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

Civil Appeal · 2021 INSC 187Decided 15 Mar 2021
Civil Appeal No. 9664 of 2019
Dr. Justice D.Y. Chandrachud · Justice M.R. Shah

Background

This judgment decided three connected matters together. In the lead case, Arun Kumar Jagatramka, a promoter of Gujarat NRE Coke Ltd (a company undergoing liquidation under the IBC), tried to take back control of the company by proposing a "scheme of compromise and arrangement" under Section 230 of the Companies Act, 2013: essentially using company law to re-acquire the company he could no longer bid for because Section 29A of the IBC disqualifies defaulting promoters from submitting resolution plans. The NCLAT held that such promoters cannot bypass their IBC ineligibility by taking the Companies Act route, and Jagatramka appealed. A second, similarly-facted appeal involved a promoter of Su-Kam Power Systems. A connected writ petition separately challenged an insolvency regulation (Regulation 2B of the Liquidation Process Regulations) that expressly barred persons ineligible under Section 29A from proposing such schemes.

Decision Breakdown

The Supreme Court held that the policy rationale behind Section 29A of the IBC, keeping defaulting promoters and other undesirable persons from regaining control of a company through the back door, applies equally to a scheme of compromise or arrangement proposed under Section 230 of the Companies Act once a company has entered liquidation under the IBC. The Court reasoned that liquidation under the IBC is meant to give the company a "clean slate," and allowing a Section 29A-ineligible person to re-acquire it via a Section 230 scheme would defeat that purpose and that purpose must inform the construction of Section 230 in this special context. It therefore read the Section 29A/Section 35(1)(f) disqualification into Section 230 proceedings before the NCLT during liquidation, and upheld the validity of Regulation 2B (including its proviso barring ineligible persons), finding it a valid and merely clarificatory exercise of the Insolvency and Bankruptcy Board of India's regulation-making power. All three matters, both appeals and the writ petition, were accordingly dismissed. The Court also added a cautionary note urging the NCLT/NCLAT to exercise restraint and avoid expanding IBC procedure through judicial innovation.

Lesson Learnt

A promoter (or anyone) disqualified from bidding to take back a company during formal insolvency resolution cannot use a different legal route, such as a Companies Act scheme of arrangement during liquidation, to achieve the same disqualified outcome; courts will read the underlying disqualification into the other route to prevent the insolvency framework's purpose from being circumvented.

Official source (sci.gov.in)View Judgment (PDF)

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