The Supreme Court on Monday ruled that the ex-promoters of an organization are ineligible under Section 29A of the Insolvency Bankruptcy Code (IBC) to propose a scheme of compromise and arrangement under Section 230 of the Companies Act, 2013.
In May 2018, a direction was issued by the National Company Law Tribunal (NCLT) for convening of a meeting of shareholders, secured creditors, unsecured creditors for approval of the scheme of compromise and arrangement.
The bench comprising Justice DY Chandrachud and Justice MR Shah upheld the NCLAT’s view that a person who was ineligible under Section 29A of IBC to submit a resolution plan, was also barred from proposing a scheme of compromise and arrangement under Section 230 of the Companies Act, 2013.
“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 under Section 230 of the Act of 2013,” the Court said.
Further the bench stated:
“The IBC has made a provision for ineligibility under Section 29A which operates during the course of the CIRP. A similar provision is engrafted in Section 35(1)(f) which forms a part of the liquidation provisions contained in Chapter III as well. In the context of the statutory linkage provided by the provisions of Section 230 of the Act of 2013 with Chapter III of the IBC, where a scheme is proposed of a company which is in liquidation under the IBC, it would be far-fetched to hold that the ineligibilities which attach under Section 35(1)(f) read with Section 29A would not apply when Section 230 is sought to be invoked.”