Individual ineligible to submit resolution cannot be permitted to propose scheme of compromise and arrangement with creditors and members
As quoted by Justice Dr Dhananjaya Y Chandrachud, “The 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, while the company is undergoing liquidation under the provisions of the Insolvency and Bankruptcy Code 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.”
In the case at hand, Regulations 2B and 2B(1) of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 were challenged on the ground that regulation transgressed the authority of Insolvency and Bankruptcy Board of India (IBBI) by introducing a disqualification or ineligibility concerning the presentation of an application for a scheme of compromise or arrangement under Section 230 of the Act of 2013. While upholding Regulation 2B and 2B(1). The Court observed that Even in the absence of 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 that is undergoing liquidation under the IBC. The proviso to Regulation 2B is clarificatory in nature. Regulation 2B of the Liquidation Process Regulations, specifically the proviso to Regulation 2B(1), is also constitutionally valid.
The company has to be protected from its management and 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.
