Super Ltd. is engaged in the business of producing auto ancillary products and has a plant near Mumbai. As per the latest audited financial statements the turnover of Super Ltd. was ₹200 crore and investment in plant and

CS Professional · Insolvency - Law and Practice · PYQS · June 2023
Super Ltd. is engaged in the business of producing auto ancillary products and has a plant near Mumbai. As per the latest audited financial statements the turnover of Super Ltd. was ₹200 crore and investment in plant and machinery was ₹35 crore. Turnover and investment in plant and machinery never crossed ₹200 crore and ₹35 crore respectively. Due to reduction in the demand of the products by the auto companies, Super Ltd. started facing financial difficulties. It evaluated many options for rescuing the business and discussed on multiple occasions with the lenders. In one of the consortium meeting, lenders decided to take action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). During the said meeting one of the lenders holding 30% share in the consortium suggested that in the present circumstances it would be apt to proceed under the provisions of the Insolvency and Bankruptcy Code, 2016 (the Code) since the Code is one of the effective tools for resolution of the debt. However, due to the difference in opinion amongst the lenders few of them decided to move ahead under the SARFAESI and others decided to file an application under the Code. Legal counsel of Super Ltd. intervened and informed that once proceedings are initiated under both the laws, SARFAESI being an old law will prevail and the lenders may be in a position to quickly recover their outstanding dues. Considering the circumstances, Rohan, promoter of Super Ltd. suggested to provide one last chance to Super Ltd. to submit a resolution plan for its revival and requested the lenders to consider the Pre-Packaged Insolvency Resolution Process. Rohan is now fully active in the business and making all possible attempts for revival of Super Ltd. and Duper Ltd. (wholly owned subsidiary of Super Ltd.) which is also classified as non-performing asset for last 5 years. On the option given by Rohan, one of the lenders informed that law relating to Pre-Packaged Insolvency Resolution Process is still at a nascent stage and may take years to complete. In response, Rohan clarified that it may not take years, since the process of filing an application is very simple and no documents are required to be attached to the application. Therefore, the adjudicating authority will be in a position to quickly consider and dispose off the case. Consider the above facts and answer the following questions: (ii) Whether Super Ltd. is eligible for getting resolved under the provisions of Pre-Packaged Insolvency Resolution Process?

Answer & Explanation:

1. Eligibility as MSME for PPIRP (Section 54A of IBC): An application for initiating Pre-Packaged Insolvency Resolution Process (PPIRP) can be made in respect of a corporate debtor classified as a Micro, Small, or Medium Enterprise (MSME) under Section 7(1) of the Micro, Small and Medium Enterprises Development Act, 2006. The MSME thresholds are: Class Capital Investment in Plant and Machinery or Equipment (Crore) Cap in Turnover (Crore) Applicability of Pre-pack Micro Enterprise ₹1 ₹5 Yes Small Enterprise ₹10 ₹50 Yes Medium Enterprise ₹50 ₹250 Yes For Super Ltd.: Turnover: ₹200 crore (never crossed ₹200 crore) Investment in Plant and Machinery: ₹35 crore (never crossed ₹35 crore) Based on these figures, Super Ltd. qualifies as a Medium Enterprise (investment < ₹50 crore and turnover < ₹250 crore). Therefore, Super Ltd. meets the MSME criteria for PPIRP. 2. Eligibility under Section 29A of IBC: Without prejudice to the MSME classification, an application for PPIRP can be made only if the corporate debtor is eligible to submit a resolution plan under Section 29A of the IBC. Section 29A of the IBC specifies persons who are ineligible to submit a resolution plan. One key disqualification is if the person (or a corporate debtor under their management/control, or of whom such person is a promoter) has an account classified as a Non-Performing Asset (NPA) for at least one year from the date of such classification till the commencement of CIRP. In the given facts: Duper Ltd., a wholly-owned subsidiary of Super Ltd., is under the control of Rohan (promoter of Super Ltd.). Duper Ltd. is classified as a Non-Performing Asset (NPA) for the last 5 years. Since Duper Ltd. (a corporate debtor under the control of Rohan, the promoter of Super Ltd.) has been an NPA for more than one year, Super Ltd. (through its promoter Rohan) would be ineligible to submit a resolution plan under Section 29A. Conclusion: Although Super Ltd. qualifies as a Medium Enterprise, it is not eligible for the Pre-Packaged Insolvency Resolution Process because its promoter, Rohan, is disqualified under Section 29A due to Duper Ltd. (a controlled entity) being an NPA for over a year.

Topics: Pre-Packaged Insolvency Resolution Process (PPIRP)

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