2025 (8) TMI 176 - AT - IBC

Extension allowed for scheme of arrangement under Section 230 despite liquidator's delay in Regulation 2(B) compliance

The NCLAT allowed the appeal seeking extension of time to complete and operationalize a scheme of arrangement under Section 230 of the Companies Act, ... Extension of time as prayed for, for the purposes of completing and operationalising the scheme of arrangement - failure on part of the Appellant/Liquidator, to comply with the time stipulations as it has been prescribed for completing the scheme proposed under Section 230 of the Companies Act, 2013, to be read with Regulation 2(B) of the IBBI (Liquidation Process) Regulations, 2016 - HELD THAT:- Since the statute doesn't create any specific bar under law from seeking an extension of time for enforcement of the scheme of arrangement, the decision to grant such extensions, if it facilitates the enforcement of the scheme, ought to be made permissible, because the provision under Regulation 2(B) of the Insolvency and Bankruptcy Board of India (IBBI) (Liquidation Process) Regulations, 2016, has been held to be directory in nature and not mandatory. At this juncture, it will be always the commercial wisdom of the parties, which has to come into play, in order to take a decision, after considering the viability, benefits and the propriety of the scheme by the requisite majority regarding grant of an extension of time. It is being made clear that in the instant case, the scheme proposed under Section 230 of the Companies Act, 2013, is being considered by this Appellate Tribunal only in the context of the time limit prescribed under Regulation 2(B) of the Insolvency and Bankruptcy Board of India (IBBI) (Liquidation Process) Regulations, 2016, of the stipulation to complete it within a period of 90 days and that while sitting on judgement over the Impugned Order of the Ld. Tribunal, denying the extension of time, is not exercising its Appellate Jurisdiction to judicially scrutinize the ingredients of the appeal or the terms of settlement or the contents of the scheme, because the same falls to be within the realm of the commercial wisdom of the parties and that it is of the view that the scheme, once having been arrived at, should have been given a pragmatic treatment and an effective conclusion for making the scheme effective particularly when it is not prejudicial to the interest of any of the parties to the proceedings. Regulation 2B of the Insolvency and Bankruptcy Board of India (IBBI) (Liquidation Process) Regulations, 2016 is only for the purposes of exclusion of time consumed for considering the scheme under Section 230, from the total time provided to complete the liquidation process and there is no specific or an absolute bar under law to consider such a scheme of compromise/arrangement, at any time within the time period allowed for completion of the liquidation process, and that even if the said time period as stipulated for completion of the scheme is exhausted, then too the time period granted by the Ld. Tribunal, could be further extended, so as to bring the scheme of compromise/arrangement to its logical conclusion to shorten the litigation and to revive the Corporate Debtor - In the instant case, the approval of the scheme of compromise/arrangement by a requisite majority of the Stakeholders Consultation Committee, doesn't suffer from any absolute legal disability in proceeding to enforce the scheme even beyond the prescribed time period. The impugned order denying to grant the extension of time as sought for, merely because of the fact that there had been earlier extensions granted and the scheme was not implemented which does not create an absolute restriction or a legal bar against grant of further extension of time especially when the scheme has been approved by SCC by majority and merely because of the fact, that the Liquidator despite being aware of the applicable provisions of law has engaged with the individuals connected with the Suspended Directors of the Corporate Debtor, is not sustainable in the face of law and the judicial precedents as laid down by the NCLAT, as well as the Hon’ble Apex Court especially when the proposed scheme of arrangement, promises to meet the objective of the Code, coupled with the fact that there is no absolute bar is grant of the extension of time and that, the same could be granted subject to the restrictions to be imposed by exercise of a judicial wisdom by the Ld. Tribunal. Appeal allowed. ISSUES: Whether the time limit of 90 days prescribed under Regulation 2B(1) of the Insolvency and Bankruptcy Board of India (IBBI) (Liquidation Process) Regulations, 2016, for completion of a scheme of compromise or arrangement under Section 230 of the Companies Act, 2013, is mandatory or directory.Whether an extension of time beyond the prescribed 90 days can be granted for completing and operationalising a scheme of arrangement under Section 230 of the Companies Act, 2013, read with Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016.Whether the provisos to Regulation 2B(1), including the 30-day filing restriction and eligibility criteria for scheme proponents, operate as absolute bars to filing or extension.Whether the commercial wisdom of the parties and approval by the Stakeholders Consultation Committee (SCC) should influence the grant of extension for enforcement of the scheme.Whether the liquidator's engagement with certain individuals connected to suspended directors affects the entitlement to extension.Whether the provisions of Section 230 of the Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016, support revival of the corporate debtor through scheme of arrangement even during liquidation. RULINGS / HOLDINGS: Regulation 2B(1) of the IBBI (Liquidation Process) Regulations, 2016, prescribing the 90-day time limit for completion of a scheme of compromise or arrangement under Section 230 of the Companies Act, 2013, is held to be 'directory in nature and not mandatory.'An extension of time beyond the 90-day period can be granted to complete and operationalise the scheme where it facilitates revival and resolution, subject to judicial discretion and compliance with statutory provisions.The provisos to Regulation 2B(1), including the requirement that the proposal be filed within 30 days from the liquidation commencement date and eligibility restrictions, do not create an absolute bar to extension of time for enforcement of the scheme once approved by requisite creditors.The commercial wisdom of the parties, evidenced by approval of the scheme by the Stakeholders Consultation Committee, must be given due respect and can justify grant of extension to ensure effective implementation of the scheme.The liquidator's prior engagement with individuals connected to suspended directors does not constitute a legal bar to granting extension if the scheme meets the objectives of the Code and is not prejudicial to any party.Section 230 of the Companies Act, 2013, read with the Insolvency and Bankruptcy Code, 2016, contemplates revival of the corporate debtor through compromise or arrangement even during liquidation, and the scheme, once sanctioned, is binding on stakeholders including the liquidator. RATIONALE: The Court applied the statutory framework of Section 230 of the Companies Act, 2013, and Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016, interpreting the latter's time limits as directory to avoid frustration of the legislative intent of revival and resolution under the Insolvency and Bankruptcy Code, 2016.Precedents including judgments of the National Company Law Appellate Tribunal and the Supreme Court, notably Swiss Ribbons Pvt. Ltd. v. Union of India and Arun Kumar Jagatramka v. Jindal Steel & Power Ltd., were relied upon to emphasize the beneficial and protective purpose of the Code, prioritizing revival over liquidation.The Court noted that the principal statute (Companies Act, 2013) does not prescribe an absolute upper time limit for completion of the scheme, and subordinate legislation (IBBI Regulations) cannot override this principle rigidly.The Court recognized that the liquidator's duties under the Code include attempting revival by facilitating schemes under Section 230 and that such schemes, once approved and sanctioned, bind all stakeholders, including the liquidator.The Court distinguished between procedural delays and wilful default, holding that procedural delays due to internal approval processes do not preclude extension if the scheme promises value maximization and revival.The Court underscored that the grant of extension is a matter of judicial discretion exercised in light of commercial wisdom, viability of the scheme, and the objective of minimizing litigation and corporate death.The Court rejected the impugned order's rigid application of the 90-day limit and absence of sound reasoning for denying extension, holding that prior extensions granted and the scheme's approval by the SCC warranted a pragmatic and flexible approach.The Court directed that a further 90-day extension be granted subject to compliance with Section 230(5) of the Companies Act, 2013, and related rules, to enable completion of the scheme and promote revival.