R. Raghavendran Vs C. Raja John & Ors. (Supreme Court of India)
‘Exceptional Circumstances’ must exist to prevent promoters to compete with other resolution applicants to retain control of corporate debtor in case of MSME
Conclusion: In present facts of the case, the Hon’ble Supreme Court observed that in “exceptional circumstances” if a corporate debtor is an MSME, it is not necessary for promoters to compete with other resolution applicants to retain control of the corporate debtor. But in the impugned judgment, it can hardly be disputed that there is no discussion on the special circumstances. The impugned judgment was predicated on a broad reasoning as if ipso facto there is no need to call other proposals if it is an MSME which is not a correct position of law.
Facts: In present facts of the case, the appeal has been preferred against the impugned judgment of NCLAT dated 01.12.2021 on a limited aspect. The proceedings against the said entity are pending under the Insolvency and Bankruptcy Code, 2016 (for short “the Code”) initiated on 12.2.2020 and the appellant is the Resolution Professional.
The NCLAT had put a question mark on the status of the entity as MSME on account of the certificate being procured after the process had began but in appeal as per the impugned order, the factual finding is that it was an MSME before the process began and thus the benefit of the MSME Act would be available to the said entity.
The plan submitted by the respondent No.1 was held by the NCLT to be ineligible for consideration on account of the status of the respondent No.1 as a promoter as the entity was not an MSME and thus incurred the disqualification under Section 29(A)(e) of the said Code and an exception for MSME would not be carved out in the facts of the present case. However, on the finding being reached by the NCLAT that the entity is an MSME and had that status prior to the proceedings, the scenario changed and there was no quibble with the proposition. The plan submitted by respondent No.1 was liable to be considered. It is in pursuance of the aforesaid position that the Resolution Professional sought to act.
The reason why the Resolution Professional has come up before the Court was that the respondent No.1 filed a contempt proceeding before the NCLAT alleging that the Resolution Professional was not acting in terms of the order dated 01.12.2021. This was in view of the observations made in paragraph Nos.32 & 34 of the impugned order.
The appellant sought to invite other plans and thereafter e-voting took place. On the anvil of the results of e-voting to be declared, contempt proceedings were filed by respondent No.1 and the result of the e-voting process was stayed. The real controversy thus was whether the observations made in the paragraph Nos.32 and 34 of the impugned judgment can be sustained or not.
The Hon’ble Supreme Court observed that a reading of the Bafna’s case shows that it begins with the fundamental principle that the Court envisages maximization of value of assets of the corporate debtor. Thereafter, it proceeds to discuss the scenario of a corporate debtor, which is an MSME, qua the ineligibility in terms of the inapplicability of Section 29A (c) & (h) of the Code to a promoter.
It was observed that in “exceptional circumstances” if a corporate debtor is an MSME, it is not necessary for promoters to compete with other resolution applicants to retain control of the corporate debtor.
It was observed that in the impugned judgment, it can hardly be disputed that there is no discussion on the special circumstances other than the reference to judgment in Bafna’s case. The impugned judgment is predicated on a broad reasoning as if ipso facto there is no need to call other proposals if it is an MSME. In view of the larger context it would have, is not the correct position of law. Further, it was observed that the appellant cannot be faulted for calling for other proposals in which the proposal given by respondent No.1 was also to be examined, put them to voting before the CoCs and declare the results.
To that extent, the impugned order was set aside.
