Case title: 

Hari Babu Thota v. X

Date of Order:

29^th November 2023

Bench:

Hon’ble Mr. Justice Sanjay Kishan Kaul
Hon’ble Mr. Justice Sudhanshu Dhulia

Parties: Appellant(s): Hari Babu Thota v. X

SUBJECT:

The Hon’ble Supreme Court of India (hereinafter referred to as ‘the Supreme Court’ or ‘the Court’) dealt with a case wherein the order of the National Company Law Tribunal (NCLT) of dismissal of the proposed resolution between Shree Aashray Infra-Con Ltd and is being contended by the appellant for having far-reaching consequences. The Apex Court set aside the impugned order and directed the NCLT to reconsider the case.

IMPORTANT PROVISIONS:

The Insolvency and Bankruptcy, 2016 (the Code):

• Section 29 A
• Section 240A

OVERVIEW:

• In 2016, Shree Acharya Infra-Con Ltd, under the Insolvency and Bankruptcy Code, entered the Corporate Insolvency Resolution Process (CIRP).
• The Resolution Professional for the case was the appellant.
• A plan was presented before the NCLT by the Resolution Professional, approved by the Committee of the Creditors, and propounded by the promoters.
• The application was dismissed by the NCLT on 28^th February 2023, stating the promoters’ ineligibility to present the plan as the reason.
• The appellant argues that the decision had significant consequences for their role as the Resolution Professional, including potential ineligibility and referral to the Insolvency and Bankruptcy Board of India (IBBI).
• It was argued by the appellant that the impugned decision potentially renders them ineligible, resulting in a referral to the IBBI.The Apex Court is now addressing the decision in this judgment.
• Shree Aashray Infra-Con Ltd went into the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016.
• The Appellant was appointed as the Resolution Professional.
• The Appellant presented a plan before the National Company Law Tribunal, Bengaluru (NCLT) which was propounded by the promoters and approved by the Committee of Creditors (COC).
• The application was dismissed in terms of the order dated 28.02.2023 due the promoters not having presented the plan.

ISSUES RAISED:

• Whether the resolution applicant was disqualified under the primary conditions as specified under section 29A of the Code?
• Whether the corporate debtor not having an MSME status at the time of commencement from CIRP proceedings would disqualify the Resolution applicant under section 29A of the Code as benefit of Section 240A would not be available?

ARGUMENTS ADVANCED BY THE APPELLANT:

• The dismissal has far-reaching consequences for the appellant as the resolution professional.
• The dismissal renders the appellant ineligible to continue as a resolution professional.
• The appellant would lose his eligibility to be considered as Board is liquidator of the corporate debtor.
• The object of the provisions in question is to protect certain industries from disqualification.
• Defects like the Non-Performing Asset (NPA) could be rectified prior to the submission of the plan, making the submission date crucial as a result.
• The submission date of the application should be the cut-off date rather than the CIRP initiation date.

ARGUMENTS ADVANCED BY THE RESPONDENT:

• The commencement date of CIRP is more important than the submission date of the plan.
• The case of Digambar Anand Rao Pingle v. Shrikant Madanlal Zawar & Ors establishes the initiation date of CIRP as a legally tenable cut-off date.
• Allowing the rectification of defects like the NPA after a specific date would compromise the integrity of the insolvency resolution process.

JUDGEMENT ANALYSIS:

• Section 29A of the Code was added as an amendment with the objective was to cure the mischiefs of the persons who may be responsible for financial situation of the company against trying to submit a plan and take over the company.
• The clauses (g) and (h) of the Code are specific to the promoters and therefore the promoter of the company was not disqualified per say under 29A to disentitle him to present the plan.
• The impugned order is based solely on the issue of Section 240A of the Code.
• The matter could be left at the fact that there was no disqualification under section 29A per say.
• The MSME certificate application was unauthorized and hence, could not be considered as it was filed after the commencement of CIRP.
• Clauses (c) and (h) of section 29 A of the Code lays down the reasoning behind not disqualifying certain industries because it would lead to liquidation if there is failure in achieving resolution in the event other companies are not willing to step in and resolve the issue.
• The Court did not agree with the judgment in Digambar Anand Rao Pingle v. Shrikant Madanlal Zawar & Ors, asserting that the crucial date for Section 240A is not when the insolvency commences, but when the resolution plan is submitted.
• The Supreme Court stated that submitted plan would not be disqualified.
• The impugned decision was set aside and the appeal was allowed by the Court.

CONCLUSION

The Supreme Court overturned the impugned order and passed a judgment in favour of the appellant. The Court highlighted the significance of the dates of submission of the resolution plans over the dates of commencement of CIRP. The appeal was allowed and the matter was reassigned to the NCLT for reconsideration. The Court also held that any further actions taken by the IBBI on said matter shall not be considered. The costs were to be borne by the parties.