Rakesh Kumar Agarwal & Ors. Vs Devendra P. Jain - It is settled law as per the decisions of the Hon’ble Supreme Court that the liquidation is only the last resort.

NCLAT (01.06.2021) in Rakesh Kumar Agarwal & Ors. Vs Devendra P. Jain [Company Appeal (AT) (Insolvency) No. 1034 of 2020] held that;

• We have perused the notification dated 01.06.2020 and Section 240A of the IBC and in terms of above notification the Corporate Debtor falls into the category of MSME. The Appellants vehemently contend that being existing promoters now they are eligible to submit a Scheme.

• Before taking steps to sell the assets of the ‘corporate debtor(s)’(companies herein), the Liquidator will take steps in terms of Section 230 of the Companies Act, 2013. The Adjudicating Authority, if so required, will pass appropriate order. Only on failure of revival, the Adjudicating Authority and the Liquidator will first proceed with the sale of company’s assets.  . . . .

• it is settled law as per the decisions of the Hon’ble Supreme Court that the liquidation is only the last resort and as per the preamble of the IBC the main object of the Code is in resolving corporate insolvencies and not the mere recovery of monies due and outstanding.

• For the foregoing reasons and relied upon the Judgments of the Hon’ble Supreme Court and this Tribunal we are of the view that the Appellant being eligible to submit a scheme by virtue of an amendment to Section 7 of Micro, Small and Medium Enterprises Development Act, 2006 vide notification dated 01.06.2020.

Excerpts of the order;

Brief Facts:

# 2. Learned Counsel for the Appellants submitted that the Hon’ble Adjudicating Authority rejected the I.A purely on Law point and had no issues whatsoever as far as merit and facts of the above I.A are concerned. 3. Learned Counsel for the Appellant submitted that the Corporate Debtor filed Application under Section 10 of Insolvency and Bankruptcy Code (IBC) and the Application was admitted by the Adjudicating Authority on 11.01.2018.

# 4. By virtue of admission the Adjudicating Authority appointed IRP and the IRP taken over the charge and conducted the proceedings. While so the IRP issued Expression of Interest (EOI) on 15.02.2018 and only one application received from M/s Growfast Global. However, they have not filed any Resolution Plan to the EOI. Thereupon the Second EOI was issued on 09.08.2018 and in pursuance thereof one M/s Indsur Gears Ltd. filed application along with other applicants. However, none of the Prospective Resolution Applicant(PRA) submitted a Resolution Plan. In view of the situation in 7th CoC held on 26.10.2018 a Resolution was passed for Liquidation of the Corporate Debtor by approving 97.37% of the Voting Share.

# 5. The RP filed I.A No. 461 of 2018 for liquidation of the Corporate Debtor and the Adjudicating Authority passed order liquidating the Corporate Debtor on 28.08.2019.

# 6. The Learned Counsel submitted that the RP appointed as Liquidator and issued form –B inviting Applications. The Appellant submitted a scheme under Section 230 of the Companies Act, 2013. The Scheme submitted by the Appellant was approved by stakeholders of the Corporate Debtor and an Application bearing I. A No. 66 of 2020 for approval of this scheme of arrangement was filed before the Adjudicating Authority. While so, the I. A No. 66 of 2020 was dismissed as withdrawn in view of notification dated 06.01.2020 issued by Government of India whereby an amendment was made in Regulation 2B of Insolvency and Bankruptcy Board of India (IBBI) (Liquidation Process) Regulations 2016, by virtue of which the Appellants became ineligible to submit a scheme in the liquidation process of the Corporate Debtor.

# 7. It is further submitted that by way of an amendment to MSME Act and certain changes were made in the criteria for classifying entities as Micro, Small & Medium Enterprises. In view of the amendment the Appellants became eligible to submit a scheme in the liquidation process. Hence, the Appellant filed I.A No. 496 of 2020 was filed before the Adjudicating Authority seeking permission to propose a scheme and a direction to consider the said scheme in view of the amendment.

# 8. Learned Counsel further submitted that the Adjudicating Authority passed the above impugned order on 15.10.2020 dismissing the said I.A. 

# 10. Learned Counsel submitted that the Hon’ble Adjudicating Authority held that the Corporate Debtor at this stage cannot claim to be fall under the classification of MSME and take the benefit of MSME in view of amendment vide notification on 01.06.2020 with effect from 01.07.2020 by having its retrospective effect when admittedly on the date of filing of Application under Section 10 of the I&B Code, the Corporate Debtor does not fall under the criteria of MSME, in view of aforesaid reasons, the Application is bad in the eye  law, hence rejected.

# 11. Learned Counsel admitted that in the present case when the Application under Section 10 was filed and CIRP initiated the Corporate Debtor was not falling in the criteria/classification of MSME. The amendment came during the liquidation process.

# 15. However, as stated above the Government of India had issued the notification dated 01.06.2020 revising the limit of MSME and on the basis of such revival limits the Corporate Debtor is eligible to be considered as MSME and fall into the category of MSME. The Hon’ble Adjudicating Authority was of the view that as per the notification dated 01.06.2020 the Corporate Debtor fall under the category of MSME and thereby the promoters are eligible to submit the scheme. However, the Corporate Debtor was not MSME at the time of filing of Section 10 Application. Therefore, the Hon’ble Adjudicating Authority rejected the I.A No. 496 of 2020 by passing the impugned order.

# 18. Learned Counsel for the Appellant relied on the Judgment of the Hon’ble Supreme Court in the matter of ‘Swiss Ribbons Pvt. Ltd. vs Union of India dated 25.01.2019, at para 26,27.

19. Learned Counsel also relied upon the Judgment of the Hon’ble Supreme Court in the matter of ‘Committee of Creditors of Essar Steel India Limited vs Satish Kumar Gupta & Ors.’ dated 15.11.2019.

# 20. Learned Counsel submitted that the Hon’ble Supreme Court in both the Judgments held that “Preamble of the Code provide that liquidation is the last resort and it is duty of the RP/liquidator to explore all possibilities to keep the unit as going concern and take steps for revival within the ambit of the Code and liquidation of assets per- se would only be resorted if these steps are not possible.”

# 21. Learned Counsel relied upon the Judgment of this Tribunal in the matter of ‘S.C. Sekaran vs Amit Gupta & Ors.’, Appeal No. 495 & 496 of 2018’ and in the matter of ‘Siva Rama Krishna Prasad vs S Rajendra, Official Liquidator of M/s Krishna Industrial Corporation Ltd. & Ors.’, Appeal No. 751 & 752 of 2020’and in the matter of ‘Y Shivram Prasad vs S. Dhanapal & Ors.’ Company Appeal (AT) (Ins) No. 224 of 2018 dated 27.02.2019 has observed that even after pushing the Corporate Debtor into liquidation, Promoter/Ex- Director of the Corporate Debtor can take recourse to Section 230 of the Companies Act, 2013 by submitting a scheme for revival of the Corporate Debtor, subject of course to eligibility of the applicant.

# 24. Pursuant to the liquidation order, public announcement inviting claim from the Creditors of the Corporate Debtor was published in form B. In response thereof the Creditors submitted their claims which were duly verified by the liquidator. The Appellant/ Promoters of the Corporate Debtor submitted their scheme under Section 230 of the Companies Act, 2013 for sale of the Corporate Debtor as a going concern. The scheme submitted by the Appellant was approved by stakeholders of the Corporate Debtor and accordingly an Application bearing I. A No. 66 of 2020 was filed before the Adjudicating Authority.

# 25. However, the said I.A was dismissed as withdrawn in view of notification dated 06.01.2020 issued by the Government of India whereby an amendment was made in Regulation 2B of the IBBI, Regulations 2016, by virtue of which the Appellants became ineligible to submit a scheme of the liquidation process of the Corporate Debtor.

# 26. Subsequently an amendment was made by the Government of India to MSME Act and changes were made in the criteria for classifying entities as MSME.

# 28. Heard the Learned Counsel appearing for the Respective parties, perused the pleadings, documents and Citations relied upon by them. 

# 29. The Learned Adjudicating Authority vide its impugned order dated 15.10.2020 observed that the Appellant was not an MSME as on the date of filing of Application under Section 10 of the IBC and does not fall under the criteria MSME. The relevant Paragraph 21 of the impugned order is reproduced here under:

• “21) Under the facts and circumstances, as discussed herein above, the Corporate Debtor at this stage cannot claim to be fall under the classification of MSME and take the benefit of MSME, in view of amendment vide notification issued on 01.06.2020, w.e.f. 01.07.2020, by having its retrospective effect when admittedly on the date of filing application under Section 10 of the Insolvency and Bankruptcy Code Corporate Debtor does not fall under the criteria of MSME, therefore, the Application is bad in the eye of law, hence, rejected.”

# 34. It is an admitted fact that the Appellant/Promoters are not eligible to file even a scheme of arrangement under Section 230 of the Companies Act, 2013 by virtue of above notification issued by the Government of India. It is also an admitted fact that the Corporate Debtor do not fall under the category of MSME and therefore, the promoter cannot file Resolution Plan in the CIRP Process.

# 35. Subsequently, the Government of India vide notification dated 01.06.2020 has carried out certain changes in criteria for classification of Micro, Small and Medium Enterprises.

# 38. The contention of the Appellants that pursuant to the said notification the Corporate Debtor fall under the category of the MSME and as per Section 240 A of the IBC they are eligible to participate and submit a scheme, to avoid liquidation of the Corporate Debtor. We have perused the notification dated 01.06.2020 and Section 240A of the IBC and in terms of above notification the Corporate Debtor falls into the category of MSME. The Appellants vehemently contend that being existing promoters now they are eligible to submit a Scheme.

# 45. This Tribunal in the matter of “S.C.Sekaran vs. Amit Gupta & Ors.” in Company Appeal (AT) (Insolvency) No. 495 and 496 of 2018 dated 29th January, 2019. By referring the Judgment of Hon’ble Supreme Court in the matter of “Swiss Ribbons Pvt. Ltd. & Anr.”vs Union of India & Ors.”, “Arcelormittal India Pvt. Ltd.vs Satish Kumar Gupta & Ors.” and in “Meghal Homes Pvt. Ltd. vs. Shree Niwas Girni K.K. Samiti & Ors.-(2007)7 SCC 753” held as under:

• “8. In view of the provision of Section 230 and the decision of the Hon’ble Supreme Court in ‘Meghal Homes Pvt. Ltd.’ and ‘Swiss Ribbons Pvt. Ltd.’, we direct the ‘Liquidator’ to proceed in accordance with law. He will verify claims of all the creditors; take into custody and control of all the assets, property, effects and actionable claims of the ‘corporate debtor’, carry on the business of the ‘corporate debtor’ for its beneficial liquidation etc. As prescribed under Section 35 of the I & B Code. The Liquidator will access information under section 33 and will consolidate the claim under Section 38 and after verification of claim in terms of Section 39 will either admit or reject the claim, as required under Section 40. Before taking steps to sell the assets of the ‘corporate debtor(s)’(companies herein), the Liquidator will take steps in terms of Section 230 of the Companies Act, 2013. The Adjudicating Authority, if so required, will pass appropriate order. Only on failure of revival, the Adjudicating Authority and the Liquidator will first proceed with the sale of company’s assets wholly and thereafter, if not possible to sell the company in part and in accordance with law.

• 9. The ‘Liquidator’ if initiates, will complete the process under Section 230 of the Companies Act within 90 days. For the purpose of counting the period of liquidation, the pendency of the appeal(s) preferred by the ‘Eight Finance Pvt. Ltd.’ that is from 12th July, 2018 and till date should be excluded. In the circumstances, while we are not inclined to interfere with the impugned order(s) both dated 25th June, 2018 direct the Liquidator to act in accordance with law and as observed above.”

# 47. Further, this Tribunal in the matter of “Siva Rama Krishna Prasad vs. S. Rajendran” in Company Appeal (AT) (Insolvency) No. 751 and 752 of 2020 dated 04th September, 2020observed as under:

• “The Adjudicating Authority has rightly observed that even after pushing the Corporate Debtor into liquidation, Promoter/Ex- Director of the Corporate Debtor can take recourse to Section 230 of the Companies Act, 2013 by submitting a scheme for revival of the Corporate Debtor, subject of course to eligibility of the applicant.”

Conclusion:

# 49. In view of the aforesaid reasons and it is settled law as per the decisions of the Hon’ble Supreme Court that the liquidation is only the last resort and as per the preamble of the IBC the main object of the Code is in resolving corporate insolvencies and not the mere recovery of monies due and outstanding.

# 50. For the foregoing reasons and relied upon the Judgments of the Hon’ble Supreme Court and this Tribunal we are of the view that the Appellant being eligible to submit a scheme by virtue of an amendment to Section 7 of Micro, Small and Medium Enterprises Development Act, 2006 vide notification dated 01.06.2020. Accordingly, we set aside the impugned order dated 15.10.2020 passed by the Adjudicating Authority in I.A. No. 496 of 2020 in CP (IB) No. 148/NCLT/AHM/2017.

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Blogger’s comments; The above judgement of NCLAT in “Rakesh Kumar Agarwal & Ors. Vs Devendra P. Jain” is somewhat in variance with the rulings given in earlier judgements. Some of them are as under; 

 

i). NCLT Ahmedabad (06.01.2021) in POSCO India Pune Processing Center Private Limited  Vs Mr. Dhaval Jitendrakumar Mistry Resolution Professional of M/s Poggenamp Nagatsheth Powertronics Private Limited   [I.A. No. 514 of 2020 in CP(IB) No. 268 of 2018] held that;

• # 4.  . . . .It is also a matter of record that during CIRP, Corporate Debtor with permission of RP registered the Corporate Debtor as MSME. However, it is expected from the RP that while discharging duty, RP must adhere to the provisions of the IB Code i.e. Section 25 of the IB Code, which does not give any power to the RP to change the nature and character of the Corporate Debtor, that too during the CIRP period.

• # 11.  . . . . In the present case, when application was filed and CIRP initiated, the Corporate Debtor was not falling in the criteria/classification of MSME, hence, the amendment benefit cannot be availed by the Corporate Debtor, when it is under CIRP by giving retrospective effect. 

ii). NCLAT (12.01.2021) in  Harkirat Singh Bedi Vs. The Oriental Bank of Commerce & Anr. [Company Appeal (AT) (Ins.) No. 40 of 2020]  held that; 

• # 39. . . . . . . .Also, the date of registration of the Corporate Debtor as MSME as on record was 5th June, 2019, i.e. after CIRP admission order dated 29th March, 2019. The application for registration of MSME by the Appellant was without authorization, being subsequent to initiation of CIRP and hence was invalid. Therefore, the Appellant is ineligible to take the benefits of section 240A under I&B Code.

iii). NCLAT (13.04.2021) in Ashish Mohan Gupta Vs. The Liquidator of M/s. Hind Motors India Ltd (In Liquidation) [Company Appeal (AT) (Insolvency) No. 875 of 2019] held that;

• # 13.  . . . .In the Summary Procedure under IBC, the Resolution Professional and Adjudicating Authority are not expected to go into accounts and investigate if and in which category an application falls under Section 7 examining Notifications under Explanation 2 or Sub-Section 9 of Section 7 of MSME Act.”

• # 14. When we find that it is not necessary for us to pursue Section 230 of the Companies Act at the stage of Liquidation, the same not being part of Procedure of IBC when the Corporate Debtor is in Liquidation, both the Appeals must fail, not having substance in the contentions raised. . . . . . . 

Here I would like to draw attention towards the “Doctrine of Binding Precedent”. The Constitution Bench of Hon’ble Supreme Court of India, while laying the contours of the “Doctrine of Binding Precedent” in Union of India v. Raghubir Singh [(1989) 2 SCC 754 on 16.05.1989 observed as under;-

• “The doctrine of binding precedent has the merit of promoting a certainty and consistency in judicial decisions, and enables an organic development of the law, besides providing assurance to the individual as to the consequence of transaction forming part of his daily affairs. And, therefore, the need for a clear and consistent enunciation of legal principle in the decisions of a Court.”

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Arun Kumar Jagatramka Vs. Jindal Steel and Power Ltd. & Anr. - Prohibition in Section 29A and Section 35(1)(f) of the IBC must also attach itself to a scheme of Compromise or Arrangement under Section 230 of the Act of 2013.

 SCI  (15.03.2021) in Arun Kumar Jagatramka Vs. Jindal Steel and Power Ltd. & Anr.  [Civil Appeal No. 9664 of 2019] held that; 

• 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.

• 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

• 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.

• Based on the above analysis, we find that the prohibition placed by the Parliament in Section 29A and Section 35(1)(f) of the IBC must also attach itself to a scheme of compromise or arrangement under Section 230 of the Act of 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.

Excerpts of the order;

# 1 By its judgment dated 24 October 2019, the National Company Law appellate Tribunal 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 arrangement under Section 230 of the Companies Act, 20134. The judgment was rendered in an appeal  filed by Jindal Steel and Power Limited, an unsecured creditor of the corporate debtor, Gujarat NRE Coke Limited. The appeal was preferred against an order passed by the National Company Law Tribunal  in an application  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.

Issues

# 24 The NCLAT formulated two principal issues in the first of its judgments in appeal:

• “(i) Whether in a liquidation proceeding under Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the 'l&B Code') 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 application for Compromise and Arrangement, while he is ineligible under Section 29A of the I&B to submit a ‘Resolution Plan’.”

# 25 The first of the above issues has been answered in the affirmative by the NCLAT, to which, as Mr Sandeep Bajaj, learned Counsel for the appellant noted, there is no challenge. The real bone of dispute relates to the second issue. In the submission of Mr Sandeep Bajaj, what the NCLAT determined while addressing   itself to the issue in dispute is whether the ineligibility under Section 29A of the IBC can be read into the provisions of Section 230 of the Act of 2013. In essence, Mr Bajaj’s approach to the issue is that a disqualification which is not provided by the legislature cannot be introduced by a judicial determination. In the present case, he submitted, Section 29A does not expressly provide that it extends to Section 230 of the Act of 2013. Section 230, in his submission, is a ‘different section in different enactment’ to which the ineligibility under Section 29A of the IBC cannot be attracted.

Ineligibility during the resolution process and liquidation

# 37 Section 29A of the IBC was introduced with effect from 23 November 2017 by Act 8 of 2018. The birth of the provision is an event attributable to the experience which was gained from the actual working of the provisions of the statute since it was published in the Gazette of India on 28 May 2016. The provisions of the IBC were progressively brought into force thereafter.

# 46 Significantly, the ineligibility which was engrafted by the amending legislation was incorporated in both the provisions of Chapter II dealing with the CIRP as well as in Chapter III dealing with the liquidation process. Section 29A stipulates the category of persons who “shall not be eligible to submit a resolution plan”. The proviso to Section 35(1)(f) incorporates the same norm in the liquidation process, when it stipulates that the liquidator shall not sell the immovable and movable or actionable claims of the corporate debtor in liquidation “to any person who is not eligible to be a resolution applicant”. These words in Section 35(1)(f) are clearly referable to the ineligibility which is set up in Section 29A.

# 67 Now, it is in this backdrop that it becomes necessary to revisit, in the context of the above discussion the 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. . . . .

# 68 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 present case.  . . . . . . when, as in the present 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.

# 69 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

# 76 Additionally, 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, would not be a correct construction of the provisions of law.

Constitutional validity of Regulation 2B - Liquidation Process Regulations

# 77 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.

# 88 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 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.

# 89 At this juncture, it is important to remember that 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 (supra). Since the efficacy of this arrangement is not challenged before us in this case, we cannot comment on its merits. However, we do take this opportunity to offer a note of caution for the NCLT and NCLAT, functioning as the Adjudicatory Authority and Appellate Authority under the IBC respectively, from judicially interfering in the framework envisaged under the IBC. As we have noted earlier in the judgment, 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) in the following terms:

• “An adjudicating authority ensures adherence to the process At all points, the adherence to the process and compliance with all applicable laws is controlled by the adjudicating authority. The adjudicating authority gives powers to the insolvency professional to take appropriate action against the directors and management of the entity, with recommendations from the creditors committee. All material actions and events during the process are recorded at the adjudicating authority. The adjudicating authority can assess and penalise frivolous applications. The adjudicator hears allegations of violations and fraud while the process is on. The adjudicating authority will adjudicate on fraud, particularly during the process resolving bankruptcy. Appeals/actions against the behaviour of the insolvency professional are directed to the Regulator/Adjudicator.”

Conclusion

# 91 Based on the above analysis, we find that the prohibition placed by the Parliament in Section 29A and Section 35(1)(f) of the IBC must also attach itself to a scheme of compromise or arrangement under Section 230 of the Act of 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. For the above reasons, we have come to the conclusion that there is no merit in the appeals and the writ petition.

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