2025 (11) TMI 861 - AT - IBC

Appeal allowed; extension under Section 231(1)(b) permits extra time to deposit balance under approved scheme despite delays

C Ganesh Versus Ashok Seshadri and Monitoring Committee Of RA Samy Trading Private Limited, Chennai

NCLAT allowed the appeal, quashed the impugned order dated 02.06.2025 and exercised its power under Section 231(1)(b) to permit an extension of time for ... Seeking for an extension of time for the purposes of making deposit of the balance amount, that was due to be paid for the execution of Scheme of Arrangement - cancellation of the Scheme of Arrangement that, was entered into between the parties as per provisions contained under Section 230-232 of the Companies Act, 2013 - HELD THAT:- Similar issue about the purpose and object of extension of time under the Scheme of Arrangement in the matters of M/s. Prakash Oil Depot vs G. Madhusudhan Rao & Anr. [2025 (8) TMI 176 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, CHENNAI] where it was held that '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.' Owing to the basic objective, which could be discernible from the provision contained under Section 231(1)(b) of Companies Act, it is opined that, where the settlement is a process contemplated under law and where the scheme has been approved by the Learned Adjudicating Authority, in order to effectively resolve the controversy on vital issues between the parties, this will be a fit case to exercise our power which is reserved to be exercised under Section 231(1)(b), since it gives ambit of authority to the Tribunal, as well as the Appellate Tribunal to pass any orders or to make any such modifications, which may be necessary under/facts of a case to carry on the necessary steps for ensuring the implementation of the Scheme of Arrangement. Looking into the time constraints, delayed filing with ROC and the other contributing factors resulting to the delayed payment, this will be a fit case where we could exercise our discretion of extension of time. The impugned order dated 02.06.2025 is hereby quashed - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Adjudicating Authority erred in rejecting an application under Section 60(5) of the IBC seeking extension of time to implement a Scheme of Arrangement sanctioned under Sections 230-232 of the Companies Act, 2013. 2. Whether the Tribunal/Appellate Tribunal has jurisdiction and discretion under Section 231(1)(b) of the Companies Act to grant an extension or modify time-terms of a sanctioned scheme to secure its implementation, notwithstanding earlier extensions and non-compliance by the scheme proponent. 3. The legal effect, in the liquidation context under the IBC, of delayed compliance by the scheme proponent caused by alleged conduct of the liquidator (including delayed filing with Registrar) and whether such conduct can justify grant of further time. 4. Whether offer of demand drafts/tenders made after the expiry of prescribed timeline can be accepted conditionally and what amounts (principal, accrued interest, CIRP/liquidation costs and incidental expenditures) must accompany such tender for implementation of the sanctioned scheme. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of rejecting extension application under Section 60(5) IBC Legal framework: Section 60(5) IBC confers power on the Adjudicating Authority/Appellate Tribunal to exercise jurisdiction as may be necessary for functions under the Code; Sections 230-232 Companies Act govern sanction and implementation of a scheme; Section 231(1)(b) empowers the Tribunal to supervise and modify sanctioned schemes for proper implementation. Precedent treatment: The Court relied on prior appellate authority holding that an Adjudicating Authority has jurisdiction to grant extension of timeline for payment in a resolution/scheme and that such grant is not necessarily a modification requiring CoC concurrence; the Supreme Court's observations (as quoted) emphasize that a scheme sanctioned under Section 230 attains binding character and that the liquidator must attempt revival. Interpretation and reasoning: The Tribunal construed the combined statutory scheme to mean that, once sanctioned, a scheme's implementation is subject to the supervisory and modifying powers of the Tribunal/Appellate Tribunal under Section 231(1)(b). The Court emphasized the purpose of Sections 230-231 to effect revival and to avoid 'corporate death', so that rigid denial of extensions where the scheme promises to meet objectives of the Code would frustrate statutory purpose. The Appellate Tribunal found that prior extensions and failures do not create an absolute bar to further extensions; rather, extensions can be granted subject to judicial safeguards and conditions. Ratio vs. Obiter: Ratio - The Appellate Tribunal holds that the Tribunal/Appellate Tribunal has jurisdiction to grant reasonable extension of time for implementation of a sanctioned scheme under Section 231(1)(b), even after earlier extensions were given and not complied with, when such extension is necessary to secure the scheme's implementation and the objectives of the IBC/Companies Act. Observational dicta - comments on the policy aim of avoiding corporate death and on the liquidator's duties are explanatory but congruent with ratio. Conclusion: The Adjudicating Authority's absolute refusal to grant any further extension was unsustainable; hence the impugned order rejecting the IA was quashed and further time (60 days) was granted, subject to conditions. Issue 2 - Scope of Section 231(1)(b): supervisory/modifying powers to grant extensions Legal framework: Section 231(1)(b) authorizes the Tribunal to give directions or make modifications in a sanctioned compromise/arrangement for its proper implementation; Section 230(6) renders a sanctioned scheme binding on stakeholders including the liquidator in an IBC liquidation. Precedent treatment: The Tribunal followed earlier appellate and Supreme Court authorities that interpret the statutory linkage between IBC and Section 230, confirming that the Tribunal's powers are broad and include temporal modifications to secure implementation. Interpretation and reasoning: The Court reasoned that temporal stipulations in an approved scheme are amenable to judicial modification under Section 231(1)(b) where modification is necessary to meet ends of justice and effectuate revival. Granting time is not per se a prohibited modification; discretion must be exercised considering bonafides, potential prejudice to creditors, and overall statutory objectives. Ratio vs. Obiter: Ratio - Section 231(1)(b) empowers the Tribunal/Appellate Tribunal to grant extensions or make modifications necessary for implementation of a sanctioned scheme; such power may be exercised even post-sanction and after earlier extensions, subject to judicial prudence. Obiter - comments about flexibility of tribunal powers and judicial wisdom in imposing conditions. Conclusion: The Appellate Tribunal can and should exercise its discretionary powers under Section 231(1)(b) to grant a conditional extension where implementation furthers the Code's objectives and the scheme remains capable of fulfilment. Issue 3 - Effect of liquidator's conduct and delayed ROC filing on entitlement to extension Legal framework: Liquidator duties under IBC (Sections 34-35) include actions in liquidation; Section 230 scheme bindingness implicates the liquidator; statutory filings (e.g., Form INC-28) affect corporate status and practical ability to raise funds. Precedent treatment: Reliance on higher court precedent affirming that a sanctioned scheme binds stakeholders including liquidator and that liquidator must attempt revival; prior NCLAT observations indicate that liquidator's errors or conduct can be relevant to the grant of extensions. Interpretation and reasoning: The Appellate Tribunal accepted that delayed submission of sanction order to ROC and persistence of 'in liquidation' status impeded the scheme proponent's ability to raise funds, and that certain unresolved issues attributable to the liquidator's conduct contributed to delay. The Court treated such conduct as a relevant factor militating in favour of exercising discretion for further time, while balancing countervailing creditor interests. Ratio vs. Obiter: Ratio - Where delay in implementing a sanctioned scheme is attributable in part to liquidator's actions (including delayed filings affecting corporate status and ability to raise funds), such factors are material and can justify a conditional extension. Obiter - procedural direction that liquidator must provide necessary information and cooperate in implementation. Conclusion: The liquidator's procedural delays and lack of cooperation were relevant and weighed in favour of granting conditional additional time for implementation. Issue 4 - Acceptance of post-timeline offers (demand drafts) and quantum of amounts to be tendered Legal framework: Implementation of a sanctioned scheme requires payment of amounts as per scheme terms, plus any interest or costs that lawfully accrue during intervening periods; Tribunal's supervisory power allows it to prescribe conditions for acceptance of late tenders. Precedent treatment: The Tribunal referred to authorities sustaining the power to grant time and modify terms and indicated that acceptance of late payment may be subject to payment of additional accruals (interest, CIRP/liquidation costs) that have become due in the intervening period. Interpretation and reasoning: The Appellate Tribunal noted that respondents refused to accept demand drafts tendered after timeline on grounds that additional interest and expenses had accrued. The Court resolved this by conditioning the grant of time: the drafts tendered would be handed over immediately to the Adjudicating Authority and the scheme proponent was required to pay accrued interest and incidental expenditures along with the principal within the extended period. The Tribunal imposed concrete deliverables (handover within 3 days of order uploading; full payment including additional expenditures within 60 days) and fixed an operative consequence for non-compliance (impugned order to take effect). Ratio vs. Obiter: Ratio - Late tenders can be accepted subject to payment of all additional amounts accrued during the intervening period and subject to judicially imposed conditions; the Tribunal may require immediate handing over of instruments and payment within a fixed extended period. Obiter - rationale emphasizing balancing creditor protection with revival objective. Conclusion: Conditional acceptance of post-timeline demand drafts is permissible; full implementation requires payment of principal plus accrued interest and CIRP/liquidation/incidental costs within the period granted and in accordance with directions issued by the Tribunal. Final Disposition (operative conclusion without procedural specifics) The Appellate Tribunal allowed the appeal against the Adjudicating Authority's refusal to grant further time, quashed the impugned order, and exercised its powers under Section 231(1)(b) to grant a time extension on specified conditions: immediate tendering/handing over of payment instruments and payment of principal, accrued interest and liquidation/CIRP/ incidental costs within the extended period, failing which the cancelled-scheme consequences shall revive. This decision applies the supervisory/modifying powers of the Tribunal to secure implementation of a sanctioned scheme in the liquidation context, balancing revival objectives with protection of creditors' rights.