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2018 (6) TMI 350 - AT - Insolvency and BankruptcyCorporate insolvency process - Approval of resolution plan - Held that - From bare perusal of Section 31, it is clear that if the Resolution Plan approved by the Committee of Creditors meets the requirement as referred to in sub-section (2) of Section 30, it can be approved by the Adjudicating Authority. As the impugned Scheme dated 20th October, 2016 has not been approved by the Committee of Creditors in terms of sub-section (4) of Section 30 of the I&B Code , it cannot be treated to be approved Resolution Plan under sub-section (1) of Section 31. If the Resolution Plan does not conform to the requirements of sub-section (2) of Section 30, it is to be rejected. The Appellant- Pr. Director General of Income Tax (Admn. & TPS) has pointed out that the Resolution Plan contravenes the provisions of the Income Tax Act. If the impugned approved Scheme dated 20th October, 2016, is treated to be an approved Resolution Plan under sub-section (1) of Section 31 of the I&B Code , it being against the provisions of the existing laws and being in violative of sub-section (2) of sub-clause (e) of Section 30 of the I&B Code is fit to be set aside. The allegations, as made above, that the Scheme is against the provisions of the existing law, have not been disputed by the Respondents. Though, we find that the impugned Scheme dated 20th October, 2016 is illegal but in absence of our jurisdiction to exercise of powers under Section 61 of the I&B Code , being barred by limitation, it will not be desirable to set aside the impugned illegal Scheme dated 20th October, 2016. But we hold the same illegal. In absence of any provision to get the Scheme executed through any Court of Competent jurisdiction, the relevant provision(s) having been repealed, the Appellant may raise the question, if the Respondents move before any court of Law for implementation the Scheme
Issues Involved:
1. Jurisdiction of NCLAT to hear appeals under Section 242 of the Insolvency and Bankruptcy Code (I&B Code). 2. Conflict of the Central Government’s notification with Section 61(2) of the I&B Code. 3. Legality of the demerger scheme approved by the Board on October 20, 2016. Issue-wise Detailed Analysis: 1. Jurisdiction of NCLAT to Hear Appeals: The primary question was whether the Central Government, under Section 242 of the I&B Code, could empower the NCLAT to hear appeals against the Board's orders by amending the Eighth Schedule of the I&B Code through an executive order. The Tribunal reviewed various provisions, including the SICA Act, 1985, SICA Repeal Act, 2003, and the I&B Code. It was noted that Section 242 allows the Central Government to make provisions for removing difficulties in implementing the I&B Code, provided such provisions are not inconsistent with the Code. However, the Tribunal found that the notification S.O. 1683(E) dated May 24, 2017, issued by the Central Government, did not relate to removing difficulties in giving effect to the I&B Code but rather addressed issues arising from the SICA Repeal Act, 2003, and omissions in the Companies Act, 2013. Therefore, the Tribunal concluded that the Central Government could not empower the NCLAT to entertain such appeals through this notification. 2. Conflict with Section 61(2) of the I&B Code: The Tribunal examined whether the provision to prefer an appeal within ninety days before the NCLAT, as made by the Central Government's notification, conflicted with Section 61(2) of the I&B Code, which provides a thirty-day period to prefer an appeal. The Tribunal observed that Section 61(2) allows a maximum period of forty-five days (including a fifteen-day extension for sufficient cause) to file an appeal. The notification's provision for a ninety-day period was found to be inconsistent with this statutory limit. Consequently, the Tribunal held that the NCLAT could not entertain appeals beyond the forty-five-day period, rendering the notification's ninety-day provision invalid. 3. Legality of the Demerger Scheme: The Tribunal considered whether the demerger scheme approved by the Board on October 20, 2016, was legal. The scheme was challenged on grounds including non-compliance with the SICA Act, 1985, and potential revenue loss due to unabsorbed losses and tax exemptions. The Tribunal noted that the scheme was approved before the I&B Code's enforcement on December 1, 2016, and thus could not be treated as a resolution plan under Section 31(1) of the I&B Code. Additionally, the Tribunal found that the scheme contravened existing laws, including the Income Tax Act, and was approved without considering objections from creditors. Although the Tribunal acknowledged the scheme's illegality, it refrained from setting it aside due to jurisdictional limitations and the appeals being barred by limitation. Conclusion: The Tribunal concluded that both appeals were barred by limitation and not maintainable under Section 61 of the I&B Code. It also highlighted that the NCLAT lacked jurisdiction to declare any Central Government notification illegal or to entertain appeals beyond the statutory period. Despite recognizing the illegality of the demerger scheme, the Tribunal refrained from setting it aside, leaving the appellants to challenge its implementation in appropriate legal forums. The appeals were disposed of with these observations, without any order as to costs.
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