NCLAT:Law on maintainability of Compromise and Arrangement application by Promoter during pendency of Liquidation under IBC clarified

In Company Appeal (AT) No. 221 of 2018, IN THE MATTER OF Jindal Steel and Power Limited vs Arun Kumar Jagatramka, appeal was preferred under Section 421 of the Companies Act, 2013  against order passed by National Company Law Tribunal, Kolkata Bench by which the Tribunal in an application under Section 230 to 232 of the Companies Act, preferred by Promoter – Arun Kumar Jagatramka ordered for taking steps for Financial Scheme of Compromise and Arrangement between Applicant - Arun Kumar Jagatramka (Promoter) and the Company (‘Corporate Debtor’) through the ‘Liquidator’, after holding the debts of shareholders, creditors etc. in terms of Section 230 of the Companies Act.

The Appellant has challenged the same on following grounds:-

(i) Whether in a liquidation proceeding under IBC, 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 an application for Compromise and Arrangement, while he is ineligible under Section 29-A IBC to submit a ‘Resolution Plan’?

The Appellate Tribunal answered the first question in affirmative. It relied on the earlier decision in T. Shivram Prasad v. Dhanapal, Company Appeal (AT) (Insolvency) No. 224 of 2018, decided on 27-2-2019, to hold that: “In a Liquidation proceeding under IBC, a petition under Sections 230 to 232 of the Companies Act is maintainable.”.

For answering the second question, the Appellate Tribunal relied on the decision of the Supreme Court in Swiss Ribbons (P) Ltd. v. Union of India, Writ Petition (Civil) No. 99 of 2019, and held that: “Even during the period of Liquidation, for the purpose of Sections 230 to 232 of the Companies Act, the Corporate Debtor is to be saved from its own management, meaning thereby — the Promoters, who are ineligible under Section 29-A, are not entitled to file application for Compromise and Arrangement in their favour under Sections 230 to 232 of the Companies Act.”.

Reference was also made to the proviso to clause (f) of Section 35 IBC, which makes it clear that the Promoter, if ineligible under Section 29-A, cannot make an application for Compromise and Arrangement for taking back the immovable and movable property or the actionable claims of the Corporate Debtor.

The NCLAT finally held that rom the aforesaid provision, it is clear that the Promoter, if ineligible under Section 29A cannot make an application for Compromise and Arrangement for taking back the immovable and movable property or actionable claims of the ‘Corporate Debtor’.