PRA Lacks Locus Standi If EOI Not In Its Name; S.29A(c) Inapplicable to MSME Resolution Applicant: NCLT Mumbai - 2025-01-09

NCLTMumbaiDismisses Challenge to Megi Agro Chem's Resolution Plan, Cites Lack of Locus Standi and MSME Exemptions

Mumbai , MH - The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Ms. Reeta Kohli (Judicial Member) and Ms. Madhu Sinha (Technical Member), has dismissed an application filed by Astral Agro Ventures challenging the resolution plan for Megi Agro Chem Limited. In its order dated January 9, 2025, in IA(I.B.C) - 1851/2024, the Tribunal found that the applicant lacked the necessary locus standi (the right to bring an action) and that the successful resolution applicant was not ineligible under the Insolvency and Bankruptcy Code (IBC), 2016, particularly due to the Corporate Debtor's status as a Micro, Small, and Medium Enterprise (MSME).

Background of the Dispute

Astral Agro Ventures ("Applicant"), a prospective resolution applicant (PRA) for Megi Agro Chem Limited ("Corporate Debtor"), sought to reject the resolution plan submitted by Arainfra Projects Private Limited ("SRA" or Respondent No. 3) and approved by the Committee of Creditors (CoC). Astral Agro also prayed for the removal of the Resolution Professional (RP), Mr. Vakati Balasubramanyam Reddy (Respondent No. 1), and an opportunity to submit its own plan.

The Corporate Insolvency Resolution Process (CIRP) for Megi Agro Chem Limited was initiated on August 5, 2022. After multiple invitations for Expression of Interest (EOI), Arainfra Projects Private Limited submitted a resolution plan which was approved by the CoC with a 100% vote on September 21, 2023.

Applicant's Contentions: Allegations of Irregularities and Ineligibility

Astral Agro Ventures raised several grievances, alleging:

* Material irregularities and fraudulent conduct by the RP in collusion with the SRA.

* The RP failed to conduct proper due diligence on the SRA's eligibility under Section 29A of the IBC. * The SRA was ineligible due to not meeting the minimum net worth criteria and alleged disqualifications of its directors/shareholders under Section 29A(c) and 29A(j) of the IBC, linking them to entities with Non-Performing Asset (NPA) accounts or undergoing CIRP.

* Procedural violations by the RP, including inadequate notice for CoC meetings and improper handling of resolution plan submissions. * The RP shared the Applicant's confidential request for an extension with the SRA.

Respondents' Rebuttals: Denials and Defense of Process

The RP and SRA vehemently denied the allegations, countering that:

* The Applicant, Astral Agro Ventures, lacked locus standi as it never submitted a valid EOI in its own name, nor did it submit a resolution plan or the required Earnest Money Deposit (EMD). The EOI relied upon was submitted by Mr. Vasant Jain in his individual capacity.

* The SRA was eligible under Section 29A. Crucially, they argued that Megi Agro Chem Limited is an MSME, and therefore, as per Section 240A of the IBC, the disqualifications under clauses (c) and (h) of Section 29A would not apply to the SRA.

* Allegations of collusion were baseless . The SRA became aware of the Applicant's extension request through a CoC member's email, not via the RP.

* The RP conducted necessary due diligence and complied with all procedural requirements. Decisions regarding timelines were within the CoC's commercial wisdom.

* The Applicant's actions were aimed at sabotaging the CIRP and pushing the Corporate Debtor into liquidation.

Tribunal's Decisive Findings

The NCLT meticulously examined the submissions and records, arriving at several key findings:

1. Applicant Lacks Locus Standi: The Tribunal found merit in the Respondents' argument regarding the Applicant's lack of standing. It noted: > "On perusal of the documents available on record, it has come to light that the Applicant submitted the EOI with respect to the CIRP of the Corporate Debtor on 20.07.2023. However, the Applicant has annexed a completely different EOI dated 19.10.2022 to the present Application... it has been noticed that the said EOI dated 20.07.2023 was submitted by Mr. Vasant Jain , in his independent capacity, and not by the Applicant, i.e., Astral Agro Ventures."

The NCLT further observed: > "...in view of the fact that the Applicant never submitted a resolution plan nor was the EMD deposited, the Applicant has no locus to agitate the present Application." The Tribunal cited the NCLAT judgment in MK Rajagopalan Vs. S. Rajendran , which held that an unsuccessful resolution applicant lacks locus to assail a resolution plan, emphasizing that Astral Agro Ventures was not even an unsuccessful applicant.

2. SRA's Eligibility Upheld Under MSME Provisions: Addressing the SRA's eligibility, the NCLT highlighted the Corporate Debtor's MSME status. It referred to Section 240A(1) of the IBC, which states: > "Notwithstanding anything to the contrary contained in this Code, the provisions of clauses (c) and (h) of section 29A shall not apply to the resolution applicant in respect of corporate insolvency resolution process... of any micro, small and medium enterprises.”

Consequently, the Tribunal found that the Applicant's contentions regarding the SRA's ineligibility under Section 29A(c) (relating to NPAs or disqualification of connected persons due to past defaults of other companies) were not applicable. The Tribunal also noted a lack of supporting documents for the Section 29A(j) claim.

3. Other Claims Found Meritless: The NCLT dismissed the Applicant's claim that insufficient time was provided for plan submission, noting that extensions were granted but no plan was forthcoming.

The Verdict

Concluding its analysis, the NCLT stated: > "Therefore, considering the facts and circumstances of the present case, this Bench is of the judicious opinion that the grounds raised by the Applicant are not only false and frivolous but are based on half-baked truths and misrepresentation of facts... This Bench is of the considered opinion that the present Application is designed to cause unwarranted delay in the CIRP of the Corporate Debtor and is filed with malafide intentions. Therefore, the Application deserves to be dismissed."

The application IA/1851/2024 was accordingly dismissed.

Implications of the Ruling

This NCLT order underscores several critical aspects of the insolvency resolution process:

* Strict Locus Standi Requirements: Prospective resolution applicants must ensure their participation is correctly documented under their entity's name to have standing to challenge subsequent processes. Failure to submit a resolution plan or EMD further weakens any claim to be an aggrieved party.

* MSME Protections under IBC: The judgment reiterates the specific exemptions provided under Section 240A of the IBC, which can significantly impact the eligibility criteria for resolution applicants in MSME insolvencies, particularly concerning Section 29A(c) and (h).

* Discouragement of Frivolous Litigation: The Tribunal's strong remarks against applications deemed "false and frivolous" and filed with "malafide intentions" serve as a deterrent against attempts to derail CIRP timelines without substantial merit.