ONE PAGE 21 – In the matter of M/s Wig Associates Pvt Ltd

ONE PAGE 21 – In the matter of M/s Wig Associates Pvt Ltd
Can OTS be converted to Rplan & is Sec 29A retrospective?
Court:  NCLT Mum & NCLAT Delhi Bench AT# 121/2019 Dt 04.06.2021

1. Facts of the Case/ List of Dates:

1. 1. 28.08.2017: Sec 10 application admitted by NCLAT
   2. 23.11.2017: Ordinance of 29A (Persons not eligible to be RAs) was enacted
   3. 27.03.2018: BOB (COC) approved the OTS offered by Wig (& even paid 108 lacs)
   4. 05.04.2018: COC asked RP to explore the possibility of treating OTS as Rplan.
   5. 20.04.2018: COC approved the Rplan submitted by Wig
   6. 04.06.2018: NCLT approved Rplan (offered as OTS) submitted by Wig
   7. 06.06.2018: 240A (Application of Code to MSMEs) inserted in the Code.
   8. 29.06.2018: Wig paid Rs.3.55 Cr to FC and other unsecured Creditors.
   9. 21.04.2021: CD got MSME certificate

RP is the Appellant, CD, COC & IBBI are R1, R2 & R3 respectively Initially IBBI went for appeal, as it strongly opposed the process of approving the Rplan offered as OTS by Wig (Personal Guarantor to CD) who is ineligible u/s29A. NCLAT holding that IBBI has no Locus standi, directed it to ask RP to file the appeal. Later RP filed this appeal after IBBI acted against him.

2. Case Laws:

a. Arcelormittal India P Ltd Vs Satish Kumar Gupta (2019-SC): Ineligibility u/s 29A attaches at the time when the Rplan is submitted by Resolution Applicant.

b. Swiss Ribbons Vs UOI (2019-SC):  Upheld the insertion of Section 29A with retrospective effect.

3. Arguments & Decision by NCLAT

a. According to NCLT, although Wig would fall under category of connected persons u/s 29A, it does not apply to him because 29A applies only to those cases that are admitted after 23.11.2017, but Sec 10 application was admitted on 24.08.2017.

b. According to CD, except Wig nobody offered EOI and COC considering the efforts of CD and Wig in resolving the matter, agreed to settle for a sum of Rs.3.55Cr which was paid immediately by Wig. Dues of other unsecured creditors were also cleared. It was argued that CD received MSME certificate on 21.04.2021 and thus Wig is entitled to file Rplan in view of Sec 240A of IBC and that acceptance of the Rplan was discretion of COC & cannot be interfered with.

c. But IBBI strongly opposed the process adopted by RP while conducting CIRP and approval of the Rplan by both COC and NCLT.

d. NCLAT held that OTS cannot be converted to Rplan. The action of approval of Rplan by COC on 04.05.2018 is mere formality. The subsequent introduction of 240A will not cure the ineligibility at the time of submitting OTS cum Rplan & RP erred in presenting the same before COC.

e. NCLAT allowed the appeal, quashed NCLT’s order approving the Rplan, rejected the Rplan by Wig and remitted the matter back to NCLT to pass orders for Liquidation of CD u/s33 of the Code.

–MS Mano Ranjani