Introduction

The insolvency and bankruptcy code came into existence during the year 2016, and the intricacies of the problem it covers have resulted in subsequent amendments to the act. The primal focus of the legislation was to provide a resolution plan. Proceedings under IBC are not recovery proceedings, but the proceedings aim in ensuring the revival and continuation of the corporate debtor. The same was iterated in Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors.

The corporate insolvency resolution process is a pertinent part of IBC proceedings which aims in reviving and rehabilitating the corporate debtor. Liquidation, often in such situations becomes the final stage of such processes. The Adjudicating Authority has provided the Corporate Debtors with an additional avenue as a recourse to restructure and rehabilitate the company.

Section 230 of the Companies Act

Section 230 of the Companies Act, 2013 discussed powers to compromise or make arrangements with creditors and members. This company’s act section was transported to IBC, and a proposal of such schemes under the code was allowed. This concept first emerged in the case of S.C Sekaran v. Amit Gupta & Ors (Company Appeal (AT) (Insolvency) No. 495/496 of 2018). The case followed the principle of “resolution over liquidation” and allowed the liquidator to sell the corporate debtor as a going concern. In this case, the liquidators were asked to take steps under section 230 of the companies act. The case highlighted that the liquidator’s main concern is to keep the company as a going concern, they are allowed to take steps under section 230.

At this juncture, it is pertinent to bring in Regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016  which presents a conclusive list of things which a liquidator can sell. Point (e) of the same regulation allows the liquidator to sell the corporate debtor as a going concern.

This section acts as a life jacket which saves the corporate debtor from a corporate death by liquidation.

Eligibility to propound a scheme

A perusal of section 230 simply provides a list of people who can propose a scheme. A company, creditor, or member of the company in the ordinary course and during liquidation, the liquidator is given the liberty. An NCLAT judgement, Rasikalal’s Mardia v. Amar Dye Chemical Ltd., expanded the list of eligible people to include a creditor, a member, and a liquidator when a company is being wound up. The court had interpreted Section 230 as the liquidator is only an additional member in the case of liquidation and not an exclusive member to propose a scheme.

In the case of S. Krishna Murthy v. Hoysala Building Development Co., a 2012 Karnataka High Court judgement, the court said that that scheme under section 230 can only be propounded by people mentioned in Section 230, proving that the section is exhaustive, the court emphasized that such a section should be followed in “letter and spirit” and held that even when the scheme at first glance propounds a name of the person, the same should not only be for compliance of the provision. If the scheme is formulated in such a way to make a third party as the effective propounder, then the same cannot be accepted.

The people eligible to propose a scheme under the act were narrowed down, the same is discussed in the subsequent Paragraph.

Ineligibility to propound a scheme

NCLAT, in the matter of Jindal Steel and Power Ltd vs Arun Kumar Jagatramka & Anr, held that even when the liquidation process is going on, the people who, under the act were ineligible under section 29 A, I&B Code. This section is restrictive and provides a list of people who are not eligible to file a resolution plan. The same list of people is not allowed to propose a scheme, it includes resolution applicants who have proposed a resolution plan and the same have been rejected by the CoC. In the Appeal of the above-mentioned case, the Apex Court highlighted that 29-A of IBC become a crucial link which needs to be protected to not allow the ex-management of the company to return in a new avatar of resolution Applicants or by proposing a scheme. The case held:

“The purpose of the ineligibility under S. 29-A IBC is to achieve a sustainable revival and to ensure 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 a solution — Thus, it would lead to a manifest absurdity if the very persons who are ineligible for submitting a resolution plan, participating in the sale of assets of the company in liquidation or participating in the sale of the corporate debtor as a “going concern”, are somehow permitted to propose a compromise or arrangement”

Further, through notification No. IBBI/2019-20/REG 053 dated 6th January was inserted in the insolvency and bankruptcy board of India(liquidation Process) regulations, 2016, which included a proviso that people ineligible to submit a report shall not be a party to any compromise or arrangement under section 230 of the companies act.

Dual Role of Adjudicating Authority

The NCLT acts as an adjudicating authority under I&B Code, the moot question which arises during the proposal of such schemes is whether an Adjudicating Authority formed under the I&B code, act on matters regarding companies act as well.

Under section 5(1) of the I&B code, adjudicating Authority is National Company Law Tribunal. The appellate adjudicating authority by its judgement in Y. Shivram Prasad v. S. Dhanpal and Ors. ( Company Appeal (AT) (Insolvency) No. 224 of 2018) in 2019 Stated that:

“The adjudicating Authority is to play a dual role, one as the Adjudicating Authority in the matter of liquidation and other as a Tribunal for passing an order under Section 230 of the Companies Act, 2013.”

This judgement makes it clear that the Adjudicating Authority under the IB code will work in a dual capacity and will have jurisdiction over cases of section 230 of companies act during liquidation. The case throughout its judgement provides authority to the AA for matters about this concept. The adjudicating authority is at liberty to also increase the time limit, the part of the judgement is mentioned below:

“In case, for any  reason, the liquidation process under Section 230 takes more time, it is open to the Adjudicating Authority (Tribunal) to extend the period if there is a chance of approval of arrangement of the scheme.”

Conclusion

Allowing the proposal of the scheme under Section 230 of the Companies act ,2013 has acted as a great opportunity to keep the spirit of the I&B Code i.e., to maintain the corporate debtor as a going person. The process helps the corporate debtor avoid liquidation. Liquidation is a process by which is brought to end. To avoid such extreme ramifications, section 230 comes as a viable solution which allows the acquisition of such corporate debtors and keeps the Company going.

The persons who can fit the shoes of the proposer are mentioned in Section 230 of the companies act,2013  section 29A of the I&B Code  provides the exceptions, which need to be adhered to, as it ousts the former management from taking control of a failing entity which they could not prosper.