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R. Raghavendran vs C. Raja John & Ors.

Civil Appeal · 2023 INSC 849Decided 13 Sept 2023
Civil Appeal No. 2552 of 2022
Sanjay Kishan Kaul · Sudhanshu Dhulia

Background

A company undergoing insolvency proceedings was found by the NCLAT to qualify as a Micro, Small & Medium Enterprise (MSME), which under the law allows even a disqualified promoter to submit a resolution (revival) plan. Relying on an earlier NCLAT ruling in "Bafna's case," the NCLAT went further and held that because the company was an MSME, its promoter did not even need to compete with other bidders to regain control. The Resolution Professional appealed to the Supreme Court, saying this reading gave promoters of MSMEs an unwarranted free pass.

Decision Breakdown

The Supreme Court agreed that being an MSME entitles a promoter to submit a resolution plan despite disqualifications that would otherwise apply, but clarified that this does not mean the promoter is excused from competing with other resolution applicants through the normal bidding process. The Court held that the broader observations in Bafna's case were made only in the narrow context of a pre-Committee-of-Creditors settlement or a Section 12A withdrawal, not as a general rule exempting MSME promoters from competition. It therefore set aside the specific paragraphs of the NCLAT order that had excused the promoter from competing, while giving the promoter a two-month window to pursue a one-time settlement with financial creditors before the Resolution Professional proceeds with declaring e-voting results on competing plans.

Lesson Learnt

MSME status gives a company's promoter a chance to bid to take back control during insolvency, but it does not exempt them from having their plan compete on equal footing with other interested resolution applicants.

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

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