NCLT orders liquidation of Overnite Express; rejects resolution plan by ex-promoters
The National Company Law Tribunal (NCLT) has ordered liquidation of Overnite Express, a courier company, after the adjudicating authority thwarted the move of the promoter to get the control of the company back.
The NCLT rejected the resolution plan submitted by Om Prakash Raj Ghoria, who is a member of the suspended board of the Overnite Express, claiming that the company falls under the MSME category in terms of the Central Government’s notification dated 01 June 2020.
The resolution plan approved by the CoC provided for Rs 3.25 crore against Rs 10.82 crore total admitted claims of the Secured Financial Creditors. Deutsche Bank, which is one of the financial creditors, had moved NCLT against the resolution plan claiming that its total is Rs.6 crore and the valuation of the security held by it is valued at more than Rs.12 crore.
The NCLT rejected the resolution plan on the ground that the date of registration of Overnite Express as an MSME was 5 June, 2020, which is after CIRP admission order dated 29th March 2020.
The NCLT further noted that the application for registration of MSME by the resolution professional – Devendra Umrao — was without authorization, being subsequent to initiation of CIRP and hence was invalid. Therefore, the Overnite Express is ineligible to take the benefits of section 240A under I&B Code.
Section 240A of the IBC lays down the CIRP rules for Micro, Small and Medium Enterprises.
“We find that an MSME Certificate obtained by Promoter(s)/Ex-Director(s) post-commencement of the CIRP is invalid and it will not make them eligible to submit an EOI or the Resolution Plan by taking benefit of Section 240A of IBC 2016,” reads the NCLT order.
The tribunal also delve into the question whether the resolution professional or Committee of Creditors (CoC) could obtain MSME certification on behalf of a corporate debtor.
The NCLT observed that an RP or CoC can obtain MSME certificate for a corporate debtor if it is for the purpose of availing the business advantages available under the MSME Act, 2006 such as – to avail preference in the marketing of its product, price preference, or benefit in the payment terms, which are in the overall interest of maximizing the value of assets of the Corporate Debtor under CIRP, which is a going concern.
But in the Overnite Express case, the NCLT noted that the RP/CoC by obtaining an MSME Certificate on their initiative, opened the doors, that were otherwise shut, to the defaulter promoter(s)/ suspended board of director(s)/ Ex-management just to enable them to submit EOI/Resolution Plan to regain entry and control/management over the Corporate Debtor through the backdoor.
Therefore, it said resolution applicant was not eligible to submit the resolution plan under Section 29A read with Section 240A since the date when application for submitting EOI was issued, he was not eligible.
The tribunal ordered the liquidation of the corporate debtor as the period of more than 330 days of the CIRP had already elapsed.
The insolvency application against Overnite Express was filed by Hi-Tech Resource Management Limited after the former defaulted on a payment of Rs 75 lakh.
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