Compromise & Arrangement under Sec 230-232 Companies Act during IBC Liquidation: What the NCLAT has held

The National Company Law Appellate Tribunal has held that an application under Section 230 to 232 of the Companies Act, 2013 for Compromise and Arrangement with creditors is maintainable during the pendency of the liquidation proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC)..However, the Promoters who are ineligible under Section 29A IBC are not entitled to file an application for Compromise and Arrangement in their favour under Section 230 to 232 of the Companies Act, it has clarified..The Judgment was passed by a two-member Bench of Chairperson, Justice SJ Mukhopadhyay and Justice Bansi Lal Bhatt..Gujarat NRE Coke Limited (Corporate Debtor) had moved an application under Section 7 of IBC before the Adjudicating Authority i.e. the National Company Law Tribunal, Kolkata for initiation of Corporate Insolvency Resolution Process against itself. The plea was admitted but in absence of any Resolution Plan, the Adjudicating Authority passed an order of Liquidation..Subsequently, a promoter of the Corporate Debtor moved an application under Sections 230 to 232 of the Companies Act before NCLT for Compromise and Arrangement between erstwhile Promoters and the Creditors..The NCLT allowed the application and ordered that steps be taken for Financial Scheme of Compromise and Arrangement between the promoter and the Company i.e. the Corporate Debtor through the Liquidator after holding the debts of shareholders, creditors etc..The appellant, Jindal Steel and Power Ltd who was an unsecured creditor of the Corporate Debtor then moved the NCLAT under Section 421 of the Companies Act, 2013 against the order passed by National Company Law Tribunal, Kolkata Bench..The issues before the NCLAT were therefore as follows:.(i) 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?.(ii) If so permissible, whether the Promoter is eligible to file an application for Compromise and Arrangement, while he is ineligible under Section 29A of the I&B Code to submit a ‘Resolution Plan’?.To arrive at its conclusion, the NCLAT placed reliance on its earlier order passed in S.C. Sekaran v. Amit Gupta & Ors (2019) and observed that during the liquidation stage, the Liquidator is required to take steps to ensure that the company remains a going concern and instead of liquidation, must take steps for the revival of the Corporate Debtor..Further quoting from the judgement, the NCLAT recorded,.“..It can thus be seen that the primary focus of the legislation (IBC) is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors…”.It thus added that the steps required to save the Corporate Debtor from death by liquidation as well as its erstwhile management include a compromise or arrangement with the creditors, or class of creditors or members or class of members in terms of Section 230 of the Companies Act, 2013..If any objection is raised with respect to the Section 230 plea, the Adjudicating Authority i.e. NCLT has the power to pass orders under Section 230 to overrule such objections if the arrangement is beneficial for the revival of the Corporate Debtor, it said..The scheme must ensure maximisation of the assets of the Corporate Debtor and balance the interests of the stakeholders ie. the financial creditors, operational creditors, secured creditors and unsecured creditors, without any discrimination, it added..The NCLAT further clarified that before the approval of an arrangement, the NCLT should follow the same principle and allow the Liquidator to constitute a ‘Committee of Creditors’ to ascertain if the arrangement is viable, feasible and has an appropriate financial matrix..In view of the above, the NCLAT answered the first question in affirmative, i.e., in a Liquidation proceeding under I&B Code, a plea under Section 230 to 232 of the Companies Act is maintainable..With regards to the second issue, the NCLAT remarked that even during the period of Liquidation, a Corporate Debtor is to be saved from its own management. Therefore, the promoters who are ineligible under Section 29A IBC are not entitled to file an application for Compromise and Arrangement in their favour under Section 230 to 232 of the Companies Act, it held..To support its conclusion, the NCALT relied on the proviso to Section 35(f) IBC which 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..The NCLAT thus set aside the order passed by the NCLT and remitted the case to Liquidator and Adjudicating Authority for re-consideration in accordance with the judgement..The appellant was represented by Advocate Karan Batura..The promoter was represented by Advocates Abhijeet Sinha, Sandeep Bajaj, Soayib Qureshi, Deepanjan Dutta, Shrivalli Kajaria, Aditya Shukla..The Corporate Debtor through the Liquidator was represented by Advocate Nakul Mohta..Read the Judgement: