Paragraph numbers below are the court’s original numbering, recovered from the source text.
16. Under the heading “exemption of Micro, Small and Medium Enterprises from Section 29-A” the discussion begins. It is referred to the ILC report of March, 2018 and its fi nding that Micro, Small and Medium Enterprises form the foundation of the economy and are key drivers of employment, production, economic growth, entrepreneurship and fi nancial inclusion. The ILC report 2018 exempted these industries from Section 29-A (c) and (h) and the rationale for the same was contained in para 27.4 of the report which reads as under: “27.4 Regarding the fi rst issue, the Code is clear that default of INR one lakh or above triggers the right of a fi nancial creditor or an HARI BABU THOTA [SANJAY KISHAN KAUL, J.] operational creditor to fi le for insolvency. Thus, the fi nancial creditor or operational creditors of MSMEs may take it to insolvency under the Code. However, given that MSMEs are the bedrock of the Indian economy, and the intent is not to push them into liquidation and aff ect the livelihood of employees and workers of MSMEs, the Committee sought it fi t to explicitly grant exemptions to corporate debtors which are MSMEs by permitting a promoter who is not a wilful defaulter, to bid for the MSME in insolvency. The rationale for this relaxation is that a business of an MSME attracts interest primarily from a promoter of an MSME and may not be of interest to other resolution applicants.”
17. The aforesaid thus, makes it clear as opined in the said judgments also, that excluding such industries from disqualifi cation under 29A (c) and (h) is because qua such industries other resolution applicants may not be forthcoming which thus would inevitably lead not to resolution but to liquidation.
18. We may also note that in para 93 of this very judgment the challenge to Section 29A was repelled and the statement of the then Finance Minister while moving the amendment Bill was extracted. The said statement reads as under: 93. ××× ××× ……….“The core and the soul of this new Ordinance is really clause 5, which is Section 29-A of the original Bill. I may just explain that once a company goes into the resolution process, then applications would be invited with regard to the potential resolution proposals as far as the company is concerned or the enterprise is concerned. Now a number of ineligibility clauses were not there in the original Act, and, therefore, Clause 29-A introduces those who are not eligible to apply. For instance, there is a clause with regard to an undischarged insolvent who is not eligible to apply: a person who has been disqualifi ed under the Companies Act to act as a Director cannot apply: and a person who is prohibited under the SEBI Act cannot apply. So these are statutory disqualifi cations. And, there is also a disqualifi cation in clause (c) with regard to those who are corporate debtors and who, as on the date of the application making a bid, do not operationalize the account by paying the interest itself i.e. you cannot say that I have an NPA. I am not making the account operational. The accounts will continue to be NPAs and yet I am going to apply for this. Eff ectively, this clause will mean that those, who are in management and on account of whom this insolvent or the non-performing asset has arisen, will not try and say, I do not discharge any of the outstanding debts in terms of making the accounts operational, and yet I would like to apply and get the same enterprise back at a discounted value, for this is not the object of this particular Act itself. So Clause 5 has been brought in with that purpose in mind.” (emphasis supplied)
19. The aforesaid statement, while giving the objective of interpretation of Section 29A and referring to the disqualifi cation in Clause (c), is in regard to those who are corporate debtor and provides the cut off “as on date of the application making a bid”.
20. The common submission thus, is that while interpreting Section 240A, the reason for carving out an exception in micro, small and medium industries is set out on the date of application for making the bid as the crucial date. The submission is that while for some other aspects the initiation of the CIRP proceedings would be the cut off date, the same would not apply in the case of Section 240A, in view of the statement by the Minister themselves while introducing the amendment Bill.
21. We are inclined to accept the aforesaid plea as it is quite obvious that while seeking to protect this category of industries, the disqualifi cation is not to be incurred, especially in view of the “notwithstanding clause”.
22. We certainly can look to the statement of the Minister for purposes of a cut off date that “there is no other specifi c provision providing for cut off date” which submits that it should be the date of application of making a bid. Thus, to opine that it is the initiation of the CIRP proceedings which is the relevant date, cannot be said to refl ect the correct legal view and thus, we are constrained to observe that the law laid down in Digambar Anand Rao Pigle (supra) case by the Tribunal is not the correct position in law and the cut off date will be the date of submission of resolution plan.
23. Thus, even on this count, the plan submitted in question will not incur the disqualifi cation. We may also note that the aforesaid intent is HARI BABU THOTA [SANJAY KISHAN KAUL, J.] refl ected in the statutory provision itself that in Section 29A (c) which begins with “at the time of submission of the resolution plan”.
24. It is also pointed out that even if it was an NPA, the defect can be cured as set out in proviso (1) before submission of the plan, making the submission of the plan the crucial date.
25. We are thus, setting aside the impugned orders of the NCLT dated 28.02.2023 and NCLAT dated 02.06.2023 and allow the appeal leaving parties to bear their own costs.
26. We appreciate the assistance rendered by Mr. Bishwajit Dubey, learned Amicus.
27. As a sequiter, IA No.192/2022 in C.P. (IB) No.196/BB/2020 before the Adjudicating Authority would stand restored to National Company Law Tribunal for reconsideration.
28. Needless to say any consequential action in pursuance to the impugned order taken by the IBBI against the appellant will not survive. IA No.230784/2023 for Intervention In view of the view we have taken in the appeal, the application stands disposed of. Headnotes prepared by: Appeal allowed. Divya Pandey