The Supreme Court on Monday held that promoter of a business undergoing liquidation below IBC can’t propose “scheme of compromise and arrangement” for revival with lenders even if there are no resolution plans submitted for the corporate debtor.
A bench led by Justice DY Chandrachud upheld the National Company Law Appellate Tribunal’s view that Section 29A of the IBC particularly disqualified former promoters from participating in the insolvency method and this disqualification also extended to a proposal for revival below Section 230 of the Companies Act.
“…we find that the prohibition placed by the Parliament in Section 29A and Section 35(1)(f) of the IBC must also attach itself to a scheme of compromise or arrangement under Section 230 of the Act of 2013, when the company is undergoing liquidation under the auspices of the IBC. As such, Regulation 2B of the Liquidation Process Regulations, specifically the proviso to Regulation 2B(1), is also constitutionally valid,” the apex court stated though rejecting appeals filed by Arun Kumar Jagatramka, former promoter of Gujarat NRE Coke.
Jagatramka was permitted by the National Company Law Tribunal to negotiate a compromise in between the business and its lenders following no bids had been received for the business in the mandated 270-day period. The NCLT, in May 2018, permitted the former promoter to convene meetings in between shareholders and creditors on the grounds that IBC’s bigger objective was to retain the corporations as going issues.
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However, on an appeal by Jindal Steel and Power, an unsecured creditor of Gujarat NRE Coke, the NCLAT, in October 2019, held that in the absence of bids a business will go below liquidation and promoters can’t be asked to arrange settlements just to retain the business a going concern. The appellate tribunal held that a individual who was ineligible below Section 29A of IBC to submit a resolution strategy, was also barred from proposing a scheme of compromise and arrangement below Section 230 of the Companies Act, 2013.
This was challenged by Jagatramka ahead of the SC on the grounds that the 2013 Act permitted “compromises or arrangements” in between corporations and their lenders below Section 230. In the absence of a disqualification, the NCLAT could not have study the ineligibility below Section 29A of the IBC into Section 230 and this would quantity to a judicial reframing of legislation by the NCLAT, which is impermissible, the former promoter stated.