TMI Blog2023 (2) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... on purchaser do not carry any ineligibility under section 29-A of the IBC. The Arun Kumar Jagatramka [ 2021 (3) TMI 611 - SUPREME COURT ] reiterates the need to give a purposive interpretation of section 29-A as was held earlier by Hon ble Supreme Court in the matter of Arcelor Mittal v. Satish Kumar Gupta [ 2018 (10) TMI 312 - SUPREME COURT ] - the judgment of Hon ble Supreme Court lays down that a purposeful and contextual interpretation is necessary in the interpretation of the provision under section 29-A as against a wooden, literal interpretation . This judgment, therefore, points out to the necessity of piercing of corporate veil while examining the eligibility of a successful applicant or an auction bidder (in the case of liquidation). It is thus, seen that in the judgment in Bank of Baroda v. MBL Infrastructures Ltd., the Hon ble Supreme Court has held that a purposive interpretation of section 29-A is required when the primary aim is to restart the corporate debtor, which is also the case in the present appeal since the corporate debtor is being sold as a going concern - This judgment, in addition, also clarifies that the management which has ran the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the corporate debtor, UTM Engineering Pvt. Ltd., an order for liquidation of the corporate debtor was passed by the Adjudicating authority on 15.10.2020 and the Appellant was appointed as the liquidator. He has further stated that the Adjudicating Authority vide order dated 23.11.2020 directed the liquidator to prepare the details of the corporate debtor for sale as going concern and send the same to the JV partner of the corporate debtor Tantia Construction Limited for its possible participation in e-auction process. He has further stated that an Invitation for Expression of Interest (in short EOI ) with regard to the corporate debtor was published on 22.1.2021 and thereafter e-Auction Process Information Document was issued on 25.1.2021, whereupon only Respondent No. 1(in short R-1 ) Redbrick Consulting Pvt. Ltd. submitted an EOI. The Liquidator/Appellant has stated that the eligibility of R-1 was examined by him in a preliminary manner, inter alia, considering an affidavit filed by the R-1 under section 29-A of IBC. 3. The Appellant has further stated that the period for liquidation was extended by 90 days till 15.4.2021 vide order dated 16.3.2021 of the Adjudicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . for submitting a resolution plan for insolvency resolution of the corporate debtor or to participate in the e-auction of the corporate debtor in its sale as a going concern . 6. The Learned Counsel for Appellant has referred to the provision under section 29-A of the IBC and argued that ineligibility of the successful purchaser in the e-auction has to be examined strictly with reference to the conditions of ineligibility enumerated in section 29-A and the Adjudicating Authority could not have travelled beyond those ineligibilities in holding the successful auction purchaser as a person ineligible under section 29-A(g), on the basis of an application filed against the suspended director of the corporate debtor for recovery of an amount, as such an application has not been adjudicated and no order passed by the Adjudicating Authority. He has further clarified that Gnyandeep Kantipudi, who is a director of Redbrick Consulting Pvt. Ltd. is not ineligible under any of the conditions included in sub-sections (a) to (h) of section 29-A. He has clarified that sub-section (g) of section 29-A requires that an order be passed by the Adjudicating Authority, qua either a preferential tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Ministry of MSME and to produce the evidence of such registration while claiming any benefit under section 240-A of the IBC. 9. The Learned Senior Counsel for Respondent No. 2 has adverted to the position of Mr. Gnyandeep Kantipudi as a director of Redbrick Consulting Pvt. Ltd. to contend that he is ineligible to submit a resolution plan for the corporate debtor as he is de facto associated as a director with the successful e-auction purchaser Redbrick Consulting Pvt. Ltd. and he was also a director of the corporate debtor prior to the initiation of CIRP of the corporate debtor. In this connection, he has cited the judgment of Hon ble Supreme Court in the matter of Arcelor Mittal India Private Limited v. Satish Kumar Gupta [2019 2 SCC 1] to strongly argue that it is not just the de jure position of a person, but also his de facto position, when the eligibility of a person to submit a resolution plan is to be examined. He has referred to paragraphs 30 to 32 of the Arcelor Mittal judgment (supra) in support of his contention. He has claimed that a purposive interpretation of the provision under section 29-A of the IBC is absolutely necessary while examining the eligibili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essions. 12. We examine the status of the successful e-auction purchaser R-1 whether it is an MSME or not in the light of section 240-A and the Notification dated 26.6.2020 issued by the Ministry of MSME. The Learned Counsel for Appellant has argued that the successful bidder Redbrick Consulting Pvt. Ltd. is an MSME since its investment in plant and machinery and annual turnover places it in the category of a small enterprise as stipulated in notification no. S.O. 2119 E dated 26.6.2020 and no separate registration is required. Against this argument, the Learned Senior Counsel for Respondent No. 2 has brought to our attention the clauses (6), (7) and (8) of the same notification to contend that only after the registration has been carried out in the specified manner on the Udyam Registration portal, and the Udyam Registration Certificate is issued as provided in clause (2) of the said notification, can an enterprise claim benefit of being an MSME and also exemption is provided in section 240-A of the IBC. The relevant clauses (2) and (6) of the notification dated 26.6.2020 of Ministry of Micro, Small and Medium Enterprise are reproduced below:- 2. Becoming a micro, sm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on any acceptable material. The appellant, in support of its case placed reliance on a judgment of the Delhi High Court in the case of GE T D India Ltd. v. Reliable Engineering Projects and Marketing, but the said case is clearly distinguishable on facts as much as in the said case, the supplies continued even after registration of entity under Section 8 of the Act. . In any event, for the supplies pursuant to the contract made before the registration of the unit under provisions of the MSMED Act, no benefit can be sought by such entity, as contemplated under MSMED Act. There is no acceptable material to show that, supply of goods has taken place or any services were rendered, subsequent to registration of appellant as the unit under MSMED Act, 2006. By taking recourse to filing memorandum under sub-section (1) of Section 8 of the Act, subsequent to entering into contract and supply of goods and services, one cannot assume the legal status of being classified under MSMED Act, 2006, as an enterprise, to claim the benefit retrospectively from the date on which appellant entered into contract with the respondent. The appellant cannot become micro or small enterprise or suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early holds that filing of entrepreneur memorandum and its acknowledgement is necessary for an enterprise to be treated as a registered MSME. The relevant portion of this judgment is as follows:- 10. From the materials on the record and the minutes of the CoC meeting, it is apparent that the Resolution Professional did not form any clear opinion that appellant is a Registered MSME nor advised the CoC to treat the Appellant as Registered MSME. We, thus, are of the opinion that the appellant is a Registered MSME within the meaning of act, 2006 and the filing of Entrepreneurs Memorandum in Part II which was acknowledged on 30.01.2007 is sufficient to treat the Appellant as a Registered MSME. 16. The Learned Counsel for Appellant has cited the judgment of this Tribunal in the matter of Mr. Rakesh Kumar Agarwal Ors v. Mr. Devendra P Jain judgment dated 1.6.2021 in [CA(AT)(Insolvency) No. 1034 of 2020] to contend that the Appellant in that case was found eligible to submit a scheme by virtue of satisfying the provisions of notification dated.1.6.2020. We distinguish this judgment from the facts of the present case in that the issue in the matter of Rakesh Kumar Agarwal (supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides as follows: 35. Powers and duties of liquidator - (1) Subject to the directions of the adjudicating authority, the liquidator shall have the following powers and duties, namely. (f) subject to Section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified: Provided that the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant. Xx xx xx xx x 46. The Report of the Insolvency Law Committee dated 3-3-2018 states that the intent behind introducing Section 29-4 was to prevent unscrupulous o persons from gaining control over the affairs of the company. These persons included those who by their misconduct have contributed to the defaults of the company or are otherwise undesirable. The Committee observed: 14.1. Section 29-A was added to the Code by the Amendment Act. Owing to this provision, pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trictions to participate in the resolution or liquidation process, and gain or regain control of the corporate debtor. This may undermine the processes laid down in the Code as the unscrupulous person would be seen to be rewarded at the expense of creditors. In addition, in order to check that the undesirable persons who may have submitted their resolution plans in the absence of such a provision, responsibility is also being entrusted on the committee of creditors to give a reasonable period to repay overdue amounts and become eligible. Parliament was evidently concerned over the fact that persons whose misconduct has contributed to defaults on the part of debtor companies misuse the absence of a bar on their participation in the resolution process to gain an entry. Parliament was of the view that to allow such persons to participate in the resolution process would undermine the salutary object and purpose of the Act. It was in this background that Station 29-A has now specified a list of persons who are not eligible, to be resolution applicants. 19. We also note the judgment of Hon ble Supreme Court in the matter of Bank of Baroda v. MBL Infrastructures Ltd. (supra), wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition of the persons mentioned. therein. This is a typical instance of a see-through provision , so that ode is able to arrive at persons who are actually in control , whether jointly, or in concert, with other persons. A wooden, literal interpretation would obviously not permit a tearing of the corporate veil when it comes to the person whose eligibility is to be gone into. However, a purposeful and contextual interpretation, such as is the felt necessity of interpretation of such a provision as Section 29-A, alone governs. For example, it is well settled that a shareholder is a separate legal entity from the company in which he holds shares. This may be true generally speaking, but when it comes to corporate vehicle that is set up for the purpose of submission of a resolution plan, it is not only permissible but imperative for the competent authority to find out as to who are the constituent elements that make up such a company. In such cases, the principle laid down in Salomon v. A. Salomon Co. Ltd. will not apply. For it is important to discover in such cases as to who are the real individuals or entities who are acting jointly or in concerts and who have setup such a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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