R. RAGHAVENDRANversusC. RAJA JOHN & ORS.

                  [2023] 14 S.C.R. 719 : 2023 INSC 849



                            CASE DETAILS

                         R. RAGHAVENDRAN
                                      v.
                         C. RAJA JOHN & ORS.
                       (Civil Appeal No. 2552/2022)
                          SEPTEMBER 13, 2023
  [SANJAY KISHAN KAUL AND SUDHANSHU DHULIA, JJ.]

                              HEADNOTES

      Issue for consideration: Whether the observations made by NCLAT
in the impugned judgment, in the context of the judgment of the Tribunal
in Saravana Global Holdings Ltd. & Anr. Vs. Bafna Pharmaceuticals Ltd.
& Ors., that if the Corporate Debtor is an MSME it is not necessary for the
Promoters to compete with other Resolution Applicants to regain the control
of the Corporate Debtor, can be sustained or not in the conspectus of the
observations in the Bafna’s case, the appeal where against was dismissed
by the Supreme Court.
      Insolvency and Bankruptcy Code, 2016 – Corporate debtor, an
MSME – Impugned judgment in view of the observations made in
Bafna’s case observed that if a corporate debtor is an MSME it is not
necessary for promoters to compete with other resolution applicants
to retain control of the corporate debtor – Legality:
      Held: In the factual scenario of Bafna’s case, the observations that
in “exceptional circumstances” if a corporate debtor is an MSME it is not
necessary for promoters to compete with other resolution applicants to retain
control of the corporate debtor, were made in the context of (a) before the
constitution of CoCs or (b) in terms of s.12A of the Code on the basis of
an offer given by the promoter in such a case – In the impugned judgment,
there is no discussion on the special circumstances other than the reference
to judgment in Bafna’s case – It is predicated on a broad reasoning as if ipso
facto there is no need to call other proposals if corporate debtor is an MSME
– This is not the correct position of law – Further, all that was done by this
                                     719
720          SUPREME COURT REPORTS                          [2023] 14 S.C.R.


Court in Saravana Global Holdings Ltd. & Anr. Vs. Bafna Pharmaceuticals
Ltd. & Ors. was to simply uphold the order of the Tribunal by observing
that no case for interference is made out, nothing more and nothing less – In
the present case, the appellant-Resolution Professional cannot be faulted for
calling for other proposals in which the proposal given by respondent No.1-
Promoter of the MSME was also to be examined, put them to voting before
the CoCs and declare the results – To that extent, the impugned order is set
aside – Contempt proceedings or any other proceedings emanating from the
premise of the observations in paragraph Nos. 32 and 34 in the impugned
judgment set aside – Further, on request, a one time window given to the
respondent No.1 on account of the fact that he has submitted an OTS (One
Time Settlement) proposal to the financial creditors and are hopeful of the
acceptance of the same – Beyond the window of two months, if the OTS is
not accepted, the appellant will be free to declare the results of the e-voting
qua all the proposals. [Paras 7, 11, 14-17, 21]
       LIST OF CITATIONS AND OTHER REFERENCES
     Kunhayammed & Ors vs State Of Kerala & Anr. (2000) 6 SCC 359:
[2000] 1 Suppl. SCR 538 – referred to.
     Saravana Global Holdings Ltd. & Anr. Vs. Bafna Pharmaceuticals
Ltd. & Ors Company Appeal (AT) (Insol.) No. 203 of 2019 – referred to.
       OTHER CASE DETAILS INCLUDING IMPUGNED
              ORDER AND APPEARANCES
      CIVIL APPELLATE JURISDICTION : Civil Appeal No.2552 of 2022.
     From the Judgment and Order dated 01.12.2021 of the National
Company Law Appellate Tribunal, Chennai in Company Appeal (AT) (CH)
(INS) No.207 of 2021.
      Appearances:
     Aditya Madaan, G. P. Madaan, Deep Bisht, Ms. Aishwarya Adhlaka,
Ashish Makhija, Sumit Kumar, Advs. for the Appellant.
    Jayant Mehta, Sr. Adv., Goutham Shivshankar, Ms. Nikita Sethi, Sudhir
Naagar, Gautam Singhal, Vikrant Mehta, Advs. for the Respondents.
        R. RAGHAVENDRAN v. C. RAJA JOHN & ORS.                             721



       JUDGMENT / ORDER OF THE SUPREME COURT

                               JUDGMENT

     SANJAY KISHAN KAUL, J.
      1. The present appeal has been preferred against the impugned
judgment of NCLAT dated 01.12.2021 on a limited aspect. It is not
necessary for us to delve into all the factual scenario which gave rise to these
proceedings. Suffice to say that there is no controversy before us that the
respondent No.1 is the promoter of the Micro, Small & Medium Enterprises
(for short ‘MSME’) -Springfield Shelters Pvt. Ltd. The proceedings against
the said entity are pending under the Insolvency and Bankruptcy Code, 2016
(for short “the Code”) initiated on 12.2.2020 and the appellant before us is
the Resolution Professional.
      2. It is sufficient to note that the NCLAT had put a question mark on
the status of the entity as MSME on account of the certificate being procured
after the process had began but in appeal as per the impugned order, the
factual finding is that it was an MSME before the process began and thus
the benefit of the MSME Act would be available to the said entity.
      3. We may also note that the plan submitted by the respondent No.1
was held by the NCLT to be ineligible for consideration on account of the
status of the respondent No.1 as a promoter as the entity was not an MSME
and thus incurred the disqualification under Section 29(A)(e) of the said
Code and an exception for MSME would not be carved out in the facts of
the present case. However, on the finding being reached by the NCLAT
that the entity is an MSME and had that status prior to the proceedings, the
scenario changed and there is no quibble with the proposition. The plan
submitted by respondent No.1 is liable to be considered. It is in pursuance
of the aforesaid position that the Resolution Professional sought to act.
      4. The reason why the Resolution Professional has come up before
this Court is that the respondent No.1 filed a contempt proceeding before
the NCLAT alleging that the Resolution Professional was not acting in terms
of the order dated 01.12.2021. This was in view of the observations made
in paragraph Nos.32 & 34 of the impugned order which read as under:-
722          SUPREME COURT REPORTS                         [2023] 14 S.C.R.


      “32) In any event, it is unequivocal that the Corporate Debtor is an
      MSME and as held by this Tribunal that it is not necessary for the
      Promoters to compete with other Resolution Applicants to regain the
      control of the Corporate Debtor.
      34) Further, this Tribunal, keeping in view of the object of the Code
      that the Maximization of the Value of the Assets of Corporate Debtor
      is to be kept in mind in achieving its object. To give an opportunity to
      regain the control of the Corporate Debtor, the Management/Promoters/
      Erstwhile Directors of the Corporate Debtor being an MSME, not
      necessary to compete with other Resolution Applicants.”
       5. The aforesaid observations have been made in the context of the
judgment of the Tribunal in Company Appeal (AT) (Insol.) No. 203 of 2019
titled as “Saravana Global Holdings Ltd. & Anr. Vs. Bafna Pharmaceuticals
Ltd. & Ors.”.
      6. The appellant sought to invite other plans and thereafter e-voting
took place. On the anvil of the results of e-voting to be declared, contempt
proceedings were filed by respondent No.1 and the result of the e-voting
process was stayed. The real controversy thus is whether the observations
made in the paragraph Nos.32 and 34 of the impugned judgment can be
sustained or not in the conspectus of the observations in Bafna’s case (Supra)
which is stated to have received imprimatur of this Court by the following
order:-
      “1. No case is made out so as to interfere with the impugned order
      passed by the Tribunal. The appeal is, accordingly, dismissed.
      2. Pending application(s), if any, shall stands disposed of.”
       7. We have been taken through the judgment in Bafna’s case (supra).
It is the say of learned counsel for respondent No.1 that in view of the order
of this Court in C.A. No.5344 of 2019, extracted aforesaid, the principles
of merger of the order as enunciated in “Kunhayammed & Ors vs State Of
Kerala & Anr.”reported as (2000)6 SCC 359 would apply. In this behalf,
we may observe that all that has been done by this Court vide order dated
15.7.2019 is to simply uphold the order of the Tribunal by observing that
no case for interference is made out-nothing more and nothing less.
         R. RAGHAVENDRAN v. C. RAJA JOHN & ORS.                           723
                [SANJAY KISHAN KAUL, J.]

      8. We, thus, turn to the relevant portion of the judgment in Bafna’s
case passed by the Tribunal as to really appreciate the context in which the
observations were made in paragraph 22 of that judgment, it is necessary
to see how that judgment proceeded from paragraph 18 to 22;
     “18. Therefore, it is clear that ‘I&B Code’ envisages maximization of
     value of the assets of the ‘Corporate Debtor’ so that they are efficiently
     run as going concerns and in turn, will promote entrepreneurship. The
     preamble does not, in any manner, refer to liquidation, which is only
     availed of as a last resort if there is either no ‘Resolution Plan’ or the
     ‘Resolution Plan’s submitted are not up to the mark.
     19. Admittedly, the ‘Corporate Debtor’ is a ‘MSME’ and the promoters
     are not ineligible in terms of Section 29A of the ‘I&B Code’. Therefore,
     it is not necessary for the ‘Committee of Creditors’ to find out whether
     the ‘Resolution Applicant’ is ineligible in terms of Section 29A or not.
     20. The ‘Committee of Creditors’ is to consider the feasibility, viability
     and such other requirements as has been specified by the Board. If it
     proposes maximisation of the assets and is found to be feasible, viable
     and fulfil all other requirements as specified by the Board, the company
     being MSME, it is not necessary for the ‘Committee of Creditors’ to
     follow all the procedures under the ‘Corporate Insolvency Resolution
     Process’. For example, if case is settled before, the constitution of the
     ‘Committee of Creditors’ or in terms of Section 12A on the basis of
     offer given by Promoter, in such case, all other procedure for calling
     of application of ‘Resolution Applicant’ etc. are not followed. If
     the Promoter satisfy all the creditors and is in a position to keep the
     ‘Corporate Debtor’ as a going concern, it is always open to ‘Committee
     of Creditors’ to accept the terms of settlement and approve it by 90%
     of the voting shares. The same principle can be followed in the case
     of MSME.
     21. The Parliament with specific intention amended the provisions
     of the ‘I&B Code’ by allowing the Promoters of ‘MSME’ to file
     ‘Resolution Plan’. The intention of the legislature shows that the
     Promoters of ‘MSME’ should be encouraged to pay back the amount
     with the satisfaction of the ‘Committee of Creditors’ to regain the
     control of the ‘Corporate Debtor’ and entrepreneurship by filing
724           SUPREME COURT REPORTS                         [2023] 14 S.C.R.


      ‘Resolution Plan’ which is viable, feasible and fulfils other criteria as
      laid down by the ‘Insolvency and Bankruptcy Board of India’.
      22. Therefore, we hold that in exceptional circumstances, if the
      ‘Corporate Debtor’ is MSME, it is not necessary for the Promoters to
      compete with other ‘Resolution Applicants’ to regain the control of
      the ‘Corporate Debtor’.”
     9. A reading of the aforesaid shows that it begins with the fundamental
principle that the Court envisages maximization of value of assets of the
corporate debtor. Thereafter, it proceeds to discuss the scenario of a corporate
debtor, which is an MSME, qua the ineligibility in terms of the inapplicability
of Section 29A (c) & (h) of the Code to a promoter.
      10. The discussion proceeds to the aspect of Committee of Creditors
(for short ‘CoCs’) considering the feasibility, viability and such other
requirements as have been specified by the Code and observes that if
it proposes maximization of assets as feasible, viable and fulfills all
requirements as specified by the Code, it is not necessary for the CoCs
to follow all the procedures under the Corporate Insolvency Resolution
process. The example given thereafter is, if a case has been settled before the
Constitution of a CoCs or in terms of Section 12A of the Code on the basis
of an offer given by the promoter, in such a case, the procedure for calling
of applications of the resolution applicants etc. are not followed and they
would be in a position to keep the concern as a going concern and the CoCs
would accept the terms of settlement and approve it by 90%. This, as one
may say, is a special privilege for MSMEs. It is, thereafter, in paragraph 22,
penned down, that in “exceptional circumstances” if a corporate debtor is an
MSME, it is not necessary for promoters to compete with other resolution
applicants to retain control of the corporate debtor.
      11. In the impugned judgment, it can hardly be disputed that there
is no discussion on the special circumstances other than the reference to
judgment in Bafna’s case. The impugned judgment is predicated on a broad
reasoning as if ipso facto there is no need to call other proposals if it is an
MSME. In view of the larger context it would have, we clearly observe and
hold that this is not the correct position of law.
     12. This is more so as in the factual scenario of Bafna’s case, the
observations were made in the context of (a) before the constitution of CoCs
          R. RAGHAVENDRAN v. C. RAJA JOHN & ORS.                             725
                 [SANJAY KISHAN KAUL, J.]

or (b) in terms of Section 12A of the Code on the basis of an offer given by
the promoter in such a case.
      13. This is to clarify the legal principles so that there is no confusion in
future in appreciating the context of the observations made in Bafna’s Case.
      14. We are, thus, clearly of the view that the appellant cannot be faulted
for calling for other proposals in which the proposal given by respondent
No.1 was also to be examined, put them to voting before the CoCs and
declare the results.
      15. To that extent, the impugned order is set aside.
     16. Needless to say all proceedings emanating from the premise of the
aforesaid observations in paragraph Nos. 32 and 34, whether in the contempt
proceedings or any other proceedings would dissolve and be set aside.
     17. We could have put an end to the matter by the aforesaid order but
having been persuaded by learned counsel for the respondent No.1 to give
some hiatus time to the said respondent on account of the fact that he has
submitted an OTS (One Time Settlement) proposal to the financial creditors
and are hopeful of the acceptance of the same. It is also his say that the flat
buyers are also on board but are only 15% of the CoCs.
      18. We are inclined to give that chance to the respondent No.1 in the
given facts of the case but would not like the proceedings to drag on under
the pretext of the OTS given by the respondent No.1., as it would be the
objective of the Court to have a quick resolution with the aspect of insolvency
or revival. On our query, learned counsel submits, on instructions, that a
two months window may be granted to persuade the financial creditors.
      19. We are inclined to accept the request, making it clear that in case
the financial creditors are not inclined to do so, if any further proceedings
are initiated by the respondent(s) in that behalf, that would not impede the
process to be dragged on by the respondent No.1. It is a one time window
given to the respondent No.1. This is also as according to the learned counsel
for respondent No.1. if the financial creditors accept the proposal and the
flat buyers are involved, the process started would itself dissolve.
     20. In view of the aforesaid terms while enunciating the legal
proposition, we, thus, allow the appeal and set aside paragraph Nos.32 and
34 of the impugned judgment.
726            SUPREME COURT REPORTS                      [2023] 14 S.C.R.


     21. Needless to say that beyond the window of two months, if the
OTS is not accepted, the appellant will be free to declare the results of the
e-voting qua all the proposals.
      22. The appeal stands allowed leaving parties to bear their own costs.

Headnotes prepared by:                                          Appeal allowed.
Divya Pandey