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2020 (2) TMI 1130 - AT - Law of CompetitionSteps for Financial Scheme of Compromise and Arrangement between Applicant Arun Kumar Jagatramka (Promoter) and the Company (Corporate Debtor) - Whether in a liquidation proceeding under Insolvency and Bankruptcy Code 2016 the Scheme for Compromise and Arrangement can be made in terms of Sections 230 to 232 of the Companies Act? - If so permissible whether the Promoter is eligible to file application for Compromise and Arrangement while he is ineligible under Section 29A of the I B Code to submit a Resolution Plan ? 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 29A are not entitled to file application for Compromise and Arrangement in their favour under section 230 to 232 of the Companies Act. Proviso to section 35(f) prohibits the Liquidator to 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. From section 35 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 . The National Company Law Tribunal by impugned order dated 15th May 2018 though ordered to proceed under sections 230 to 232 of the Companies Act failed to notice that such application was not maintainable at the instance of 1st Respondent-Arun Kumar Jagatramka (Promoter) who was ineligible under section 29A to be a Resolution Applicant - case remitted to Liquidator / Adjudicating Authority for taking fresh decision - appeal allowed by way of remand.
Issues Involved:
1. Whether in a liquidation proceeding under Insolvency and Bankruptcy Code, 2016 (I&B Code), a Scheme for Compromise and Arrangement can be made in terms of Sections 230 to 232 of the Companies Act. 2. If permissible, whether the Promoter, ineligible under Section 29A of the I&B Code to submit a Resolution Plan, is eligible to file an application for Compromise and Arrangement. Issue-wise Detailed Analysis: 1. Scheme for Compromise and Arrangement in Liquidation Proceedings: The Tribunal considered whether an application under Sections 230 to 232 of the Companies Act can be entertained during a liquidation proceeding under the I&B Code. It referenced prior judgments, particularly "S.C. Sekaran v. Amit Gupta" and "Y. Shivram Prasad v. S. Dhanapal," which established that during liquidation, the Liquidator must take steps to ensure the company remains a going concern and explore revival options before proceeding with asset liquidation. The Tribunal highlighted that the primary focus of the legislation is to ensure the revival and continuation of the corporate debtor, not merely its liquidation. The Tribunal affirmed that a petition under Sections 230 to 232 is maintainable during liquidation proceedings under the I&B Code. 2. Eligibility of Promoter under Section 29A of the I&B Code: The Tribunal addressed whether the Promoter, ineligible under Section 29A of the I&B Code, could file for Compromise and Arrangement. It referenced the Supreme Court's judgment in "Swiss Ribbons Pvt. Ltd. v. Union of India," which emphasized protecting the corporate debtor from its own management during liquidation. The Tribunal noted that Section 35(f) of the I&B Code prohibits the Liquidator from selling the corporate debtor's assets to any person ineligible to be a Resolution Applicant. Consequently, the Promoter, ineligible under Section 29A, cannot make an application for Compromise and Arrangement to reclaim the corporate debtor's assets. The Tribunal found that the National Company Law Tribunal's order allowing the Promoter's application was erroneous and set it aside, directing the Liquidator to proceed in accordance with the decision in "Y. Shivram Prasad." Conclusion: The Tribunal concluded that while a Scheme for Compromise and Arrangement is permissible during liquidation under the I&B Code, it cannot be initiated by a Promoter ineligible under Section 29A. The case was remitted to the Liquidator/Adjudicating Authority to proceed as per the guidelines established in "Y. Shivram Prasad." The appeal was allowed, and the impugned order was set aside.
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