Summary
The Supreme Court rejected an automatic exemption from competing resolution plans merely because the debtor is an MSME. Eligibility of its promoter’s plan was undisputed, but that did not entitle the promoter to exclude other proposals. NCLAT’s reliance on Bafna overlooked the exceptional settlement context of that ruling. The resolution professional properly invited and put competing plans to creditors’ vote. A final two-month opportunity was nevertheless allowed for the promoter’s one-time settlement proposal.
Issues
- Whether MSME status automatically entitled the promoter to consideration without competing resolution applicants.
- Whether the resolution professional could invite other plans and declare the voting results.
Provisions considered
- Section 12A, Insolvency and Bankruptcy Code, 2016The Court distinguished exceptional settlement situations, including withdrawal on a promoter’s offer with the requisite creditor approval, from a general entitlement of every MSME promoter to exclude competing plans. (¶¶ 8, 9, 10, 11, 12, 13, 14)
Held
- The debtor’s pre-existing MSME status and resulting eligibility of the promoter’s plan were not disputed in this appeal. The limited issue was whether that status also removed the need to consider other proposals. (¶¶ 1, 2, 3, 4, 6)
- Bafna referred to exceptional circumstances, including settlement before constitution of the creditors’ committee or under Section 12A. Its observations could not be converted into a general rule that MSME status alone excludes competition; value maximisation, feasibility and viability remain central. (¶¶ 7, 8, 9, 10, 11, 12, 13)
- The resolution professional could invite competing proposals, include the promoter’s plan in creditor consideration, conduct voting and declare results. Proceedings founded on NCLAT’s contrary paragraphs, including contempt proceedings, could not survive. (¶¶ 14, 15, 16, 20)
- A one-time two-month window was granted to pursue acceptance of the promoter’s settlement proposal. If it was not accepted, the resolution professional could declare all e-voting results; further proceedings over the proposal were not to prolong the process. (¶¶ 17, 18, 19, 21)
Result
Appeal allowed with parties bearing their own costs. NCLAT paragraphs 32 and 34 and proceedings based on them set aside. Promoter granted a final two-month settlement window, failing which voting results could be declared.