# ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND POWER LTD. & ANR

- **Citation:** [2021] 3 S.C.R. 114
- **Court:** Supreme Court of India
- **Decided:** 2021-03-15
- **Case number:** Civil Appeal No. 9664 of 2019
- **Bench:** Dr. Dhananjaya Y Chandrachud, M. R. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/arun-kumar-jagatramka-v-jindal-steel-and-power-ltd-anr-34962
- **Pages:** 79

## Headnote

Insolvency and Bankruptcy Code, 2016:
s. 29A - Person not eligible to be resolution applicant -
Eligibility of promoter to file application for compromise and
arrangement, while he is ineligible u/s. 29A to submit 'Resolution
Plan' - On facts, application by GNCL, corporate debtor for
initiating the Corporate Insolvency Resolution Process admitted and
the appellant-promoter of GNCL submitted a resolution plan for
GNCL - However, due to insertion of s. 29A, which disqualifies a
person from being a resolution applicant if they have been a promoter
or in the management or control of a corporate debtor, appellant
became ineligible to submit a resolution plan - No resolution plan
approved by the CoC and in absence thereof, the order of liquidation
by NCLT - During the pendency of the appeal before NCLAT,
application u/ss. 230 to 232 of the Act of 2013 by appellant-promoter
of GNCL before the NCLT proposing a scheme for compromise and
arrangement between the erstwhile promoters and creditors and
the same was allowed - Appeal thereagainst by respondentunsecured creditor of the corporate debtor - NCLAT holding that
promoters ineligible u/s. 29A to submit a resolution plan, also barred
from proposing a scheme of compromise and arrangement u/s.230
of the Act of 2013 - On appeal, held: Prohibition placed by the
Parliament in s. 29A and s. 35(1)(f) must also attach itself to a
scheme of compromise or arrangement u/s. 230 of the 2013 Act,
when the company is undergoing liquidation under the auspices of
the IBC - As such, Reg 2B, specifically the proviso to Reg 2B(1), is
also constitutionally valid - Even in the absence of the Reg 2B, a
person ineligible u/s. 29A read with s. 35(1)(f) is not permitted to
propose a scheme for revival u/s. 230, in the case of a company
which is undergoing a liquidation under the IBC - In the case of a
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company undergoing liquidation under the IBC, a scheme of
compromise or arrangement proposed u/s. 230 is a facet of the
liquidation process - Object of the scheme of compromise or
arrangement is to revive the company - Same rationale which
permeates the resolution process u/s. 29A permeates the liquidation
process u/s. 35(1)(f) - Insolvency and Bankruptcy Board of India
(Liquidation Process) Regulations, 2016 - Reg 2B - Companies
Act, 2013 - ss. 230 to 232.
Enactment of - Salutary objectives of good corporate
governance and respect for and adherence to the rule of law; and
re-organization and resolution of insolvencies under - Held: Can
be achieved if the integrity of the resolution process is placed at the
forefront - Purposive interpretation is required by the courts, while
infusing meaning and content to its provisions, to ensure that the
problems which beset the earlier regime do not enter through the
backdoor through disingenuous stratagems.
s. 29A - Person not eligible to be resolution applicant -
Purpose of the ineligibility under - Held: Is to achieve a sustainable
revival and to ensure that a person who is the cause of the problem
either by a design or a default cannot be a part of the process of
solution - s. 29A encompasses not only conduct in relation to the
corporate debtor but in relation to other companies as well.
ss. 29A, 35(1)(f) - Interplay between the proposal of a scheme
of compromise and arrangement u/s.230 of the Act of 2013 and
liquidation proceedings initiated under IBC - Held: s. 230 of the
Act of 2013 is wider in its ambit - It is not confined only to a company
in liquidation or to corporate debtor which is being wound up under
Chapter III of the IBC - Thus, the rigors of the IBC will not apply to
proceedings u/s. 230 of the Act of 2013 where the scheme of
compromise or arrangement proposed is in relation to an entity which
is not the subject of a proceeding under the IBC - However, where
s. 230 of the Act of 2013 traces its origin to the liquidation
proceedings initiated under IBC, harmonious construction is needed
between the two statutes which would ensure that

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 [2021] 3 S.C.R. 114
114
ARUN KUMAR JAGATRAMKA
v.
JINDAL STEEL AND POWER LTD. & ANR.
(Civil Appeal No. 9664 of 2019)
MARCH 15, 2021
[DR. DHANANJAYA Y CHANDRACHUD AND
M. R. SHAH, JJ.]
Insolvency and Bankruptcy Code, 2016:
s. 29A - Person not eligible to be resolution applicant -
Eligibility of promoter to file application for compromise and
arrangement, while he is ineligible u/s. 29A to submit 'Resolution
Plan' - On facts, application by GNCL, corporate debtor for
initiating the Corporate Insolvency Resolution Process admitted and
the appellant-promoter of GNCL submitted a resolution plan for
GNCL - However, due to insertion of s. 29A, which disqualifies a
person from being a resolution applicant if they have been a promoter
or in the management or control of a corporate debtor, appellant
became ineligible to submit a resolution plan - No resolution plan
approved by the CoC and in absence thereof, the order of liquidation
by NCLT - During the pendency of the appeal before NCLAT,
application u/ss. 230 to 232 of the Act of 2013 by appellant-promoter
of GNCL before the NCLT proposing a scheme for compromise and
arrangement between the erstwhile promoters and creditors and
the same was allowed - Appeal thereagainst by respondentunsecured creditor of the corporate debtor - NCLAT holding that
promoters ineligible u/s. 29A to submit a resolution plan, also barred
from proposing a scheme of compromise and arrangement u/s.230
of the Act of 2013 - On appeal, held: Prohibition placed by the
Parliament in s. 29A and s. 35(1)(f) must also attach itself to a
scheme of compromise or arrangement u/s. 230 of the 2013 Act,
when the company is undergoing liquidation under the auspices of
the IBC - As such, Reg 2B, specifically the proviso to Reg 2B(1), is
also constitutionally valid - Even in the absence of the Reg 2B, a
person ineligible u/s. 29A read with s. 35(1)(f) is not permitted to
propose a scheme for revival u/s. 230, in the case of a company
which is undergoing a liquidation under the IBC - In the case of a
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company undergoing liquidation under the IBC, a scheme of
compromise or arrangement proposed u/s. 230 is a facet of the
liquidation process - Object of the scheme of compromise or
arrangement is to revive the company - Same rationale which
permeates the resolution process u/s. 29A permeates the liquidation
process u/s. 35(1)(f) - Insolvency and Bankruptcy Board of India
(Liquidation Process) Regulations, 2016 - Reg 2B - Companies
Act, 2013 - ss. 230 to 232.
Enactment of - Salutary objectives of good corporate
governance and respect for and adherence to the rule of law; and
re-organization and resolution of insolvencies under - Held: Can
be achieved if the integrity of the resolution process is placed at the
forefront - Purposive interpretation is required by the courts, while
infusing meaning and content to its provisions, to ensure that the
problems which beset the earlier regime do not enter through the
backdoor through disingenuous stratagems.
s. 29A - Person not eligible to be resolution applicant -
Purpose of the ineligibility under - Held: Is to achieve a sustainable
revival and to ensure that a person who is the cause of the problem
either by a design or a default cannot be a part of the process of
solution - s. 29A encompasses not only conduct in relation to the
corporate debtor but in relation to other companies as well.
ss. 29A, 35(1)(f) - Interplay between the proposal of a scheme
of compromise and arrangement u/s.230 of the Act of 2013 and
liquidation proceedings initiated under IBC - Held: s. 230 of the
Act of 2013 is wider in its ambit - It is not confined only to a company
in liquidation or to corporate debtor which is being wound up under
Chapter III of the IBC - Thus, the rigors of the IBC will not apply to
proceedings u/s. 230 of the Act of 2013 where the scheme of
compromise or arrangement proposed is in relation to an entity which
is not the subject of a proceeding under the IBC - However, where
s. 230 of the Act of 2013 traces its origin to the liquidation
proceedings initiated under IBC, harmonious construction is needed
between the two statutes which would ensure that a scheme of
compromise or arrangement u/s. 230 is being pursued, in a manner
consistent with the underlying principles of the IBC - 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
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the company in liquidation, are somehow permitted to propose a
compromise or arrangement u/s. 230 of the Act of 2013 - IBC has
made a provision for ineligibility u/s. 29A which operates during
the course of the CIRP - Similar provision, s. 35(1)(f) 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 s.
230 of the Act of 2013 with Chapter III of the IBC, it would be farfetched to hold that the ineligibilities which attach u/s. 35(1)(f) r/w
s. 29A would not apply when s. 230 is sought to be invoked - Such
an interpretation would result in defeating the provisions of the
IBC and must be eschewed - Stages of submitting a resolution plan,
selling assets of a company in liquidation and selling the company
as a going concern during liquidation, all indicate that the promoter
or those in the management of the company must not be allowed a
back-door entry in the company and are hence, ineligible to
participate during these stages - Proposing a scheme of compromise
or arrangement u/s. 230 of the Act of 2013, while the company is
undergoing liquidation under the provisions of the IBC lies in a
similar continuum - Companies Act, 2013 - ss. 230 to 232.
ss. 6 to 32A - Modes of revival of a company under the
provisions of the IBC - Explained.
s. 12A - Withdrawal of application - Withdrawal of the
application admitted u/ss. 7, 9 and 10 - Discussed.
Insolvency and Bankruptcy Board of India (Liquidation
Process) Regulations, 2016: Reg 2B - Constitutional validity of -
Held: Reg 2 B provides that where a compromise or arrangement is
proposed u/s. 230 of the Act of 2013, it shall be completed within
ninety days of the order of liquidation under sub-Sections (1) and
(4) of s. 33 - Proviso to Reg 2B provides that a person who is not
eligible under the IBC to submit a resolution plan for insolvency
resolution of the corporate debtor shall not be a party in any manner
to such compromise or arrangement - Reg 2B, specifically the proviso
to Reg 2B(1) is constitutionally valid.
Dismissing the appeals and writ petition, the Court
HELD: 1.1 The prohibition placed by the Parliament in
Section 29A and Section 35(1)(f) of the Insolvency and Bankruptcy
Code, 2016 must also attach itself to a scheme of compromise or
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arrangement under Section 230 of the Companies Act 2013, when
the company is undergoing liquidation under the auspices of the
IBC. As such, Regulation 2B of the Liquidation Process
Regulations, specifically the proviso to Regulation 2B(1), is also
constitutionally valid. [Para 91][192-C-D]
2. Section 29A has been construed to be a crucial link in
ensuring that the objects of the IBC are not defeated by allowing
"ineligible persons", including but not confined to those in the
management who have run the company aground, to return in
the new avatar of resolution applicants. Section 35(1)(f) is placed
in the same continuum when the Court observes that the erstwhile
promoters of a corporate debtor have no vested right to bid for
the property of the corporate debtor in liquidation. The values
which animate Section 29A continue to provide sustenance to
the rationale underlying the exclusion of the same category of
persons from the process of liquidation involving the sale of
assets, by virtue of the provisions of Section 35(1)(f). [Para
52][166-B-D]
Chitra Sharma v. Union of India (2018) 18 SCC 575 :
[2018] 12 SCR 1044; Arcelormittal India Private Limited
v. Satish Kumar Gupta & Ors (2019) 2 SCC 1 : [2018]
12 SCR 362; Phoenix ARC Private Limited v. Spade
Financial Service 2021 SCC OnLine SC 51; Ramesh
Kymal v. M/s Siemens Gamesa Renewable Power Pvt
Ltd. [2021] 3 SCC 224; Anuj Jain, Interim Resolution
Professional for Jaypee Infratech Limited v. Axis Bank
Limited (2020) 8 SCC 401 - relied on.
3. The purpose of the ineligibility under Section 29A is to
achieve a sustainable revival and to ensure that a person who is
the cause of the problem either by a design or a default cannot be
a part of the process of solution. Section 29A encompasses not
only conduct in relation to the corporate debtor but in relation to
other companies as well. [Para 53][166-F-G]
4.1 Section 230 of the Act of 2013 is incorporated in Chapter
XV which is titled "compromise, arrangement and
amalgamations". A compromise or arrangement under Subsection (1) of Section 230 may take place: between a company
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and its creditors or any subset of creditors; or between a company
and its members or subset of members. Liquidation is one of the
factual situations in which the provisions of Section 230 can be
invoked. Section 230(1) can also be invoked in the case of a
company which is wound up, as is evident from the statutory
provision itself, which contemplates that an application may be
submitted to the NCLT, acting as the Tribunal, by the liquidator.
Upon the sanctioning of the compromise or arrangement by the
NCLT, it binds the company, all the creditors or members or a
class of them, as may be, or in the case of a company being wound
up, the liquidator appointed under the Act of 2013 or the IBC
and the contributories. [Para 57-59, 61][168-D; 169-A-C; 170B-C]
5.1 There is no reference in the body of the IBC to a scheme
of compromise or arrangement under Section 230 of the Act of
2013. Sub-section (1) of Section 230 was however amended with
effect from 15 November 2016 so as to allow for a scheme of
compromise or arrangement being proposed on the application
of a liquidator who has been appointed under the provisions of
the IBC. It was submitted by the appellant that Section 230 is
not regulated by the IBC but is a provision independent of it,
though after the amendment of Sub-section (1), a compromise or
arrangement can be proposed by the liquidator appointed under
the IBC; that the decision in Meghal Homes's case recognises
that the liquidator is an additional person who may submit an
application under Section 391 of the Act of 1956 (corresponding
to Section 230 of the Act of 2013). The submission however,
misses the crucial interface between the provisions of Section
230 of the Act of 2013 in their engagement with a company in
respect of which the provisions of the IBC have been invoked,
resulting in an order of liquidation under Section 33 of the IBC.
Liquidation of the company under the IBC is a matter of last
resort. Section 33 requires the NCLT, acting as the Adjudicating
Authority, to pass an order for the liquidation of the corporate
debtor where: before the expiry of the insolvency resolution
process period or the maximum period contemplated for its
completion a resolution plan has not been received under Subsection (6) of Section 30; or the resolution plan has been rejected
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under Section 31 for non-compliance with the requirements of
the provision. [Para 64][171-H; 172-A-E]
Meghal Homes Pvt. Ltd. v Shree Niwas Girni K. K.
Samiti (2007) 7 SCC 753 : [2007] 9 SCR 330; Miheer
H Mafatlal v. Mafatlal Industries Ltd. (1997) 1 SCC
579 : [1996] 6 Suppl. SCR 1 - referred to.
5.2 Under Sub-Section (2) of Section 33, the Adjudicating
Authority has to pass a liquidation order where the resolution
professional, during the CIRP but before the confirmation of the
resolution plan, intimates the Adjudicating Authority of the
decision of the CoC approved by not less than 66 per cent of the
voting shares to liquidate the corporate debtor. Under Section
34, upon the Adjudication Authority passing an order for
liquidation of the corporate debtor under Section 33, the resolution
professional appointed for the CIRP under Chapter II is to act as
a liquidator for the purpose of liquidation. Section 35 proceeds to
stipulate that subject to the directions of the Adjudicating
Authority, the liquidator shall have the powers and duties
enumerated in the provision. [Para 65][172-F-H]
5.3 There are three modes in which a revival is
contemplated under the provisions of the IBC. The first of those
modes of revival is in the form of the CIRP elucidated in the
provisions of Chapter II of the IBC. The second mode is where
the corporate debtor or its business is sold as a going concern
within the purview of clauses (e) and (f) of Regulation 32. The
third is when a revival is contemplated through the modalities
provided in Section 230 of the Act of 2013. A scheme of
compromise or arrangement under Section 230, in the context of
a company which is in liquidation under the IBC, follows upon an
order under Section 33 and the appointment of a liquidator under
Section 34. While there is no direct recognition of the provisions
of Section 230 of the Act of 2013 in the IBC, a decision was
rendered by the NCLAT in Y Shivram Prasad v. S Dhanapal's
case wherein NCLAT took note of the fact that while passing the
order u/s. 230, the Adjudicating Authority would perform a dual
role, one as the Adjudicating Authority in the matter of liquidation
under the IBC and the other as a Tribunal for passing an order
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u/s. 230 of the Act of 2013. Following the decision of NCLAT, an
amendment was made on 25 July 2019 to the Liquidation Process
Regulations by the IBBI so as to refer to the process envisaged
under Section 230 of the Act of 2013. [Para 67][173-C-G]
Y Shivram Prasad v. S Dhanapal 2019 SCC OnLine
NCLAT 172 - approved.
5.4 The statutory scheme underlying the IBC and the
legislative history of its linkage with Section 230 of the Act of
2013, in the context of a company which is in liquidation, has
important consequences for the outcome of the controversy in
the instant case. The first point is that a liquidation under Chapter
III of the IBC follows upon the entire gamut of proceedings
contemplated under that statute. The second point to be noted is
that one of the modes of revival in the course of the liquidation
process is envisaged in the enabling provisions of Section 230 of
the Act of 2013, to which recourse can be taken by the liquidator
appointed under Section 34 of the IBC. The third point is that
the statutorily contemplated activities of the liquidator do not
cease while inviting a scheme of compromise or arrangement
under Section 230. The appointment of the liquidator in an IBC
liquidation is provided in Section 34 and their duties are specified
in Section 35. In taking recourse to the provisions of Section 230
of the Act of 2013, the liquidator appointed under the IBC is , to
attempt a revival of the corporate debtor so as to save it from the
prospect of a corporate death. The consequence of the approval
of the scheme of revival or compromise, and its sanction
thereafter by the Tribunal under Sub-section (6), is that the
scheme attains a binding character upon stakeholders including
the liquidator who has been appointed under the IBC. In this
backdrop, it is difficult to accept that Section 230 of the Act of
2013 is a standalone provision which has no connect with the
provisions of the IBC. Undoubtedly, Section 230 of the Act of
2013 is wider in its ambit in the sense that it is not confined only
to a company in liquidation or to corporate debtor which is being
wound up under Chapter III of the IBC. Obviously, therefore,
the rigors of the IBC will not apply to proceedings under Section
230 of the Act of 2013 where the scheme of compromise or
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arrangement proposed is in relation to an entity which is not the
subject of a proceeding under the IBC. But, when, as in the instant
case, the process of invoking the provisions of Section 230 of
the Act of 2013 traces its origin or, as it may be described, the
trigger to the liquidation proceedings which have been initiated
under the IBC, it becomes necessary to read both sets of
provisions in harmony. A harmonious construction between the
two statutes would ensure that while on the one hand a scheme
of compromise or arrangement under Section 230 is being
pursued, this takes place in a manner which is consistent with
the underlying principles of the IBC because the scheme is
proposed in respect of an entity which is undergoing liquidation
under Chapter III of the IBC. As such, the company has to be
protected from its management and a corporate death. 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. [Para 68][174-A-H; 175-A-C]
5.5 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. Such an
interpretation would result in defeating the provisions of the IBC
and must be eschewed. [Para 69][175-C-F]
5.6 There is no merit in the submission that attaching the
ineligibilities under Section 29A and Section 35(1)(f) of the IBC
to a scheme of compromise and arrangement under Section 230
of the Act of 2013 would be violative of Article 14 of the
Constitution as the appellant would be "deemed ineligible" to
submit a proposal under Section 230 of the Act of 2013. The stages
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of submitting a resolution plan, selling assets of a company in
liquidation and selling the company as a going concern during
liquidation, all indicate that the promoter or those in the
management of the company must not be allowed a back-door
entry in the company and are hence, ineligible to participate during
these stages. Proposing a scheme of compromise or arrangement
under Section 230 of the Act of 2013, while the company is
undergoing liquidation under the provisions of the IBC lies in a
similar continuum. Thus, the prohibitions that apply in the former
situations must naturally also attach to the latter to ensure that
like situations are treated equally. [Para 70][175-E-F; 176-A-C]
6. Section 12A of the IBC was inserted with effect from 6
June 2018 by Amending Act 26 of 2018. Under Section 12A, the
Adjudicating Authority may allow the withdrawal of an application
which is admitted under Sections 7, 9 and 10, on an application
made by the applicant with the approval of a 90 per cent voting
share of the CoC in such manner as may be specified. Rule 8 of
the Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016, on the other hand, contemplates that the
NCLT, functioning as the Adjudicating Authority, may permit a
withdrawal of an application made under Rule 4 (by the financial
creditor), Rule 6 (by the operational creditor) or Rule 7 (by the
corporate applicant) on the request made by the applicant before
its admission. Regulation 30-A of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016 contains provisions for the withdrawal
of an application. Under Regulation 30-A, as it originally stood,
an application for withdrawal under Section 12-A was required to
be submitted before the issuance of an invitation for the
expression of interest under Regulation 36-A. The decision in
Swiss Ribbons led to substitution of the Regulation 30-A which
stipulates that an application for withdrawal under Section 12-A
may be made to the adjudicating authority: before the constitution
of the CoC, by the applicant through the IRP; and after the
constitution of the CoC, by the applicant through the IRP or the
RP as the case may be. However, where the application under
clause (b) is made after the issuance of the invitation for
expression of interest, the applicant has to state the reasons
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justifying withdrawal after the issuance of the invitation.
[Para 72][178-B-E; 179-A-B; 180-A-B]
Swiss Ribbons Private Limited v. Union of India (2019)
4 SCC 17 : [2019] 3 SCR 535; Brilliant Alloys (P) Ltd.
v. S Rajagopal 2018 SCC OnLine SC 3154 - referred
to.
7.1 There is a fundamental fallacy in the submission that on
the withdrawal of the application under Sections 7, 9 and 10, as
the case may be, the company goes back to the same promoter
in spite of such a promoter being ineligible under Section 29A
for submitting a resolution plan, as such, there is no reason or
justification then to preclude a promoter from presenting a
scheme of compromise or arrangement under Section 230. An
application for withdrawal under Section 12-A is not intended to
be a culmination of the resolution process. This, as the statutory
scheme would indicate, is at the inception of the process. Rule 8
of the Adjudicating Authority Rules contemplates a withdrawal
before admission. Section 12-A subjects a withdrawal of an
application, which has been admitted under Sections 7, 9 and 10,
to the requirement of an approval of ninety per cent voting shares
of the CoC. A withdrawal in other words is by the applicant. The
withdrawal leads to a status quo ante in respect of the liabilities
of the corporate debtor. A withdrawal under Section 12-A is in
the nature of settlement, which has to be distinguished both from
a resolution plan which is approved under Section 31 and a scheme
which is sanctioned under Section 230 of the Act of 2013. A
resolution plan upon approval under Section 31(1) of the IBC is
binding on the corporate debtor, its employees, members,
creditors (including the central and state governments), local
authorities, guarantors and other stakeholders. The approval of
a resolution plan u/s. 31 results in a "clean slate,". [Para 73, 74]
[181-D-H; 182-A-C]
Swiss Ribbons Private Limited v. Union of India (2019)
4 SCC 17 : [2019] 3 SCR 535; Committee of Creditors
of Essar Steel India Limited v. Satish Kumar Gupta
(2020) 8 SCC 531 : [2019] 16 SCR 275 - referred to.
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7.2 The benefit under Section 31, following upon the
approval of the resolution plan, is that the successful resolution
applicant starts running the business of the corporate debtor on
"a fresh slate". The scheme of compromise or arrangement under
Section 230 of the Act of 2013 cannot certainly be equated with a
withdrawal simpliciter of an application, as is contemplated under
Section 12-A of the IBC. A scheme of compromise or
arrangement, upon receiving sanction under Sub-section (6) of
Section 230, binds the company, its creditors and members or a
class of persons or creditors as the case may be as well as the
liquidator (appointed under the Act of 2013 or the IBC). Both,
the resolution plan upon being approved under Section 31 of the
IBC and a scheme of compromise or arrangement upon being
sanctioned under Sub-section (6) of Section 230, represent the
culmination of the process. This must be distinguished from a
mere withdrawal of an application under Section 12-A. There is a
clear distinction between these processes, in terms of statutory
context and its consequences and the latter cannot be equated
with the former. [Para 75][183-F-H; 184-A]
7.3 There is no merit in the submission that Section 35(1)(f)
applies only to a liquidator who conducts a sale of the property of
the corporate debtor in liquidation but not to the NLCT, acting
as the Tribunal, when it exercises its powers under Section 230
of the Act of 2013. The liquidator appointed under the provisions
of Chapter III of the IBC is entrusted with several powers and
duties. Sections 37 to 42 of the IBC are illustrative of the powers
of the liquidator in the course of the liquidation. The liquidator
exercises several functions which are of a quasi-judicial in nature
and character. Section 35(1) itself enunciates that the powers and
duties which are entrusted to the liquidator are "subject to the
directions of the adjudicating authority". The liquidator, in other
words, exercises functions which have been made amenable to
the jurisdiction of the NCLT, acting as the Adjudicating Authority.
To hold therefore that the ineligibility prescribed under the
provisions of Section 35(1)(f) can be disregarded by the Tribunal
for the purpose of considering an application for a scheme of
compromise or arrangement under Section 230 of the Act of 2013,
in respect of a company which is under liquidation under the IBC,
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would not be a correct construction of the provisions of law.
[Para 76][184-B-E]
8. Regulation 2B(1) introduced on 25 July 2019 provides
that where a compromise or arrangement is proposed under
Section 230 of the Act of 2013, it shall be completed within ninety
days of the order of liquidation under sub- Sections (1) and (4) of
Section 33. The proviso to Regulation 2B has been inserted with
effect from 6 January 2020 to stipulate that a person who is not
eligible under the IBC to submit a resolution plan for insolvency
resolution of the corporate debtor shall not be a party in any
manner to such compromise or arrangement. [Para 77]
[184-F-G]
9. IBBI noted in its discussion paper that the introduction
of ineligibilities stipulated under Section 29-A of the IBC to
Section 230 of the Act of 2013 would pose practical difficulties in
its implementation. The IBBI solicited public comments on its
proposals. The IBBI evolved its view on the issue of whether
Section 29-A should be made applicable to Section 230 of the Act
of 2013 in its subsequent discussion paper. The discussion paper
brought out on 3 November 2019 by IBBI discussed the
applicability of Section 29A of the IBC to a compromise and
arrangement under Section 230 of the Act of 2013. The discussion
paper notes that there were many instances where the NCLAT
had allowed the application under Section 230 of the Act of 2013.
Thereafter, public comments were invited. The discussion paper
is what it professes to be-a matter for discussion in the public
realm. This cannot be held to constitute an admission of IBBI
that an applicant who is ineligible under Section 29A may submit
a scheme of compromise or arrangement under Section 230 of
the Act of 2013. The validity of the provisions of Regulation 2B,
more specifically the proviso, has to be considered on their own
footing. [Para 79, 80, 82][185-G-H; 186-E-F; 187-G-H]
10. The powers and functions entrusted to IBBI are
specified in Section 196 of the IBC. Section 196(1)(t) provides
IBBI with the power to frame regulations. Clause (t) empowers
IBBI to make regulations and guidelines on matters relating to
insolvency and bankruptcy, as may be required under the IBC.
Section 240(1) empowers IBBI with the power to make
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regulations. Under Sub-Section (1) of Section 240, the power to
frame regulations is conditioned by two requirements: first, the
regulations have to be consistent with the provisions of the IBC
and the rules framed by the Central Government; and second,
the regulations must be to carry out the provisions of the IBC.
Regulation 2B meets both the requirements, of being consistent
with the provisions of IBC and of being made in order to carry
out the provisions of the IBC. [Para 83][188-A-E]
11. The principal ground of challenge to Regulation 2B is
that the regulation transgressed the authority of IBBI by
introducing a disqualification or ineligibility in regard to the
presentation of an application for a scheme of compromise or
arrangement under Section 230 of the Act of 2013. It was
submitted that IBBI, as an entity constituted by the IBC, had no
statutory jurisdiction to amend the provisions of Section 230 of
the Act of 2013 or to impose a restriction which operates under
the purview of Section 230. The position can be considered from
two perspectives, independent of the provisions of Regulation
2B. Even in the absence of the Regulation 2B, a person ineligible
under Section 29A read with Section 35(1)(f) is not permitted to
propose a scheme for revival under Section 230, in the case of a
company which is undergoing a liquidation under the IBC. In the
case of a company which is undergoing liquidation pursuant to
the provisions of Chapter III of the IBC, a scheme of compromise
or arrangement proposed under Section 230 is a facet of the
liquidation process. The object of the scheme of compromise or
arrangement is to revive the company. The same rationale which
permeates the resolution process under Chapter II (by virtue of
the provisions of Section 29A) permeates the liquidation process
under Chapter III (by virtue of the provisions of Section 35(1)(f)).
That being the position, there can be no manner of doubt that the
proviso to Regulation 2B is clarificatory in nature. Even absent
the proviso, a person who is ineligible under Section 29A would
not be permitted to propose a compromise or arrangement under
Section 230 of the Act of 2013. Thus, there is no merit in the
challenge to the validity of Regulation 2B. [Para 84][188-F-H;
189-A-D]
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Meghal Homes Pvt. Ltd. v Shree Niwas Girni K. K.
Samiti (2007) 7 SCC 753 : [2007] 9 SCR 330 - referred
to.
12.1 The Insolvency Law Committee in its report began by
acknowledging that the floating of schemes of compromise or
arrangement under Sections 230 to 232 of the Act, even for
companies undergoing liquidation, was not part of the framework
under the IBC. This, the Committee noted, had led to a
multiplicity of issues including, but not limited to, the duality of
the role of the NCLT (as a supervisory Adjudicatory Authority
under the IBC versus the driving Tribunal under the Act of 2013)
and indeed the very question whether the disqualification under
Section 29A and proviso to Section 35(1)(f) of the IBC also
attaches to Section 230 of the Act of 2013. However, the
Committee notes that judicial intervention by the NCLAT along
with the IBBI's introduction of new regulations have led to some
alignment in the two frameworks. [Para 86][189-G-H; 190-A-B]
< h t t p s : / / i b b i . g o v. i n / u p l o a d s / r e s o u r c e s
c6cb71c9f69f66858830630da08e45b4.pdf> accessed on 10
March 2021 - referred to.
12.2 The Committee thereafter, notes that the introduction
of such schemes into the framework of the IBC may be worrisome
since it would alter the incentives during the CIRP and lead to
destructive delays, which often plagued the process under the
Sick Industrial Companies (Special Provisions) Act, 1985.
However, it nonetheless also acknowledges the benefits such
schemes may have to offer. Even so, the Committee concludes
by noting that such schemes, if at all they are to be brought in,
should not be under the Act of 2013 but the IBC itself. [Para 87]
[190-C-D]
Umakanth Varottil, 'The Scheme of Arrangement as a Debt
Restructuring Tool in India: Problems and Prospects' (March
2017) NUS Working Paper 2017/005 available at <http://
law.nus.edu.sg/wp> - referred to.
12.3 Due to the ambiguity in the application of the two
frameworks, it became imperative that a clarification be issued
in this regard. The introduction of the proviso to Regulation 2B
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was a step in this direction which sought to clarify the position
with respect to the applicability of the disqualifications set out in
Section 29A of the IBC to Section 230 of the Act of 2013 in tandem
with the legislative intendment. [Para 88][191-A-B]
12.4 The explicit recognition of the schemes under Section
230 into the liquidation process under the IBC was through the
judicial intervention of the NCLAT in Y Shivram Prasad's case.
Since the efficacy of this arrangement is not challenged in this
case, this Court cannot comment on its merits. However, the
NCLT and NCLAT are cautioned as regards, functioning as the
Adjudicatory Authority and Appellate Authority under the IBC
respectively, from judicially interfering in the framework envisaged
under the IBC. The IBC was introduced in order to overhaul the
insolvency and bankruptcy regime in India. As such, it is a
carefully considered and well thought out piece of legislation
which sought to shed away the practices of the past. The
legislature has also been working hard to ensure that the efficacy
of this legislation remains robust by constantly amending it based
on its experience. Consequently, the need for judicial intervention
or innovation from the NCLT and NCLAT should be kept at its
bare minimum and should not disturb the foundational principles
of the IBC. This conscious shift in their role has been noted in
the report of the Bankruptcy Law Reforms Committee (2015).
[Para 89][191-B-E]
Y Shivram Prasad v. S Dhanapal 2019 SCC OnLine
NCLAT 172 - approved.
Jogendra Lal Saha v. State of Bihar, 1991 Supp (2)
SCC 654; Jasbir Singh v. Vipin Kumar Jaggi, (2001) 8
SCC 289 : [2001] 1 Suppl. SCR 598; P.V. Hemlatha v.
Kattam Kandi Puthiya Maliackal Saheeda, (2002) 5
SCC 548 : [2002] 3 SCR 1098; Talchar Municipality
v. Talcher Regulated Market Committee, (2004) 6 SCC
178 : [2004] 3 Suppl. SCR 167; Iridium India Telecom
Ltd. v. Motorola Inc, (2005) 2 SCC 145 : [2005] 1 SCR
73 - referred to.
Salomon v. A. Salomon & Co. Ltd. 1897 AC 22 (HL) -
referred to.
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Case Law Reference
[2019] 3 SCR 535
relied on
Para 52
[2019] 16 SCR 275
referred to
Para 29(xii)
[2007] 9 SCR 330
referred to.
Para 63, 64
[2018] 12 SCR 1044
relied on
Para 52
[2018] 12 SCR 362
relied on
Para 52
[2021] 3 SCC 224
relied on
Para 52
(2020) 8 SCC 401
relied on
Para 52
[1996] 6 Suppl. SCR 1
referred to
Para 63
1991 Supp (2) SCC 654
referred to
Para 68
[2001] 1 Suppl. SCR 598
referred to
Para 68
[2002] 3 SCR 1098
referred to
Para 68
[2004] 3 Suppl. SCR 167
referred to
Para 68
[2005] 1 SCR 73
referred to
Para 68
CIVIL APPELLATE/ORIGINAL JURISDICTION : Civil
Appeal No. 9664 of 2019.
From the Judgment and Order dated 24.10.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
No. 221 of 2018.
With
Writ Petition (C) No. 269 Of 2020 And Civil Appeal No. 2719 Of
2020.
Tushar Mehta, SG, Balbir Singh, ASG, Gopal Jain, Amit Sibal, Sr.
Advs., Sandeep Bajaj, Soayib Qureshi, Nidhi Mohan Parashar, Ms. Aditi
Pundhir, Ms. Sangya Gupta, Shiv Shankar Banerjee, Ms. Richa Kapoor,
Kunal Anand, Anupa Banerjee, Ms. Ayushi Rajput, Charu Shangari,
Shalya Agarwal, Ms. Surabhi Katyal, Ms. Shivani Sharma, Kanu
Agrawal, Saurabh Mishra, Ankur Talwar, Chinamyee Chandra, Shyam
Gopal, Arvind Kumar Sharma, Alok Dhir, Karan Batura, Ms. Priyal
Chaturvedi, Nikhar Luthra, T. V. S. Raghavendra Sreyas, Ms. Gayatri
Gulati, Siddharth Vasudev, Sidhartha Sharma, Arjun Asthana, Sumit
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND
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Binani, Arup Banerjee, Ms. Misha, Anoop Rawat, Siddhant Kant, Sagar
Dhawan, Nikhil Mathur, Ms. Prabhsimran Kaur, S. S. Shroff, Vikas
Mehta, Advs. for the appearing parties.
The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
This judgment has been divided into the following sections to
facilitate analysis:
A
Factual Background
A.1
Civil Appeal 9664 of 2019
A.2
Civil Appeal 2719 of 2020
A.3
Liquidation Process Regulations, 2016
A.4
Article 32 Petition
B
Issues
C
Submissions
D
Analysis of the Legal Framework
D.1
Ineligibility during the resolution process and
liquidation
D.2
Interplay : IBC liquidation and Section 230 of
the Act of 2013
D.3
The 'Clean Slate'
D.4
Constitutional Validity of Regulation 2B -
Liquidation Process Regulations
E
Epilogue
F
Conclusion
A Factual Background
A.1 Civil Appeal 9664 of 20191
1. By its judgment dated 24 October 2019, the National Company
Law Appellate Tribunal2 held that a person who is ineligible under Section
29A of the Insolvency Bankruptcy Code, 20163 to submit a resolution
plan, is also barred from proposing a scheme of compromise and
1 "First Appeal"
2 "NCLAT"
3 "IBC"
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arrangement under Section 230 of the Companies Act, 20134. The
judgment was rendered in an appeal5 filed by Jindal Steel and Power
Limited6, an unsecured creditor of the corporate debtor, Gujarat NRE
Coke Limited7. The appeal was preferred against an order passed by
the National Company Law Tribunal8 in an application9 under Sections
230 to 232 of the Act of 2013, preferred by Mr Arun Kumar Jagatramka,
who is a promoter of GNCL. The NCLT had allowed the application
and issued directions for convening a meeting of the shareholders and
creditors. In its decision dated 24 October 2019, the NCLAT reversed
this decision and allowed the appeal by JSPL. The decision of the NCLAT
dated 24 October 2019 is challenged in the appeal before this Court.
2. Mr Arun Kumar Jagatramka, assails the order dated 24 October
2019 of the NCLAT, inter alia, on the ground that Section 230 of the
Act of 2013 does not place any embargo on any person for the purpose
of submitting a scheme. According to the appellant, in the absence of a
disqualification, the NCLAT could not have read the ineligibility under
Section 29A of the IBC into Section 230 of the Act of 2013. This would,
in the submission, amount to a judicial reframing of legislation by the
NCLAT, which is impermissible.
3.Before we advert to the submissions of the counsels on questions
of law, it will be useful to outline the salient facts of this dispute to
understand the contours of the controversy. GNCL, the corporate debtor,
moved an application under Section 10 of the IBC before the NCLT for
initiating the Corporate Insolvency Resolution Process10. The application
was admitted on 7 April 2017.
4. Mr Arun Kumar Jagatramka submitted a resolution plan for
GNCL on 1 November 2017, which was presented by the Resolution
Professional11 before the Committee of Creditors12. The plan was to be
put to a vote in a meeting of the CoC scheduled on 23-24 November
2017.
4 the "Act of 2013"
5 Company Appeal (AT) No. 221 of 2018
6 "JSPL"
7 "GNCL"
8 "NCLT"
9 C.A. (CAA) No. 198/KB/2018
10 "CIRP" or "resolution process"
11 "RP"
12 "CoC"
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5. The IBC was amended by the Insolvency and Bankruptcy Code
(Amendment) Act, 2018. Section 29A which was inserted with
retrospective effect from 23 November 2017 provides a list of persons
who are ineligible to be resolution applicants.