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2022 (8) TMI 425 - AT - Companies LawMaintainability of application - Scheme of Compromise and Arrangement - independent Non-Government Director - application was dismissed on the ground that he is disqualified to submit a Compromise or arrangement as he is one of the Directors of company of Corporate Debtor and the Applicant, being a related person - HELD THAT - Meaning of the word control is defined under the Companies Act and it shall include the right to appoint majority of the Directors or to control the management or policy decision exercisable by a person or person acting individually or in concert directly or indirectly including by virtue of their shareholding or management rights or shareholder s arrangements of voting agreement or any other mean - Here in this case, the Appellant being an independent Non- Executive Director is neither having control as defined under the Companies Act, 2013 nor in the management of the company affairs. No disqualification can be attached to him as per Regulation 2B of Liquidation Process Regulations as amended, to submit Scheme of Compromise and Arrangement. In the judgment of Arun Kumar Jagatramka 2021 (3) TMI 611 - SUPREME COURT , Arcelor Mittal India Private Limited 2018 (10) TMI 312 - SUPREME COURT was considered only to the extent of intendment of IBC and not for any other principle however concluded that some scheme mentioned in Section 29A of IBC is applicable to Section 35(1)(f) of IBC. The Apex Court went on to consider the disqualification clause under Section 230(1) of the Companies Act, 2013 amended provisions i.e., proviso to the Regulation 2-B- Liquidation Regulation Act. The Apex Court undertook clarificatory exercise and concluded in the judgment that rationale which permeates the resolution process under Chapter-2 (by virtue of Section 29A of IBC) permeates the liquidation process under Chapter-3 of Section 35(i)(f). There can be no doubt that the proviso to Regulation 2B of Liquidation Process Regulation, a person who is ineligible under Section 29A of IBC would not be permitted to propose a Compromise or Arrangement under Section 230 of the Companies Act, 2013. At the end of the judgment, the Hon ble Supreme Court concluded that the disqualification placed by the Parliament in Section 29A and 35(i)(f) of IBC must also attach itself to Scheme of Compromise and Arrangement under Section 230 of the Companies Act, and when the Company is undergoing liquidation under the auspicious of IBC. As such, Regulation 2B of Liquidation Process Regulation, especially, proviso to 2B is also constitutionally valid. Since, the dispute relates to pre-amendment to Regulation 2B of Liquidation Process Regulation and that no disqualification be attached to independent non-executive Director as per Regulation 2-B of Liquidation Process Regulation r/w Section 29-A and 35(1)(f) of IBC to submit Scheme of Compromise and Arrangement. The Appellant being independent non-executive is not disqualified to propose Compromise and Arrangement in the pendency proceedings relating to liquidation prior to commencement of amended proviso to Regulation 2-B of Liquidation Regulation. Application is hereby set aside holding that the Appellant being independent nonexecutive Director to submit Scheme of Compromise and Arrangement during liquidation process - appeal allowed.
Issues:
1. Disqualification of an independent Director to submit a Compromise or arrangement in a liquidation process. 2. Interpretation of Section 29A of the Insolvency and Bankruptcy Code, 2016. 3. Application of Regulation 2B of Liquidation Process Regulation to the submission of a Scheme of Compromise and Arrangement. 4. Definition and role of an Independent Director as per the Companies Act, 2013. 5. Comparison of judgments in Arun Kumar Jagatramka Vs. Jindal Steel and Power Ltd. & Anr. and Arcelor Mittal India Private Limited Vs. Satish Kumar Gupta & Ors. Analysis: 1. The judgment dealt with the appeal against the dismissal of an application under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the disqualification of an independent Director to submit a Scheme of Compromise and Arrangement during the liquidation process. The appellant, an independent Director of both the Corporate Debtor and the Compromise Applicant, contended that the disqualification was wrongly imposed based on Regulation 2B of Liquidation Process Regulation and Section 29(j)(ii) of the IBC. 2. The Adjudicating Authority's decision was challenged on the grounds that the independent Director was not disqualified under Section 29A of the IBC or Regulation 2B of Liquidation Process Regulation. The appellant argued that the Authority failed to consider the definition and role of an Independent Director as per Section 149(6) of the Companies Act, 2013, and erroneously applied the principles from a previous judgment without considering the relevant amendments. 3. Both counsels presented detailed written submissions emphasizing that the Adjudicating Authority misinterpreted the relevant provisions of the IBC and Liquidation Process Regulation. They highlighted the applicability of the judgment in Arcelor Mittal India Private Limited Vs. Satish Kumar Gupta & Ors. and requested the setting aside of the impugned order to allow the submission of the Scheme of Compromise and Arrangement by the independent Director. 4. The Tribunal analyzed the definitions and provisions of the Companies Act, 2013, regarding Independent Directors and control within a company. Referring to the judgment in Arcelor Mittal India Private Limited, the Tribunal concluded that the independent Non-Executive Director in this case did not have control over the management of the company and, therefore, was not disqualified to propose the Compromise and Arrangement during the liquidation process. 5. Ultimately, the Tribunal found that the Adjudicating Authority had erred in dismissing the application based on the previous judgment without considering the relevant amendments and facts of the case. The appeal was allowed, setting aside the order and permitting the independent Director to submit the Scheme of Compromise and Arrangement during the liquidation process. The judgment emphasized the correct interpretation of the provisions of the IBC and the Companies Act, 2013, in such matters.
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