► In favour of : Jindal Steel and Power Ltd

► Order:

In the absence of a resolution plan, the NCLT passed an order of liquidation - which was challenged in appeal by Mr Arun Kumar Jagatramka (promoter) before the NCLAT - dismissed by the NCLAT. Mr Arun Kumar Jagatramka moved an application under Sections 230 to 232 of the Companies Act of 2013 before the NCLT proposing a scheme for compromise and arrangement between the erstwhile promoters and creditors - allowed by the NCLT - a direction was issued for convening of a meeting of shareholders, secured creditors, unsecured creditors and FCCB holders. JSPL, an operational creditor of GNCL, preferred an appeal against the order of the NCLT before the NCLAT - NCLAT allowed the appeal - holding that promoters who are ineligible to propose a resolution plan under Section 29A of the IBC are not entitled to file an application for compromise and arrangement under Sections 230 to 232 of the Act of 2013.

Section 230 - Power to Compromise or Make Arrangements with Creditors and Members – A company can be revived under liquidation with the help of provisions under Section 230 of the Act of 2013, to which recourse can be taken by the liquidator appointed under Section 34 of the IBC. Section 29A – Eligibility of Resolution Applicant - put some barriers for resolution applicant to submit resolution plan. Section 35(1)(f) - the liquidator cannot sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant.

Three major questions covered - Whether in a liquidation proceeding under the Code, the Scheme for Compromise and Arrangement can be made in terms of Sections 230 to 232 of the Companies Act – Permissible as stated under Regulation 2B of the Liquidation Process Regulations;

Whether the Promoter is eligible to file application for Compromise and Arrangement, while he is ineligible under Section 29A of the Code to submit a ‘Resolution Plan’ – Not eligible as it defeats the purpose of the Code. The functioning of the Company goes back into the hands of its original owners who had led the Company into Resolution i.e. it is to be ensured that a company may achieve a sustainable revival and 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;

Whether a person who is ineligible under Section 29A of the IBC is permitted to propose a scheme for revival under Section 230 of the Act of 2013 at the stage of liquidation either themselves or in concert with others – Not eligible. Taking into consideration Section 35(1)(f), the Liquidator isn’t allowed to sell the assets to a person ineligible under Section 29A. Even if there is no direct mention of ineligibility of Section 29A, it is implied taking into consideration the Section 35(1)(f), the intent of Section 29A and the underlying object of IBC.

The Supreme Court highlighted that it would lead to a manifest absurdity if the very persons who are ineligible for submitting a resolution plan, participate in the sale of assets of the company in liquidation, are somehow permitted to propose a compromise or arrangement under Section 230 of the Act.