In a landmark judgment, the Supreme Court has clarified the applicability of Sections 29A and 240A of the Insolvency and Bankruptcy Code (IBC), providing a significant boost to Micro, Small, and Medium Enterprises (MSMEs) facing insolvency.
The Court ruled that the eligibility for MSME promoters to submit resolution plans under Section 240A should be determined by the date of submission of the resolution plan, rather than the commencement of the Corporate Insolvency Resolution Process (CIRP). This decision overturns a previous ruling by the National Company Law Appellate Tribunal (NCLAT), which had barred MSME promoters from submitting plans if their MSME certification was obtained after the CIRP began.
This ruling supports the objective of protecting MSME businesses from harsh measures under Section 29A and ensures that viable businesses can survive and revive. The 2018 Insolvency Law Committee had recommended that non-wilful defaulter promoters be allowed to reclaim their businesses, fostering an environment conducive to revival and protecting employment.
In the case of Hari Babu Thota, the Supreme Court ruled that MSME promoters are eligible to participate in the resolution process as long as they obtain MSME certification before submitting their resolution plan. This judgment reinforces the IBC’s focus on corporate revival rather than liquidation, giving MSME promoters a chance to regain control of their businesses and navigate financial distress.
The ruling aligns with the broader goals of economic resilience and growth in India, emphasizing the importance of facilitating business recovery and preserving employment.
