The National Company Law Tribunal (Bengaluru Bench) has ruled that MSME promoter cannot be excluded under Section 29A(b) IBC merely because companies where he serves as director appear in wilful-defaulter records, and personal classification as a wilful defaulter must be established. The NCLT held that a person cannot be disqualified from submitting a resolution plan merely because a company in which he is a director has been categorized as a wilful defaulter. The applicant himself must be shown to be a wilful defaulter under RBI guidelines.
The Tribunal reiterated that promoters of MSME corporate debtors continue to enjoy exemption from Section 29A(c) and 29A(h), though not from Section 29A(b). The Bench found that the material on record only showed that M/s. Karnataka Cements Limited and M/s. Sri Chakra Financial Services were reflected in wilful-defaulter records and did not establish that Mr. V.V.S.R. Anjaneyulu Vattem had been personally classified as a wilful defaulter.
While acknowledging that MSME promoters do not receive immunity from Section 29A(b), the Tribunal held that the principle applies only where the applicant himself is a wilful defaulter. The respondents failed to establish such ineligibility in the present case. Accordingly, the Tribunal directed the Resolution Professional to include the applicant in the list of Prospective Resolution Applicants, subject to satisfaction of other eligibility requirements under the IBC and CIRP Regulations.
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Briefly, the case arose during the Corporate Insolvency Resolution Process (CIRP) of Mr. V.V.S.R. Anjaneyulu Vattem, the erstwhile promoter and suspended director of M/s. Sri Balaji Cement and Power Limited, an MSME company. He submitted an Expression of Interest (EOI) to participate as a Prospective Resolution Applicant (PRA) and proposed to submit a resolution plan jointly with M/s. Aikyam Stressed Assets Fund-I.
However, the Resolution Professional (RP) Mr. Gullapalli Kishore Babu excluded him from the final list of PRAs on the ground that his name appeared in records relating to wilful-defaulter companies, namely M/s. Karnataka Cements Limited and M/s. Sri Chakra Financial Services.
The applicant contended that he had never been declared a wilful defaulter in his personal capacity. He argued that the alleged wilful-defaulter entries related to companies where he was a director and that the validity of such classifications was disputed. He further relied on the MSME status of the corporate debtor and claimed the benefit of Section 240A of the Insolvency and Bankruptcy Code, 2016.
The RP and the Committee of Creditors (CoC) maintained that the applicant was ineligible under Section 29A(b) of the IBC because public records reflected wilful-defaulter status in respect of entities associated with him. They also argued that the CoC had no authority to relax statutory disqualifications under Section 29A.
The Division Bench comprising Sunil Kumar Aggarwal (Judicial Member) and Radhakrishna Sreepada (Technical Member) observed that Section 29A creates statutory disqualifications and each clause must be examined independently. It noted that under Section 240A of the IBC, promoters of MSME corporate debtors are exempted from the applicability of Section 29A(c) and Section 29A(h), though not from Section 29A(b).
The Tribunal found that the material placed before it did not show that the applicant himself had been classified as a wilful defaulter. The records only reflected that the companies in which he was a director were categorized as wilful defaulters. Merely being a director of a company appearing in wilful-defaulter records does not automatically make a person a wilful defaulter under Section 29A(b).
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The Bench emphasized that it is necessary to determine whether the individual himself has been classified as a wilful defaulter in accordance with RBI guidelines. In the absence of material establishing such personal classification, the disqualification under Section 29A(b) could not be invoked solely because companies associated with the applicant were appearing in the wilful-defaulters list.
The Tribunal also observed that while MSME status does not provide immunity from Section 29A(b), that principle would apply only where the applicant himself is a wilful defaulter. In the present case, the respondents failed to establish that factual requirement.
