The Hon’ble Supreme Court of India (Supreme Court) in a recent judgment in the matter of Hari Babu Thota v. Shree Aashraya Infra-Con Ltd. settled that the benefit regarding the non-applicability of the disqualifications provided under section 29A of the Insolvency and Bankruptcy Code, 2016 (IBC) shall be available, even if, the Corporate Debtor had attained the status of a Micro, Small and Medium Enterprises (MSME) after the initiation of the Corporate Insolvency Resolution Process (CIRP).
While arriving at the said decision, the Supreme Court was of the view that the exceptions and disqualification as provided under the said sections are in place to promote the small-scale operations of MSME, and during the insolvency, other resolution applicants may not be as forthcoming, which thus would inevitably lead to liquidation, beating the core purpose of IBC.
Hence, to account the date of initiation of the CIRP as the cutoff date for the applicability of section 29A of the IBC would not apply in the case of Section 240A of the IBC. By way of the said judgment, the Supreme Court also overturned the law laid down by the National Company Law Appellate Tribunal’s (NCLAT) in Digamber Anand Rao Pingle v. Shrikant Madanlal Zawar and held that the same is not the correct position in law.
The Supreme Court has sought to adopt a liberal approach in extending the benefit of section 240A of the IBC qua the disqualification mentioned under section 29A (c) and (h) of the IBC. The consequence of same would strengthen the existence of MSMEs in the Indian economy.