Case: – Hari Babu Thota v/s Shree Aashraya Infra-Con Limited.; Civil Appeal No.4422 of 2023
In a significant ruling, the Supreme Court of India, in the above-mentioned case, has provided clarity on the crucial issue of the cut-off date for determining the eligibility of a resolution applicant under Section 29A of the Insolvency and Bankruptcy Code, 2016.
The appellant, appointed as the Resolution Professional for Shree Aashraya Infra-Con Limited, faced disqualification challenges after the National Company Law Tribunal, Bengaluru, dismissed the resolution plan presented by the appellant. The dismissal was based on the contention that the promoters, who formulated the plan, were ineligible.
The Supreme Court clarified that, contrary to the interpretation in a previous case (Digamber Anand Rao Pingle vs. Shrikant Madanlal Zawar), the relevant cut-off date for determining eligibility under Section 29A is the date of submission of the resolution plan, not the initiation of the Corporate Insolvency Resolution Process (CIRP).
The Court emphasized the importance of Section 240A, which exempts micro, small, and medium enterprises (MSMEs) from certain disqualifications under Section 29A. The exemption applies specifically to clauses (c) and (h) of Section 29A, ensuring that the disqualification criteria do not hinder the resolution process for MSMEs.
The judgment highlighted the legislative intent behind Section 240A, emphasizing the need to protect MSMEs from liquidation. The Court noted that the exemption recognizes the unique challenges faced by MSMEs and aims to encourage the participation of promoters who are not wilful defaulters.
The Court acknowledged that even if the corporate debtor’s account was classified as a non-performing asset (NPA), the defect could be cured by making payment before the submission of the resolution plan, in line with proviso (1) of Section 29A(c).
The Supreme Court’s ruling brings clarity to the cut-off date for determining eligibility under Section 29A, ensuring a fair and consistent approach in insolvency proceedings. The judgment underscores the protective measures in place for MSMEs and emphasizes the importance of encouraging resolution rather than liquidation.


Author of this article:

Adv. Ravish Bhatt,
Partner, R&D Law Chambers,
Dual Qualified Lawyer Solicitor | International Tax Affiliate

Connect with Mr. Bhatt on Linkedin: https://www.linkedin.com/in/adit-ravishbhatt/

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