The NCLAT upheld the priority of the IBC liquidation process over the Section 230 scheme for the resolution of the corporate debtor.
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench led by Justice Kumar Sharma (Judicial Member) and Technical Member Mr. Jatindranath Swain reviewed a bunch of two appeals and observed that the Scheme of Arrangement under Section 230 of the Companies Act, 2013, cannot take precedence over the liquidation process under the IBC, especially when the sale of the corporate debtor as a going concern has already been completed, and the Scheme was submitted beyond the permissible time frame. The Tribunal affirmed the priority of the IBC’s sale process for resolving insolvency over Section 230 proceedings.
The Appellant filed two Company Appeals under Section 61(1) of the Insolvency and Bankruptcy Code (IBC), 2016, challenging the orders of the NCLT, Chennai Bench. Company Appeal (AT) (CH) (INS) No. 305/2024 sought to annul the e-auction conducted on 31.01.2024 and direct the Liquidator to consider the Appellant’s Scheme, which had been rejected by the Stakeholders Consultation Committee (SCC). Company Appeal (AT) (CH) (INS) No. 306/2024 contested the confirmation of the sale of the Corporate Debtor as a going concern following the e-auction. The Corporate Debtor, M/s. Kamachi Industries was admitted into the Corporate Insolvency Resolution Process (CIRP) in 2020, and the liquidation process commenced after the Committee of Creditors (CoC) rejected all resolution plans. The Appellant, a minority shareholder, submitted a Scheme of Arrangement under Section 230 of the Companies Act, 2013, which was rejected by the SCC, leading to the appeal.
The Appellant contended that the Scheme should have been considered before the e-auction. He argued that the Liquidator’s simultaneous consideration of the Scheme and e-auction violated the provisions of the IBC, particularly under Regulation 32(e) and 32A of the IBBI (Liquidation Process) Regulations, 2016, which he claimed required the Scheme to be addressed first. However, the NCLT affirmed the sale process and dismissed the Appellant's challenge, noting that the sale was consistent with the regulations and the Corporate Debtor was functioning as a going concern.
The Appellant sought relief from the confirmation of the sale and a reconsideration of the Scheme, but the Tribunal, while considering the provisions of Section 230 of the Companies Act, 2013, emphasized that the section was primarily aimed at enabling a company to continue as a going concern. The Tribunal noted that Section 230 predates the IBC and should only be invoked when the liquidator’s efforts to maintain the company fail. The Tribunal also highlighted that the IBC’s expedited processes, including the sale of the debtor as a going concern under Section 32(e) and 32A, take precedence over the compromise arrangements under Section 230.
The Tribunal further pointed out that Section 230(5) requires notices to authorities such as the Official Liquidator, and Section 230(7)(d) facilitates the abatement of proceedings before the Board for Industrial and Financial Reconstruction (BIFR) in cases of compromise or arrangement. The Tribunal reaffirmed that selling the corporate debtor as a going concern aligns with the objectives of the IBC, which aims for a more efficient resolution process. As the Scheme was submitted beyond the permissible time frame and the sale had already been confirmed, the Tribunal upheld the NCLT’s decision, emphasizing the preference for liquidation and sale under the IBC over the Scheme under Section 230.
Mr. PH. Arvindh Pandian, Senior Advocate for Mr. Kaushik Narayanan V, Advocate represented the Appellant.
Mr. TK. Bhaskar, Advocate for Mr. AG. Sathyanarayana, Advocate appeared for Respondent No. 1.
Mr. Abhishek Swaroop, Mr. Palash Agarwal and Ms. Bhawana Sharma, Advocates appeared for Respondent No. 2.
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