The Supreme Court recently held that a person who is not eligible to submit a resolution plan under Section 29A of the Insolvency and Bankruptcy is restrained from proposing a scheme of compromise and arrangement under Section 230 of the Companies Act 2013.
Background of the Case
NCLAT pronounced a judgment in an appeal instituted by Jindal Steel and Power Limited, an unsecured creditor of the corporate debtor, Gujarat N RE Coke Limited. Arun Kumar, a promoter of GNCL, was aggrieved by the decision of the NCLAT, inter alia, on the ground that Section 230 of the Companies of 2013 does not place any restriction on any person for submission of a compromising scheme.
The IBC was amended by the Insolvency and Bankruptcy Code Amendment Act, 2018. Section 29A was inserted with a retrospective approach effective from November 23 2017, providing the list of persons who are not to be considered as resolution applicants.
Due to insertion of Section 29A, Mr. Arun Kumar was not applicable for the same. Simultaneously, an amendment was made in Regulation 2B implying that those who are not applicable to submit a resolution plan they are by virtue of Sub- section (1) of Regulation 2B are also not eligible to be party to a compromise under Section 230.
The same was also challenged in the Apex Court.
Observation of the Court
The Hon’ble Court observed that IBC liquidation scheme and Section 230 scheme is a “statutory continuum.” The Court observed that it is pertinent to note that there are three modes of executing revival under the provisions of IBC. The first mode is via CIRP process mentioned in the provisions of Chapter II of the IBC.
The second mode is where the corporate debtor or its business is sold with the purview of clauses (e) to (f) of Regulation 32. The third mode is when a revival is executed via Section 230 of the Companies Act 2013. The statutory scheme concerning the IBC and the legislative history of its linkage with Section 230 of the Act of 2013, pertaining to the company which is in liquidation, has important bearings in the present case, the Court observed.
"Moreover it was observed that Section 230 is not an independent provision with no connection with the provisions of IBC and the invocation of one deems it necessary to read both the statuory provisions simultaneously and consider them collectively. In the words of the Hon’ble Supreme Court “purpose of the ineligibility under Section 29A is to achieve a sustainable revival and to ensure that a person who is the cause of the problem either by a design or a default cannot be a part of the process of solution.”
“The IBC has made a provision for ineligibility under Section 29 A which operates during the course of the CIRP. A similar provision is engrafted in Section 35 (1)(f) which forms a part of the liquidation provisions contained in Chapter III as well .In the context of the statutory linkage provided by the provisions of Section 230 of the Act of 2013 with Chapter III of the IBC, where a scheme is proposed of a company which is liquidated under the IBC, it would be farfetched to hold that the ineligibilities which attach under Section 35(1)(f) read with Section 29 A would not apply when Section 230 is sought to be invoked."
It was also held that even in the absence of the amendment made to Regulation 2B, a person who cannot be a resolution applicant under Section 29A read with Section 35(1) (f) is not allowed to institute a scheme for revival under Section 230, in the case of a company undergoing the liquidation process. Hence the challenge against the invalidity of Regulation 2B was rejected by the Court.
Case Details
Before: Hon’ble Supreme Court
Case Tilte: Arun Kumar Jagatramka v. Jindal Steel Power Ltd.
Coram: Hon’ble Mr. Justice DY Chandrachud & Hon’ble Mr. Justice MR Shah
Read Order@LatestLaws.com
Share this Document :
Picture Source :
