Supreme Court Upholds NCLAT Decision: Co-operative Society's Resolution Plan Rejected, M/s. Nirmal Ujjwal Credit Co-Operative Society Ltd. found ineligible for investment in Morarji Textiles Ltd. under Section 64(d) of the Multi-State Cooperative Societies Act, 2002.
In a landmark decision, the Supreme Court of India upheld the National Company Law Appellate Tribunal's (NCLAT) ruling to reject the resolution plan submitted by M/s. Nirmal Ujjwal Credit Co-Operative Society Ltd. for the Corporate Insolvency Resolution Process (CIRP) of Morarji Textiles Ltd. The decision was pronounced by Justices J.B. Pardiwala and K.V. Viswanathan, confirming that the co-operative society did not meet the eligibility criteria under Section 64(d) of the Multi-State Cooperative Societies Act, 2002.
The appellant, M/s. Nirmal Ujjwal Credit Co-Operative Society Ltd., a co-operative society registered under the provisions of the Multi-State Cooperative Societies Act, 2002, operates a textile unit named "Nirmal Textile" in Nagpur. The society had submitted a resolution plan for a total of Rs. 120 Crores, which was later increased to Rs. 169 Crores. However, the NCLT, followed by the NCLAT, deemed the society ineligible to invest in Morarji Textiles Ltd., as the society's bye-laws did not align with the requirement of being "in the same line of business."
The Supreme Court's analysis focused on the interpretation of "same line of business" as stipulated in Section 64(d) of the Act. The Court emphasized that the determination must be based on the objects and functions contained in the society's bye-laws. It highlighted that the society's primary activities were financial services and member welfare, with limited engagement in agro-based processing activities, unlike the corporate debtor, which was involved in man-made fibre/viscose-based textiles.
Furthermore, the Court addressed the society's attempt to amend its bye-laws to incorporate the statutory language of Section 64(d) but clarified that such amendments did not alter the core business activities as per the existing object clause in the bye-laws. Thus, the society could not claim eligibility based on the amended Clause 52.
The Supreme Court's decision reiterates the importance of aligning investment activities of multi-state cooperative societies with their core business objectives, as outlined in their bye-laws, to prevent misuse of funds and ensure financial discipline.
Statutory provision(s):Section 64(d) of the Multi-State Cooperative Societies Act, 2002, Section 30(2)(e) of the Insolvency and Bankruptcy Code, 2016
