In a pivotal ruling, the Supreme Court has clarified that, according to Section 240A of the Insolvency and Bankruptcy Code, the decisive date for determining the eligibility of a resolution applicant to submit a resolution plan is the date of submission of the plan, not the initiation date of the Corporate Insolvency Resolution Process (CIRP). This verdict overturns a previous order by the National Company Law Appellate Tribunal (NCLAT) that deemed a Promoter of an MSME Corporate Debtor ineligible based on the post-CIRP acquisition of the MSME certificate.
The case involved Shree Aashraya Infra-Con Limited, admitted into CIRP on 06.04.2021, with subsequent MSME registration on 15.07.2021. The appellant, Mr. Hari Babu Thota, served as the Resolution Professional. The dispute arose when, relying on Section 240A, the Promoters submitted a resolution plan approved by the Committee of Creditors. However, the NCLT, followed by the NCLAT, rejected the plan, citing the post-CIRP MSME certification.
The Supreme Court emphasized that Section 29A, introduced to prevent those responsible for a company’s financial distress from submitting plans, does not apply to MSMEs due to Section 240A. The Court referred to the Finance Minister’s statement during the amendment introduction, highlighting the importance of the application date for bid-making eligibility. Consequently, the Court concluded that the date of resolution plan submission, not the CIRP initiation, serves as the cut-off for Section 240A eligibility.
By setting aside the NCLT and NCLAT rulings, the Supreme Court affirmed that even if the MSME registration occurred post-CIRP commencement, a Corporate Debtor’s Promoter remains eligible to submit a resolution plan under Section 240A of the IBC. This landmark decision brings clarity to the temporal aspect of eligibility in MSME Corporate Insolvency Resolution Processes.
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