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2021 (3) TMI 611
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....le under Section 29A of the Insolvency Bankruptcy Code, 2016 ("IBC") to submit a resolution plan, is also barred from proposing a scheme of compromise and arrangement under Section 230 of the Companies Act, 2013 the "Act of 2013". The judgment was rendered in an appeal Company Appeal (AT) No. 221 of 2018 filed by Jindal Steel and Power Limited "JSPL", an unsecured creditor of the corporate debtor, Gujarat NRE Coke Limited "GNCL". The appeal was preferred against an order passed by the National Company Law Tribunal "NCLT" in an application C.A. (CAA) No. 198/KB/2018 under Sections 230 to 232 of the Act of 2013, preferred by Mr Arun Kumar Jagatramka, who is a promoter of GNCL. The NCLT had allowed the application and issued directions for convening a meeting of the shareholders and creditors. In its decision dated 24 October 2019, the NCLAT reversed this decision and allowed the appeal by JSPL. The decision of the NCLAT dated 24 October 2019 is challenged in the appeal before this Court. 2 Mr Arun Kumar Jagatramka, assails the order dated 24 October 2019 of the NCLAT, inter alia, on the ground that Section 230 of the Act of 2013 does not place any embargo on any person for the purpo....
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....of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 of 1949) or the guidelines of a financial sector regulator issued under any other law for the time being in force, and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor: Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to nonperforming asset accounts before submission of resolution plan; Provided further that nothing in this clause shall apply to a resolution applicant where such applicant is a financial entity and is not a related party to the corporate debtor. Explanation I.-- For the purposes of this proviso, the expression "related party" shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a ....
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....not otherwise contributed to the preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction; (h) has executed a guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code and such guarantee has been invoked by the creditor and remains unpaid in full or part; (i) is subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India; or (j) has a connected person not eligible under clauses (a) to (i). Explanation I -- For the purposes of this clause, the expression "connected person" means- (i) any person who is the promoter or in the management or control of the resolution applicant; or (ii) any person who shall be the promoter or in management or control of the business of the corporate debtor during the implementation of the resolution plan; or (iii) the holding company, subsidiary company, associate company or related party of a person referred to in clauses (i) and (ii): Provided that nothing in clause (iii) of Explanation I shall apply to a resolution ap....
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....lenged in appeal Company Appeal (IB) No. 55-56 of 2018 by Mr Arun Kumar Jagatramka before the NCLAT. The appeal was dismissed by the NCLAT by its order dated 10 July 2018. The dismissal of the appeal by the NCLAT was assailed before this Court, which issued notice to GNCL on 19 July 2019. 7 During the pendency of the appeal before NCLAT, where the order of liquidation passed by the NCLT was assailed, Mr Arun Kumar Jagatramka moved an application under Sections 230 to 232 of the Act of 2013 before the NCLT proposing a scheme for compromise and arrangement between the erstwhile promoters and creditors. This application was allowed by the NCLT through its order dated 15 May 2018, and a direction was issued for convening of a meeting of shareholders, secured creditors, unsecured creditors and FCCB holders for approval of the scheme of compromise and arrangement. 8 JSPL, an operational creditor of GNCL, preferred an appeal against the order of the NCLT dated 15 May 2018 before the NCLAT. The NCLAT allowed the appeal by its judgement dated 24 October 2019, holding that promoters who are ineligible to propose a resolution plan under Section 29A of the IBC are not entitled to file an app....
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....r dated 19 December 2019 of the NCLAT in which it relied on the judgment dated 24 October 2019 impugned in the earlier appeal, to hold that an individual ineligible for proposing a resolution plan under Section 29A of the IBC, is also ineligible to propose a scheme of compromise and arrangement under Section 230 of the Act of 2013. 11 The appellant - Mr Kunwer Sachdev - was the promoter and director (since suspended) of Su-Kam Power Systems Limited "Su-Kam". An application CP (IB)/540 (PB)/2017) under Section 7 of the IBC was filed by one of the financial creditors of Su-Kam, which was admitted by the NCLT through its order dated 5 April 2018. The CIRP was initiated against Su-Kam. 12 When the RP invited applications for resolution plans for Su-Kam, Mr Kunwar Sachdev submitted a plan along with Phoenix ARC Private Limited on 15 November 2018. However, Mr Kunwar Sachdev was informed by an email dated 27 December 2018 issued by the RP, that the CoC had found him to be ineligible under Section 29A(h) of the IBC and consequently annulled his resolution plan. 13 This decision was challenged by filing an application CA. 58(PB)/2019 before the NCLT. However, this was dismissed by the ....
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....40 of the IBC. 20 The Liquidation Process Regulations were amended by the IBBI by a notification Noti. No. IBBI/2019-20/GN/REG047 dated 25 July 2019, which inserted Regulation 2B. Sub-section (1) of Regulation 2B provides that a compromise or arrangement proposed under Section 230 of the Act of 2013 shall have to be completed within 90 days of the order of liquidation issued under sub-sections (1) and (4) of Section 33 of the IBC. Further, Sub-section (2) provides that the time taken in a compromise or arrangement, not exceeding 90 days, shall not be included within the liquidation period. Finally, Sub-section (3) provides that any cost which is incurred by the Liquidator in relation to the compromise or arrangement shall be borne by the corporate debtor, if such compromise or arrangement is sanctioned by the NCLT under Section 230(6). However, a proviso to Sub-section (3) notes that if such compromise or arrangement is not sanctioned by the NCLT under Section 230(6), the cost shall be borne by the parties who proposed the compromise or arrangement. 21 Regulation 2B was amended by a notification Noti. No. IBBI/2019-20/GN/REG053 dated 6 January 2020, by which a proviso was added t....
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....e shall now turn to the issues before this Court and the submissions of counsels. 24 The NCLAT formulated two principal issues in the first of its judgments in appeal: "(i) Whether in a liquidation proceeding under Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the 'l&B Code') the Scheme for Compromise and Arrangement can be made in terms of Sections 230 to 232 of the Companies Act; (ii) If so permissible, whether the Promoter is eligible to file application for Compromise and Arrangement, while he is ineligible under Section 29A of the I&B to submit a 'Resolution Plan'." 25 The first of the above issues has been answered in the affirmative by the NCLAT, to which, as Mr Sandeep Bajaj, learned Counsel for the appellant noted, there is no challenge. The real bone of dispute relates to the second issue. In the submission of Mr Sandeep Bajaj, what the NCLAT determined while addressing itself to the issue in dispute is whether the ineligibility under Section 29A of the IBC can be read into the provisions of Section 230 of the Act of 2013. In essence, Mr Bajaj's approach to the issue is that a disqualification which is not provided by the legislature canno....
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.... and (b) the resolution mechanism under which, upon the acceptance of a resolution plan, the company moves over to the control of the acquirer on a clean slate for a fixed consideration, consequent to the provisions of Section 31; (iii) Section 29A is a part of the resolution mechanism, the object and purpose of which is to prevent a back-door entry to the promoter who should not be allowed to have advantage of their own wrong; (iv) Though the appellant falls in the prohibited category under Section 29A, the purpose of the prohibition is to prevent the promoter from submitting a resolution plan with reference to the provisions of Sections 30 and 31 of the IBC; (v) Chapter III of the IBC, commencing with Section 33, deals with the liquidation process and Regulation 32 of the Liquidation Process Regulations deals with "sale of assets etc. by the liquidator". In the course of the liquidation under Chapter III, the liquidation estate is to be formed under Section 36 and the sale under Regulation 32 is an intrinsic part of the liquidation estate. The consequence is that acquirer begins on a clean slate. The ineligibility under Section 29A which attaches for the purpose of Chapte....
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.... a withdrawal can be permitted even after the expression of interest, as a consequence of which Regulation 30-A is directory in nature; (x) The consequence of a withdrawal of the application under Sections 7, 9 or 10 is that the corporate debtor stands restored to the promoter. As such, Section 29A does not operate as an ineligibility on the settlement mechanism. On the withdrawal of the application the corporate debtor goes back to the same promoter, even if they are ineligible under Section 29A for the submission of the resolution plan; (xi) The ineligibility under Section 29A, which forms a part of Chapter II of the IBC, is only during the resolution process; (xii) The rationale for imposing an ineligibility under Section 29A in the resolution process is that the successful resolution applicant under Section 31 of the IBC obtains the company on a clean slate, as indicated in the decision of this Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta (2020) 8 SCC 531. This benefit is not available where an application is simpliciter withdrawn under Section 12-A; (xiii) Section 230 of the Act of 2013 is a part of the settlement mechanism and is ....
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....19 and 21 of the Constitution as it seeks to import an ineligibility under the provisions of the IBC to a dissimilar provision in the Act of 2013. Moreover, when ineligibility is not attracted under Section 12-A of the IBC, imposing this ineligibility under Section 230 of the Act of 2013 is arbitrary. 30 Adopting the submissions which were urged by Mr Sandeep Bajaj, Mr Shiv Shankar Banerjee, learned Counsel appearing on behalf of the appellant in the Second Appeal, submitted that: (i) A complete procedure has been stipulated under the provisions of the IBC for liquidation; (ii) Where a sale of the assets of the corporate debtor or sale of the business of the corporate debtor takes place in the course of the liquidation, Section 35(1)(f) of the IBC stipulates that the assets cannot be sold to a person who is ineligible under Section 29A. The object is to ensure that liquidation should not be used to allow the promoter to get the assets free from encumbrances; (iii) In contrast to a successful resolution applicant under Chapter II or the person who benefits from the sale of assets in liquidation under Chapter III of the IBC, the person who proposes a compromise or arrangemen....
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....ribunal under the Act of 2013. Therefore, it can insist on adherence to additional conditions namely that: (a) The proposed compromise or arrangement must result in a revival of the company; and (b) The compromise or arrangement cannot be proposed by a person who is barred under Section 29A; (iv) When the IBC was originally enacted there was no bar of the nature found in Section 29A on who can propose a resolution plan either pre or post liquidation; (v) The ineligibility under Section 29A and Section 35(1)(f) was introduced by a legislative amendment on 23 November 2017 "Act 8 of 2018", both at the pre and post liquidation stages; (vi) The purpose of the disqualification is to ensure a sustainable revival, which means that those responsible for the state of affairs of a company and other persons regarded by the legislature as undesirable should be excluded from the process; (vii) Persons who are ineligible under Section 29A or Section 35(1)(f) cannot seek an entry: (a) at the CIRP stage; or (b) under Section 230 of the Act of 2013; or (c) by purchasing the assets during liquidation. (viii) Section 29A does not apply only to conduct in relation to the corporate ....
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....compromise or arrangement is proposed at the liquidation stage of IBC under Section 230 of the Act of 2013, it must satisfy the rigors of the IBC. Hence, a person who is ineligible under Section 29A cannot submit a plan under Section 230 of the Act of 2013; (xiv) In construing the provisions of Sections 29A and 35(1)(f) of the IBC, notice must be taken of the fact that the ineligibility was made applicable both to the resolution stage as well as the stage of liquidation. In interpreting these provisions, the purpose and object of the amendment must be borne in mind, which is that a scheme of revival cannot be proposed by a person who stands disqualified under Section 29A; (xv) The proposal of a compromise or arrangement under Section 230 in a situation where the company is in liquidation under the IBC is a facet of the liquidation process under the IBC. Section 230 was amended to include a liquidator appointed under the IBC. The statutory scheme indicates that: (a) A liquidation under the IBC follows upon the entire gamut of proceedings under the IBC; (b) Section 230 of the Act of 2013 provides one of the modes of revival in the liquidation process; and (c) Other activiti....
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....be avoided; (xxi) There is a fallacy in equating the provisions of Section 230 of the Act of 2013 with an application for withdrawal under Section 12-A of the IBC. Section 12-A is not intended to be the culmination of the resolution process but is at the inception. The withdrawal by an applicant leads to a status quo ante in respect of liabilities of the corporate debtor and does not require that the defaults in respect of all creditors are brought to an end. In contrast: (a) a resolution plan under Section 31 of the IBC (as well as the scheme under Section 230 of the Act of 2013) binds all the stakeholders; (b) results in a clean slate unlike Section 12-A; and (c) constitutes a culmination of the resolution plan. As distinct from the provisions of Section 31 of the IBC and Section 230 of the Act of 2013, a withdrawal under Section 12-A restores the status quo ante and is hence not concerned with ineligibilities under Section 29A; and (xxii) Section 240 of the IBC enunciates the power to make regulations to carry out the provisions of the Code. The insertion of the proviso to Regulation 2(B) is valid because: (a) the amendment is consistent with the IBC and carries ....
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....e) foster respect for the rule of law. The IBC is premised on the principle that there is a significant element of public interest in facilitating a creditor-centric regime for achieving economic growth. Ensuring that resolution plans are submitted by credible persons is intrinsic to the scheme of the IBC. Speed is of the essence. The IBC has sought to convert a legal regime which was a debtor's paradise into a regime governed by corporate justness. The regime under the IBC is dynamic, which is reflected by eight amendments which took place between November 2017 and September 2020; (iv) The basic principle is that an entity which is barred under Section 29A and Section 35(1)(f) should not be in control of the assets of the corporate debtor. The objective is that defaulting promoters: (a) should not be in the driver's seat; and (b) should be kept at arm's length; (v) In order to achieve the above objectives, the Parliament enacted a simultaneous amendment of both Section 29A and Section 35(1)(f) to maintain a level playing field by comprehensively catering to all situations relating to defaulting or barred promoters; (vi) In interpreting the IBC, legal sanctity a....
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....ame regulations subject to the stipulation that: (i) they are not inconsistent with the provisions of the IBC; and (ii) they carry out the purposes of the IBC. Both these conditions are fulfilled by Regulation 2(B); (viii) A regulation which is framed under a statute in exercise of the authority which is conferred on the delegate can be challenged on the ground of being: (a) ultra vires the parent statute; or (b) being contrary to the provisions of Part III of the Constitution; To suffer from unreasonableness, a regulation must be held to be manifestly arbitrary. Regulation 2(B) is consistent with the object and purpose of the IBC; and does not suffer from manifest arbitrariness; and (ix) Sections 29A and 35(1)(f) apply to liquidation pursuant to the IBC. The principle of Section 29A stands absorbed in the hybrid process of compromise during liquidation under the IBC, by way of a device of incorporation by reference. 35 Mr Balbir Singh, learned Additional Solicitor General, has addressed submissions also along the above lines. D Analysis of the Legal Framework 36 Having narrated the submissions advanced by both sides, we now turn to the legal position and the int....
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....ng the IBC in a manner which would facilitate the salutary objects which it is intended to achieve requires all stakeholders to shed concepts and notions associated with the earlier legal regime, which was largely a debtor's paradise. The earlier regime was one in which the debtor would largely remain in possession of the company and its assets and individual creditors were left to paddle their own canoe in headwinds controlled by those in debt and default. 40 The enactment of the IBC has marked a quantum change in corporate governance and the rule of law. First and foremost, the IBC perceives good corporate governance, respect for and adherence to the rule of law as central to the resolution of corporate insolvencies. Second, the IBC perceives corporate insolvency not as an isolated problem faced by an individual business entities but places it in the context of a framework which is founded on public interest in facilitating economic growth by balancing diverse stakeholder interests. Third, the IBC attributes a primacy to the business decisions taken by creditors acting as a collective body, on the premise that the timely resolution of corporate insolvency is necessary to ensure ....
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....accompanying the introduction of the Bill proposing the amendment dated 23 November 2017, elucidates the purpose of introducing the new provisions: "2. The provisions for insolvency resolution and liquidation of a corporate person in the Code did not restrict or bar any person from submitting a resolution plan or participating in the acquisition process of the assets of a company at the time of liquidation. Concerns have been raised that persons who, with their misconduct contributed to defaults of companies or are otherwise undesirable, may misuse this situation due to lack of prohibition or restrictions to participate in the resolution or liquidation process, and gain or regain control of the corporate debtor. This may undermine the processes laid down in the Code as the unscrupulous person would be seen to be rewarded at the expense of creditors. In addition, in order to check that the undesirable persons who may have submitted their resolution plans in the absence of such a provision, responsibility is also being entrusted on the committee of creditors to give a reasonable period to repay overdue amounts and become eligible." 44 During the course of the debate in the Lok Sab....
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....rding themselves at the expense of creditors and undermining the processes laid down in the Code." 46 Significantly, the ineligibility which was engrafted by the amending legislation was incorporated in both the provisions of Chapter II dealing with the CIRP as well as in Chapter III dealing with the liquidation process. Section 29A stipulates the category of persons who "shall not be eligible to submit a resolution plan". The proviso to Section 35(1)(f) incorporates the same norm in the liquidation process, when it stipulates that the liquidator shall not sell the immovable and movable or actionable claims of the corporate debtor in liquidation "to any person who is not eligible to be a resolution applicant". These words in Section 35(1)(f) are clearly referable to the ineligibility which is set up in Section 29A. Judicial understanding Chitra Sharma 47 The underlying purpose of introducing Section 29A was adverted to in a judgment of this court in Chitra Sharma v. Union of India (2018) 18 SCC 575; hereinafter, referred to as "Chitra Sharma". One of us (Justice DY Chandrachud) speaking for a Bench of three learned judges took note of the Statement of Objects and Reasons accomp....
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....v. Satish Kumar Gupta & Ors. (2019) 2 SCC 1; hereinafter, referred to as "Arcelormittal", Justice Rohinton F Nariman, speaking for himself and Justice Indu Malhotra, reiterated the same principle when he underscored the need to impart a purposive interpretation to Section 29A "depending both on the text and context in which the provision was enacted": "30. A purposive interpretation of Section 29A, depending both on the text and the context in which the provision was enacted, must, therefore, inform our interpretation of the same. We are concerned in the present matter with clauses (c), (f), (i) and (j) thereof." The decision adverts to Section 29A as "a typical instance of a 'see-through provision' so that one is able to arrive at persons who are actually in 'control', whether jointly or in concert with other persons "32. The opening lines of Section 29A of the Amendment Act refer to a de facto as opposed to a de jure position of the persons mentioned therein. This is a typical instance of a "see-through provision", so that one is able to arrive at persons who are actually in "control", whether jointly, or in concert, with other persons. A wooden, literal, interpretation would ....
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.... able to maximize their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. (See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] at para 83, fn 3). 28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation f....
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....tion applicants, but to liquidation also. Consequently, this plea is also rejected." A Purposive Interpretation 52 This line of decisions, beginning with Chitra Sharma (supra) and continuing to Arcelormittal (supra) and Swiss Ribbons (supra) is significant in adopting a purposive interpretation of Section 29A. Section 29A has been construed to be a crucial link in ensuring that the objects of the IBC are not defeated by allowing "ineligible persons", including but not confined to those in the management who have run the company aground, to return in the new avatar of resolution applicants. Section 35(1)(f) is placed in the same continuum when the Court observes that the erstwhile promoters of a corporate debtor have no vested right to bid for the property of the corporate debtor in liquidation. The values which animate Section 29A continue to provide sustenance to the rationale underlying the exclusion of the same category of persons from the process of liquidation involving the sale of assets, by virtue of the provisions of Section 35(1)(f). More recent precedents of this Court continue to adopt a purposive interpretation of the provisions of the IBC. (See in this context the ju....
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....2 shall maximize the value of the corporate debtor, he shall endeavor to first sell under the said clauses." Regulation 32-A(1) emphasizes the importance placed on the transfer of the corporate debtor or its business on a going concern basis. 56 Regulation 44 allows for a period of one year for the liquidation of the corporate debtor from the liquidation commencement date. Its proviso, however, allows for an additional period up to ninety days where the sale is attempted under sub-Regulation (1) of Regulation 32A. Regulation 44 is as follows: "44. Completion of liquidation. (1) The liquidator shall liquidate the corporate debtor within a period of one year from the liquidation commencement date, notwithstanding pendency of any application for avoidance of transactions under Chapter III of Part II of the Code, before the Adjudicating Authority or any action thereof: Provided that where the sale is attempted under subregulation (1) of regulation 32A, the liquidation process may take an additional period up to ninety days.] (2) If the liquidator fails to liquidate the corporate debtor within 29[one year], he shall make an application to the Adjudicating Authority to continue....
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....under the Act of 2013 or under the IBC. Interestingly, Section 230 (except Sub-sections (11) and (12)) came into force on 7 December 2016. Where a compromise has been entered into with only a class of creditors, it will bind that class under the provisions of Section 230(6), which reads thus: "(6) Where, at a meeting held in pursuance of sub-section (1), majority of persons representing three fourths in value of the creditors, or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator and the contributories of the company." 61 Under Sub-section (6) of Section 230, the comprise or arrangement has to be agreed to by a "majority of persons representing 3/4th in value" of the creditors, members or a class of them. Upon the sanctioning of the compromise or arrangement by the NCLT, it binds the company, all the c....
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....ting the liability of the workers in terms of Section 529 and Section 529A of the Act. Of course, the court has to see to the bona fides of the scheme and to ensure that what is put forward is not a ruse to dispose of the assets of the company in liquidation." Moreover, the Court held that in the case of a company which has been wound up it would have to perceive aspects of public interest, commercial morality and the existence of a bona fide intent to revive the company, while considering whether a compromise or arrangement put forward under Section 391 should be accepted. While the Court would not sit in appeal over the commercial wisdom of the shareholders, "it will certainly consider whether there is a genuine attempt to revive the company that has gone into liquidation and whether such revival is in public interest and conforms to commercial morality". On the facts of the case, the Court found that it was difficult to hold that "it is a scheme for revival of the Company, the clear statutory intention behind entertaining a proposal under Section 391". These observations of the two judge Bench in Meghal Homes (supra) have a significant bearing on the nature of a compromise or a....
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....nder Sub-Section (2) of Section 33, the Adjudicating Authority has to pass a liquidation order where the resolution professional, during the CIRP but before the confirmation of the resolution plan, intimates the Adjudicating Authority of the decision of the CoC approved by not less than 66 per cent of the voting shares to liquidate the corporate debtor. Under Section 34, upon the Adjudication Authority passing an order for liquidation of the corporate debtor under Section 33, the resolution professional appointed for the CIRP under Chapter II is to act as a liquidator for the purpose of liquidation. Section 35 proceeds to stipulate that subject to the directions of the Adjudicating Authority, the liquidator shall have the powers and duties enumerated in the provision. 66 What emerges from the above discussion is that the provisions of the IBC contain a comprehensive scheme, first, for the initiation of the CIRP at the behest of financial creditor under Section 7 or at the behest of the operational creditor under Section 9 or the corporate debtor under Section 10. Chapter II provides for the appointment of an interim resolution professional "IRP" in Section 17 and the constitution ....
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...., in the context of a company which is in liquidation, has important consequences for the outcome of the controversy in the present case. The first point is that a liquidation under Chapter III of the IBC follows upon the entire gamut of proceedings contemplated under that statute. The second point to be noted is that one of the modes of revival in the course of the liquidation process is envisaged in the enabling provisions of Section 230 of the Act of 2013, to which recourse can be taken by the liquidator appointed under Section 34 of the IBC. The third point is that the statutorily contemplated activities of the liquidator do not cease while inviting a scheme of compromise or arrangement under Section 230. The appointment of the liquidator in an IBC liquidation is provided in Section 34 and their duties are specified in Section 35. In taking recourse to the provisions of Section 230 of the Act of 2013, the liquidator appointed under the IBC is , above all, to attempt a revival of the corporate debtor so as to save it from the prospect of a corporate death. The consequence of the approval of the scheme of revival or compromise, and its sanction thereafter by the Tribunal under ....
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....(2005) 2 SCC 145 (Letters Patent and rules made under it constitute special law for the High Court concerned and are not displaced by the general provisions of the Civil Procedure Code)" would ensure that while on the one hand a scheme of compromise or arrangement under Section 230 is being pursued, this takes place in a manner which is consistent with the underlying principles of the IBC because the scheme is proposed in respect of an entity which is undergoing liquidation under Chapter III of the IBC. As such, the company has to be protected from its management and a corporate death. It would lead to a manifest absurdity if the very persons who are ineligible for submitting a resolution plan, participating in the sale of assets of the company in liquidation or participating in the sale of the corporate debtor as a 'going concern', are somehow permitted to propose a compromise or arrangement under Section 230 of the Act of 2013. 69 The IBC has made a provision for ineligibility under Section 29A which operates during the course of the CIRP. A similar provision is engrafted in Section 35(1)(f) which forms a part of the liquidation provisions contained in Chapter III as well. In th....
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.... this context that where an application for withdrawal under Section 12-A is allowed, the company reverts to the promoter. Placing a scheme under Section 230 of the Act of 2013 on the same pedestal, it has been urged that there is no reason to prevent a person who falls in the class of those ineligible under Section 29A from submitting a scheme of compromise or arrangement under Section 230 of the Act of 2013. In order to amplify the line of submissions as recorded above, the following points have been urged: (i) Though eight amendments have been brought about to the IBC between November 2017 and September 2020, the ineligibility contemplated by Section 29A and Section 35(1)(f) has not been expressly incorporated in Section 230 of the Act of 2013 even after the amendment to the IBC; (ii) Under Section 230, the persons competent to submit a scheme are (a) the company or its liquidator; (b) the creditors; or (c) a member. Section 230 does not prohibit a promoter or a person belonging to the exmanagement, from proposing a scheme of compromise or arrangement. This creates a "front door opportunity" to the erstwhile management to come forth and save the company; (iii....
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....90 per cent voting share of the CoC in such manner as may be specified. Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 "Adjudicating Authority Rules" , on the other hand, contemplates that the NCLT, functioning as the Adjudicating Authority, may permit a withdrawal of an application made under Rule 4 (by the financial creditor), Rule 6 (by the operational creditor) or Rule 7 (by the corporate applicant) on the request made by the applicant before its admission. Regulation 30-A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 contains provisions for the withdrawal of an application. Under Regulation 30-A "30A. Withdrawal of Application- (1) An application for withdrawal under section 12A shall be submitted to the interim resolution professional or the resolution professional, as the case may be, in Form FA of the Schedule before issue of invitation for expression of interest under regulation 36A. (2) The application in sub-regulation (1) shall be accompanied by a bank guarantee towards estimated cost incurred for purposes of clauses (c) and (d) of regulation 31 til....
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.... application to the Adjudicating Authority on behalf of the applicant, within three days of its receipt. (4) Where an application for withdrawal is under clause (b) of sub-regulation (1), the committee shall consider the application, within seven days of its receipt. (5) Where the application referred to in sub-regulation (4) is approved by the committee with ninety percent voting share, the resolution professional shall submit such application along with the approval of the committee, to the Adjudicating Authority on behalf of the applicant, within three days of such approval. (6) The Adjudicating Authority may, by order, approve the application submitted under sub-regulation (3) or (5). (7) Where the application is approved under sub-regulation (6), the applicant shall deposit an amount, towards the actual expenses incurred for the purposes referred to in clause (a) or clause (b) of sub-regulation (2) till the date of approval by the Adjudicating Authority, as determined by the interim resolution professional or resolution professional, as the case may be, within three days of such approval, in the bank account of the corporate debtor, failing which the bank guarantee rec....
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....nt. This will be decided after hearing all the parties concerned and considering all relevant factors on the facts of each case. 83. The main thrust against the provision of Section 12-A is the fact that ninety per cent of the Committee of Creditors has to allow withdrawal. This high threshold has been explained in the ILC Report as all financial creditors have to put their heads together to allow such withdrawal as, ordinarily, an omnibus settlement involving all creditors ought, ideally, to be entered into . This explains why ninety per cent, which is substantially all the financial creditors, have to grant their approval to an individual withdrawal or settlement. In any case, the figure of ninety per cent, in the absence of anything further to show that it is arbitrary, must pertain to the domain of legislative policy, which has been explained by the Report (supra). Also, it is clear, that under Section 60 of the Code, the Committee of Creditors do not have the last word on the subject. If the Committee of Creditors arbitrarily rejects a just settlement and/or withdrawal claim, NCLT, and thereafter, NCLAT can always set aside such decision under Section 60 of the Code. For all....
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....(2020) 8 SCC 531. Justice Rohinton F Nariman, speaking for the three judge Bench of this Court, observed: "105. Section 31(1) of the Code makes it clear that once a resolution plan is approved by the Committee of Creditors it shall be binding on all stakeholders, including guarantors. This is for the reason that this provision ensures that the successful resolution applicant starts running the business of the corporate debtor on a fresh slate as it were. In SBI v. V. Ramakrishnan [SBI v. V. Ramakrishnan, (2018) 17 SCC 394 : (2019) 2 SCC (Civ) 458] , this Court relying upon Section 31 of the Code has held: (SCC p. 411, para 25) "25. Section 31 of the Act was also strongly relied upon by the respondents. This section only states that once a resolution plan, as approved by the Committee of Creditors, takes effect, it shall be binding on the corporate debtor as well as the guarantor. This is for the reason that otherwise, under Section 133 of the Contract Act, 1872, any change made to the debt owed by the corporate debtor, without the surety's consent, would relieve the guarantor from payment. Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as ....
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....editors as the case may be as well as the liquidator (appointed under the Act of 2013 or the IBC). Both, the resolution plan upon being approved under Section 31 of the IBC and a scheme of compromise or arrangement upon being sanctioned under Sub-section (6) of Section 230, represent the culmination of the process. This must be distinguished from a mere withdrawal of an application under Section 12-A. There is a clear distinction between these processes, in terms of statutory context and its consequences and the latter cannot be equated with the former. 76 Additionally, there is no merit in the submission that Section 35(1)(f) applies only to a liquidator who conducts a sale of the property of the corporate debtor in liquidation but not to the NLCT, acting as the Tribunal, when it exercises its powers under Section 230 of the Act of 2013. The liquidator appointed under the provisions of Chapter III of the IBC is entrusted with several powers and duties. Sections 37 to 42 of the IBC are illustrative of the powers of the liquidator in the course of the liquidation. The liquidator exercises several functions which are of a quasi-judicial in nature and character. Section 35(1) itself ....
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....e an application under Section 230 of the Act within 10 days of the order of liquidation. If approved by the NCLT, the Liquidator shall complete the process under Section 230 within 90 days of the order of liquidation. The Regulations may provide that liquidation process under the Coe shall commence at the earlier of the four events: (a) there is no proposal for compromise or arrangement within ten days; (b) the NCLT does not approve the application under Section 230 of the Act, (c) the process under Section 230 is not completed within 90 days or such extended period as may be allowed by the NCLT, or (d) the process under Section 230 is not sanctioned under Section 230(6) of the Act. A tight time schedule is necessary for conclusion of the process for compromise or arrangement to ensure that the liquidation process is concluded without undue delay." 79 IBBI noted in its discussion paper that the introduction of ineligibilities stipulated under Section 29-A of the IBC to Section 230 of the Act of 2013 would pose practical difficulties in its implementation. IBBI observed: "3.3.3 Ineligibility: Proviso to section 35(1)(f) of the Code mandates that the Liquidator shall no....
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....lution plans under section 29A from proposing compromise or arrangement made under Section 230 of the Act, which may result in person ineligible under section 29A acquiring control of the CD. Thus, while section 29A of the Code is applicable to a CD when it is under CIRP and when it is under Liquidation Process, it is not applicable to the same CD when it is undergoing compromise or arrangement, in between CIR process and liquidation process. This has created an anomaly that section 29A is applicable during the stage before and the stage after compromise and arrangement and not during compromise and arrangement. 22. Section 29A of the Code keeps out a person, who is a wilfull defaulter, who has an account with non-performing assets for a long period, etc. and therefore, is likely to be a risk to a successful resolution of insolvency of a company. This rationale equally applies to the stage of compromise or arrangement. Non-applicability of section 29A at the stage of compromise or arrangement may undermine the process and may reward unscrupulous persons at the expense of creditors. Thus, it may be necessary to harmonise the provisions in the Code and the Act to provide level play....
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....ducing a disqualification or ineligibility in regard to the presentation of an application for a scheme of compromise or arrangement under Section 230 of the Act of 2013. It has been urged that IBBI, as an entity constituted by the IBC, had no statutory jurisdiction to amend the provisions of Section 230 of the Act of 2013 or to impose a restriction which operates under the purview of Section 230. The position in our view can be considered from two perspectives, independent of the provisions of Regulation 2B. We have indicated in the discussion earlier that even in the absence of the Regulation 2B, a person ineligible under Section 29A read with Section 35(1)(f) is not permitted to propose a scheme for revival under Section 230, in the case of a company which is undergoing a liquidation under the IBC. We have come to the conclusion, as noted for the reasons indicated earlier, that in the case of a company which is undergoing liquidation pursuant to the provisions of Chapter III of the IBC, a scheme of compromise or arrangement proposed under Section 230 is a facet of the liquidation process. The object of the scheme of compromise or arrangement is to revive the company. The princip....
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....ed to some alignment in the two frameworks. 87 The Committee thereafter notes that the introduction of such schemes into the framework of the IBC may be worrisome since it will alter the incentives during the CIRP and lead to destructive delays, which often plagued the process under the Sick Industrial Companies (Special Provisions) Act, 1985 Ibid, at para 4.5. However, it nonetheless also acknowledges the benefits such schemes may have to offer Ibid, para 4.6; In the Indian context, see Umakanth Varottil, 'The Scheme of Arrangement as a Debt Restructuring Tool in India: Problems and Prospects' (March 2017) NUS Working Paper 2017/005 available at <http://law.nus.edu.sg/wp>. Even so, the Committee concludes by noting that such schemes, if at all they are to be brought in, should not be under the Act of 2013 but the IBC itself. The Report notes thus: "4.6...However, the Committee was of the view that such a process for compromise or settlement need not be effected only through the schemes mechanism under the Companies Act, 2013, and felt that the liquidator could be given the power to effect a compromise or settlement with specific creditors with respect to their claims against th....