Insolvency proceedings prevailing over stalled scheme of arrangement; CIRP initiation and moratorium restored, maintainable and appellate order set aside.

Initiation of corporate insolvency resolution under Section 7 was held maintainable because the rival scheme of arrangement failed to comply with statutory timelines for the second motion and filing, had become inoperative due to intervening enforcement and increased indebtedness, and pending company-court proceedings fell for transfer under transfer rules; the Insolvency and Bankruptcy Code's overriding effect and the independent nature of Section 7 proceedings were applied, leading to restoration of the adjudicating authority's order appointing an interim resolution professional and reviving the moratorium, and setting aside the appellate authority's abeyance order.

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Issues: Whether initiation of corporate insolvency resolution proceedings under the Insolvency and Bankruptcy Code, 2016 by a creditor under Section 7 was maintainable despite pending proceedings relating to a scheme of arrangement under Sections 391 to 394 of the Companies Act before the Company Court; and whether the adjudicating authority's order appointing an interim resolution professional and imposing moratorium should be restored.

Analysis: Relevant legal framework includes the overriding effect of the Insolvency and Bankruptcy Code, 2016 over inconsistent laws, the independent nature of proceedings under Section 7 of the IBC, the moratorium under Section 14, and Section 238 of the IBC. Procedural requirements under Sections 391 to 394 of the Companies Act, 1956 and Rules 78, 79 and 81 of The Companies (Court) Rules, 1959 mandate convening a creditors' meeting, a second motion and filing the sanction order with the Registrar within prescribed times to bring a scheme of arrangement into effect. The Companies (Transfer of Pending Proceedings) Rules, 2016 (Rule 3) and Section 434(1)(c) of the Companies Act, 2013 require transfer of pending non-winding-up proceedings to the Tribunal after the Tribunal's constitution, subject to narrow exceptions. Applying these principles to the facts, the scheme of arrangement relied upon was filed and sanctioned after excessive delay, the statutory timelines for the second motion and filing with the Registrar were not complied with, the scheme had become inoperative given intervening enforcement actions and substantial increase in debt, and the second motion was pending when the 2016 Rules required transfer to the Tribunal; therefore the scheme could not validly preclude initiation of CIRP under Section 7. The authorities holding that Section 7 proceedings are independent and that the IBC prevails over inconsistent provisions were applied to conclude that the adjudicating authority's exercise under the IBC was permissible and that the Appellate Authority erred in keeping the Section 7 application in abeyance.

Conclusion: The Section 7 petition under the Insolvency and Bankruptcy Code, 2016 was maintainable and the order of the Appellate Authority is set aside; the adjudicating authority's order initiating CIRP, appointing the interim resolution professional and reviving the moratorium is restored. The appeal is allowed. In favour of Appellant.

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