourth, the insolvency resolution plan costs have not been provided for repayment in priority to all other debts. Fifth, the resolution plan does not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is available, can in no circumstance trespass upon a business decision arrived at by the majority of CoC. 32. The Hon ble Supreme Court in the judgement of Ngaitlang Dhar vs Panna Pragati Infrastructure Pvt ltd in C.A. Nos 3665-3666 of 2020 has also reiterated the paramountcy of the commercial wisdom of the CoC and in para 31, the following has been held:- 31. It is trite law that commercial wisdom of the CoC has been given paramount status without any judicial intervention, for ensuring completion of the processes within the timelines prescribed by the IBC. It has been consistently held that it is not open to the Adjudicating Authority (the NCLT) or the Appellate Authority (the NCLAT) to take into consideration any other factor other than the one specified in Section 30(2) or Section 61(3) of the IBC. It has been held that the opinion expressed by the CoC after due deliberations in the meetings through voting, as per voting shares, is the collective business decision and that the decision of the CoC s commercial wisdom is non justiciable, except on limited grounds as are available for challenge under Section 30(2) or Section 61(3) of the IBC. This position of ..... 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