In exceptional circumstances, if a corporate debtor is an MSME, it is not necessary for the promoters to compete with other resolution applicants to regain control of the corporate debtor.

JUDGMENT :

SANJAY KISHAN KAUL, J.

1. The present appeal has been preferred against the impugned judgment of NCLAT dated 01.12.2021 on a limited aspect. It is not necessary for us to delve into all the factual scenario which gave rise to these proceedings. Suffice to say that there is no controversy before us that the respondent No. 1 is the promoter of the Micro, Small and Medium Enterprises (for short ‘MSME’) - Springfield Shelters Pvt. Ltd. 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 before us is the Resolution Professional.

2. It is sufficient to note that 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.

3. We may also note that 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 is no quibble with the proposition. The plan submitted by respondent No. 1 is liable to be considered. It is in pursuance of the aforesaid position that the Resolution Professional sought to act.

4. The reason why the Resolution Professional has come up before this Court is 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 which read as under:

“(32) In any event, it is unequivocal that the Corporate Debtor is an MSME and as held by this Tribunal that it is not necessary for the Promoters to compete with other Resolution Applicants to regain the control of the Corporate Debtor.

(34) Further, this Tribunal, keeping in view of the object of the Code that the Maximization of the Value of the Assets of Corporate Debtor is to be kept in mind in achieving its object. To give an opportunity to regain the control of the Corporate Debtor, the Management/ Promoters/Erstwhile Directors of the Corporate Debtor being an MSME, not necessary to compete with other Resolution Applicants.”

5. The aforesaid observations have been made in the context of the judgment of the Tribunal in Company Appeal (AT) (Insol.) No. 203 of 2019 titled as Saravana Global Holdings Ltd. and Another vs. Bafna Pharmaceuticals Ltd. and Others.

6. 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 is whether the observations made in the paragraph Nos. 32 and 34 of the impugned judgment can be sustained or not in the conspectus of the observations in Bafna’s case (Supra) which is stated to have received imprimatur of this Court by the following order:

“1. No case is made out so as to interfere with the impugned order passed by the Tribunal. The appeal is, accordingly, dismissed.

2. Pending applications, if any, shall stands disposed of.”

7. We have been taken through the judgment in Bafna’s case (supra). It is the say of learned counsel for respondent No. 1 that in view of the order of this Court in C.A. No. 5344 of 2019, extracted aforesaid, the principles of merger of the order as enunciated in Kunhayammed and Others vs. State of Kerala and Another,