R. Raghavendran vs C. Raja John

2023INSC849 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

Civil Appeal No.2552/2022

R. RAGHAVENDRAN Appellant(s)

VERSUS

C. RAJA JOHN & ORS. Respondent(s)

J U D G M E N T

SANJAY KISHAN KAUL, J.

1. The present appeal has been preferred

against the impugned judgment of NCLAT dated

01.12.2021 on a limited aspect. It is not

necessary for us to delve into all the factual

scenario which gave rise to these proceedings.

Suffice to say that there is no controversy before

us that the respondent No.1 is the promoter of the

Micro, Small & Medium Enterprises (for short

‘MSME’) -Springfield Shelters Pvt. Ltd. The

proceedings against the said entity are pending

under the Insolvency and Bankruptcy Code, 2016 Signature Not Verified Digitally signed by NEETA SAPRA Date: 2023.09.21 17:12:18 IST Reason: (for short “the Code”) initiated on 12.2.2020 and

1 the appellant before us is the Resolution

Professional.

2. It is sufficient to note that the NCLAT

had put a question mark on the status of the

entity as MSME on account of the certificate being

procured after the process had began but in appeal

as per the impugned order, the factual finding is

that it was an MSME before the process began and

thus the benefit of the MSME Act would be

available to the said entity.

3. We may also note that the plan submitted

by the respondent No.1 was held by the NCLT to be

ineligible for consideration on account of the

status of the respondent No.1 as a promoter as the

entity was not an MSME and thus incurred the

disqualification under Section 29(A)(e) of the

said Code and an exception for MSME would not be

carved out in the facts of the present case.

However, on the finding being reached by the NCLAT

that the entity is an MSME and had that status

prior to the proceedings, the scenario changed and

there is no quibble with the proposition. The plan

submitted by respondent No.1 is liable to be

considered. It is in pursuance of the aforesaid

2 position that the Resolution Professional sought

to act.

4. The reason why the Resolution Professional

has come up before this Court is that the

respondent No.1 filed a contempt proceeding before

the NCLAT alleging that the Resolution

Professional was not acting in terms of the order

dated 01.12.2021. This was in view of the

observations made in paragraph Nos.32 & 34 of the

impugned order which read as under:-

“32) In any event, it is unequivocal that the Corporate Debtor is an MSME and as held by this Tribunal that it is not necessary for the Promoters to compete with other Resolution Applicants to regain the control of the Corporate Debtor.

34) Further, this Tribunal, keeping in view of the object of the Code that the Maximization of the Value of the Assets of Corporate Debtor is to be kept in mind in achieving its object. To give an opportunity to regain the control of the Corporate Debtor, the Management/Promoters/Erstwhile Directors of the Corporate Debtor being an MSME, not necessary to compete with other Resolution Applicants.”

5. The aforesaid observations have been made

in the context of the judgment of the Tribunal in

3 Company Appeal (AT) (Insol.) No. 203 of 2019

titled as “Saravana Global Holdings Ltd. & Anr.

Vs. Bafna Pharmaceuticals Ltd. & Ors.”.

6. The appellant sought to invite other plans

and thereafter e-voting took place. On the anvil

of the results of e-voting to be declared,

contempt proceedings were filed by respondent No.1

and the result of the e-voting process was stayed.

The real controversy thus is whether the

observations made in the paragraph Nos.32 and 34

of the impugned judgment can be sustained or not

in the conspectus of the observations in Bafna’s

case (Supra) which is stated to have received

imprimatur of this Court by the following order:-

“1. No case is made out so as to interfere with the impugned order passed by the Tribunal. The appeal is, accordingly, dismissed.

2. Pending application(s), if any, shall stands disposed of.”

7. We have been taken through the judgment in

Bafna’s case (supra). It is the say of learned

counsel for respondent No.1 that in view of the

order of this Court in C.A. No.5344 of 2019,

extracted aforesaid, the principles of merger of

4 the order as enunciated in “Kunhayammed & Ors vs

State Of Kerala & Anr.”reported as (2000)6 SCC 359

would apply. In this behalf, we may observe that all

that has been done by this Court vide order dated

15.7.2019 is to simply uphold the order of the

Tribunal by observing that no case for interference

is made out-nothing more and nothing less.

8. We, thus, turn to the relevant portion of

the judgment in Bafna’s case passed by the

Tribunal as to really appreciate the context in

which the observations were made in paragraph 22

of that judgment, it is necessary to see how that

judgment proceeded from paragraph 18 to 22;

“18. Therefore, it is clear that ‘I&B Code' envisages maximization of value of the assets of the 'Corporate Debtor' so that they are efficiently run as going concerns and in turn, will promote entrepreneurship. The preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no ‘Resolution Plan' or the ‘Resolution Plan's submitted are not up to the mark.

19. Admittedly, the 'Corporate Debtor' is a 'MSME' and the promoters are not ineligible in terms of Section 29A of the ‘I&B Code’. Therefore, it is not necessary for the ‘Committee of Creditors’ to find out whether the ‘Resolution Applicant' is ineligible in

5 terms of Section 29A or not.

20. The 'Committee of Creditors' is to consider the feasibility, viability and such other requirements as has been specified by the Board. If it proposes maximisation of the assets and is found to be feasible, viable and fulfil all other requirements as specified by the Board, the company being MSME, it is not necessary for the 'Committee of Creditors' to follow all the procedures under the 'Corporate Insolvency Resolution Process’. For example, if case is settled before, the constitution of the ‘Committee of Creditors' or in terms of Section 12A on the basis of offer given by Promoter, in such case, all other procedure for calling of application of ‘Resolution Applicant' etc. are not followed. If the Promoter satisfy all the creditors and is in a position to keep the 'Corporate Debtor' as a going concern, it is always open to ‘Committee of Creditors' to accept the terms of settlement and approve it by 90% of the voting shares. The same principle can be followed in the case of MSME.

21. The Parliament with specific intention amended the provisions of the ‘I&B Code' by allowing the Promoters of ‘MSME’ to file ‘Resolution Plan’. The intention of the legislature shows that the Promoters of ‘MSME’ should be encouraged to pay back the amount with the satisfaction of the 'Committee of Creditors' to regain the control of the 'Corporate Debtor’ and entrepreneurship by filing ‘Resolution Plan’ which is viable, feasible and fulfils other criteria as laid down by the ‘Insolvency and Bankruptcy Board of India'.

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22. Therefore, we hold that in exceptional circumstances, if the 'Corporate Debtor' is MSME, it is not necessary for the Promoters to compete with other ‘Resolution Applicants’ to regain the control of the 'Corporate Debtor'.”

9. A reading of the aforesaid shows that it

begins with the fundamental principle that the

Court envisages maximization of value of assets of

the corporate debtor. Thereafter, it proceeds to

discuss the scenario of a corporate debtor, which

is an MSME, qua the ineligibility in terms of the

inapplicability of Section 29A (c) & (h) of the

Code to a promoter.

10. The discussion proceeds to the aspect of

Committee of Creditors (for short ‘CoCs’)

considering the feasibility, viability and such

other requirements as have been specified by the

Code and observes that if it proposes maximization

of assets as feasible, viable and fulfills all

requirements as specified by the Code, it is not

necessary for the CoCs to follow all the

procedures under the Corporate Insolvency

Resolution process. The example given thereafter

is, if a case has been settled before the

7 Constitution of a CoCs or in terms of Section 12A

of the Code on the basis of an offer given by the

promoter, in such a case, the procedure for

calling of applications of the resolution

applicants etc. are not followed and they would be

in a position to keep the concern as a going

concern and the CoCs would accept the terms of

settlement and approve it by 90%. This, as one may

say, is a special privilege for MSMEs. It is,

thereafter, in paragraph 22, penned down, that in

“exceptional circumstances” if a corporate debtor

is an MSME, it is not necessary for promoters to

compete with other resolution applicants to retain

control of the corporate debtor.

11. In the impugned judgment, it can hardly be

disputed that there is no discussion on the

special circumstances other than the reference to

judgment in Bafna’s case. The impugned judgment is

predicated on a broad reasoning as if ipso facto

there is no need to call other proposals if it is

an MSME. In view of the larger context it would

have, we clearly observe and hold that this is not

the correct position of law.

12. This is more so as in the factual scenario

8 of Bafna’s case, the observations were made in the

context of (a) before the constitution of CoCs or

(b) in terms of Section 12A of the Code on the

basis of an offer given by the promoter in such a

case.

13. This is to clarify the legal principles so

that there is no confusion in future in

appreciating the context of the observations made

in Bafna’s Case.

14. We are, thus, clearly of the view that the

appellant cannot be faulted for calling for other

proposals in which the proposal given by

respondent No.1 was also to be examined, put them

to voting before the CoCs and declare the results.

15. To that extent, the impugned order is set

aside.

16. Needless to say all proceedings emanating

from the premise of the aforesaid observations in

paragraph Nos. 32 and 34, whether in the contempt

proceedings or any other proceedings would

dissolve and be set aside.

17. We could have put an end to the matter by

the aforesaid order but having been persuaded by

learned counsel for the respondent No.1 to give

9 some hiatus time to the said respondent on account

of the fact that he has submitted an OTS (One Time

Settlement) proposal to the financial creditors

and are hopeful of the acceptance of the same. It

is also his say that the flat buyers are also on

board but are only 15% of the CoCs.

18. We are inclined to give that chance to the

respondent No.1 in the given facts of the case but

would not like the proceedings to drag on under

the pretext of the OTS given by the respondent

No.1., as it would be the objective of the Court

to have a quick resolution with the aspect of

insolvency or revival. On our query, learned

counsel submits, on instructions, that a two

months window may be granted to persuade the

financial creditors.

19. We are inclined to accept the request,

making it clear that in case the financial

creditors are not inclined to do so, if any

further proceedings are initiated by the

respondent(s) in that behalf, that would not

impede the process to be dragged on by the

respondent No.1. It is a one time window given to

the respondent No.1. This is also as according to

10 the learned counsel for respondent No.1. if the

financial creditors accept the proposal and the

flat buyers are involved, the process started

would itself dissolve.

20. In view of the aforesaid terms while

enunciating the legal proposition, we, thus, allow

the appeal and set aside paragraph Nos.32 and 34

of the impugned judgment.

21. Needless to say that beyond the window of

two months, if the OTS is not accepted, the

appellant will be free to declare the results of

the e-voting qua all the proposals.

22. The appeal stands allowed leaving parties

to bear their own costs.

………………………………………………………J. (SANJAY KISHAN KAUL)

………………………………………………………J. (SUDHANSHU DHULIA)

NEW DELHI;

September 13, 2023

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