Hari Bhai Thota : Supreme Court Observes That Exemption Under 240 A For MSME Applies At The Time Of Submission Of Resolution Plan

The Supreme Court in Hari Bhai Thota  (Civil Appeal  4422 / 2023 ) has held that the view of NCLAT in Digambar Anand Rao Pigle Vs Shrikant Madanlal Zawar & Ors  regarding applicability of Section 240A  from initiation of CIRP is not correct view.  Relevant date is date of submission of Resolution Plan.

Brief Facts Of The Case

The resolution plan submitted by Resolution Professional in the matter of Shree Aashrya Infra Con Limited was rejected by the NCLT on the ground that exemption under Section 240 A was not available to Resolution Applicant as MSME certificate has been obtained after initiation of CIRP. NCLAT affirmed the view of NCLT.

The Resolution Professional filed Appeal before the Supreme Court.

Section 29A provides for ineligibility of Resolution Applicants to submit Resolution Plan  in certain circumstances. Article 240A  exempts Micro, Small and Medium Enterprises from  ineligibility under 29A (c) and (h). Section 29 A (c) makes promotors, managers etc. of the Corporate Debtor ineligible to submit Resolution Plan. As such promotors, managers etc. of the Corporate Debtor is eligible to submit Resolution Plan in respect of resolution of a MSME even if such persons are ineligible to submit Resolution Plan under Section 29 A (c ).

The Supreme Court in this case  framed the following  two issues:

Whether the Resolution Applicant was disqualified under the primary conditions as specified under Section 29 A of the Code ?

Whether the corporate debtor not having an MSME status at the time of commencement of CIRP proceedings would disqualify the Resolution applicant under Section 29A of the Code as benefit of Section 240A would not be available ?

Findings Of  The  Supreme Court

Regarding the first issue  the Supreme Court noted that Section 29 A (c) was not applicable in this case as the account of the Corporate Debtor has not been declared NPA.

On the second issue the Supreme Court gave its opinion on applicability of 240 A , although it was not required in light of determination of first issue, as a number of cases of similar nature were pending before Tribunals.

The Supreme Court relied on judgment of Arcelor Mittal India Pvt. Ltd. Vs. Satish Kumar Gupta & Ors  which says that the stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant.

The Supreme Court relying of Swiss Ribbos Pvt. Ltd. Vs. Union of India  and  rationale for introducing  Section 240A noted that that excluding  MSME  from disqualification under 29A (c) and (h) is because qua such industries other resolution applicants may not be forthcoming which thus would inevitably lead not to resolution but to liquidation.

The Supreme Court relied on  Swiss Ribbons and held that exemption to MSME under Section 240A will be on date of making of the bid and not on the date on which CIRP is being initiated. The  Supreme Court held that law laid down in Digambar Anand Rao Pigle is not correct law and the cut off date will be the date of submission of resolution plan.

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