Recently, the
The IBC contains a comprehensive scheme that deals with the revival of a company facing corporate death. Chapter II of the IBC pertains to the initiation of the Corporate Insolvency Resolution Process ("CIRP"). This process may either be initiated at the behest of financial creditor or at the behest of the operational creditor or even the corporate debtor. Chapter II also provides for the appointment of an interim resolution professional, the constitution of a committee of creditors, the submission of a resolution plan and the approval of the same. Whereas the liquidation process under the IBC forms a part of a distinct Chapter, i.e. Chapter III. Liquidation under Chapter III of the IBC requires that the proceedings contemplated under Chapter III are followed. One of the modes of revival for a company facing "corporate death" under liquidation are the provisions under Section 230 of the Act of 2013, to which recourse can be taken by the liquidator appointed under Section 34 of the IBC.
Power to Compromise
Section 230 of the Act pertains to the power of the
Retrospective Amendments to the IBC
When the IBC was first introduced, the provisions did not create any restrictions for any person in submitting a resolution plan or participating in the acquisition process of the assets of a company at the time of liquidation. However, certain concerns were raised that individuals could take advantage of the situation and participate in the resolution or liquidation process. As a result, Section 29A was inserted to the IBC to ensure individuals, who by their misconduct contributed to the defaults of the corporate debtor were prevented from gaining or regaining control of the corporate debtor3. Section 29A was inserted with retrospective effect from
Section 29A and the Impact on Liquidation
Ever since its insertion, Section 29A has played a vital role in ensuring that the objects of the IBC are not defeated by allowing "ineligible persons" to regain control of the corporate debtor. These values of Section 29A "continue to permeate" across to Chapter III of the IBC as the provision applies not only to resolution applicants, but to liquidation process as well5.
The liquidator under Chapter III of the IBC is vested with several powers and duties. The liquidator exercises several functions which are of quasi-judicial in nature. For example, under Section 35(1)(f), the liquidator cannot sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant. The liquidator, in other words, exercises functions which have been made amenable to the jurisdiction of the NCLT, acting as the Adjudicating Authority. Therefore, the ineligibility prescribed under the provisions of Section 35(1)(f) cannot 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.
The Role of Regulation 2B
The Insolvency and Bankruptcy Board of
The Interplay
The
The object of the IBC is to serve as a beneficial legislation to put the corporate debtor back on its feet and does not serve merely as a recovery legislation for creditors. The IBC bifurcates the interests of the corporate debtor from that of its promoters or those who are in management. Further, with the insertion of provisions such as Section 29A, ensures a company may achieve a sustainable revival and 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.
The
Footnotes
1 Civil Appeal No. 9664 of 2019
2 2019 SCC OnLine NCLAT 172
3 The Report of the Insolvency Law Committee dated
4 (2018) 18 SCC 575
5 (2019) 4 SCC 17
6 (2007) 7 SCC 753
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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