Section 230 compromise in liquidation is barred for ineligible persons under the Insolvency and Bankruptcy Code framework.

A compromise or arrangement under section 230 of the Companies Act, 2013, proposed during liquidation under the Insolvency and Bankruptcy Code, 2016, forms part of the liquidation continuum and must conform to the Code's disqualifications. A person ineligible under section 29A cannot use section 230 as a back-door route to revive the corporate debtor, and the bar in section 29A read with section 35(1)(f) applies in liquidation. Regulation 2B of the Liquidation Process Regulations, including its proviso, is a valid clarification of that statutory position and does not exceed delegated power.

---

---

Issues: (i) whether, in liquidation proceedings under the Insolvency and Bankruptcy Code, 2016, a scheme of compromise or arrangement under section 230 of the Companies Act, 2013 can be proposed by a person ineligible under section 29A of the Insolvency and Bankruptcy Code, 2016; (ii) whether the bar in section 29A read with section 35(1)(f) of the Insolvency and Bankruptcy Code, 2016 applies to a compromise or arrangement under section 230 of the Companies Act, 2013 when the corporate debtor is in liquidation under the Insolvency and Bankruptcy Code, 2016; and (iii) whether regulation 2B of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, including the proviso to regulation 2B(1), is valid.

Issue (i): whether, in liquidation proceedings under the Insolvency and Bankruptcy Code, 2016, a scheme of compromise or arrangement under section 230 of the Companies Act, 2013 can be proposed by a person ineligible under section 29A of the Insolvency and Bankruptcy Code, 2016.

Analysis: A scheme under section 230, when invoked during liquidation under the Insolvency and Bankruptcy Code, 2016, forms part of the liquidation continuum and is not a standalone arrangement divorced from the insolvency framework. The statutory purpose of the code is to protect the corporate debtor from its own management, preserve the integrity of the resolution and liquidation processes, and secure sustainable revival. The same legislative policy that excludes ineligible persons from the resolution process also permeates liquidation, because a compromise or arrangement at that stage is intended to revive the corporate debtor and cannot be used to secure a back-door re-entry for persons disqualified by section 29A.

Conclusion: No. A person ineligible under section 29A cannot propose a scheme under section 230 of the Companies Act, 2013 in the course of liquidation under the Insolvency and Bankruptcy Code, 2016.

Issue (ii): whether the bar in section 29A read with section 35(1)(f) of the Insolvency and Bankruptcy Code, 2016 applies to a compromise or arrangement under section 230 of the Companies Act, 2013 when the corporate debtor is in liquidation under the Insolvency and Bankruptcy Code, 2016.

Analysis: Section 35(1)(f) expressly prevents the liquidator from selling assets of the corporate debtor in liquidation to a person who is not eligible to be a resolution applicant. That legislative restriction reflects the same policy as section 29A and continues to operate during liquidation. Since a compromise or arrangement under section 230, when made in respect of a company in IBC liquidation, is a mode of revival within the liquidation process, the prohibition cannot be avoided by characterising the proposal as something different from a resolution plan. Section 12A withdrawal stands on a different footing because it is a settlement at the inception of the process and restores the status quo ante, whereas section 230 in liquidation culminates in a binding scheme affecting stakeholders.

Conclusion: Yes. The prohibition in section 29A read with section 35(1)(f) applies to a section 230 compromise or arrangement proposed during liquidation under the Insolvency and Bankruptcy Code, 2016.

Issue (iii): whether regulation 2B of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, including the proviso to regulation 2B(1), is valid.

Analysis: The regulation was framed under the delegated power to make regulations consistent with the Insolvency and Bankruptcy Code, 2016 and to carry out its provisions. Since the substantive code itself excludes ineligible persons from participating in revival during liquidation, the proviso merely clarifies and gives regulatory expression to that position. It does not create a new disqualification, nor does it exceed the rule-making power. The challenge based on inconsistency with the code and violation of fundamental rights was rejected.

Conclusion: The regulation, including the proviso to regulation 2B(1), is valid.

Final Conclusion: The statutory bar on ineligible persons governs the liquidation-stage compromise or arrangement process, and the challenged regulation is sustained; the appellants and writ petitioner obtain no relief.

Ratio Decidendi: A compromise or arrangement under section 230 of the Companies Act, 2013, when proposed in the course of liquidation under the Insolvency and Bankruptcy Code, 2016, is part of the liquidation process and must conform to the code's disqualifications, so a person barred by section 29A cannot participate in it.

---