Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. & Anr.

The decision of the Supreme Court in Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. & Anr. is a significant ruling at the intersection of insolvency law under the Insolvency and Bankruptcy Code, 2016 (IBC) and corporate restructuring under the Companies Act, 2013. 

The judgement addresses a crucial question: whether a person who is ineligible to submit a resolution plan under Section 29A of the IBC can propose a scheme of compromise or arrangement under Section 230 of the Companies Act, 2013 when the company is under liquidation.

This case assumes importance because schemes under Section 230 are often invoked as a last opportunity to revive a company facing liquidation. The ruling clarifies the scope and application of Section 29A beyond the Corporate Insolvency Resolution Process (CIRP) and determines whether its rigours extend into the liquidation stage when revival is attempted through a compromise or arrangement.

Background and Legislative Context

Section 29A of the Insolvency and Bankruptcy Code, 2016

Section 29A of the IBC was introduced to prevent certain persons, including defaulting promoters and management, from regaining control of a corporate debtor through the resolution process. The purpose of the provision is to ensure that those who contributed to the insolvency of a company do not obtain an undue benefit by submitting a resolution plan and restarting the business on a clean slate.

The underlying objectives of Section 29A include preventing misuse of the insolvency process, protecting creditor interests, and ensuring that resolution leads to a sustainable and credible revival.

Section 230 of the Companies Act, 2013

Sections 230 to 232 of the Companies Act, 2013 deal with schemes of compromise or arrangement between a company and its creditors or members. These provisions enable debt restructuring and, in some cases, revival of the company through creditor-approved schemes. Such schemes require approval of creditors representing the prescribed majority and sanction by the National Company Law Tribunal (NCLT).

During liquidation under the IBC, Section 230 has been used as a mechanism to explore revival before the assets of the company are finally liquidated.

Facts of Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. & Anr. Case

Gujarat NRE Coke Limited, the corporate debtor, was undergoing liquidation proceedings under the IBC following the failure of the insolvency resolution process. Arun Kumar Jagatramka, a promoter of the corporate debtor, filed an application under Sections 230 to 232 of the Companies Act, 2013 seeking approval for a scheme of compromise and arrangement.

The National Company Law Tribunal allowed the application and directed the convening of meetings of shareholders and creditors to consider the proposed scheme.

Jindal Steel and Power Limited, an unsecured creditor of the corporate debtor, challenged this order before the National Company Law Appellate Tribunal (NCLAT). The core contention was that Arun Kumar Jagatramka was ineligible under Section 29A of the IBC and therefore barred from proposing a scheme of compromise or arrangement.

Procedural History

• Before the NCLT: The application filed by Arun Kumar Jagatramka under Sections 230–232 of the Companies Act was allowed, and directions were issued for creditor and shareholder meetings.
  
• Before the NCLAT: The NCLAT reversed the NCLT’s order. It held that a person ineligible under Section 29A of the IBC cannot propose a compromise or arrangement under Section 230 during liquidation.
  
• Before the Supreme Court: Arun Kumar Jagatramka challenged the NCLAT decision. The Supreme Court examined the correctness of extending Section 29A ineligibility to Section 230 schemes during liquidation.

Issues Before the Supreme Court

The central issue before the Supreme Court was whether a person who is ineligible to submit a resolution plan under Section 29A of the IBC is also barred from proposing a scheme of compromise or arrangement under Section 230 of the Companies Act, 2013 when the company is undergoing liquidation under the IBC.

Arguments Considered by the Court

The arguments, as reflected from the judicial reasoning, revolved around the stage at which Section 230 is invoked during liquidation and whether allowing ineligible promoters to propose schemes would undermine the objectives of the IBC.

One perspective emphasised that Section 230 does not expressly disqualify promoters from proposing schemes and operates under a different statutory framework. Another viewpoint stressed that allowing promoters to regain control during liquidation would defeat the purpose of Section 29A by providing a back-door entry.

Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. & Anr. Judgement

The Supreme Court dismissed the appeals and upheld the decision of the NCLAT. It held that a person who is ineligible under Section 29A of the IBC is also ineligible to propose a scheme of compromise or arrangement under Section 230 of the Companies Act, 2013 when the company is under liquidation pursuant to the IBC.

Reasoning of the Court in Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. & Anr.

Continuum of the Insolvency and Liquidation Process

The Supreme Court observed that various stages under the IBC — submission of a resolution plan, sale of assets during liquidation, and sale of the company as a going concern — reflect a consistent legislative intent. This intent is to ensure that promoters or management responsible for the insolvency do not re-enter the company through indirect means.

The Court held that a Section 230 scheme during liquidation forms part of the same continuum and cannot be viewed as an independent or disconnected process.

Nature of Section 230 During Liquidation

The Court clarified that when a company is undergoing liquidation under Chapter III of the IBC, any scheme of compromise or arrangement proposed under Section 230 is a facet of the liquidation process itself. The object of such a scheme is revival of the company before complete dissolution, but it remains embedded within the IBC framework.

Role of Regulation 2B of Liquidation Process Regulations

The Court relied on Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016. It held that the proviso to Regulation 2B(1), which restricts ineligible persons from proposing schemes, is clarificatory in nature. Even in the absence of this proviso, the prohibition under Section 29A would continue to apply.

The Court further upheld the constitutional validity of Regulation 2B.

Prevention of Back-Door Entry

The Supreme Court emphasised that permitting promoters ineligible under Section 29A to propose schemes under Section 230 would render Section 29A ineffective. Such an interpretation would allow individuals barred during CIRP to regain control at the liquidation stage, undermining the legislative intent of the IBC.

Reliance on Judicial Precedents

The Court referred to the principle recognised earlier in Meghal Homes Pvt. Ltd. v. Shree Niwas Girni K.K. Samiti, wherein schemes of compromise during winding up were treated as part of the winding-up process. This principle was extended to liquidation under the IBC.

The judgement also aligns with the consistent approach of courts in giving purposive interpretation to Section 29A, as seen in earlier insolvency decisions.

Conclusion

The Supreme Court’s decision in Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. conclusively establishes that ineligibility under Section 29A of the IBC extends to schemes of compromise or arrangement proposed under Section 230 of the Companies Act during liquidation. The ruling treats liquidation-stage revival efforts as part of a unified insolvency process and prevents circumvention of statutory disqualifications.

By affirming the constitutional validity of Regulation 2B and emphasising the need to prevent back-door entry of defaulting promoters, the judgement reinforces the core objectives of the IBC — ensuring fairness, accountability, and creditor confidence in insolvency proceedings.