Scheme of arrangement before insolvency admission granted limited time to seek creditor approval, with CIRP to follow on failure.

The National Company Law Tribunal, Kolkata Bench, allowed the corporate debtor a limited opportunity to convene creditors and pursue approval of a scheme of arrangement under the Companies Act, 2013 before admission of the pending section 7 insolvency application. This was done in view of an appellate direction requiring notice to the corporate debtor before admission and the proposal for settlement/creditor approval. The Tribunal directed filing of the settlement materials and the financial creditor's response, and made clear that if approval was not obtained within the stipulated time, the corporate debtor would stand admitted into CIRP under the section 7 petition.

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Issues: Whether the corporate debtor should be granted time to pursue a scheme of arrangement with creditors before admission of the section 7 insolvency application, with admission into the Corporate Insolvency Resolution Process to follow upon failure of the scheme.

Analysis: The application arose after an appellate direction to admit the section 7 petition only after notice to the corporate debtor, so that it could attempt settlement before admission. A scheme of arrangement under the Companies Act, 2013 was also placed before the Tribunal. In view of those directions and the proposal for creditor approval, the Tribunal considered it appropriate to allow a limited further opportunity for the corporate debtor to convene the creditors and seek approval of the scheme. The Tribunal also directed filing of the settlement materials and the response of the financial creditor, and fixed consequences if approval was not obtained within the stipulated time.

Conclusion: The corporate debtor was granted four weeks to convene the creditors and obtain approval of the scheme of arrangement, failing which the corporate debtor would stand admitted in CIRP under the pending section 7 petition.

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