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A person ineligible u/s 29A of IBC wouldn't be permitted to propose a compromise u/s 230 of Cos Act: SC

March 16, 2021[2021] 125 taxmann.com 244 (SC)
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IBC: A person, who is ineligible under Section 29A, would not be permitted to propose a compromise or arrangement under Section 230 of Companies Act, 2013; prohibition placed by Parliament in Section 29A and Section 35(1)(f) of IBC must also attach itself to a scheme of compromise or arrangement under Section 230 of Companies Act, when company is undergoing liquidation under auspices of IBC

Facts

• The National Company Law Appellate Tribunal held that a person who is ineligible under Section 29A of the Insolvency Bankruptcy Code, 2016 to submit a resolution plan, is also barred from proposing a scheme of compromise and arrangement under Section 230 of the Companies Act, 2013.

Held

• The stages of submitting a resolution plan, selling assets of a company in liquidation and selling the company as a going concern during liquidation, all indicate that the promoter or those in the management of the company must not be allowed a back-door entry in the company and are hence, ineligible to participate during these stages. Proposing a scheme of compromise or arrangement under Section 230 of the Act of 2013, while the company is undergoing liquidation under the provisions of the IBC lies in a similar continuum. Thus, the prohibitions that apply in the former situations must naturally also attach to the latter to ensure that like situations are treated equally.

• A withdrawal under Section 12A is in the nature of settlement, which has to be distinguished both from a resolution plan which is approved under Section 31 and a scheme which is sanctioned under Section 230 of the Act of 2013.The scheme of compromise or arrangement under Section 230 of the Act of 2013 cannot certainly be equated with a withdrawal simpliciter of an application, as is contemplated under Section 12A of the IBC.

• 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.

• There can be no manner of doubt that the proviso to Regulation 2B is clarificatory in nature. Even absent the proviso, a person who is ineligible under Section 29A would not be permitted to propose a compromise or arrangement under Section 230 of the Act of 2013. Therefore, there is no merit in the challenge to the validity of Regulation 2B.

Conclusion

• The prohibition placed by the Parliament in Section 29A and Section 35(1)(f) of the IBC must also attach itself to a scheme of compromise or arrangement under Section 230 of the Act of 2013, when the company is undergoing liquidation under the auspices of the IBC. As such, Regulation 2B of the Liquidation Process Regulations, specifically the proviso to Regulation 2B(1), is also constitutionally valid.

• [Jindal Steel and Power Ltd. v. Arun Kumar Jagatramka [2020] 114 taxmann.com 133 (NCL-AT) affirmed ]

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