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IBC: COC not required to follow all procedures in case of MSME

In Saravana Global Holdings Ltd. & Anr. Vs. Bafna Pharmaceuticals Ltd. & Ors, the appellants claimed that they were interested to submit their Resolution Plan but no opportunity was given to them to file the same and that the the Resolution Plan was approved by the COC and allowed by the NCLT without complying the mandatory provisions of the Code. 

The NCLAT held that  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 ‘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.

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’.

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’.

Subsequently, the Supreme Court approved the decision of the NCLAT.

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