Wilful Defaulters including MSMEs, ineligible to submit Resolution Plans


A resolution applicant identified as a wilful defaulter at the time of submitting the resolution plan will be deemed ineligible. A suspended director, already declared as a wilful defaulter, is ineligible to submit a resolution plan.

Namdev Hindurao Patil vs. Virendra Kumar Jain, Liquidator, Warana Dairy and Agro Industries Ltd. and Ors., Comp. App. (AT) (Ins) No. 858 of 2023

Technical Details:

1) The Committee of Creditors (“CoC”) in its commercial wisdom rejected the resolution plan submitted by the suspended director of the corporate debtor (“CD”) being a wilful defaulter.

2) The suspended director of the CD challenged the commercial wisdom of the CoC before the Adjudicating Authority (“AA”) and aggrieved by the order of the AA approached the NCLAT.

3) The NCLAT while upholding the commercial wisdom of the CoC has observed that the:

(a) Objective of Section 29A of Insolvency and Bankruptcy Code, 2016 (“IBC”) is to prevent unscrupulous persons, such as wilful defaulters, from regaining control of the corporate debtor to the detriment of creditors and the insolvency resolution process.

(b) Even MSMEs are ineligible to participate in the resolution process if they are declared wilful defaulters.

(c) The relevant date for determining eligibility under Section 29A of the IBC is the date of submission of the resolution plan.

JC Key Takeaways:

1) Individuals deemed wilful defaulters according to Reserve Bank of India (RBI) guidelines are automatically disqualified from submitting a resolution plan under Section 29A of the IBC, regardless of their financial standing.

2) While MSMEs are exempted from certain clauses of Section 29A of IBC, this exemption does not apply if they are declared as wilful defaulters as pursuant to the RBI guidelines.

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