2026 (2) TMI 787 - AT - IBC

Sanctioned scheme binding effect may preclude immediate Section 7 admission; Section 7 admission set aside pending resolution of scheme appeal.

Whether a creditor petition under Section 7 could be admitted when a prior court sanctioned scheme of arrangement remained in force was central; the ... Approved scheme of arrangement - binding nature of sanctioned scheme - jurisdiction u/s 7 of Insolvency and Bankruptcy Code - discretionary admission ('may') u/s 7 - novation of debt upon sanction of scheme - non-disclosure of material fact before adjudicating authority - stay and recall of sanction order pending appellate challenge - Whether the Ld. NCLT ought to have exercised jurisdiction under Section 7 of the Code, when a Scheme of Arrangement was already in existence, as approved by the Ld. Single Judge of the Punjab & Haryana High Court on 23.07.2019 itself. HELD THAT:- Admittedly the scheme was initially accepted by the requisite majority of creditors, including the Respondent No.1 (SASF). Admittedly the Hon’ble High Court had sanctioned the scheme on 23.07.2019 i.e. much prior to the impugned admission order dated 02.07.2024. Thus admittedly at the time of admission of the petition, a sanctioned scheme, as approved, was already in existence. Section 391(3) of the Companies Act, 1956 makes an approved scheme binding on all the parties, including Respondent No.1 and it cannot resile. Further Section 391(6) of the Companies Act, 1956 provides for stay of all coercive action against the sanction of the scheme of arrangement. Admittedly in its order dated 10.10.2022 in CPP 14/2022 the Hon’ble Division Bench noted there was a consent of 75% of the creditors under the Scheme. Now the withdrawal of the consent or default is an issue pending before the Ld. Division Bench of High Court and it was not appropriate for Ld. Adjudicating Authority to over-reach such jurisdiction. Per force, as the scheme of arrangement was sanctioned on 23.07.2019 there existed a novation of contract and the debt stood resolved per Suresh Kr Reddy Vs Canara Bank and others [2023 (5) TMI 570 - SUPREME COURT] The mandate of Section 7 of the Code is to explore a resolution for the benefit of the company and it had already taken place under a sanctioned scheme, when it stood sanctioned vide order dated 23.07.2019. Such a rehabilitation was in line with the object of the Insolvency Code. Admittedly the insolvency proceedings are not recovery proceedings and SASF, the predecessor of M/s Omkar viz Respondent No.1 had admittedly settled at Rs.459.36 lakhs under the scheme of arrangement and now in its insolvency petition is claiming an inflated amount of Rs.154 crores. Admission under Section 7 set aside on grounds that a sanctioned scheme existed prior to admission. Stay and recall of sanction order pending appellate challenge - discretionary admission ('may') under Section 7 - HELD THAT:- We are of the considered view as the objections to the scheme are still pending in APP No.14/2022 before the Hon’ble Division Bench of Punjab & Haryana High Court and as the order of recall in CP No. 89/2009 stands stayed in APP No. 14/2022 much prior to the passing of the impugned order and as the Respondent No.1 ought to have disclosed the factum of sanctioning of scheme before the Ld. NCLT; hence in these circumstances the Ld. NCLT ought to have at least waited till disposal of App No. 14/2022 pending before Ld. Division Bench of Punjab & Haryana High Court, now listed for 19.08.2025. Thus in this case we set aside the order of admission under Section 7 of IBC passed by Ld. NCLT, though keeping the petition filed under Section 7 of IBC pending and only after the APP No. 14/2022 is disposed of, the Ld. NCLT should have a fresh look in the matter in the light of the order passed in APP No. 14/2022 (supra). The appeal is disposed of in terms of the above. Issues: Whether the Adjudicating Authority ought to have exercised jurisdiction to admit a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, when a scheme of arrangement sanctioned earlier by the High Court under Sections 391-394 of the Companies Act, 1956 was in existence and subsisting.Analysis: The Court examined the temporal primacy and binding effect of a High Court-sanctioned scheme of arrangement under Sections 391-394 of the Companies Act, 1956 and its operation as a judgment in rem binding on all creditors; noted statutory provisions including Section 391(3) which renders a sanctioned scheme binding and Section 391(6) which stays coercive action; considered that the scheme had been sanctioned on 23.07.2019 prior to the Section 7 admission dated 02.07.2024; reviewed that questions about withdrawal of creditor consent and recall of the sanction were sub judice before the Division Bench in APP No.14/2022 and that the recall order was stayed; observed that Section 7 of the Insolvency and Bankruptcy Code, 2016 uses discretionary language and that admission could have been kept in abeyance pending the High Court appeal; and found that the NCLT admitted the Section 7 petition without adequately accounting for the existence and legal effect of the sanctioned scheme and the pending High Court proceedings.Conclusion: The admission order passed by the Adjudicating Authority under Section 7 of the Insolvency and Bankruptcy Code, 2016 is set aside and the appeal is allowed; the Section 7 petition is to remain pending and the Adjudicating Authority shall reconsider the matter after disposal of APP No.14/2022 before the Punjab & Haryana High Court.