Summary
The Supreme Court held that a person ineligible under Section 29A of the Insolvency and Bankruptcy Code cannot propose a compromise or arrangement under Section 230 of the Companies Act for a company undergoing liquidation under the Code. Such a revival scheme forms part of the liquidation process and cannot provide an entry barred during resolution or sale of assets. The Court upheld the constitutional validity of Regulation 2B, including its clarificatory eligibility proviso, and distinguished withdrawal of insolvency proceedings from a binding revival scheme.
Issues
- Whether Section 29A ineligibility extends to a Section 230 scheme proposed during liquidation under the IBC.
- Whether Regulation 2B’s eligibility restriction exceeded IBBI’s authority or violated constitutional rights.
- Whether withdrawal under Section 12A justified permitting an ineligible person to propose a revival scheme.
Provisions considered
- Sections 29A and 35(1)(f), Insolvency and Bankruptcy Code, 2016The connected prohibitions during resolution and liquidation also governed a revival scheme proposed for a company undergoing IBC liquidation. (¶¶ 41-54, 68-70, 91)
- Section 230(1) and (6), Companies Act, 2013The scheme mechanism, when invoked during IBC liquidation, had to operate consistently with the Code; its binding consequences distinguished it from withdrawal. (¶¶ 57-61, 68-76)
- Regulation 2B, IBBI (Liquidation Process) Regulations, 2016The eligibility proviso was constitutionally valid and clarificatory: the disqualification applied even without it. (¶¶ 77-84, 91)
- Section 12A, Insolvency and Bankruptcy Code, 2016Withdrawal restored the position concerning liabilities and was distinguished from the culmination of resolution or a sanctioned scheme. (¶ 72-75)
- Sections 196(1)(t) and 240(1), Insolvency and Bankruptcy Code, 2016Regulation 2B fell within the power to frame regulations consistent with and carrying out the Code. (¶ 83-84)
Held
- The prohibition extends beyond promoters and can concern conduct involving other companies. Its purpose is sustainable revival and protection against return of persons falling within the statutory ineligibilities. (¶ 46-53)
- Where the Section 230 scheme originates in IBC liquidation, the statutes must be read harmoniously. Allowing a person barred from resolution and acquisition in liquidation to regain control through that scheme would defeat the Code. The same restriction does not govern a Section 230 proceeding involving an entity outside IBC proceedings merely by reason of this ruling. (¶ 64-70)
- Withdrawal under Section 12A is distinct from a sanctioned revival scheme or approved resolution plan. It restores the position concerning liabilities rather than producing the binding culmination of those processes; it did not support the asserted exemption. (¶ 72-76)
- The Regulation 2B proviso clarified an existing consequence of Sections 29A and 35(1)(f), remained within delegated authority and was constitutionally valid. Earlier discussion papers did not establish a contrary binding admission by IBBI. (¶¶ 78-84, 91)
- The Court cautioned against judicial innovations disturbing the Code’s foundational structure. The general efficacy of introducing Section 230 schemes into IBC liquidation had not been challenged and was not decided on its merits. (¶ 85-90)
Result
Civil appeals and writ petition dismissed; pending applications disposed of.