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s. 12A - Withdrawal of application – Withdrawal of the application admitted u/ss. 7, 9 and 10 – Discussed. Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016: Reg 2B - Constitutional validity of – Held: Reg 2 B provides that where a compromise or arrangement is proposed u/s. 230 of the Act of 2013, it shall be completed within ninety days of the order of liquidation under sub-Sections (1) and (4) of s. 33 – Proviso to Reg 2B provides that a person who is not eligible under the IBC to submit a resolution plan for insolvency resolution of the corporate debtor shall not be a party in any manner to such compromise or arrangement – Reg 2B, specifically the proviso to Reg 2B(1) is constitutionally valid. Insolvency and Bankruptcy Code, 2016: s. 29A – Person not eligible to be resolution applicant – Eligibility of promoter to file application for compromise and arrangement, while he is ineligible u/s. 29A to submit ‘Resolution Plan’ – On facts, application by GNCL, corporate debtor for initiating the Corporate Insolvency Resolution Process admitted and the appellant-promoter of GNCL submitted a resolution plan for GNCL – However, due to insertion of s. 29A, which disqualifies a person from being a resolution applicant if they have been a promoter or in the management or control of a corporate debtor, appellant became ineligible to submit a resolution plan – No resolution plan approved by the CoC and in absence thereof, the order of liquidation by NCLT – During the pendency of the appeal before NCLAT, application u/ss. 230 to 232 of the Act of 2013 by appellant-promoter of GNCL before the NCLT proposing a scheme for compromise and arrangement between the erstwhile promoters and creditors and the same was allowed – Appeal thereagainst by respondent- unsecured creditor of the corporate debtor – NCLAT holding that promoters ineligible u/s. 29A to submit a resolution plan, also barred from proposing a scheme of compromise and arrangement u/s.230 of the Act of 2013 – On appeal, held: Prohibition placed by the Parliament in s. 29A and s. 35(1)(f) must also attach itself to a scheme of compromise or arrangement u/s. 230 of the 2013 Act, when the company is undergoing liquidation under the auspices of the IBC – As such, Reg 2B, specifically the proviso to Reg 2B(1), is also constitutionally valid – Even in the absence of the Reg 2B, a person ineligible u/s. 29A read with s. 35(1)(f) is not permitted to propose a scheme for revival u/s. 230, in the case of a company which is undergoing a liquidation under the IBC – In the case of a company undergoing liquidation under the IBC, a scheme of compromise or arrangement proposed u/s. 230 is a facet of the liquidation process – Object of the scheme of compromise or arrangement is to revive the company – Same rationale which permeates the resolution process u/s. 29A permeates the liquidation process u/s. 35(1)(f) – Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 – Reg 2B – Companies Act, 2013 – ss. 230 to 232. Enactment of – Salutary objectives of good corporate governance and respect for and adherence to the rule of law; and re-organization and resolution of insolvencies under – Held: Can be achieved if the integrity of the resolution process is placed at the forefront – Purposive interpretation is required by the courts, while infusing meaning and content to its provisions, to ensure that the problems which beset the earlier regime do not enter through the backdoor through disingenuous stratagems. s. 29A – Person not eligible to be resolution applicant – Purpose of the ineligibility under – Held: Is to achieve a sustainable revival and to ensure that a person who is the cause of the problem either by a design or a default cannot be a part of the process of solution – s. 29A encompasses not only conduct in relation to the corporate debtor but in relation to other companies as well. ss. 29A, 35(1)(f) – Interplay between the proposal of a scheme of compromise and arrangement u/s.230 of the Act of 2013 and liquidation proceedings initiated under IBC – Held: s. 230 of the Act of 2013 is wider in its ambit – It is not confined only to a company in liquidation or to corporate debtor which is being wound up under Chapter III of the IBC – Thus, the rigors of the IBC will not apply to proceedings u/s. 230 of the Act of 2013 where the scheme of compromise or arrangement proposed is in relation to an entity which is not the subject of a proceeding under the IBC – However, where s. 230 of the Act of 2013 traces its origin to the liquidation proceedings initiated under IBC, harmonious construction is needed between the two statutes which would ensure that a scheme of compromise or arrangement u/s. 230 is being pursued, in a manner consistent with the underlying principles of the IBC – 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, are somehow permitted to propose a compromise or arrangement u/s. 230 of the Act of 2013 – IBC has made a provision for ineligibility u/s. 29A which operates during the course of the CIRP – Similar provision, s. 35(1)(f) forms a part of the liquidation provisions contained in Chapter III as well – In the context of the statutory linkage provided by the provisions of s. 230 of the Act of 2013 with Chapter III of the IBC, it would be far- fetched to hold that the ineligibilities which attach u/s. 35(1)(f) r/w s. 29A would not apply when s. 230 is sought to be invoked – Such an interpretation would result in defeating the provisions of the IBC and must be eschewed – 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 u/s. 230 of the Act of 2013, while the company is undergoing liquidation under the provisions of the IBC lies in a similar continuum – Companies Act, 2013 – ss. 230 to 232. ss. 6 to 32A – Modes of revival of a company under the provisions of the IBC – Explained. |
