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 decision emphasises that a sanctioned scheme operates as a binding judgment in rem and stays coercive claims, and that admission under the Insolvency and Bankruptcy Code involves discretionary forbearance where a prior sanction and pending appeals exist; consequently the earlier admission was set aside and the matter remitted for reconsideration after disposal of the pending appeal concerning recall of the sanction.

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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.

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