Tribunal Rules Ineligible Promoter Cannot Propose Compromise Scheme During Liquidation Under Bankruptcy Code.

The Tribunal determined that a Scheme for Compromise and Arrangement is permissible during liquidation proceedings under the Insolvency and Bankruptcy Code, 2016. However, it concluded that a Promoter ineligible under Section 29A of the I&B Code cannot initiate such a scheme. The Tribunal set aside the National Company Law Tribunal's order that allowed the ineligible Promoter's application and remitted the case to the Liquidator/Adjudicating Authority to proceed according to the guidelines established in "Y. Shivram Prasad." The appeal was allowed, and the impugned order was overturned.

---

---

Issues Involved:
1. Whether in a liquidation proceeding under Insolvency and Bankruptcy Code, 2016 (I&B Code), a Scheme for Compromise and Arrangement can be made in terms of Sections 230 to 232 of the Companies Act.
2. If permissible, whether the Promoter, ineligible under Section 29A of the I&B Code to submit a Resolution Plan, is eligible to file an application for Compromise and Arrangement.

Issue-wise Detailed Analysis:

1. Scheme for Compromise and Arrangement in Liquidation Proceedings:
The Tribunal considered whether an application under Sections 230 to 232 of the Companies Act can be entertained during a liquidation proceeding under the I&B Code. It referenced prior judgments, particularly "S.C. Sekaran v. Amit Gupta" and "Y. Shivram Prasad v. S. Dhanapal," which established that during liquidation, the Liquidator must take steps to ensure the company remains a going concern and explore revival options before proceeding with asset liquidation. The Tribunal highlighted that the primary focus of the legislation is to ensure the revival and continuation of the corporate debtor, not merely its liquidation. The Tribunal affirmed that a petition under Sections 230 to 232 is maintainable during liquidation proceedings under the I&B Code.

2. Eligibility of Promoter under Section 29A of the I&B Code:
The Tribunal addressed whether the Promoter, ineligible under Section 29A of the I&B Code, could file for Compromise and Arrangement. It referenced the Supreme Court's judgment in "Swiss Ribbons Pvt. Ltd. v. Union of India," which emphasized protecting the corporate debtor from its own management during liquidation. The Tribunal noted that Section 35(f) of the I&B Code prohibits the Liquidator from selling the corporate debtor's assets to any person ineligible to be a Resolution Applicant. Consequently, the Promoter, ineligible under Section 29A, cannot make an application for Compromise and Arrangement to reclaim the corporate debtor's assets. The Tribunal found that the National Company Law Tribunal's order allowing the Promoter's application was erroneous and set it aside, directing the Liquidator to proceed in accordance with the decision in "Y. Shivram Prasad."

Conclusion:
The Tribunal concluded that while a Scheme for Compromise and Arrangement is permissible during liquidation under the I&B Code, it cannot be initiated by a Promoter ineligible under Section 29A. The case was remitted to the Liquidator/Adjudicating Authority to proceed as per the guidelines established in "Y. Shivram Prasad." The appeal was allowed, and the impugned order was set aside.

---