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What the NCLAT has to say about the Scheme of Compromise and Arrangement under section 230-232 of the Companies Act during Liquidation process
The National Company Law Appellate Tribunal (NCLAT) has held that an application for Compromise and Arrangement with creditors under sections 230-232 of the Companies Act, 2013 is maintainable even during the pendency of liquidation process of the company, under the Insolvency and Bankruptcy Code (IBC), 2016. However the promoters who are not eligible to be resolution applicant under section 29A of the Insolvency and Bankruptcy Code, 2016 are not allowed to file an application for the Scheme of Compromise and Arrangement, the Appellate Tribunal said.
Gujarat NRE Coke Company (corporate debtor) approached the National Company Law Tribunal - Kolkata bench for initiation of Corporate Insolvency Resolution Proceedings against itself under section 7 of IBC. The petition was admitted by the adjudicating authority but since there was no resolution plan and the company could not attract any bids within the stipulated time of 270 days, the Tribunal passed an order for the liquidation of the company.
Subsequently, a promoter of the corporate debtor filed an application before NCLT Kolkata under sections 230-232 for Financial Scheme of Compromise and Arrangement with the creditors. This was allowed by the NCLT provided that the above Arrangement shall be done through the Liquidator after holding the debts of the shareholders, creditors etc.
Jindal Power and Steel, which was an unsecured creditor of the corporate debtor, approached the Appellate Tribunal under section 421 of the Companies Act, 2013 challenging the order passed by the NCLT Kolkata bench. The Appellate Tribunal, hence, held that it is the job of the Liquidator to ensure that the insolvent company does not die through liquidation and that steps be taken that there is resolution of the corporate debtor in some way or the other. It further said that in order to either approve or disapprove of any application for Compromise and Arrangement, the NCLT shall direct and allow the liquidator to constitute a ‘Committee of Creditors’ who would decide if the Arrangement scheme is proper or not.
