Supreme Court clarifies law on MSME Registration during CIRP

The Supreme Court in Hari Babu Thota (read here) has ruled that a Corporate Debtor’s promoter can submit a resolution plan under the Insolvency and Bankruptcy Code, 2016 (Code) even if the Corporate Debtor obtains its Micro Small Medium Enterprise (MSME) registration after being admitted into Corporate Insolvency Resolution Process (CIRP). The Supreme Court overturned the National Company Law Appellate Tribunal’s (NCLAT) order which had declared the promoter ineligible on the ground that the MSME registration was obtained during CIRP.

The Supreme Court emphasized that Section 29A of the Code aims to prevent those responsible for the Corporate Debtor’s financial troubles from taking over the Corporate Debtor by submitting a resolution plan, but MSMEs are exempt from this provision due to the nature of their business. The Supreme Court’s judgment has effectively overruled the NCLAT judgment in Digamber Anand Rao Pingle v Shrikant Madanlal Zawar & Ors., which held that once CIRP is initiated, former promoter/director cannot tide over ineligibility under Section 29A of the Code by getting MSME registration.

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