Interplay of IBC and Companies Act: Legal Analysis by the Court

Delve into a detailed legal analysis provided by the court regarding the interplay of the Insolvency and Bankruptcy Code (IBC) and the Companies Act. The court’s examination sheds light on the complexities of insolvency resolution processes and company laws, emphasizing the importance of upholding the integrity of these frameworks. Stay tuned to unravel the legal insights shared by the court in this significant case.


  • The NCLT had initially allowed the application and issued directions for convening a meeting of shareholders and creditors.
  • The NCLAT reversed this decision on 24 October 2019 in an appeal by JSPL.
  • The appeal before the Court challenges the NCLAT’s decision dated 24 October 2019.
  • Mr. Arun Kumar Jagatramka challenges the NCLAT order on the ground that Section 230 of the Act of 2013 does not impose any restrictions on submitting a scheme.
  • The NCLAT held in its judgment on 24 October 2019 that a person ineligible under Section 29A of the Insolvency Bankruptcy Code, 2016 is not allowed to file an application for compromise and arrangement under Sections 230 to 232 of the Act of 2013.
  • The appeal was filed against an order passed by the NCLT in an application under Sections 230 to 232 of the Act of 2013 by Mr. Arun Kumar Jagatramka, a promoter of GNCL.
  • JSPL, an operational creditor of GNCL, appealed against the NCLT order dated 15 May 2018 to the NCLAT.
  • The appeal challenged the ineligibility imposed under Section 29A of the IBC on proposing a scheme of compromise under Section 230 of the Companies Act, 2013.
  • Regulation 2B, inserted by IBBI, stated that a compromise or arrangement proposed under Section 230 of the Companies Act, 2013 must be completed within 90 days of the order of liquidation issued under IBC.
  • Mr Kunwar Sachdev submitted a resolution plan for Su-Kam in November 2018 which was later found to be ineligible under Section 29A of the IBC.
  • Arun Kumar Jagatramka submitted a resolution plan for GNCL in November 2017 but became ineligible due to Section 29A amendments in the IBC.
  • Email exchanges between Kunwar Sachdev and the liquidator revealed his ineligibility under Section 29A for proposing a compromise plan.
  • NCLAT’s decision on ineligibility under Section 29A was challenged, and the appeal outcome was dismissed by NCLAT in December 2019.
  • Various amendments to IBC and the Liquidation Process Regulations, including the addition of Regulation 2B, impacted the eligibility of resolution applicants and scheme proposers.

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  • Mr Sandeep Bajaj argued that the ineligibility under Section 29A of the IBC does not extend to Section 230 of the Companies Act, 2013.
  • It was emphasized that the IBC provides a comprehensive procedure for liquidation, ensuring that assets are not sold to ineligible parties under Section 29A.
  • The aim is to prevent defaulting promoters from gaining control of the debtor’s assets.
  • The argument highlighted the difference in treatment between resolution applicants under the IBC and those proposing compromises under Section 230 of the Companies Act, 2013.
  • The amendments and dynamic nature of the IBC were also discussed, focusing on keeping defaulting promoters away from asset control.
  • Regulation 2B, which allows for a compromise under Section 230, was defended as aligned with the objectives of Sections 29A and 35(1)(f) of the IBC.
  • A proposal under Section 230 of the Act of 2013 does not necessarily result in the revival of the company.
  • A compromise or arrangement under Section 230 in the context of a company in liquidation under the IBC is seen as a part of the liquidation process.
  • According to Mr. Sibal, a person ineligible under Section 29A cannot propose a scheme for revival under Section 230.

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  • The analysis delves into the interplay between the proposal of a scheme of compromise and arrangement under Section 230 of the Act of 2013 and liquidation proceedings initiated under Chapter III of the IBC.
  • It emphasizes that a scheme proposed under Section 230 in the context of a company in liquidation under the IBC must comply with the requirements of the IBC, including the prohibition of submission by ineligible persons under Section 29A.
  • The ineligibilities under Sections 29A and 35(1)(f) of the IBC apply to both the resolution process and the liquidation process, aiming to prevent back-door entry to disqualified persons.
  • The analysis notes the statutory continuum between IBC liquidation and schemes under Section 230, highlighting that the liquidator’s roles continue during the submission of a compromise or arrangement under Section 230.
  • It underlines that the sanction of a compromise or arrangement under Section 230 binds the company, creditors, members, and the liquidator, ensuring a binding character upon stakeholders.
  • The section also discusses the purpose and intent behind the introduction of Section 29A to prevent unscrupulous individuals from gaining control over distressed companies.
  • An important consideration is the distinction between a withdrawal under Section 12-A and a scheme of arrangement under Section 230, with the latter being a more comprehensive process.
  • The analysis emphasizes the need for consistency between the IBC and the provisions of Section 230, particularly when the liquidation process is prompted by the IBC.
  • Overall, the part underscores the significance of upholding the integrity of the insolvency resolution processes and preventing undesirable elements from influencing revival measures.
  • Regulation 30-A allows for withdrawal of application before and after the constitution of the CoC, with reasons required after CoC constitution and EoI issuance.
  • Withdrawal post EoI is permitted per Brilliant Alloys (P) Ltd. v. S Rajagopal, making Regulation 30-A directory.
  • Withdrawal of application under Sections 7, 9, or 10 leads to restoration of the corporate debtor to the promoter with conditions for revival and barring proposals from Section 29A ineligible persons.
  • Ineligibility under Section 29A and Section 35(1)(f) introduced by a legislative amendment on 23 November 2017 to ensure sustainable revival by excluding undesirable persons.
  • Section 29A ineligibility extends to Chapter III and Section 35(1)(f), also affecting Regulation 32 of Liquidation Process Regulations.
  • Section 230 allows for compromises or arrangements between a company and creditors/members, especially in liquidation scenarios, binding specific class of creditors under Section 230(6).
  • Ineligibility under Sections 29A and 35(1)(f) applies to liquidation scenarios where IBC is involved, preventing those barred from proposing compromises in such situations.
  • Avoiding absuridity, barred individuals from resolution plans or asset sales in liquidation shouldn’t propose compromises under Section 230.
  • Section 12-A not the final resolution but the starting point in the IBC process.
  • Clear distinction shown between settlement and resolution mechanisms, with Section 29A aimed at preventing backdoor entries for promoters.
  • Prohibition under Section 29A aims to prevent promoters from submitting resolution plans, while Chapter III covers the liquidation process and asset sales by the liquidator.
  • Section 31 provides the benefit of starting the business on a fresh slate post-approval of the resolution plan.
  • A compromise or arrangement for a company in liquidation must aim at reviving the company, as per the statutory intention of Section 391.
  • Section 29A is to be interpreted purposively based on the text and context of the provision.
  • Ineligibility under Section 29A is essential for effective corporate governance and preventing ineligible persons from re-entering the resolution process.
  • Section 29A aims at ensuring sustainable revival by disallowing those responsible for the company’s downfall from participating in the resolution process.
  • The prohibition under Section 29A extends to conduct not only related to the corporate debtor but to other companies as well.
  • Regulation 32 focuses on the realization of assets in the liquidation process, emphasizing the sale of assets and going concern of the corporate debtor.
  • The importance of transferring the corporate debtor or its business on a going concern basis is highlighted in Regulation 32-A(1).
  • Considerations of public interest, commercial morality, and genuine intent to revive the company are crucial in accepting a compromise or arrangement under Section 391 for a company in liquidation.
  • Regulation 2B of the Liquidation Process Regulations, including the proviso to Regulation 2B(1), is constitutionally valid.
  • The prohibition in Section 29A and Section 35(1)(f) of the IBC also applies to schemes of compromise or arrangement under Section 230 of the Companies Act of 2013 when the company is undergoing liquidation under the IBC.
  • The observations made are not on the merits of the issue but are only meant to serve as guiding principles for NCLT and NCLAT benches handling disputes under the IBC in the future.
  • After analysis, it is concluded that there is no merit in the appeals and the writ petition.

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  • The civil appeals and writ petition have been dismissed.
  • Any pending application(s) have been disposed of.


Case Number: C.A. No.-009664 / 2019

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