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Hari Babu Thota

Civil Appeal · 2023 INSC 1056Decided 29 Nov 2023
Civil Appeal No. 4422 of 2023

Background

Shree Aashraya Infra-Con Limited underwent Corporate Insolvency Resolution Process (CIRP), and the appellant was appointed as its Resolution Professional. A resolution plan proposed by the company's promoters and approved by the Committee of Creditors was placed before the NCLT, Bengaluru, but the NCLT dismissed the application on the ground that the promoters were disqualified from presenting a plan under Section 29A of the IBC, relying on an NCLAT ruling that MSME status obtained only after CIRP had already begun could not cure the disqualification. Since this order effectively branded the Resolution Professional as having wrongly put forward a legally barred plan (with consequences for his eligibility to continue acting as one and possible referral to the insolvency regulator, IBBI), he appealed to the Supreme Court, which appointed an amicus curiae since no one represented the other side.

Decision Breakdown

The Supreme Court first found that the specific disqualifications under Section 29A(c), (g), and (h) (aimed at promoters with unpaid non-performing-asset accounts, involvement in fraudulent transactions, or invoked guarantees) did not actually apply on the facts of this case at all. It then addressed the broader legal question referred by the amicus: whether Section 240A's exemption for micro, small and medium enterprises (MSMEs) from certain Section 29A disqualifications requires MSME status to exist from the start of the insolvency process, or only by the time the resolution plan is submitted. Relying on its earlier ruling in ArcelorMittal v. Satish Kumar Gupta, which held that Section 29A(c)'s ineligibility attaches "at the time of submission of the resolution plan," the Court held that the same cut-off date applies to the MSME exemption under Section 240A, meaning MSME status can validly be obtained any time before the plan is submitted. It therefore held that the NCLAT's contrary view in the Digambar Anand Rao Pingle case was not the correct position in law, set aside the NCLT and NCLAT orders, allowed the appeal, and directed that no adverse action be taken against the appellant Resolution Professional.

Lesson Learnt

When a law grants a special exemption based on a company's status (such as being a small business), what matters is whether that status exists at the legally relevant decision point (here, when the resolution plan is actually submitted) not necessarily from the very beginning of the process.

Official source (sci.gov.in)View Judgment (PDF)

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