The Apex Court ruled that the ex-promoters were ineligible to suggest revival schemes under Companies Act.
The appellant Arun Kumar Jagatramka was permitted by the National Company Law Tribunal (NCLT) to negotiate a compromise between the company and its lenders after no bids were received for the company in the mandated 270-day period. The NCLT, in May 2018, permitted the former promoter to convene meetings between shareholders and creditors on the grounds that IBC’s larger objective was to keep the companies as going concerns.
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 company will go under liquidation and promoters cannot be asked to arrange settlements simply to keep the company a going concern. The appellate tribunal held that a person who was ineligible under Section 29A of IBC to submit a resolution plan, was also barred from proposing a scheme of compromise and arrangement under Section 230 of the Companies Act, 2013.
The appellant challenged the NCLAT’s order before the SC on the grounds that the 2013 Act permitted “compromises or arrangements” between companies and their lenders under Section 230. In the absence of a disqualification, the NCLAT could not have read the ineligibility under Section 29A of the IBC into Section 230 and this would amount to a judicial reframing of legislation by the NCLAT, which is impermissible, the former promoter stated.
The division bench of Justices DY Chandrachud and MR Shah upheld the vires of Regulation 2B of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 which states that a person who is not eligible under the IBC to submit a resolution plan for insolvency resolution of the corporate debtor shall not be a party in any manner to such compromise or arrangement.
“It would lead to a manifest absurdity if the very persons who are ineligible for submitting a resolution plan, participating in the sale of assets of the company in liquidation or participating in the sale of the corporate debtor as a ‘going concern’, are somehow permitted to propose a compromise or arrangement under Section 230 of the Act of 2013,” the Court said.
“The IBC has made a provision for ineligibility under Section 29A 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 in liquidation under the IBC, it would be far-fetched to hold that the ineligibilities which attach under Section 35(1)(f) read with Section 29A would not apply when Section 230 is sought to be invoked,” the judgment said.
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