Holding

The prohibition under Section 29A and Section 35(1)(f) of the Insolvency and Bankruptcy Code extends to any scheme of compromise or arrangement under Section 230 of the Companies Act when the company is undergoing liquidation under the IBC, rendering Regulation 2B’s proviso constitutionally valid.

Summary

The corporate debtor Gujarat NRE Coke Ltd (GNCL) initiated a corporate insolvency resolution process, but its promoter Arun Kumar Jagatramka was deemed ineligible to submit a resolution plan under Section 29A of the Insolvency and Bankruptcy Code (IBC). After the liquidation order, Jagatramka filed an application under Sections 230‑232 of the Companies Act, 2013 for a scheme of compromise and arrangement, which the NCLT allowed but the NCLAT set aside, holding that ineligible promoters cannot propose such a scheme. The Supreme Court examined whether the disqualification provisions of Section 29A and Section 35(1)(f) of the IBC extend to schemes under Section 230 when a company is in liquidation under the IBC, and whether Regulation 2B of the IBBI’s Liquidation Process Regulations, which incorporates this restriction, is constitutionally valid. The Court adopted a purposive and harmonious interpretation, emphasizing that allowing an ineligible promoter to re‑enter via a scheme would defeat the IBC’s objectives of sustainable revival and corporate governance. Consequently, it held that the ineligibility provisions do apply to Section 230 schemes in liquidation and that Regulation 2B’s proviso is valid. The appeals and the writ petition were dismissed.

Issues considered

Whether a scheme of compromise or arrangement under Sections 230‑232 of the Companies Act, 2013 can be made in a liquidation proceeding under the IBC.
If such a scheme is permissible, whether a promoter ineligible under Section 29A of the IBC may file the scheme.
The constitutional validity of Regulation 2B (and its proviso) of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.
Whether the IBBI has the authority to impose the ineligibility restriction on Section 230 applications.
The relationship between Section 12A withdrawal provisions and Section 230 schemes.

Legislation cited

Companies Act, 1956s. 391
Companies Act, 2013s. 230, s. 231, s. 232
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016s. Rule 8
Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016s. Regulation 2B
Insolvency and Bankruptcy Code, 2016s. 10, s. 12A, s. 29A, s. 30, s. 31, s. 33, s. 34, s. 35(1)(f), s. 7, s. 9

Subjects

insolvencybankruptcyresolution planineligible promoterSection 29ASection 35(1)(f)Section 230liquidationRegulation 2BCorporate governancescheme of compromiseCompanies Act 2013IBC

Judgment

114 [2021]
SUPREME COURT 3 S.C.R. 114
REPORTS [2021] 3 S.C.R.

A ARUN KUMAR JAGATRAMKA
v.
JINDAL STEEL AND POWER LTD. & ANR.
(Civil Appeal No. 9664 of 2019)
B MARCH 15, 2021
[DR. DHANANJAYA Y CHANDRACHUD AND
M. R. SHAH, JJ.]
Insolvency and Bankruptcy Code, 2016:
s. 29A – Person not eligible to be resolution applicant –
C
Eligibility of promoter to file application for compromise and
arrangement, while he is ineligible u/s. 29A to submit ‘Resolution
Plan’ – On facts, application by GNCL, corporate debtor for
initiating the Corporate Insolvency Resolution Process admitted and
the appellant-promoter of GNCL submitted a resolution plan for
D GNCL – However, due to insertion of s. 29A, which disqualifies a
person from being a resolution applicant if they have been a promoter
or in the management or control of a corporate debtor, appellant
became ineligible to submit a resolution plan – No resolution plan
approved by the CoC and in absence thereof, the order of liquidation
by NCLT – During the pendency of the appeal before NCLAT,
E
application u/ss. 230 to 232 of the Act of 2013 by appellant-promoter
of GNCL before the NCLT proposing a scheme for compromise and
arrangement between the erstwhile promoters and creditors and
the same was allowed – Appeal thereagainst by respondent-
unsecured creditor of the corporate debtor – NCLAT holding that
F promoters ineligible u/s. 29A to submit a resolution plan, also barred
from proposing a scheme of compromise and arrangement u/s.230
of the Act of 2013 – On appeal, held: Prohibition placed by the
Parliament in s. 29A and s. 35(1)(f) must also attach itself to a
scheme of compromise or arrangement u/s. 230 of the 2013 Act,
when the company is undergoing liquidation under the auspices of
G
the IBC – As such, Reg 2B, specifically the proviso to Reg 2B(1), is
also constitutionally valid – Even in the absence of the Reg 2B, a
person ineligible u/s. 29A read with s. 35(1)(f) is not permitted to
propose a scheme for revival u/s. 230, in the case of a company
which is undergoing a liquidation under the IBC – In the case of a
H
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company undergoing liquidation under the IBC, a scheme of A
compromise or arrangement proposed u/s. 230 is a facet of the
liquidation process – Object of the scheme of compromise or
arrangement is to revive the company – Same rationale which
permeates the resolution process u/s. 29A permeates the liquidation
process u/s. 35(1)(f) – Insolvency and Bankruptcy Board of India
B
(Liquidation Process) Regulations, 2016 – Reg 2B – Companies
Act, 2013 – ss. 230 to 232.
Enactment of – Salutary objectives of good corporate
governance and respect for and adherence to the rule of law; and
re-organization and resolution of insolvencies under – Held: Can
be achieved if the integrity of the resolution process is placed at the C
forefront – Purposive interpretation is required by the courts, while
infusing meaning and content to its provisions, to ensure that the
problems which beset the earlier regime do not enter through the
backdoor through disingenuous stratagems.
s. 29A – Person not eligible to be resolution applicant – D
Purpose of the ineligibility under – Held: Is to achieve a sustainable
revival and to ensure 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 – s. 29A encompasses not only conduct in relation to the
corporate debtor but in relation to other companies as well. E
ss. 29A, 35(1)(f) – Interplay between the proposal of a scheme
of compromise and arrangement u/s.230 of the Act of 2013 and
liquidation proceedings initiated under IBC – Held: s. 230 of the
Act of 2013 is wider in its ambit – It is not confined only to a company
in liquidation or to corporate debtor which is being wound up under F
Chapter III of the IBC – Thus, the rigors of the IBC will not apply to
proceedings u/s. 230 of the Act of 2013 where the scheme of
compromise or arrangement proposed is in relation to an entity which
is not the subject of a proceeding under the IBC – However, where
s. 230 of the Act of 2013 traces its origin to the liquidation
proceedings initiated under IBC, harmonious construction is needed G
between the two statutes which would ensure that a scheme of
compromise or arrangement u/s. 230 is being pursued, in a manner
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 H
116 SUPREME COURT REPORTS [2021] 3 S.C.R.

A the company in liquidation, are somehow permitted to propose a
compromise or arrangement u/s. 230 of the Act of 2013 – IBC has
made a provision for ineligibility u/s. 29A which operates during
the course of the CIRP – Similar provision, s. 35(1)(f) 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 s.
B
230 of the Act of 2013 with Chapter III of the IBC, it would be far-
fetched to hold that the ineligibilities which attach u/s. 35(1)(f) r/w
s. 29A would not apply when s. 230 is sought to be invoked – Such
an interpretation would result in defeating the provisions of the
IBC and must be eschewed – Stages of submitting a resolution plan,
C 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 u/s. 230 of the Act of 2013, while the company is
D
undergoing liquidation under the provisions of the IBC lies in a
similar continuum – Companies Act, 2013 – ss. 230 to 232.
ss. 6 to 32A – Modes of revival of a company under the
provisions of the IBC – Explained.
E s. 12A - Withdrawal of application – Withdrawal of the
application admitted u/ss. 7, 9 and 10 – Discussed.
Insolvency and Bankruptcy Board of India (Liquidation
Process) Regulations, 2016: Reg 2B - Constitutional validity of –
Held: Reg 2 B provides that where a compromise or arrangement is
F proposed u/s. 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 s. 33 – Proviso to Reg 2B provides 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 – Reg 2B, specifically the proviso
G to Reg 2B(1) is constitutionally valid.
Dismissing the appeals and writ petition, the Court
HELD: 1.1 The prohibition placed by the Parliament in
Section 29A and Section 35(1)(f) of the Insolvency and Bankruptcy
Code, 2016 must also attach itself to a scheme of compromise or
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arrangement under Section 230 of the Companies Act 2013, when A
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. [Para 91][192-C-D]
2. Section 29A has been construed to be a crucial link in B
ensuring that the objects of the IBC are not defeated by allowing
“ineligible persons”, including but not confined to those in the
management who have run the company aground, to return in
the new avatar of resolution applicants. Section 35(1)(f) is placed
in the same continuum when the Court observes that the erstwhile
promoters of a corporate debtor have no vested right to bid for C
the property of the corporate debtor in liquidation. The values
which animate Section 29A continue to provide sustenance to
the rationale underlying the exclusion of the same category of
persons from the process of liquidation involving the sale of
assets, by virtue of the provisions of Section 35(1)(f). [Para D
52][166-B-D]
Chitra Sharma v. Union of India (2018) 18 SCC 575 :
[2018] 12 SCR 1044; Arcelormittal India Private Limited
v. Satish Kumar Gupta & Ors (2019) 2 SCC 1 : [2018]
12 SCR 362; Phoenix ARC Private Limited v. Spade E
Financial Service 2021 SCC OnLine SC 51; Ramesh
Kymal v. M/s Siemens Gamesa Renewable Power Pvt
Ltd. [2021] 3 SCC 224; Anuj Jain, Interim Resolution
Professional for Jaypee Infratech Limited v. Axis Bank
Limited (2020) 8 SCC 401 – relied on.
F
3. The purpose of the ineligibility under Section 29A is to
achieve a sustainable revival and to ensure 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. Section 29A encompasses not
only conduct in relation to the corporate debtor but in relation to
other companies as well. [Para 53][166-F-G] G
4.1 Section 230 of the Act of 2013 is incorporated in Chapter
XV which is titled “compromise, arrangement and
amalgamations”. A compromise or arrangement under Sub-
section (1) of Section 230 may take place: between a company
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118 SUPREME COURT REPORTS [2021] 3 S.C.R.

A and its creditors or any subset of creditors; or between a company
and its members or subset of members. Liquidation is one of the
factual situations in which the provisions of Section 230 can be
invoked. Section 230(1) can also be invoked in the case of a
company which is wound up, as is evident from the statutory
provision itself, which contemplates that an application may be
B
submitted to the NCLT, acting as the Tribunal, by the liquidator.
Upon the sanctioning of the compromise or arrangement by the
NCLT, it binds the company, all the creditors or members or a
class of them, as may be, or in the case of a company being wound
up, the liquidator appointed under the Act of 2013 or the IBC
C and the contributories. [Para 57-59, 61][168-D; 169-A-C; 170-
B-C]
5.1 There is no reference in the body of the IBC to a scheme
of compromise or arrangement under Section 230 of the Act of
2013. Sub-section (1) of Section 230 was however amended with
D effect from 15 November 2016 so as to allow for a scheme of
compromise or arrangement being proposed on the application
of a liquidator who has been appointed under the provisions of
the IBC. It was submitted by the appellant that Section 230 is
not regulated by the IBC but is a provision independent of it,
though after the amendment of Sub-section (1), a compromise or
E arrangement can be proposed by the liquidator appointed under
the IBC; that the decision in Meghal Homes’s case recognises
that the liquidator is an additional person who may submit an
application under Section 391 of the Act of 1956 (corresponding
to Section 230 of the Act of 2013). The submission however,
F misses the crucial interface between the provisions of Section
230 of the Act of 2013 in their engagement with a company in
respect of which the provisions of the IBC have been invoked,
resulting in an order of liquidation under Section 33 of the IBC.
Liquidation of the company under the IBC is a matter of last
resort. Section 33 requires the NCLT, acting as the Adjudicating
G Authority, to pass an order for the liquidation of the corporate
debtor where: before the expiry of the insolvency resolution
process period or the maximum period contemplated for its
completion a resolution plan has not been received under Sub-
section (6) of Section 30; or the resolution plan has been rejected
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under Section 31 for non-compliance with the requirements of A
the provision. [Para 64][171-H; 172-A-E]
Meghal Homes Pvt. Ltd. v Shree Niwas Girni K. K.
Samiti (2007) 7 SCC 753 : [2007] 9 SCR 330; Miheer
H Mafatlal v. Mafatlal Industries Ltd. (1997) 1 SCC
579 : [1996] 6 Suppl. SCR 1 – referred to. B
5.2 Under Sub-Section (2) of Section 33, the Adjudicating
Authority has to pass a liquidation order where the resolution
professional, during the CIRP but before the confirmation of the
resolution plan, intimates the Adjudicating Authority of the
decision of the CoC approved by not less than 66 per cent of the C
voting shares to liquidate the corporate debtor. Under Section
34, upon the Adjudication Authority passing an order for
liquidation of the corporate debtor under Section 33, the resolution
professional appointed for the CIRP under Chapter II is to act as
a liquidator for the purpose of liquidation. Section 35 proceeds to
stipulate that subject to the directions of the Adjudicating D
Authority, the liquidator shall have the powers and duties
enumerated in the provision. [Para 65][172-F-H]
5.3 There are 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 E
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 F
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. While there is no direct recognition of the provisions
of Section 230 of the Act of 2013 in the IBC, a decision was
rendered by the NCLAT in Y Shivram Prasad v. S Dhanapal’s G
case wherein NCLAT took note of the fact that while passing the
order u/s. 230, the Adjudicating Authority would perform a dual
role, one as the Adjudicating Authority in the matter of liquidation
under the IBC and the other as a Tribunal for passing an order
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120 SUPREME COURT REPORTS [2021] 3 S.C.R.

A u/s. 230 of the Act of 2013. Following the decision of NCLAT, an
amendment was made on 25 July 2019 to the Liquidation Process
Regulations by the IBBI so as to refer to the process envisaged
under Section 230 of the Act of 2013. [Para 67][173-C-G]
Y Shivram Prasad v. S Dhanapal 2019 SCC OnLine
B NCLAT 172 – approved.
5.4 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
C the instant case. The first point is that a liquidation under Chapter
III of the IBC follows upon the entire gamut of proceedings
contemplated under that statute. The second point to be noted is
that one of the modes of revival in the course of the liquidation
process is envisaged in the enabling provisions of Section 230 of
the Act of 2013, to which recourse can be taken by the liquidator
D appointed under Section 34 of the IBC. The third point is that
the statutorily contemplated activities of the liquidator do not
cease while inviting a scheme of compromise or arrangement
under Section 230. The appointment of the liquidator in an IBC
liquidation is provided in Section 34 and their duties are specified
E in Section 35. In taking recourse to the provisions of Section 230
of the Act of 2013, the liquidator appointed under the IBC is , to
attempt a revival of the corporate debtor so as to save it from the
prospect of a corporate death. The consequence of the approval
of the scheme of revival or compromise, and its sanction
thereafter by the Tribunal under Sub-section (6), is that the
F scheme attains a binding character upon stakeholders including
the liquidator who has been appointed under the IBC. In this
backdrop, it is difficult to accept that Section 230 of the Act of
2013 is a standalone provision which has no connect with the
provisions of the IBC. Undoubtedly, Section 230 of the Act of
G 2013 is wider in its ambit in the sense that it is not confined only
to a company in liquidation or to corporate debtor which is being
wound up under Chapter III of the IBC. Obviously, therefore,
the rigors of the IBC will not apply to proceedings under Section
230 of the Act of 2013 where the scheme of compromise or

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arrangement proposed is in relation to an entity which is not the A
subject of a proceeding under the IBC. But, when, as in the instant
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
B
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 C
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
D
corporate debtor as a ‘going concern’, are somehow permitted
to propose a compromise or arrangement under Section 230 of
the Act of 2013. [Para 68][174-A-H; 175-A-C]
5.5 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 E
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 F
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. [Para 69][175-C-F]
5.6 There is no merit in the submission that attaching the G
ineligibilities under Section 29A and Section 35(1)(f) of the IBC
to a scheme of compromise and arrangement under Section 230
of the Act of 2013 would be violative of Article 14 of the
Constitution as the appellant would be “deemed ineligible” to
submit a proposal under Section 230 of the Act of 2013. The stages
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122 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 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
B
under Section 230 of the Act of 2013, while the company is
undergoing liquidation under the provisions of the IBC 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. [Para 70][175-E-F; 176-A-C]
C 6. Section 12A of the IBC was inserted with effect from 6
June 2018 by Amending Act 26 of 2018. Under Section 12A, the
Adjudicating Authority may allow the withdrawal of an application
which is admitted under Sections 7, 9 and 10, on an application
made by the applicant with the approval of a 90 per cent voting
D share of the CoC in such manner as may be specified. Rule 8 of
the Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016, on the other hand, contemplates that the
NCLT, functioning as the Adjudicating Authority, may permit a
withdrawal of an application made under Rule 4 (by the financial
creditor), Rule 6 (by the operational creditor) or Rule 7 (by the
E corporate applicant) on the request made by the applicant before
its admission. Regulation 30-A of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016 contains provisions for the withdrawal
of an application. Under Regulation 30-A, as it originally stood,
F an application for withdrawal under Section 12-A was required to
be submitted before the issuance of an invitation for the
expression of interest under Regulation 36-A. The decision in
Swiss Ribbons led to substitution of the Regulation 30-A which
stipulates that an application for withdrawal under Section 12-A
may be made to the adjudicating authority: before the constitution
G of the CoC, by the applicant through the IRP; and after the
constitution of the CoC, by the applicant through the IRP or the
RP as the case may be. However, where the application under
clause (b) is made after the issuance of the invitation for
expression of interest, the applicant has to state the reasons
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justifying withdrawal after the issuance of the invitation. A
[Para 72][178-B-E; 179-A-B; 180-A-B]
Swiss Ribbons Private Limited v. Union of India (2019)
4 SCC 17 : [2019] 3 SCR 535; Brilliant Alloys (P) Ltd.
v. S Rajagopal 2018 SCC OnLine SC 3154 – referred
to. B
7.1 There is a fundamental fallacy in the submission that on
the withdrawal of the application under Sections 7, 9 and 10, as
the case may be, the company goes back to the same promoter
in spite of such a promoter being ineligible under Section 29A
for submitting a resolution plan, as such, there is no reason or C
justification then to preclude a promoter from presenting a
scheme of compromise or arrangement under Section 230. An
application for withdrawal under Section 12-A is not intended to
be a culmination of the resolution process. This, as the statutory
scheme would indicate, is at the inception of the process. Rule 8
of the Adjudicating Authority Rules contemplates a withdrawal D
before admission. Section 12-A subjects a withdrawal of an
application, which has been admitted under Sections 7, 9 and 10,
to the requirement of an approval of ninety per cent voting shares
of the CoC. A withdrawal in other words is by the applicant. The
withdrawal leads to a status quo ante in respect of the liabilities E
of the corporate debtor. A withdrawal under Section 12-A is in
the nature of settlement, which has to be distinguished both from
a resolution plan which is approved under Section 31 and a scheme
which is sanctioned under Section 230 of the Act of 2013. A
resolution plan upon approval under Section 31(1) of the IBC is
binding on the corporate debtor, its employees, members, F
creditors (including the central and state governments), local
authorities, guarantors and other stakeholders. The approval of
a resolution plan u/s. 31 results in a “clean slate,”. [Para 73, 74]
[181-D-H; 182-A-C]
Swiss Ribbons Private Limited v. Union of India (2019) G
4 SCC 17 : [2019] 3 SCR 535; Committee of Creditors
of Essar Steel India Limited v. Satish Kumar Gupta
(2020) 8 SCC 531 : [2019] 16 SCR 275 – referred to.

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A 7.2 The benefit under Section 31, following upon the
approval of the resolution plan, is that the successful resolution
applicant starts running the business of the corporate debtor on
“a fresh slate”. The scheme of compromise or arrangement under
Section 230 of the Act of 2013 cannot certainly be equated with a
withdrawal simpliciter of an application, as is contemplated under
B
Section 12-A of the IBC. A scheme of compromise or
arrangement, upon receiving sanction under Sub-section (6) of
Section 230, binds the company, its creditors and members or a
class of persons or creditors as the case may be as well as the
liquidator (appointed under the Act of 2013 or the IBC). Both,
C the resolution plan upon being approved under Section 31 of the
IBC and a scheme of compromise or arrangement upon being
sanctioned under Sub-section (6) of Section 230, represent the
culmination of the process. This must be distinguished from a
mere withdrawal of an application under Section 12-A. There is a
clear distinction between these processes, in terms of statutory
D
context and its consequences and the latter cannot be equated
with the former. [Para 75][183-F-H; 184-A]
7.3 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
E 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
F 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.
G 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,
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would not be a correct construction of the provisions of law. A
[Para 76][184-B-E]
8. 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 B
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. [Para 77]
[184-F-G] C

9. IBBI noted in its discussion paper that the introduction
of ineligibilities stipulated under Section 29-A of the IBC to
Section 230 of the Act of 2013 would pose practical difficulties in
its implementation. The IBBI solicited public comments on its
proposals. The IBBI evolved its view on the issue of whether D
Section 29-A should be made applicable to Section 230 of the Act
of 2013 in its subsequent discussion paper. The discussion paper
brought out on 3 November 2019 by IBBI discussed the
applicability of Section 29A of the IBC to a compromise and
arrangement under Section 230 of the Act of 2013. The discussion E
paper notes that there were many instances where the NCLAT
had allowed the application under Section 230 of the Act of 2013.
Thereafter, public comments were invited. The discussion paper
is what it professes to be-a matter for discussion in the public
realm. This cannot be held to constitute an admission of IBBI
that an applicant who is ineligible under Section 29A may submit F
a scheme of compromise or arrangement under Section 230 of
the Act of 2013. The validity of the provisions of Regulation 2B,
more specifically the proviso, has to be considered on their own
footing. [Para 79, 80, 82][185-G-H; 186-E-F; 187-G-H]
10. The powers and functions entrusted to IBBI are G
specified in Section 196 of the IBC. Section 196(1)(t) provides
IBBI with the power to frame regulations. Clause (t) empowers
IBBI to make regulations and guidelines on matters relating to
insolvency and bankruptcy, as may be required under the IBC.
Section 240(1) empowers IBBI with the power to make H
126 SUPREME COURT REPORTS [2021] 3 S.C.R.

A regulations. Under Sub-Section (1) of Section 240, the power to
frame regulations is conditioned by two requirements: first, the
regulations have to be consistent with the provisions of the IBC
and the rules framed by the Central Government; and second,
the regulations must be to carry out the provisions of the IBC.
Regulation 2B meets both the requirements, of being consistent
B
with the provisions of IBC and of being made in order to carry
out the provisions of the IBC. [Para 83][188-A-E]
11. The principal ground of challenge to Regulation 2B is
that the regulation transgressed the authority of IBBI by
introducing a disqualification or ineligibility in regard to the
C presentation of an application for a scheme of compromise or
arrangement under Section 230 of the Act of 2013. It was
submitted that IBBI, as an entity constituted by the IBC, had no
statutory jurisdiction to amend the provisions of Section 230 of
the Act of 2013 or to impose a restriction which operates under
D the purview of Section 230. The position can be considered from
two perspectives, independent of the provisions of Regulation
2B. Even in the absence of the 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 which is undergoing a liquidation under the IBC. In the
E case of a company which is undergoing liquidation pursuant to
the provisions of Chapter III of the IBC, a scheme of compromise
or arrangement proposed under Section 230 is a facet of the
liquidation process. The object of the scheme of compromise or
arrangement is to revive the company. The same rationale which
F permeates the resolution process under Chapter II (by virtue of
the provisions of Section 29A) permeates the liquidation process
under Chapter III (by virtue of the provisions of Section 35(1)(f)).
That being the position, there can be no manner of doubt that the
proviso to Regulation 2B is clarificatory in nature. Even absent
the proviso, a person who is ineligible under Section 29A would
G not be permitted to propose a compromise or arrangement under
Section 230 of the Act of 2013. Thus, there is no merit in the
challenge to the validity of Regulation 2B. [Para 84][188-F-H;
189-A-D]

H
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 127
POWER LTD.

Meghal Homes Pvt. Ltd. v Shree Niwas Girni K. K. A
Samiti (2007) 7 SCC 753 : [2007] 9 SCR 330 – referred
to.
12.1 The Insolvency Law Committee in its report began by
acknowledging that the floating of schemes of compromise or
arrangement under Sections 230 to 232 of the Act, even for B
companies undergoing liquidation, was not part of the framework
under the IBC. This, the Committee noted, had led to a
multiplicity of issues including, but not limited to, the duality of
the role of the NCLT (as a supervisory Adjudicatory Authority
under the IBC versus the driving Tribunal under the Act of 2013)
and indeed the very question whether the disqualification under C
Section 29A and proviso to Section 35(1)(f) of the IBC also
attaches to Section 230 of the Act of 2013. However, the
Committee notes that judicial intervention by the NCLAT along
with the IBBI’s introduction of new regulations have led to some
alignment in the two frameworks. [Para 86][189-G-H; 190-A-B] D
< h t t p s : / / i b b i . g o v. i n / u p l o a d s / r e s o u r c e s
c6cb71c9f69f66858830630da08e45b4.pdf> accessed on 10
March 2021 – referred to.
12.2 The Committee thereafter, notes that the introduction
of such schemes into the framework of the IBC may be worrisome E
since it would alter the incentives during the CIRP and lead to
destructive delays, which often plagued the process under the
Sick Industrial Companies (Special Provisions) Act, 1985.
However, it nonetheless also acknowledges the benefits such
schemes may have to offer. Even so, the Committee concludes
by noting that such schemes, if at all they are to be brought in, F
should not be under the Act of 2013 but the IBC itself. [Para 87]
[190-C-D]
Umakanth Varottil, ‘The Scheme of Arrangement as a Debt
Restructuring Tool in India: Problems and Prospects’ (March
2017) NUS Working Paper 2017/005 available at <http:// G
law.nus.edu.sg/wp> - referred to.
12.3 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
H
128 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 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. [Para 88][191-A-B]
12.4 The explicit recognition of the schemes under Section
B 230 into the liquidation process under the IBC was through the
judicial intervention of the NCLAT in Y Shivram Prasad’s case.
Since the efficacy of this arrangement is not challenged in this
case, this Court cannot comment on its merits. However, the
NCLT and NCLAT are cautioned as regards, functioning as the
Adjudicatory Authority and Appellate Authority under the IBC
C respectively, from judicially interfering in the framework envisaged
under the IBC. 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
D 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
E the report of the Bankruptcy Law Reforms Committee (2015).
[Para 89][191-B-E]
Y Shivram Prasad v. S Dhanapal 2019 SCC OnLine
NCLAT 172 – approved.

F Jogendra Lal Saha v. State of Bihar, 1991 Supp (2)
SCC 654; Jasbir Singh v. Vipin Kumar Jaggi, (2001) 8
SCC 289 : [2001] 1 Suppl. SCR 598; P.V. Hemlatha v.
Kattam Kandi Puthiya Maliackal Saheeda, (2002) 5
SCC 548 : [2002] 3 SCR 1098; Talchar Municipality
v. Talcher Regulated Market Committee, (2004) 6 SCC
G 178 : [2004] 3 Suppl. SCR 167; Iridium India Telecom
Ltd. v. Motorola Inc, (2005) 2 SCC 145 : [2005] 1 SCR
73 – referred to.
Salomon v. A. Salomon & Co. Ltd. 1897 AC 22 (HL) –
referred to.
H
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 129
POWER LTD.

Case Law Reference A
[2019] 3 SCR 535 relied on Para 52
[2019] 16 SCR 275 referred to Para 29(xii)
[2007] 9 SCR 330 referred to. Para 63, 64
[2018] 12 SCR 1044 relied on Para 52 B
[2018] 12 SCR 362 relied on Para 52
[2021] 3 SCC 224 relied on Para 52
(2020) 8 SCC 401 relied on Para 52
C
[1996] 6 Suppl. SCR 1 referred to Para 63
1991 Supp (2) SCC 654 referred to Para 68
[2001] 1 Suppl. SCR 598 referred to Para 68
[2002] 3 SCR 1098 referred to Para 68
D
[2004] 3 Suppl. SCR 167 referred to Para 68
[2005] 1 SCR 73 referred to Para 68
CIVIL APPELLATE/ORIGINAL JURISDICTION : Civil
Appeal No. 9664 of 2019.
E
From the Judgment and Order dated 24.10.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
No. 221 of 2018.
With
Writ Petition (C) No. 269 Of 2020 And Civil Appeal No. 2719 Of F
2020.
Tushar Mehta, SG, Balbir Singh, ASG, Gopal Jain, Amit Sibal, Sr.
Advs., Sandeep Bajaj, Soayib Qureshi, Nidhi Mohan Parashar, Ms. Aditi
Pundhir, Ms. Sangya Gupta, Shiv Shankar Banerjee, Ms. Richa Kapoor,
Kunal Anand, Anupa Banerjee, Ms. Ayushi Rajput, Charu Shangari, G
Shalya Agarwal, Ms. Surabhi Katyal, Ms. Shivani Sharma, Kanu
Agrawal, Saurabh Mishra, Ankur Talwar, Chinamyee Chandra, Shyam
Gopal, Arvind Kumar Sharma, Alok Dhir, Karan Batura, Ms. Priyal
Chaturvedi, Nikhar Luthra, T. V. S. Raghavendra Sreyas, Ms. Gayatri
Gulati, Siddharth Vasudev, Sidhartha Sharma, Arjun Asthana, Sumit
H
130 SUPREME COURT REPORTS [2021] 3 S.C.R.

A Binani, Arup Banerjee, Ms. Misha, Anoop Rawat, Siddhant Kant, Sagar
Dhawan, Nikhil Mathur, Ms. Prabhsimran Kaur, S. S. Shroff, Vikas
Mehta, Advs. for the appearing parties.
The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
B
This judgment has been divided into the following sections to
facilitate analysis:
A Factual Background
A.1 Civil Appeal 9664 of 2019
C A.2 Civil Appeal 2719 of 2020
A.3 Liquidation Process Regulations, 2016
A.4 Article 32 Petition
B Issues
D C Submissions
D Analysis of the Legal Framework
D.1 Ineligibility during the resolution process and
liquidation
D.2 Interplay : IBC liquidation and Section 230 of
E the Act of 2013
D.3 The ‘Clean Slate’
D.4 Constitutional Validity of Regulation 2B -
Liquidation Process Regulations

F E Epilogue
F Conclusion
A Factual Background
A.1 Civil Appeal 9664 of 20191
1. By its judgment dated 24 October 2019, the National Company
G Law Appellate Tribunal2 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
1
“First Appeal”
2
“NCLAT”
3
H “IBC”
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 131
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

arrangement under Section 230 of the Companies Act, 20134. The A
judgment was rendered in an appeal5 filed by Jindal Steel and Power
Limited6, an unsecured creditor of the corporate debtor, Gujarat NRE
Coke Limited7. The appeal was preferred against an order passed by
the National Company Law Tribunal8 in an application9 under Sections
230 to 232 of the Act of 2013, preferred by Mr Arun Kumar Jagatramka,
B
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 C
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, D
in the submission, amount to a judicial reframing of legislation by the
NCLAT, which is impermissible.
3.Before we advert to the submissions of the counsels on questions
of law, it will be useful to outline the salient facts of this dispute to
understand the contours of the controversy. GNCL, the corporate debtor, E
moved an application under Section 10 of the IBC before the NCLT for
initiating the Corporate Insolvency Resolution Process10. The application
was admitted on 7 April 2017.
4. Mr Arun Kumar Jagatramka submitted a resolution plan for
GNCL on 1 November 2017, which was presented by the Resolution F
Professional11 before the Committee of Creditors12. The plan was to be
put to a vote in a meeting of the CoC scheduled on 23-24 November
2017.
4
the “Act of 2013”
5
Company Appeal (AT) No. 221 of 2018
6
“JSPL”
G
7
“GNCL”
8
“NCLT”
9
C.A. (CAA) No. 198/KB/2018
10
“CIRP” or “resolution process”
11
“RP”
12
“CoC” H
132 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 5. The IBC was amended by the Insolvency and Bankruptcy Code
(Amendment) Act, 2018. Section 29A which was inserted with
retrospective effect from 23 November 2017 provides a list of persons
who are ineligible to be resolution applicants. Sub-section (g) of Section
29A disqualifies a person from being a resolution applicant if they have
been a promoter or in the management or control of a corporate debtor
B
in which a preferential transaction, undervalued transaction, extortionate
credit transaction or fraudulent transaction has taken place and in respect
of which an order has been made by the NCLT under the IBC. A second
amendment was made to various provisions of IBC, including Section
29A, under the Insolvency and Bankruptcy Code (Second Amendment)
C Act, 2018, effective from 6 June 2018. A proviso was added to sub-
Section (g) of Section 29A. Section 29A of the IBC in its present form
reads as follows:
“29A. Persons not eligible to be resolution applicant:
A person shall not be eligible to submit a resolution plan, if such
D person, or any other person acting jointly or in concert with such
person—
(a) is an undischarged insolvent;
(b) is a wilful defaulter in accordance with the guidelines of the
E Reserve Bank of India issued under the Banking Regulation Act,
1949 (10 of 1949);
(c) at the time of submission of the resolution plan has an account,
or an account of a corporate debtor under the management or
control of such person or of whom such person is a promoter,
F classified as non-performing asset in accordance with the guidelines
of the Reserve Bank of India issued under the Banking Regulation
Act, 1949 (10 of 1949) or the guidelines of a financial sector
regulator issued under any other law for the time being in force,
and at least a period of one year has lapsed from the date of such
classification till the date of commencement of the corporate
G insolvency resolution process of the corporate debtor:
Provided that the person shall be eligible to submit a resolution
plan if such person makes payment of all overdue amounts with
interest thereon and charges relating to non-performing asset
accounts before submission of resolution plan;
H
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 133
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

Provided further that nothing in this clause shall apply to a resolution A
applicant where such applicant is a financial entity and is not a
related party to the corporate debtor.
Explanation I.— For the purposes of this proviso, the expression
“related party” shall not include a financial entity, regulated by a
financial sector regulator, if it is a financial creditor of the corporate B
debtor and is a related party of the corporate debtor solely on
account of conversion or substitution of debt into equity shares or
instruments convertible into equity shares or completion of such
transactions as may be prescribed, prior to the insolvency
commencement date.
C
Explanation II.— For the purposes of this clause, where a
resolution applicant has an account, or an account of a corporate
debtor under the management or control of such person or of
whom such person is a promoter, classified as non-performing
asset and such account was acquired pursuant to a prior resolution
plan approved under this Code, then, the provisions of this clause D
shall not apply to such resolution applicant for a period of three
years from the date of approval of such resolution plan by the
Adjudicating Authority under this Code;
(d) has been convicted for any offence punishable with
imprisonment— E

(i) for two years or more under any Act specified under the Twelfth
Schedule; or
(ii) for seven years or more under any other law for the time
being in force: F
Provided that this clause shall not apply to a person after the
expiry of a period of two years from the date of his release from
imprisonment:
Provided further that this clause shall not apply in relation to a
connected person referred to in clause (iii) of Explanation I; G
(e) is disqualified to act as a director under the Companies Act,
2013 (18 of 2013);
Provided that this clause shall not apply in relation to a connected
person referred to in clause (iii) of Explanation I;
H
134 SUPREME COURT REPORTS [2021] 3 S.C.R.

A (f) is prohibited by the Securities and Exchange Board of India
from trading in securities or accessing the securities markets;
(g) has been a promoter or in the management or control
of a corporate debtor in which a preferential transaction,
undervalued transaction, extortionate credit transaction or
B fraudulent transaction has taken place and in respect of
which an order has been made by the Adjudicating Authority
under this Code;
Provided that this clause shall not apply if a preferential transaction,
undervalued transaction, extortionate credit transaction or
fraudulent transaction has taken place prior to the acquisition of
C the corporate debtor by the resolution applicant pursuant to a
resolution plan approved under this Code or pursuant to a scheme
or plan approved by a financial sector regulator or a court, and
such resolution applicant has not otherwise contributed to the
preferential transaction, undervalued transaction, extortionate
D credit transaction or fraudulent transaction;
(h) has executed a guarantee in favour of a creditor in respect
of a corporate debtor against which an application for
insolvency resolution made by such creditor has been
admitted under this Code and such guarantee has been
invoked by the creditor and remains unpaid in full or part;
E
(i) is subject to any disability, corresponding to clauses (a) to (h),
under any law in a jurisdiction outside India; or
(j) has a connected person not eligible under clauses (a) to (i).
Explanation I — For the purposes of this clause, the expression
F “connected person” means—
(i) any person who is the promoter or in the management or control
of the resolution applicant; or
(ii) any person who shall be the promoter or in management or
control of the business of the corporate debtor during the
G implementation of the resolution plan; or
(iii) the holding company, subsidiary company, associate company
or related party of a person referred to in clauses (i) and (ii):
Provided that nothing in clause (iii) of Explanation I shall apply to
a resolution applicant where such applicant is a financial entity
and is not a related party of the corporate debtor:
H
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 135
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

Provided further that the expression “related party” shall not A
include a financial entity, regulated by a financial sector regulator,
if it is a financial creditor of the corporate debtor and is a related
party of the corporate debtor solely on account of conversion or
substitution of debt into equity shares or instruments convertible
into equity shares 9[or completion of such transactions as may be
B
prescribed], prior to the insolvency commencement date;
Explanation II.— For the purposes of this section, “financial entity”
shall mean the following entities which meet such criteria or
conditions as the Central Government may, in consultation with
the financial sector regulator, notify in this behalf, namely:—
C
(a) a scheduled bank;
(b) any entity regulated by a foreign central bank or a securities
market regulator or other financial sector regulator of a jurisdiction
outside India which jurisdiction is compliant with the Financial
Action Task Force Standards and is a signatory to the International D
Organisation of Securities Commissions Multilateral Memorandum
of Understanding;
(c) any investment vehicle, registered foreign institutional investor,
registered foreign portfolio investor or a foreign venture capital
investor, where the terms shall have the meaning assigned to them
E
in regulation 2 of the Foreign Exchange Management (Transfer
or Issue of Security by a Person Resident Outside India)
Regulations, 2017 made under the Foreign Exchange Management
Act, 1999 (42 of 1999);
(d) an asset reconstruction company registered with the Reserve
Bank of India under Section 3 of the Securitisation and F
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (54 of 2002);
(e) an Alternate Investment Fund registered with the Securities
and Exchange Board of India;
G
(f) such categories of persons as may be notified by the Central
Government.”
(emphasis supplied)
Due to the insertion of Section 29A, Mr Arun Kumar Jagmatramka
became ineligible to submit a resolution plan. H
136 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 6. No further resolution plan was approved by the CoC due to the
paucity of time. In the absence of a resolution plan, the NCLT passed an
order of liquidation on 11 January 2018, after the expiry of 270 days.
The order of the NCLT ordering liquidation was challenged in appeal13
by Mr Arun Kumar Jagatramka before the NCLAT. The appeal was
dismissed by the NCLAT by its order dated 10 July 2018. The dismissal
B
of the appeal by the NCLAT was assailed before this Court, which
issued notice to GNCL on 19 July 2019.
7. During the pendency of the appeal before NCLAT, where the
order of liquidation passed by the NCLT was assailed, Mr Arun Kumar
Jagatramka moved an application under Sections 230 to 232 of the Act
C of 2013 before the NCLT proposing a scheme for compromise and
arrangement between the erstwhile promoters and creditors. This
application was allowed by the NCLT through its order dated 15 May
2018, and a direction was issued for convening of a meeting of
shareholders, secured creditors, unsecured creditors and FCCB holders
D for approval of the scheme of compromise and arrangement.
8. JSPL, an operational creditor of GNCL, preferred an appeal
against the order of the NCLT dated 15 May 2018 before the NCLAT.
The NCLAT allowed the appeal by its judgement dated 24 October
2019, holding that promoters who are ineligible to propose a resolution
E plan under Section 29A of the IBC are not entitled to file an application
for compromise and arrangement under Sections 230 to 232 of the Act
of 2013. The basis of this finding is contained in paragraphs 10 to 12 of
the impugned judgement which is extracted below:
“10. As noticed above, the Hon’ble Supreme Court in Swiss
F Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors. - Writ
Petition (Civil) No.99 of 2019 held that the ‘primary focus of
the legislation is to ensure revival and continuation of the corporate
debtor by protecting the corporate debtor from its own
management and from a corporate death by liquidation’.

G 11. The aforesaid judgment makes it clear that even during the
period of Liquidation, for the purpose of Section 230 to 232 of the
Companies Act, the ‘Corporate Debtor’ is to be saved from its
own management, meaning thereby the Promoters, who are
ineligible under Section 29A, are not entitled to file application for
13
H Company Appeal (IB) No. 55-56 of 2018
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 137
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

Compromise and Arrangement in their favour under Section 230 A
to 232 of the Companies Act. Proviso to Section 35(f) prohibits
the Liquidator to 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, quoted
below: -
B
“35. Powers and duties of Liquidator.-(1) Subject to the
directions of the Adjudicating Authority, the liquidator shall
have the following powers and duties,
namely:—
xxx xxx xxx C

(f) subject to section 52, to sell the immovable and movable
property and actionable claims of the corporate debtor in
liquidation by public auction or private contract, with power
to transfer such property to any person or body corporate,
or to sell the same in parcels in such manner as may be D
specified.
Provided that the liquidator shall not 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.” E
12. From the aforesaid provision, it is clear that the Promoter, if
ineligible under Section 29A cannot make an application for
Compromise and Arrangement for taking back the immovable and
movable property or actionable claims of the ‘Corporate Debtor’.”
F
(emphasis in original)
9. The judgment and order of the NCLAT is the subject of the
appeal.
A.2 Civil Appeal 2719 of 202014
10. This appeal has been filed for assailing an order dated 19 G
December 2019 of the NCLAT in which it relied on the judgment dated
24 October 2019 impugned in the earlier appeal, to hold that an individual
ineligible for proposing a resolution plan under Section 29A of the IBC,

14
“Second Appeal” H
138 SUPREME COURT REPORTS [2021] 3 S.C.R.

A is also ineligible to propose a scheme of compromise and arrangement
under Section 230 of the Act of 2013.
11. The appellant - Mr Kunwer Sachdev - was the promoter and
director (since suspended) of Su-Kam Power Systems Limited15. An
application16 under Section 7 of the IBC was filed by one of the financial
B creditors of Su-Kam, which was admitted by the NCLT through its order
dated 5 April 2018. The CIRP was initiated against Su-Kam.
12. When the RP invited applications for resolution plans for Su-
Kam, Mr Kunwar Sachdev submitted a plan along with Phoenix ARC
Private Limited on 15 November 2018. However, Mr Kunwar Sachdev
C was informed by an email dated 27 December 2018 issued by the RP,
that the CoC had found him to be ineligible under Section 29A(h) of the
IBC and consequently annulled his resolution plan.
13. This decision was challenged by filing an application17 before
the NCLT. However, this was dismissed by the NCLT through its order
D dated 2 April 2019. This order was not challenged.
14. In the interim, due to the absence of any other resolution plan,
the NCLT passed an order dated 3 April 2019, under Section 34(1) of
the IBC, directing the liquidation of Su-Kam and appointing a Liquidator.
The appointment of the Liquidator was challenged before the NCLAT
E in an appeal18, which was disposed of by an order dated 29 April 2019
upholding the appointment of the Liquidator. The Liquidator was also
directed to accept applications for schemes of compromise and
arrangement under Sections 230 to 232 of the Act of 2013.
15. When the Liquidator invited expressions of interest for
F submitting schemes of compromise and arrangement, Mr Kunwar
Sachdev again expressed his interest. Emails were exchanged between
the Liquidator and Mr Kunwar Sachdev, during the course of which Mr
Kunwar Sachdev was invited to present his plan to the lenders of Su-
Kam. However, before this could materialise, Mr Kunwar Sachdev was
informed by the Liquidator through an email dated 19 September 2019,
G that he was ineligible to propose a scheme under Section 230 of the Act
of 2013 in view of his ineligibility under Section 29A(h) of the IBC.
15
“Su-Kam”
16
CP (IB)/540 (PB)/2017)
17
CA. 58(PB)/2019
18
H Company Appeal (AT) (Ins) No.451 of 2019
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 139
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

16. Mr Kunwar Sachdev challenged this decision in an application19 A
filed before the NCLT, which was dismissed by an order dated 31 October
2019 relying on the judgment dated 24 October 2019 impugned in the
earlier appeal, and on the basis of Section 29A and Section 35(1)(f) of
the IBC.
17. Mr Kunwar Sachdev then filed an appeal20 against this order B
dated 31 October 2019 before the NCLAT, which dismissed it by an
order dated 19 December 2019. Mr Kunwar Sachdev now comes before
this Court in appeal.
A.3 Liquidation Process Regulations, 2016
18. Before averting to Writ Petition (Civil) No 269 of 2020, it is C
important to first understand the controversy surrounding the Insolvency
and Bankruptcy Board of India (Liquidation Process) Regulations, 201621.
19. The Liquidation Process Regulations have been issued by the
Insolvency and Bankruptcy Board of India22, constituted under Part IV
of the IBC, in exercise of the powers conferred by Sections 5, 33, 34, D
35, 37, 38, 39, 40, 41, 43, 45, 49, 50, 51, 52, 54, 196 and 208 read with
Section 240 of the IBC.
20. The Liquidation Process Regulations were amended by the
IBBI by a notification23 dated 25 July 2019, which inserted Regulation
2B. Sub-section (1) of Regulation 2B provides that a compromise or E
arrangement proposed under Section 230 of the Act of 2013 shall have
to be completed within 90 days of the order of liquidation issued under
sub-sections (1) and (4) of Section 33 of the IBC. Further, Sub-section
(2) provides that the time taken in a compromise or arrangement, not
exceeding 90 days, shall not be included within the liquidation period. F
Finally, Sub-section (3) provides that any cost which is incurred by the
Liquidator in relation to the compromise or arrangement shall be borne
by the corporate debtor, if such compromise or arrangement is sanctioned
by the NCLT under Section 230(6). However, a proviso to Sub-section
(3) notes that if such compromise or arrangement is not sanctioned by
the NCLT under Section 230(6), the cost shall be borne by the parties G
who proposed the compromise or arrangement.
19
CA-2335(PB)/2019
20
Company Appeal (AT) (Insolvency) No. 1498 of 2019
21
“Liquidation Process Regulations”
22
“IBBI”
23
Noti. No. IBBI/2019-20/GN/REG047 H
140 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 21. Regulation 2B was amended by a notification24 dated 6 January
2020, by which a proviso was added to Sub-section (1) of Regulation
2B, which provides that a party ineligible to propose a resolution plan
under the IBC cannot be a party to a compromise or arrangement.
Regulation 2B, in its present form, reads as follows:
B “2-B. Compromise or arrangement.—(1) Where a compromise
or arrangement is proposed under Section 230 of the Companies
Act, 2013 (18 of 2013), it shall be completed within ninety days of
the order of liquidation under sub-sections (1) and (4) of Section
33:
C Provided that a person, who is not eligible under the Code
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.
(2) The time taken on compromise or arrangement, not exceeding
D ninety days, shall not be included in the liquidation period.
(3) Any cost incurred by the liquidator in relation to compromise
or arrangement shall be borne by the corporate debtor, where
such compromise or arrangement is sanctioned by the Tribunal
under sub-section (6) of Section 230:
E Provided that such cost shall be borne by the parties who proposed
compromise or arrangement, where such compromise or
arrangement is not sanctioned by the Tribunal under sub-section
(6) of Section 230.”
(emphasis supplied)
F
A.4 Article 32 Petition
22. Writ Petition (Civil) No 269 of 2020 has been filed by Mr
Arun Kumar Jagatramka, also the appellant in the First Appeal, assailing
the notifications dated 25 July 2019 and 6 January 2020 issued by the
IBBI, through which it inserted Regulation 2B into the Liquidation Process
G Regulations, and subsequently amended it. As the petitioner, he contends
that Regulation 2B is ultra vires the IBC and the Act of 2013, and also
violates Articles 14, 19 and 21 of the Constitution. The prayer in the writ
petition has been extracted below:
24
Noti. No. IBBI/2019-20/GN/REG053
H
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 141
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

“In the premises set forth above, the Petitioner prays that this A
Hon’ble Court may be pleased to issue:
a. Writ, Order or Direction more particularly in the nature of WRIT
OF DECLARATION declaring that the provisions of Notifications
dated 25.07.2019 and 06.01.2020 issued by the Insolvency and
Bankruptcy Board of India are ultra vires the Insolvency and B
Bankruptcy Code, 2016 as well as the Companies Act, 2013 and
violative of Article 14, 19, 21 of the Constitution of India.”
B Issues
23. Having detailed the factual background of these petitions, we
shall now turn to the issues before this Court and the submissions of C
counsels.
24. The NCLAT formulated two principal issues in the first of its
judgments in appeal:
“(i) Whether in a liquidation proceeding under Insolvency and D
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
E
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
F
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 G
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.
H
142 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 26. Mr Amit Sibal, learned Senior Counsel appearing for the
respondent in the Second Appeal, on the other hand, submitted that the
correct question to pose is whether a person who is ineligible under
Section 29A of the IBC is permitted to propose a scheme for revival
under Section 230 of the Act of 2013 at the stage of liquidation either
themselves or in concert with others.
B
27. The nuanced manner in which the contesting sides have
prefaced their submissions is indicative of the broad nature of the contest.
On one hand, Mr Bajaj submits that the ineligibility under Section 29A of
the IBC attaches to the proceedings under the IBC alone, involving the
submission of a resolution plan. On the other hand, what Mr Sibal urges
C is that when an order of liquidation has been passed under and in
pursuance of proceedings which were initiated under the IBC, Section
230 of the Act of 2013 expressly contemplates that the liquidator
appointed under the IBC may move the NCLT where a compromise or
arrangement is proposed. Hence, the proposal for a compromise or
D arrangement under Section 230, where a company is in liquidation under
the IBC, is in continuation of that liquidation process. Hence, according
to Mr Sibal, a person who is ineligible under Section 29A cannot propose
a scheme for revival under Section 230.
C Submissions
E 28. Having thus elucidated the battle lines of legal conflict, we
proceed to enumerate the submissions.
29. Mr Sandeep Bajaj, learned Counsel appearing on behalf of
the appellant in the First Appeal and the Petition under Article 32 submitted
that:
F (i) Chapter II of the IBC indicates that the CIRP can be
invoked in three modes:
(a) By a financial creditor under Section 7;
(b) By an operational creditor under Section 9; and
(c) By a corporate debtor under Section 10.
G
(ii) The IBC and its regulations indicate that there is a clear
distinction between:
(a) the settlement mechanism which allows for a
settlement upon which the corporate debtor would
H
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 143
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

stand restored to the promoter together with all its A
assets and liabilities; and
(b) the resolution mechanism under which, upon the
acceptance of a resolution plan, the company moves
over to the control of the acquirer on a clean slate
for a fixed consideration, consequent to the provisions B
of Section 31;
(iii) Section 29A is a part of the resolution mechanism, the object
and purpose of which is to prevent a back-door entry to the
promoter who should not be allowed to have advantage of
their own wrong; C
(iv) Though the appellant falls in the prohibited category under
Section 29A, the purpose of the prohibition is to prevent the
promoter from submitting a resolution plan with reference
to the provisions of Sections 30 and 31 of the IBC;
(v) Chapter III of the IBC, commencing with Section 33, deals D
with the liquidation process and Regulation 32 of the
Liquidation Process Regulations deals with “sale of assets
etc. by the liquidator”. In the course of the liquidation under
Chapter III, the liquidation estate is to be formed under
Section 36 and the sale under Regulation 32 is an intrinsic E
part of the liquidation estate. The consequence is that
acquirer begins on a clean slate. The ineligibility under
Section 29A which attaches for the purpose of Chapter II,
in the context of a resolution plan, has been extended under
Section 35(1)(f) to Chapter III on the basis of the above
rationale, i.e., that the liquidator shall not sell the moveable F
or immoveable property of the corporate debtor or its
actionable claims in liquidation to any person who is not
eligible to be a resolution applicant;
(vi) Rule 8 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016 contemplates that the G
NCLT, in its role as the Adjudicating Authority, may permit
withdrawal of an application by the financial creditor,
operational creditor or corporate applicant on a request made
by the applicant before its admission. This is indicative of
the position that the NCLAT does not have an inherent
H
144 SUPREME COURT REPORTS [2021] 3 S.C.R.

A power to allow for withdrawal of the application after
admission;
(vii) Section 12-A was inserted in the IBC by Amending Act 26
of 2018 with retrospective effect from 6 June 2018 so as to
permit the NCLT to allow the withdrawal of an application
B which has been admitted under Sections 7, 9 or 10 on an
application made by the applicant, with the approval of ninety
per cent of a voting share of the CoC in such a manner as
may be specified;
(viii) Regulation 30-A of the Insolvency and Bankruptcy Board
C of India (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016 (which was inserted on 3 July
2018) allowed for the withdrawal under Section 12-A before
the issuance of an invitation for expression of interest under
Regulation 36-A. In the decision of this Court in Swiss
Ribbons Private Limited v. Union of India25 which was
D rendered on 25 January 2019, the Court held that a
withdrawal of an application can be permitted between
admission of the application and the constitution of the CoC.
Following up on this, Regulation 30-A was substituted on
25 July 2019 to allow an application for withdrawal under
E Section 12-A both before and after the constitution of the
CoC. However, where the application is made after the
constitution of the CoC (under Regulation 30-A(1)(b)), and
after the issuance of the invitation for expression of interest,
the reasons justifying the withdrawal are required to be
stated;
F
(ix) The decision in Brilliant Alloys (P) Ltd. v. S
Rajagopal 26would indicate that a withdrawal can be
permitted even after the expression of interest, as a
consequence of which Regulation 30-A is directory in
nature;
G
(x) The consequence of a withdrawal of the application under
Sections 7, 9 or 10 is that the corporate debtor stands
restored to the promoter. As such, Section 29A does not
operate as an ineligibility on the settlement mechanism. On
25
(2019) 4 SCC 17; herein, referred to as “Swiss Ribbons”
26
H 2018 SCC OnLine SC 3154; hereinafter, referred to as “Brilliant Alloys”
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 145
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

the withdrawal of the application the corporate debtor goes A
back to the same promoter, even if they are ineligible under
Section 29A for the submission of the resolution plan;
(xi) The ineligibility under Section 29A, which forms a part of
Chapter II of the IBC, is only during the resolution process;
(xii) The rationale for imposing an ineligibility under Section 29A B
in the resolution process is that the successful resolution
applicant under Section 31 of the IBC obtains the company
on a clean slate, as indicated in the decision of this Court in
Committee of Creditors of Essar Steel India Limited
v. Satish Kumar Gupta27. This benefit is not available C
where an application is simpliciter withdrawn under Section
12-A;
(xiii) Section 230 of the Act of 2013 is a part of the settlement
mechanism and is at par with the provisions of Section 12-
A. The impact of a compromise or arrangement is also that D
company is restored to the promoters with all its liabilities.
While Section 12-A of the IBC permits withdrawal of an
application, Sections 230 and 230-A of the Act of 2013
envisage a compromise or arrangement. As such, they both
form a part of the settlement mechanism and are not part
of the resolution mechanism, to which alone the ineligibility E
under Section 29A applies. Hence, this ineligibility cannot
now be engrafted into Section 230;
(xiv) Section 230 was amended on 15 November 2016 and under
Sub-Section (6), the compromise or arrangement becomes
binding if 3/4th in value of the creditors or class of creditors F
or members agree to it, and if it is sanctioned by the NCLT.
The compromise or arrangement then becomes binding on
the liquidator appointed under the IBC as a whole. The
provisions of Section 230 are, however, not restricted to
liquidation. They are not regulated by the IBC. Section 230 G
operates in an area independent of the IBC. Following the
amendment of Section 230(1) on 15 November 2016, the
application for a compromise can also be proposed by the
liquidator appointed under the IBC. However, the right of
27
(2020) 8 SCC 531 H
146 SUPREME COURT REPORTS [2021] 3 S.C.R.

A the liquidator to make an application under Section 230(1)
is in addition to the others enumerated therein and not
exclusive, in view of the principle which was laid down by
this Court while construing the corresponding provisions of
Section 391 of the Companies Act, 195628;
B (xv) The discussion papers circulated by the IBBI in April and
November 2019 clearly demonstrate that IBBI was aware
of the fact that the ineligibility which attaches to the
resolution process under Section 29A will not attach to
Section 230 of the Act of 2013. The proviso to Regulation
2B was notified by the IBBI on 6 January 2020 to stipulate
C 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 to such compromise or
arrangement. Regulation 2B is ultra vires the provisions of
Section 230 of the Act of 2013. IBBI had no statutory
D authority to make the Regulation 2B, through which it has
effectively provided a disqualification under the Act of 2013,
even though the mandate of IBBI is confined only to the
IBC; and
(xvi) Regulation 2B is violative of Articles 14, 19 and 21 of the
E Constitution as it seeks to import an ineligibility under the
provisions of the IBC to a dissimilar provision in the Act of
2013. Moreover, when ineligibility is not attracted under
Section 12-A of the IBC, imposing this ineligibility under
Section 230 of the Act of 2013 is arbitrary.

F 30. Adopting the submissions which were urged by Mr Sandeep
Bajaj, Mr Shiv Shankar Banerjee, learned Counsel appearing on behalf
of the appellant in the Second Appeal, submitted that:
(i) A complete procedure has been stipulated under the
provisions of the IBC for liquidation;
G (ii) Where a sale of the assets of the corporate debtor or sale
of the business of the corporate debtor takes place in the
course of the liquidation, Section 35(1)(f) of the IBC
stipulates that the assets cannot be sold to a person who is
ineligible under Section 29A. The object is to ensure that
28
H the “Act of 1956”
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 147
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

liquidation should not be used to allow the promoter to get A
the assets free from encumbrances;
(iii) In contrast to a successful resolution applicant under
Chapter II or the person who benefits from the sale of assets
in liquidation under Chapter III of the IBC, the person who
proposes a compromise or arrangement under Section 230 B
under the Act of 2013 does not have the benefit of acquiring
the company free of encumbrances. There is thus no reason
or justification to exclude the promoter from invoking the
provisions of Section 230;
(iv) Section 230(1) makes a reference to a liquidator appointed C
under the IBC because when the provision of Sections 7, 9
or 10 have been invoked, and an order of admission has
been passed, liquidation, if required, will take place under
the provisions of Section 35 of the IBC;
(v) The mischief which was sought to be remedied by the D
adoption of Section 29A is restricted to the resolution
process, its object being that persons should not take
advantage of their own wrong. It is justifiable if a defaulter
is excluded from the resolution process which may result in
the creditors taking a haircut of their outstanding claims.
Moreover, a successful resolution applicant begins on a clean E
slate. In contrast, under Section 230, the scheme has to be
sanctioned by the NCLT only upon which it will pass muster;
and
(vi) The insertion of the proviso in Regulation 2B of the
Liquidation Process Regulations is a clear indicator of the F
fact that a disqualification or ineligibility under Section 29A
is not a part of Section 230 of the Act of 2013.
31. The above submissions have been contested by Mr Amit Sibal,
learned Senior Counsel appearing on behalf of the respondents in the
Second Appeal. Learned Senior Counsel submitted that: G
(i) A proposal under Section 230 of the Act of 2013 need not
result in the revival of the company. The proposal may apply
only to a class of creditors or shareholders. Even prior to
its amendment, this Court had held that additional conditions
apply when a plan under the erstwhile provisions of Section H
148 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 391 of the Act of 1956 is propounded at the time of liquidation
of the company;
(ii) Section 29A has several ineligibilities apart from those that
attach to promoters. To allow a person who is ineligible
under Section 29A from submitting a compromise or
B arrangement under Section 230 at the liquidation stage is
contrary to the letter and spirit of the IBC;
(iii) The NCLT while dealing with an application for a
compromise or arrangement under Section 230 of the Act
of 2013, in respect of a company which is being liquidated
C under the IBC, performs a dual role: firstly, as an Adjudicating
Authority under the IBC and as a Tribunal under the Act of
2013. Therefore, it can insist on adherence to additional
conditions namely that:
(a) The proposed compromise or arrangement must result
D in a revival of the company; and
(b) The compromise or arrangement cannot be proposed
by a person who is barred under Section 29A;
(iv) When the IBC was originally enacted there was no bar of
the nature found in Section 29A on who can propose a
E resolution plan either pre or post liquidation;
(v) The ineligibility under Section 29A and Section 35(1)(f) was
introduced by a legislative amendment on 23 November
201729, both at the pre and post liquidation stages;
(vi) The purpose of the disqualification is to ensure a sustainable
F
revival, which means that those responsible for the state of
affairs of a company and other persons regarded by the
legislature as undesirable should be excluded from the
process;
(vii) Persons who are ineligible under Section 29A or Section
G 35(1)(f) cannot seek an entry:
(a) at the CIRP stage; or
(b) under Section 230 of the Act of 2013; or

29
H “Act 8 of 2018”
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 149
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

(c) by purchasing the assets during liquidation. A
(viii) Section 29A does not apply only to conduct in relation to
the corporate debtor, but in relation to other companies as
well;
(ix) The ineligibility engrafted in Section 29A extends to Chapter
III by virtue of the provision of Section 35(1)(f). This must B
be read together with Regulation 32 of the Liquidation
Process Regulations. Regulation 32 provides six modes of
realization of assets, out of which four involve the sale of
assets and two involve the transfer of the corporate debtor
or its business as a ‘going concern’; C
(x) Regulation 44(1), through its proviso, allows for an additional
period of ninety days for the liquidation process where the
sale is through Regulation 32-A(1) so as to encourage a
revival of the company;
(xi) There is no reference in the body of the IBC to a scheme D
of compromise under Section 230. Section 230 (especially
sub-Sections (1) and (6)) indicate that:
(a) a compromise can be with a sub-set of creditors;
(b) liquidation is one scenario in which Section 230 can
E
be invoked; and
(c) a compromise with only a class of creditors will bind
only that class under Section 230(c);
(xii) While construing the corresponding provisions of erstwhile
Section 391 of the Act of 1956, this Court held in Meghal F
Homes Pvt. Ltd. v Shree Niwas Girni K. K. Samiti30
that where a scheme of compromise and arrangement is
proposed in respect of the company in liquidation, additional
requirements need to be established, namely that the scheme
must be for the revival of company. The impact of a scheme
under Section 391, where the company is in liquidation, is G
that the proposers of the scheme enter into the management
with the debt having been resolved. This makes the scheme
of compromise or arrangement under Section 230

30
(2007) 7 SCC 753; herein, referred to as “Meghal Homes” H
150 SUPREME COURT REPORTS [2021] 3 S.C.R.

A qualitatively different from a simpliciter withdrawal of an
application under Section 12-A of the IBC. Section 12-A
does not incorporate any requirement for the revival of the
company;
(xiii) The IBC provides for three modes of revival:
B (a) the CIRP under Chapter II;
(b) sale of a company in liquidation as a going concern
(read with Regulation 32(e) and (f)); and
(c) a scheme of compromise or arrangement under
C Section 230 of the Act of 2013, following upon an
order for liquidation being passed under Chapter III
of the IBC;
The prohibition or ineligibility which applies in (a) and (b)
must necessarily attach to (c) as well. When a plan for
D compromise or arrangement is proposed at the liquidation
stage of IBC under Section 230 of the Act of 2013, it must
satisfy the rigors of the IBC. Hence, a person who is
ineligible under Section 29A cannot submit a plan under
Section 230 of the Act of 2013;
(xiv) In construing the provisions of Sections 29A and 35(1)(f)
E
of the IBC, notice must be taken of the fact that the
ineligibility was made applicable both to the resolution stage
as well as the stage of liquidation. In interpreting these
provisions, the purpose and object of the amendment must
be borne in mind, which is that a scheme of revival cannot
F be proposed by a person who stands disqualified under
Section 29A;
(xv) The proposal of a compromise or arrangement under Section
230 in a situation where the company is in liquidation under
the IBC is a facet of the liquidation process under the IBC.
G Section 230 was amended to include a liquidator appointed
under the IBC. The statutory scheme indicates that:
(a) A liquidation under the IBC follows upon the entire
gamut of proceedings under the IBC;
(b) Section 230 of the Act of 2013 provides one of the
H modes of revival in the liquidation process; and
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 151
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

(c) Other activities of the liquidator do not cease while A
inviting schemes under Section 230. The steps
required to be taken by the liquidator in liquidation
include a compromise or arrangement under Section
230. It is in this context that the NCLT performs a
dual role - that of an Adjudicating Authority in the
B
matter of liquidation under the IBC as well as of a
Tribunal for a scheme of compromise and
arrangement under the Act of 2013;
(xvi) The fundamental postulate of the IBC is that a corporate
debtor has to be protected from its management and
corporate debt. Hence, it would be anomalous if a C
compromise or arrangement can be entertained from a
person who is responsible for the state of affairs of the
corporate debtor;
(xvii) Where a company is in liquidation under the provisions of
the IBC, the submission of a compromise or arrangement D
under Section 230 has distinct features of commonality with
a resolution plan namely:
(a) The object is to revive the company; and
(b) Once officially approved, it assumes a binding E
character;
These intrinsic elements of revival and of the binding nature
permeate both a resolution plan on the one hand and a
compromise or arrangement on the other, which is arrived
at in the course of liquidation; F
(xviii) The introduction of the proviso to Regulation 2(B) of the
Liquidation Process Regulations with effect from 6 January
2020 is only by way of a clarification;
(xix) Dehors the provisions of the IBC, the rigors of the IBC
will not apply to a proceeding under Section 230 of the Act G
of 2013. In other words, the ineligibility under Sections 29A
and 35(1)(f) applies only to a situation where a corporate
debtor has come within the purview of the IBC and has
been taken into liquidation under Chapter III. It is only where
a compromise or arrangement under Section 230 of the
H
152 SUPREME COURT REPORTS [2021] 3 S.C.R.

A Act of 2013 is proposed in respect of a company which is
undergoing liquidation under the IBC that the rigors of
Section 29A and 35(1)(f) would stand attracted;
(xx) An absurdity will result if persons found to be derelict or
guilty of malfeasance, who are barred from:
B (a) submitting a resolution plan;
(b) obtaining a sale of assets in liquidation; and
(c) obtaining a sale of the company as a going concern.
can still propose a compromise under Section 230 of the
C Act of 2013. It is a settled principle of law that an
interpretation which leads to absurdity must be avoided;
(xxi) There is a fallacy in equating the provisions of Section 230
of the Act of 2013 with an application for withdrawal under
Section 12-A of the IBC. Section 12-A is not intended to be
the culmination of the resolution process but is at the
D inception. The withdrawal by an applicant leads to a status
quo ante in respect of liabilities of the corporate debtor
and does not require that the defaults in respect of all
creditors are brought to an end. In contrast:
(a) a resolution plan under Section 31 of the IBC (as
E well as the scheme under Section 230 of the Act of
2013) binds all the stakeholders;
(b) results in a clean slate unlike Section 12-A; and
(c) constitutes a culmination of the resolution plan.
F As distinct from the provisions of Section 31 of the IBC
and Section 230 of the Act of 2013, a withdrawal under
Section 12-A restores the status quo ante and is hence not
concerned with ineligibilities under Section 29A; and
(xxii) Section 240 of the IBC enunciates the power to make
regulations to carry out the provisions of the Code. The
G
insertion of the proviso to Regulation 2(B) is valid because:
(a) the amendment is consistent with the IBC and carries
out its provisions; and
(b) it is clarificatory in nature since even in its absence,
H the ineligibility under Section 29A would govern.
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 153
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

32. In summing up, Mr Sibal urged that: A
(i) Where a company is in liquidation under Chapter III of the
IBC, a proposed scheme of compromise or arrangement
under Section 230 of the Act of 2013 must comply with the
requirements of the IBC;
(ii) The specific requirements which must be fulfilled under (i) B
above are that:
(a) the scheme must be for the revival of the company;
and
(b) it must not be proposed by a person who is ineligible C
under Section 29A of the IBC;
(iii) The above requirements are IBC specific and not
inconsistent with the provisions of Section 230 of the Act
of 2013;
(iv) Sections 29A and 35(1)(f) of the IBC prohibit a certain D
category of persons from proposing a revival of the company
in the course of the CIRP, liquidation process and in
purchasing the assets in the course of liquidation. To make
an exception in a plan for revival under Section 230 of the
Act of 2013 in the context of a scheme of compromise or
E
arrangement will defeat the object and intent of the
amendment to the IBC and lead to an absurdity. This would
perpetrate the mischief which was sought to be obviated;
(v) When a company is in liquidation under the IBC, a scheme
proposed under Section 230 is a facet of the liquidation
F
process and the same rationale which permeates the
liquidation process must also govern it; and
(vi) Section 12-A stands on a completely different footing. It
provides for a withdrawal at the inception of the CIRP and
is not a culmination of a resolution process. Nor does a
Section 12-A withdrawal bind all stakeholders. G

33. Mr Gopal Jain, learned Senior Counsel appearing for the
respondents in the First Appeal, has urged submissions along the same
lines as Mr Amit Sibal. His submissions are summarized below:

H
154 SUPREME COURT REPORTS [2021] 3 S.C.R.

A (i) The commencement or the initiation process attracting the
IBC is an application under Sections 7, 9 or 10;
(ii) In the present case, an application was filed under Section
10 as a consequence of which the case has to be analyzed
through the prism of the IBC;
B (iii) The IBC is an economic legislation and its key objectives
are to ensure:
(a) good corporate governance;
(b) control deviant behavior;
C (c) protect the integrity of the resolution process;
(d) enhance commercial morality; and
(e) foster respect for the rule of law.
The IBC is premised on the principle that there is a
D significant element of public interest in facilitating a creditor-
centric regime for achieving economic growth. Ensuring
that resolution plans are submitted by credible persons is
intrinsic to the scheme of the IBC. Speed is of the essence.
The IBC has sought to convert a legal regime which was a
debtor’s paradise into a regime governed by corporate
E justness. The regime under the IBC is dynamic, which is
reflected by eight amendments which took place between
November 2017 and September 2020;
(iv) The basic principle is that an entity which is barred under
Section 29A and Section 35(1)(f) should not be in control
F of the assets of the corporate debtor. The objective is that
defaulting promoters:
(a) should not be in the driver’s seat; and
(b) should be kept at arm’s length;
G (v) In order to achieve the above objectives, the Parliament
enacted a simultaneous amendment of both Section 29A
and Section 35(1)(f) to maintain a level playing field by
comprehensively catering to all situations relating to
defaulting or barred promoters;
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(vi) In interpreting the IBC, legal sanctity and clarity are of A
utmost importance. But for Section 29A, promoters would
have got back into management after securing a haircut to
lenders in the course of the resolution plans. Section 29A
which applies to the resolution process and Section 35(1)(f)
which applies to the liquidation process were intended to
B
plug a loophole. To accept the submissions of the appellants
would be creating a new loophole. Section 29A is in the
nature of a see-through provision. The submissions of the
appellants will in fact scare away genuine creditors and
derail the process; and
(vii) According to Section 238 of the IBC, in case of any C
inconsistency between the provisions of the IBC and any
other law in force, the provisions of the IBC are to have an
overriding effect.
34. Mr Tushar Mehta, learned Solicitor of General of India,
defended the validity of Regulation 2B, more specifically the proviso. D
The learned Solicitor General submitted that:
(i) The trigger is the liquidation resulting from the operation of
the provisions of Section 33 of the IBC;
(ii) Regulation 2B facilitates an additional period of ninety days E
for a compromise under Section 230 of the Act of 2013
because the entire process is time specific;
(iii) Even if the legal position is assessed independent of
Regulation 2B, the same embargo as contained in Section
29A and Section 35(1)(f) would apply to a compromise or F
arrangement proposed under Section 230 of the Act of 2013
in respect of a company which is undergoing liquidation
under Chapter III of the IBC;
(iv) Regulation 2B is essentially clarificatory;
(v) The basis of Regulation 2B is the same as Sections 29A G
and 35(1)(f), which is that a person who is the cause of the
problem either by a design or default cannot be a part of
the process solution;
(vi) The IBC is a beneficial legislation. Prior to the enactment
of the IBC: H
156 SUPREME COURT REPORTS [2021] 3 S.C.R.

A (a) individual creditors had individual remedies; and
(b) the debtor would remain in possession of the company
and its assets.
With the introduction of the IBC, there has been a paradigm shift
in that:
B
(a) under the new legal regime there is a collective effort
of all creditors even if at the behest of one of them;
(b) the creditor is in control instead of the debtor in
possession; and
C (c) revival is the soul of the IBC;
(vii) Sections 196 and 240 of the IBC reflect a specific
conferment of power on the IBBI to frame regulations
subject to the stipulation that:
(i) they are not inconsistent with the provisions of the IBC;
D
and
(ii) they carry out the purposes of the IBC.
Both these conditions are fulfilled by Regulation 2(B);
(viii) A regulation which is framed under a statute in exercise of
E the authority which is conferred on the delegate can be
challenged on the ground of being:
(a) ultra vires the parent statute; or
(b) being contrary to the provisions of Part III of the
F Constitution;
To suffer from unreasonableness, a regulation must be held
to be manifestly arbitrary. Regulation 2(B) is consistent with
the object and purpose of the IBC; and does not suffer
from manifest arbitrariness; and
G (ix) Sections 29A and 35(1)(f) apply to liquidation pursuant to
the IBC. The principle of Section 29A stands absorbed in
the hybrid process of compromise during liquidation under
the IBC, by way of a device of incorporation by reference.
35. Mr Balbir Singh, learned Additional Solicitor General, has
H addressed submissions also along the above lines.
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 157
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D Analysis of the Legal Framework A
36. Having narrated the submissions advanced by both sides, we
now turn to the legal position and the interplay between the proposal of
a scheme of compromise and arrangement under Section 230 of the Act
of 2013 and liquidation proceedings initiated under Chapter III of the
IBC. B
D.1 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 C
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.
The foundation
D
38. The IBC is a law which consolidated and amended existing
legislation relating to re-organisation and insolvency resolution of corporate
persons, partnerships and individuals. The long title to the legislation
indicates the specific objects, which it is intended to facilitate. These
objects include:
E
(i) A time bound process of re-organization and insolvency
resolution;
(ii) Maximization of the value of assets;
(iii) Promoting entrepreneurship;
(iv) Facilitating the availability of credit; and F

(v) Balancing the interests of all stakeholders.
39. Some of the key drawbacks of the legal regime, as it existed
prior to the enactment of the IBC, were:
(i) The absence of a single legislation governing insolvency G
and bankruptcy;
(ii) A multiplicity of laws governing insolvency and bankruptcy
of corporate entities;

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158 SUPREME COURT REPORTS [2021] 3 S.C.R.

A (iii) The existence of multiple foraestablished to deal with the
enforcement of diverse legislative provisions; and
(iv) The complexity caused by a maze of statutes resulting in
inadequate, ineffective and delayed resolutions, occasioned
by the (then) existing framework.
B These inadequacies were noticed in the Statement of Objects
and Reasons accompanying the introduction of the Bill. The IBC reflects
a fundamental change in the erstwhile legal regime. A timely resolution
of corporate insolvency was conceived as an instrument to support the
development of credit markets, encourage entrepreneurship, enhance
C the ease of doing business and provide an environment conducive to
investment, setting the economy on the path to growth and development.
In resolving some of the complex issues which arise under the new legal
regime envisaged under the IBC, it then becomes necessary to vacuum
the cobwebs of the past. Interpreting the IBC in a manner which would
facilitate the salutary objects which it is intended to achieve requires all
D stakeholders to shed concepts and notions associated with the earlier
legal regime, which was largely a debtor’s paradise. The earlier regime
was one in which the debtor would largely remain in possession of the
company and its assets and individual creditors were left to paddle their
own canoe in headwinds controlled by those in debt and default.
E 40. The enactment of the IBC has marked a quantum change in
corporate governance and the rule of law. First and foremost, the IBC
perceives good corporate governance, respect for and adherence to the
rule of law as central to the resolution of corporate insolvencies. Second,
the IBC perceives corporate insolvency not as an isolated problem faced
F by an individual business entities but places it in the context of a framework
which is founded on public interest in facilitating economic growth by
balancing diverse stakeholder interests. Third, the IBC attributes a
primacy to the business decisions taken by creditors acting as a collective
body, on the premise that the timely resolution of corporate insolvency is
necessary to ensure the growth of credit markets and encourage
G investment. Fourth, in its diverse provisions, the IBC ensures that the
interests of corporate enterprises are not conflated with the interests of
their promoters; the economic value of corporate structures is broader
in content than the partisan interests of their managements. These salutary
objectives of the IBC can be achieved if the integrity of the resolution
process is placed at the forefront. Primarily, the IBC is a legislation
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aimed at re-organization and resolution of insolvencies. Liquidation is a A
matter of last resort. These objectives can be achieved only through a
purposive interpretation which requires courts, while infusing meaning
and content to its provisions, to ensure that the problems which beset the
earlier regime do not enter through the backdoor through disingenuous
stratagems.
B
The amendments
41. On 23 November 2017, Parliament intervened through its
amending power to introduce Section 29A into the provisions of Chapter
II and Section 35(1)(f) into the provisions of Chapter III. Chapter II of
the IBC ,which enunciates provisions for the CIRP, has evolved over C
the previous four years. Chapter III enunciates provisions in regard to
the liquidation process. Section 29A stipulates diverse categories of
persons who will not be eligible to submit a resolution plan.
42. By the same amending Act through which Section 29A was
introduced, Section 35(1)(f) was also amended with the introduction of
D
a proviso. Section 35 specifies the powers of the liquidator as well as
their duties, which are subject to the directions of the Adjudicating
Authority. Section 35(1)(f) provides as follows:
“35. Powers and duties of liquidator.—(1) Subject to the
directions of the Adjudicating Authority, the liquidator shall have
the following powers and duties, namely:— E
...
(f) subject to section 52, to sell the immovable and movable property
and actionable claims of the corporate debtor in liquidation by
public auction or private contract, with power to transfer such
property to any person or body corporate, or to sell the same in F
parcels in such manner as may be specified:
Provided that the liquidator shall not 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.”
G
43. The Statement of Objects and Reasons accompanying the
introduction of the Bill proposing the amendment dated 23 November
2017, elucidates the purpose of introducing the new provisions:
“2. The provisions for insolvency resolution and liquidation of a
corporate person in the Code did not restrict or bar any person
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A from submitting a resolution plan or participating in the acquisition
process of the assets of a company at the time of liquidation.
Concerns have been raised that persons who, with their misconduct
contributed to defaults of companies or are otherwise undesirable,
may misuse this situation due to lack of prohibition or restrictions
to participate in the resolution or liquidation process, and gain or
B
regain control of the corporate debtor. This may undermine the
processes laid down in the Code as the unscrupulous person would
beseen to be rewarded at theexpense of creditors. In addition, in
order to check that the undesirable persons who may have
submitted their resolution plans in the absence of such a provision,
C responsibility is also being entrusted on the committee of creditors
to give a reasonable period to repay overdue amounts and become
eligible.”
44. During the course of the debate in the Lok Sabha on 29
December 2017, the Finance Minister noted that the IBC had been in
D operation for about a year. The new legislation had been a “learning
experience”. The Ordinance was promulgated since a large number of
cases were “already pending resolution mechanism itself” and there
was a danger that if the amendment was not immediately brought in,
persons who were “ineligible” would have started applying as resolution
applicants. The Finance Minister in the course of his speech highlighted
E the reason for the amendments when he observed as follows:
“…What do you do with promoters who are themselves responsible
for these NPAs, that is clause C. Every creditor takes his
haircut and there is an equitable distribution in the case of
dissolution. In the case of resolution also, all type of
F creditors may take some haircut and the man who created
the insolvency pays a fraction of the amount and comes back
into management. Should we allow that to continue? The
overwhelming view, as expressed by the Members, is that
it should not be allowed. This was a gap which was there in
G the original Bill and by bringing in 29(a) we have tried to fill in that
gap. That is the objective. In order that this provision must apply
to allexisting cases of resolution which are pending, that is the
case for urgency. If we had not done this, then all such defaulters
would have rejoiced because they would have merely walked
back into these companies by paying only a fraction of these
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amounts. That is something which besides being commercially A
imprudent would also be morally unacceptable. That is the real
rationale behind this particular Bill:.”
(emphasis supplied)
45. The Report of the Insolvency Law Committee dated 3 March
2018 states that the intent behind introducing Section 29A was to prevent B
unscrupulous persons from gaining control over the affairs of the company.
These persons included those who by their misconduct have contributed
to the defaults of the company or are otherwise undesirable. The
Committee observed:
“14.1. Section 29A was added to the Code by the Amendment C
Act. Owing to this provision, persons, who by their misconduct
contributed to the defaults of the corporate debtor or are otherwise
undesirable, are prevented from gaining or regaining control of
the corporate debtor. This provision protects creditors of the
company by preventing unscrupulous persons from rewarding D
themselves at the expense of creditors and undermining the
processes laid down in the Code.”
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 E
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 F
35(1)(f) are clearly referable to the ineligibility which is set up in Section
29A.
Judicial understanding
Chitra Sharma
G
47. The underlying purpose of introducing Section 29A was
adverted to in a judgment of this court in Chitra Sharma v. Union of
India31.One of us (Justice DY Chandrachud) speaking for a Bench of
31
(2018) 18 SCC 575; hereinafter, referred to as “Chitra Sharma”
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162 SUPREME COURT REPORTS [2021] 3 S.C.R.

A three learned judges took note of the Statement of Objects and Reasons
accompanying the Bill and emphasised the purpose of Section 29A thus:
“[…]
38. Parliament has introduced Section 29A into IBC with a specific
purpose. The provisions of Section 29A are intended to ensure
B that among others, persons responsible for insolvency of the
corporate debtor do not participate in the resolution process. The
Statement of Objects and Reasons appended to the Insolvency
and Bankruptcy Code (Amendment) Bill, 2017, which was
ultimately enacted as Act 8 of 2018, states thus:
“2. The provisions for insolvency resolution and liquidation
C of a corporate person in the Code did not restrict or bar
any person from submitting a resolution plan or
participating in the acquisition process of the assets of a
company at the time of liquidation. Concerns have been
raised that persons who, with their misconduct contributed
D to defaults of companies or are otherwise undesirable, may
misuse this situation due to lack of prohibition or restrictions
to participate in the resolution or liquidation process, and
gain or regain control of the corporate debtor. This may
undermine the processes laid down in the Code as the
unscrupulous person would be seen to be rewarded at the
E expense of creditors. In addition, in order to check that
the undesirable persons who may have submitted their
resolution plans in the absence of such a provision,
responsibility is also being entrusted on the committee of
creditors to give a reasonable period to repay overdue
amounts and become eligible.”
F
(emphasis supplied)
Parliament was evidently concerned over the fact that
persons whose misconduct has contributed to defaults on
the part of debtor companies misuse the absence of a bar
on their participation in the resolution process to gain an
G entry. Parliament was of the view that to allow such persons
to participate in the resolution process would undermine
the salutary object and purpose of the Act. It was in this
background that Section 29A has now specified a list of
persons who are not eligible to be resolution applicants.”
H (emphasis supplied)
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 163
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48. The Court held that “Section 29A has been enacted in the A
larger public interest and to facilitate effective corporate governance”.
The Court further observed that “Parliament rectified a loophole in the
Act which allowed backdoor entry to erstwhile managements in the
CIRP”.
Arcelormittal B
49. In Arcelormittal India Private Limited v. Satish Kumar
Gupta& Ors.32, Justice Rohinton F Nariman, speaking for himself and
Justice Indu Malhotra, reiterated the same principle when he
underscored the need to impart a purposive interpretation to Section
29A “depending both on the text and context in which the provision was C
enacted”:
“30. A purposive interpretation of Section 29A, depending both
on the text and the context in which the provision was enacted,
must, therefore, inform our interpretation of the same. We are
concerned in the present matter with clauses (c), (f), (i) and (j) D
thereof.”
The decision adverts to Section 29A as “a typical instance of a
‘see-through provision’ so that one is able to arrive at persons who are
actually in ‘control’, whether jointly or in concert with other persons 33.
E
32
(2019) 2 SCC 1; hereinafter, referred to as “Arcelormittal”
3
“32. The opening lines of Section 29A of the Amendment Act refer to a de facto as
opposed to a de jure position of the persons mentioned therein. This is a typical
instance of a “see-through provision”, so that one is able to arrive at persons who are
actually in “control”, whether jointly, or in concert, with other persons. A wooden,
literal, interpretation would obviously not permit a tearing of the corporate veil when
F
it comes to the “person” whose eligibility is to be gone into. However, a purposeful and
contextual interpretation, such as is the felt necessity of interpretation of such a provision
as Section 29A, alone governs. For example, it is well settled that a shareholder is a
separate legal entity from the company in which he holds shares. This may be true
generally speaking, but when it comes to a corporate vehicle that is set up for the
purpose of submission of a resolution plan, it is not only permissible but imperative
for the competent authority to find out as to who are the constituent elements that G
make up such a company. In such cases, the principle laid down in Salomon v. A.
Salomon & Co. Ltd.[Salomon v. A. Salomon & Co. Ltd., 1897 AC 22 (HL)] will not
apply. For it is important to discover in such cases as to who are the real individuals or
entities who are acting jointly or in concert, and who have set up such a corporate
vehicle for the purpose of submission of a resolution plan.”

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A Swiss Ribbons
50. In Swiss Ribbons (supra), the constitutionality of certain
provisions of the IBC was challenged. Justice Rohinton F Nariman
emphasised the object of the IBC in the following observations:
“27. As is discernible, the Preamble gives an insight into what is
B sought to be achieved by the Code. The Code is first and foremost,
a Code for reorganization and insolvency resolution of corporate
debtors. Unless such reorganization is effected in a time-bound
manner, the value of the assets of such persons will deplete.
Therefore, maximization of value of the assets of such persons so
C that they are efficiently run as going concerns is another very
important objective of the Code. This, in turn, will promote
entrepreneurship as the persons in management of the corporate
debtor are removed and replaced by entrepreneurs. When,
therefore, a resolution plan takes off and the corporate debtor is
brought back into the economic mainstream, it is able to repay its
D debts, which, in turn, enhances the viability of credit in the hands
of banks and financial institutions. Above all, ultimately, the
interests of all stakeholders are looked after as the corporate debtor
itself becomes a beneficiary of the resolution scheme—workers
are paid, the creditors in the long run will be repaid in full, and
E shareholders/investors are able to maximize their investment.
Timely resolution of a corporate debtor who is in the red, by an
effective legal framework, would go a long way to support the
development of credit markets. Since more investment can be
made with funds that have come back into the economy, business
then eases up, which leads, overall, to higher economic growth
F and development of the Indian economy. What is interesting to
note is that the Preamble does not, in any manner, refer to
liquidation, which is only availed of as a last resort if there is
either no resolution plan or the resolution plans submitted are not
up to the mark. Even in liquidation, the liquidator can sell the
G business of the corporate debtor as a going concern.
(See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish
Kumar Gupta, (2019) 2 SCC 1] at para 83, fn 3).
28. It can thus be seen that the primary focus of the legislation is
to ensure revival and continuation of the corporate debtor by
H protecting the corporate debtor from its own management and
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from a corporate death by liquidation. The Code is thus a beneficial A
legislation which puts the corporate debtor back on its feet, not
being a mere recovery legislation for creditors. The interests of
the corporate debtor have, therefore, been bifurcated and
separated from that of its promoters/those who are in management.
Thus, the resolution process is not adversarial to the corporate
B
debtor but, in fact, protective of its interests. The moratorium
imposed by Section 14 is in the interest of the corporate debtor
itself, thereby preserving the assets of the corporate debtor during
the resolution process. The timelines within which the resolution
process is to take place again protects the corporate debtor’s
assets from further dilution, and also protects all its creditors and C
workers by seeing that the resolution process goes through as
fast as possible so that another management can, through its
entrepreneurial skills, resuscitate the corporate debtor to achieve
all these ends.”
51. While adverting to the earlier decision in Chitra Sharma and D
Arcelormittal(supra), which had elucidated the object underlying Section
29A, this Court in Swiss Ribbons (supra) held that the norm underlying
Section 29A “continues to permeate” Section 35(1)(f) “when it applies
not merely to resolution applicants, but to liquidation also”. Rejecting the
plea that Section 35(1)(f) is ultra vires,this Court held:
E
“102. According to the learned counsel for the petitioners, when
immovable and movable property is sold in liquidation, it ought to
be sold to any person, including persons who are not eligible to be
resolution applicants as, often, it is the erstwhile promoter who
alone may purchase such properties piecemeal by public auction
or by private contract. The same rationale that has been provided F
earlier in this judgment will apply to this proviso as well — there is
no vested right in an erstwhile promoter of a corporate debtor to
bid for the immovable and movable property of the corporate debtor
in liquidation. Further, given the categories of persons who are
ineligible under Section 29A, which includes persons who are G
malfeasant, or persons who have fallen foul of the law in some
way, and persons who are unable to pay their debts in the grace
period allowed, are further, by this proviso, interdicted from
purchasing assets of the corporate debtor whose debts they have
either willfully not paid or have been unable to pay. The legislative
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A purpose which permeates Section 29A continues to permeate the
section when it applies not merely to resolution applicants, but to
liquidation also. Consequently, this plea is also rejected.”
A Purposive Interpretation
52. This line of decisions, beginning with Chitra Sharma
B (supra)and continuing to Arcelormittal (supra) and Swiss Ribbons
(supra) is significant in adopting a purposive interpretation of Section
29A. Section 29A has been construed to be a crucial link in ensuring that
the objects of the IBC are not defeated by allowing “ineligible persons”,
including but not confined to those in the management who have run the
C company aground, to return in the new avatar of resolution applicants.
Section 35(1)(f) is placed in the same continuum when the Court observes
that the erstwhile promoters of a corporate debtor have no vested right
to bid for the property of the corporate debtor in liquidation. The values
which animate Section 29A continue to provide sustenance to the rationale
underlying the exclusion of the same category of persons from the process
D of liquidation involving the sale of assets, by virtue of the provisions of
Section 35(1)(f). More recent precedents of this Court continue to adopt
a purposive interpretation of the provisions of the IBC. (See in this context
the judgments in Phoenix ARC Private Limited v. Spade Financial
Service34 , Ramesh Kymal v. M/s Siemens Gamesa Renewable
E Power Pvt Ltd.35 and Anuj Jain, Interim Resolution Professional
for Jaypee Infratech Limited v. Axis Bank Limited36.)
Sustainable revival
53. The purpose of the ineligibility under Section 29A is to achieve
a sustainable revival and to ensure that a person who is the cause of the
F problem either by a design or a default cannot be a part of the process of
solution. Section 29A, it must be noted, encompasses not only conduct in
relation to the corporate debtor but in relation to other companies as
well. This is evident from clause (c) (“an account of a corporate debtor
under the management or control of such person or of whom such person
G is a promoter, classified as a non-performing asset”), and clauses (e),
(f), (g), (h) and (i) which have widened the net beyond the conduct in
relation to the corporate debtor.

34
2021 SCC OnLine SC 51 at paragraphs 103-104
35
C.A. No. 4050 of 2020, decided on 9 February 2021, at paragraphs 23 and 25
36
H (2020) 8 SCC 401, at paras 28.4 and 28.5
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 167
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54. The prohibition which has been enacted under Section 29A A
has extended, as noted above, to Chapter III while being incorporated in
the proviso to Section 35(1)(f). Under the Liquidation Process
Regulations, Chapter VI deals with the realization of assets. Regulation
32 is in the following terms:
“32. Sale of Assets, etc. B
The liquidator may sell-
(a) an asset on a standalone basis;
(b) the assets in a slump sale;
(c) a set of assets collectively; C
(d) the assets in parcels;
(e) the corporate debtor as a going concern; or
(f) the business(s) of the corporate debtor as a going concern:
Provided that where an asset is subject to security interest, it shall
not be sold under any of the clauses (a) to (f) unless the security D
interest therein has been relinquished to the liquidation estate.”
Clauses (a) to (d) of Regulation 32 deal with the sale of assets on
a stand-alone basis in a slump sale collectively or in parcels. Clauses (e)
and (f) deal with the sale of the corporate debtor or its business as a
going concern. E
55. Regulation 32-A(1) then stipulates:
“32A. Sale as a going concern.
(1) Where the committee of creditors has recommended sale under
clause (e) or (f) of regulation 32 or where the liquidator is of the
opinion that sale under clause (e) or (f) of regulation 32 shall F
maximize the value of the corporate debtor, he shall endeavor to
first sell under the said clauses.”
Regulation 32-A(1) emphasizes the importance placed on the
transfer of the corporate debtor or its business on a going concern basis.
G
56. Regulation 44 allows for a period of one year for the liquidation
of the corporate debtor from the liquidation commencement date. Its
proviso, however, allows for an additional period up to ninety days where
the sale is attempted under sub-Regulation (1) of Regulation 32A.
Regulation 44 is as follows:
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A “44. Completion of liquidation.
(1) The liquidator shall liquidate the corporate debtor within a period
of one year from the liquidation commencement date,
notwithstanding pendency of any application for avoidance of
transactions under Chapter III of Part II of the Code, before the
B Adjudicating Authority or any action thereof:
Provided that where the sale is attempted under sub-regulation
(1) of regulation 32A, the liquidation process may take an additional
period up to ninety days.]
(2) If the liquidator fails to liquidate the corporate debtor within
C 29[one year], he shall make an application to the Adjudicating
Authority to continue such liquidation, along with a report explaining
why the liquidation has not been completed and specifying the
additional time that shall be required for liquidation.”
D.2 Interplay : IBC liquidation and Section 230 of the Act
D of 2013
57. Section 230 of the Act of 2013 is incorporated in Chapter XV
which is titled “compromise, arrangement and amalgamations”. Sub-
section (1) of Section 230 provides as follows:
“230. Power to compromise or make arrangements with creditors
E
and members.— (1) Where a compromise or arrangement is
proposed—
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them,
F the Tribunal may, on the application of the company or of any
creditor or member of the company, or in the case of a company
which is being wound up, of the liquidator, order a meeting of the
creditors or class of creditors, or of the members or class of
members, as the case may be, to be called, held and conducted in
such manner as the Tribunal directs.
G
Explanation.—For the purposes of this sub-section, arrangement
includes a reorganization of the company‘s share capital by the
consolidation of shares of different classes or by the division of
shares into shares of different classes, or by both of those
methods.”
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58. A compromise or arrangement under Sub-section (1) of Section A
230 may take place:
(i) between a company and its creditors or any subset of
creditors; or
(ii) between a company and its members or subset of members.
B
59. Liquidation is one of the factual situations in which the provisions
of Section 230 can be invoked. Section 230(1) can also be invoked in the
case of a company which is wound up, as is evident from the statutory
provision itself, which contemplates that an application may be submitted
to the NCLT, acting as the Tribunal, by the liquidator.
C
60. Sub-section (1) of Section 230 was amended by Act 31 of
2016 with effect from 15 November 2016. Prior to the amendment, an
application for compromise or arrangement could be moved before the
Tribunal by:
(i) the company; D
(ii) a creditor;
(iii) a member of the company; and
(iv) in the case of a company which is being wound up, by the
liquidator.
E
Following the amendment, Section 230(1) envisages that
an application in the case of a company which is being wound up may
be presented by a liquidator who has been appointed under the Act of
2013 or under the IBC. Interestingly, Section 230 (except Sub-sections
(11) and (12)) came into force on 7 December 2016. Where a compromise
has been entered into with only a class of creditors, it will bind that class F
under the provisions of Section 230(6), which reads thus:
“(6) Where, at a meeting held in pursuance of sub-section (1),
majority of persons representing three fourths in value of the
creditors, or class of creditors or members or class of members,
as the case may be, voting in person or by proxy or by postal G
ballot, agree to any compromise or arrangement and if such
compromise or arrangement is sanctioned by the Tribunal by an
order, the same shall be binding on the company, all the creditors,
or class of creditors or members or class of members, as the case
H
170 SUPREME COURT REPORTS [2021] 3 S.C.R.

A may be, or, in case of a company being wound up, on the liquidator
and the contributories of the company.”
61. Under Sub-section (6) of Section 230, the comprise or
arrangement has to be agreed to by a “majority of persons representing
3/4th in value” of the creditors, members or a class of them. Upon the
B sanctioning of the compromise or arrangement by the NCLT, it binds the
company, all the creditors or members or a class of them, as may be, or
in the case of a company being wound up, the liquidator appointed under
the Act of 2013 or the IBC and the contributories.
The Companies’ Act 1956 : Section 391 and Meghal Homes
C 62. Prior to the enforcement of the Act of 2013, the erstwhile
legislation - the Act of 1956 - contained an analogous provision in Section
391.
63. The provisions of Section 391 came up for interpretation in a
decision of this Court in Meghal Homes (supra). Justice PK
D Balasubramanyan, speaking for the two judge Bench of this Court,
adverted to the earlier decision in Miheer H Mafatlal v. Mafatlal
Industries Ltd.37 which had dealt with the jurisdiction of the Company
Court (or the Company Law Board as it then was) while sanctioning a
scheme of merger or amalgamation of two companies. The earlier
E decision, as this Court noted, did not involve either a transferor or
transferee in liquidation. Hence, this Court did not have occasion to
consider whether “any additional tests have to be satisfied when the
company concerned is in liquidation and a compromise or arrangement
in respect of it is proposed”. Dealing specifically with a company which
has been ordered to be wound up, this Court observed that the Company
F Court (before whom the jurisdiction under the erstwhile Section 391
was vested at the material time) had “necessarily to see whether the
scheme contemplates revival of the business of the company”. In that
context, this Court observed:
“47. When a company is ordered to be wound up, the assets of it
G are put in possession of the Official Liquidator. The assets
become custodia legis. The follow-up, in the absence of a revival
of the company, is the realisation of the assets of the company by
the Official Liquidator and distribution of the proceeds to the
creditors, workers and contributories of the company ultimately
37
H (1997) 1 SCC 579
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 171
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

resulting in the death of the company by an order under Section A
481 of the Act, being passed. But, nothing stands in the way of
the Company Court, before the ultimate step is taken or before
the assets are disposed of, to accept a scheme or proposal for
revival of the Company. In that context, the court has necessarily
to see whether the scheme contemplates revival of the business
B
of the company, makes provisions for paying off creditors or for
satisfying their claims as agreed to by them and for meeting the
liability of the workers in terms of Section 529 and Section 529A
of the Act. Of course, the court has to see to the bona fides of the
scheme and to ensure that what is put forward is not a ruse to
dispose of the assets of the company in liquidation.” C
Moreover, the Court held that in the case of a company which
has been wound up it would have to perceive aspects of public interest,
commercial morality and the existence of a bona fide intent to revive
the company, while considering whether a compromise or arrangement
put forward under Section 391 should be accepted. While the Court D
would not sit in appeal over the commercial wisdom of the shareholders,
“it will certainly consider whether there is a genuine attempt to revive
the company that has gone into liquidation and whether such revival is in
public interest and conforms to commercial morality”. On the facts of
the case, the Court found that it was difficult to hold that “it is a scheme
for revival of the Company, the clear statutory intention behind E
entertaining a proposal under Section 391”. These observations of the
two judge Bench in Meghal Homes (supra) have a significant bearing
on the nature of a compromise or arrangement which fell within the
purview of Section 391 of the Act of 1956. This Court emphasized that
where a company is in liquidation, its assets are custodia legis, the F
liquidator being the custodian for the distribution of the liquidation estate.
A compromise or arrangement in respect of a company in liquidation
must foster a revival of the company, this being (as the Court termed it
) “the clear statutory intention behind entertaining a proposal under
Section 391” in respect of a company in liquidation.
G
IBC liquidation and Section 230 scheme : a statutory
continuum
64. Now, there is no reference in the body of the IBC to a scheme
of compromise or arrangement under Section 230 of the Act of 2013.
Sub-section (1) of Section 230 was however amended with effect from H
172 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 15 November 2016 so as to allow for a scheme of compromise or
arrangement being proposed on the application of a liquidator who has
been appointed under the provisions of the IBC. The substratum of the
submission of Mr Sandeep Bajaj, learned Counsel for the appellants, is
that Section 230 is not regulated by the IBC but is a provision independent
of it, though after the amendment of Sub-section (1), a compromise or
B
arrangement can be proposed by the liquidator appointed under the IBC.
Aligned to this submission, he urged that the decision in Meghal Homes
(supra) recognises that the liquidator is an additional person who may
submit an application under Section 391 of the Act of 1956 (corresponding
to Section 230 of the Act of 2013). The submission of Mr Bajaj however
C misses the crucial interface between the provisions of Section 230 of
the Act of 2013 in their engagement with a company in respect of which
the provisions of the IBC have been invoked, resulting in an order of
liquidation under Section 33 of the IBC. Liquidation of the company
under the IBC, as emphasized by this Court in its previous decisions, is a
matter of last resort. Section 33 requires the NCLT, acting as the
D
Adjudicating Authority, to pass an order for the liquidation of the corporate
debtor where:
(i) before the expiry of the insolvency resolution process period
or the maximum period contemplated for its completion a
resolution plan has not been received under Sub-section
E (6) of Section 30; or
(ii) the resolution plan has been rejected under Section 31 for
non-compliance with the requirements of the provision.
65. Under Sub-Section (2) of Section 33, the Adjudicating Authority
F has to pass a liquidation order where the resolution professional, during
the CIRP but before the confirmation of the resolution plan, intimates
the Adjudicating Authority of the decision of the CoC approved by not
less than 66 per cent of the voting shares to liquidate the corporate
debtor. Under Section 34, upon the Adjudication Authority passing an
order for liquidation of the corporate debtor under Section 33, the resolution
G professional appointed for the CIRP under Chapter II is to act as
a liquidator for the purpose of liquidation. Section 35 proceeds to stipulate
that subject to the directions of the Adjudicating Authority, the liquidator
shall have the powers and duties enumerated in the provision.
66. What emerges from the above discussion is that the provisions
H of the IBC contain a comprehensive scheme, first, for the initiation of
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 173
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

the CIRP at the behest of financial creditor under Section 7 or at the A
behest of the operational creditor under Section 9 or the corporate debtor
under Section 10. Chapter II provides for the appointment of an interim
resolution professional38 in Section 17 and the constitution of a CoC
under Section 21. Chapter II contemplates the submission of a resolution
plan in Section 30 and the approval of the plan in Section 31. Liquidation
B
forms a part of a distinct Chapter - Chapter III. Liquidation under Section
33 is contemplated in specific eventualities which are adverted to in
Sub-Section (1) and Sub-section (2) as noted above.
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 C
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 D
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. While there is no direct recognition of the provisions of Section 230
of the Act of 2013 in the IBC, a decision was rendered by the NCLAT
on 27 February 2019 in Y Shivram Prasad v. S Dhanapal39. NCLAT in E
the course of its decision observed that during the liquidation process the
steps which are required to be taken by the liquidator include a
compromise or arrangement in terms of Section 230 of the Act of 2013,
so as to ensure the revival and continuance of the corporate debtor by
protecting it from its management and from “a death by liquidation”. F
The decision by NCLAT took note of the fact that while passing the
order under Section 230, the Adjudicating Authority would perform a
dual role: one as the Adjudicating Authority in the matter of liquidation
under the IBC and the other as a Tribunal for passing an order under
Section 230 of the Act of 2013. Following the decision of NCLAT, an
amendment was made on 25 July 2019 to the Liquidation Process G
Regulations by the IBBI so as to refer to the process envisaged under
Section 230 of the Act of 2013.

38
“IRP”
39
2019 SCC OnLine NCLAT 172; herein, referred to as “Y Shivram Prasad” H
174 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 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. The first point is that a
liquidation under Chapter III of the IBC follows upon the entire gamut
of proceedings contemplated under that statute. The second point to be
B
noted is that one of the modes of revival in the course of the liquidation
process is envisaged in the enabling provisions of Section 230 of the Act
of 2013, to which recourse can be taken by the liquidator appointed
under Section 34 of the IBC. The third point is that the statutorily
contemplated activities of the liquidator do not cease while inviting a
C scheme of compromise or arrangement under Section 230. The
appointment of the liquidator in an IBC liquidation is provided in Section
34 and their duties are specified in Section 35. In taking recourse to the
provisions of Section 230 of the Act of 2013, the liquidator appointed
under the IBC is , above all, to attempt a revival of the corporate debtor
so as to save it from the prospect of a corporate death. The consequence
D
of the approval of the scheme of revival or compromise, and its sanction
thereafter by the Tribunal under Sub-section (6), is that the scheme attains
a binding character upon stakeholders including the liquidator who has
been appointed under the IBC. In this backdrop, it is difficult to accept
the submission of Mr Bajaj that Section 230 of the Act of 2013 is a
E standalone provision which has no connect with the provisions of the
IBC. Undoubtedly, Section 230 of the Act of 2013 is wider in its ambit in
the sense that it is not confined only to a company in liquidation or to
corporate debtor which is being wound up under Chapter III of the IBC.
Obviously, therefore, the rigors of the IBC will not apply to proceedings
under Section 230 of the Act of 2013 where the scheme of compromise
F
or arrangement proposed is in relation to an entity which is not the subject
of a proceeding under the IBC. But, 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
G necessary to read both sets of provisions in harmony. A harmonious
construction between the two statutes40 would ensure that while on the
40
G.P. Singh, Principles of Statutory Interpretation (1 st edn., Lexis Nexis 2015) which
notes that “Further, these principles [referring to the principle of harmonious
construction] have also been applied in resolving a conflict between two different Acts”
and providing the following examples – “Jogendra Lal Saha v. State of Bihar, 1991
H Supp (2) SCC 654 (Sections 82 and 83 of the Forest Act, 1927 are special provisions
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 175
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

one hand a scheme of compromise or arrangement under Section 230 is A
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
B
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 C
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 D
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.
E
70. An argument has also been advanced by the appellants and
the petitioners that attaching the ineligibilities under Section 29A and
Section 35(1)(f) of the IBC to a scheme of compromise and arrangement
under Section 230 of the Act of 2013 would be violative of Article 14 of
the Constitution as the appellant would be “deemed ineligible” to submit
F
which prevail over the provisions in the Sale of Goods Act ); Jasbir Singh v. Vipin
Kumar Jaggi, (2001) 8 SCC 289 (Section 64 of NDPS Act will pre vail over section
307 CrPC 1974 as it is a special provision in a Special Act which is also later); P.V.
Hemlatha v. Kattam Kandi Puthiya Maliackal Saheeda, (2002) 5 SCC 548 (conflict
between section 23 of the Travancore Cochin High Court Act and section 98(3) Civil
Procedure Code resolved by holding the latter to be special law); Talchar Municipality
v. Talcher Regulated Market Committee, (2004) 6 SCC 178 (Section 4(4) of the
G
Orissa Agricultural Produce Markets Act, 1956 was held to prevail over section 295 of
the Orissa Municipalities Act, 1950 as the former was a special provision and also
started with a non-obstante clause); and Iridium India Telecom Ltd. v. Motorola Inc,
(2005) 2 SCC 145 (Letters Patent and rules made under it constitute special law for the
High Court concerned and are not displaced by the general provisions of the Civil
Procedure Code)” H
176 SUPREME COURT REPORTS [2021] 3 S.C.R.

A a proposal under Section 230 of the Act of 2013. We find no merit in this
contention. As explained above, 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
B
these stages. Proposing a scheme of compromise or arrangement under
Section 230 of the Act of 2013, while the company is undergoing
liquidation under the provisions of the IBC 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.
C D.3 The ‘Clean Slate’
71. A crucial limb of the submissions which have been urged by
Mr Sandeep Bajaj and Mr Shiv Shankar Banerjee, learned Counsel
appearing for the appellants and the petitioner is that both Section 12-A
of the IBC and Section 230 of the Act of 2013 belong to what is described
D as the “settlement mechanism” which is distinct from the “resolution
mechanism”. The corporate debtor, it has been urged, will proceed to
liquidation if no resolution is possible. Section 29A was designed to prevent
a back-door entry to a class of persons considered to be ineligible to
participate in the resolution process. Section 35(1)(f) extends the
E ineligibility where the liquidator is conducting a sale of the assets of the
corporate debtor in liquidation. It has been submitted in this context that
where an application for withdrawal under Section 12-A is allowed, the
company reverts to the promoter. Placing a scheme under Section 230
of the Act of 2013 on the same pedestal, it has been urged that there is
no reason to prevent a person who falls in the class of those ineligible
F under Section 29A from submitting a scheme of compromise or
arrangement under Section 230 of the Act of 2013. In order to amplify
the line of submissions as recorded above, the following points have
been urged:
(i) Though eight amendments have been brought about to the
G IBC between November 2017 and September 2020, the
ineligibility contemplated by Section 29A and Section 35(1)(f)
has not been expressly incorporated in Section 230 of the
Act of 2013 even after the amendment to the IBC;
(ii) Under Section 230, the persons competent to submit a
H scheme are
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 177
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

(a) the company or its liquidator; A
(b) the creditors; or
(c) a member.
Section 230 does not prohibit a promoter or a person
belonging to the ex-management, from proposing a scheme B
of compromise or arrangement. This creates a “front door
opportunity” to the erstwhile management to come forth
and save the company;
(iii) Under Section 30(1) of the IBC, a resolution plan can be
submitted by a person who is not ineligible with reference C
to Section 29A. Under Sub-section (4) of Section 30, for
the approval of the resolution plan, a 66 per cent voting
share only of the financial creditors is required. Sub-section
2(b) of Section 30 requires the resolution professional to
examine whether the resolution plan provides for the
payment of the debt of operational creditors which shall D
not be less than the amount which is payable to them in the
event of liquidation. On the other hand, the provisions of
Section 230 of the Act of 2013 are far more stringent in
that they require a voting share of 75 per cent and, where
the company is in liquidation, a settlement with all creditors E
including the operational creditors;
(iv) Section 35(1)(f) applies to the liquidator but does not apply
to the NCLT, acting as either the Adjudicating Authority or
as the Tribunal;
(v) A resolution plan upon being approved becomes binding on F
all stakeholders and is attended with all benefits unlike
Section 230 of the Act of 2013;
(vi) Under Regulation 32 of the Liquidation Process Regulations,
two modes are contemplated for the sale of the corporate
debtor as a ‘going concern’, while four modes are G
contemplated for the sale of the assets of the corporate
debtor. The prohibition under Section 35(1)(f) will apply
only to a sale which is governed by Regulation 32, and will
have no application to a scheme of compromise or
arrangement which is proposed under Section 230; and
H
178 SUPREME COURT REPORTS [2021] 3 S.C.R.

A (vii) There is no mechanism in the IBC for effecting a
compromise or arrangement, and since the only provision
is contained in Section 230, there is no inconsistency with
the IBC.
Withdrawal of application
B 72. Section 12A41 of the IBC was inserted with effect from 6
June 2018 by Amending Act 26 of 2018. Under Section 12A, the
Adjudicating Authority may allow the withdrawal of an application which
is admitted under Sections 7, 9 and 10, on an application made by the
applicant with the approval of a 90 per cent voting share of the CoC in
C such manner as may be specified. Rule 8 of the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules, 2016 42, on
the other hand, contemplates that the NCLT, functioning as the
Adjudicating Authority, may permit a withdrawal of an application made
under Rule 4 (by the financial creditor), Rule 6 (by the operational creditor)
or Rule 7 (by the corporate applicant) on the request made by the applicant
D before its admission. Regulation 30-A of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 contains provisions for the withdrawal of an
application. Under Regulation 30-A43 , as it originally stood, an application
41
“12A. Withdrawal of application admitted under section 7, 9 or 10 - The
E Adjudicating Authority may allow the withdrawal of application admitted under section
7 or section 9 or section 10, on an application made by the applicant with the approval
of ninety per cent. voting share of the committee of creditors, in such manner as may be
specified.”
42
“Adjudicating Authority Rules”
43
“30A. Withdrawal of Application- (1) An application for withdrawal under section
12A shall be submitted to the interim resolution professional or the resolution
F professional, as the case may be, in Form FA of the Schedule before issue of invitation
for expression of interest under regulation 36A.
(2) The application in sub-regulation (1) shall be accompanied by a bank guarantee
towards estimated cost incurred for purposes of clauses (c) and (d) of regulation 31 till
the date of application.
(3) The committee shall consider the application made under sub-regulation (1) within
seven days of its constitution or seven days of receipt of the application, whichever is
G later.
(4) Where the application is approved by the committee with ninety percent voting
share, the resolution professional shall submit the application under sub-regulation (1)
to the Adjudicating Authority on behalf of the applicant, within three days of such
approval.
(5) The Adjudicating Authority may, by order, approve the application submitted
H under sub-regulation (4).”
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 179
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

for withdrawal under Section 12-A was required to be submitted before A
the issuance of an invitation for the expression of interest under Regulation
36-A. In the decision of this Court in Swiss Ribbons (supra), which
was rendered on 25 January 2019, it was contemplated that an application
for withdrawal may be presented between the period commencing from
the admission of the application and the date of the constitution of the
B
CoC. This led to the substitution of the Regulation 30-A44 on 25 July
2019. As substituted, Regulation 30-A stipulates that an application for
withdrawal under Section 12-A may be made to the adjudicating authority:
44
“30A. Withdrawal of Application- (1) An application for withdrawal under section
12A may be made to the Adjudicating Authority-
(a) before the constitution of the committee, by the applicant through the interim C
resolution professional;
(b) after the constitution of the committee, by the applicant through the interim
resolution professional or the resolution professional, as the case may be:
Provided that where the application is made under clause (b) after the issue of invitation
for expression of interest under regulation 36A, the applicant shall state the reasons
justifying withdrawal after issue of such invitation.
(2) The application under sub-regulation (1) shall be made in Form FA of the Schedule D
accompanied by a bank guarantee-
(a) towards estimated expenses incurred on or by the interim resolution professional
for purposes of regulation 33, till the date of filing of the application under clause (a) of
sub-regulation (1); or
(b) towards estimated expenses incurred for purposes of clauses (aa), (ab), (c) and (d)
of regulation 31, till the date of filing of the application under clause (b) of sub-
regulation (1). E
(3) Where an application for withdrawal is under clause (a) of sub-regulation (1), the
interim resolution professional shall submit the application to the Adjudicating Authority
on behalf of the applicant, within three days of its receipt.
(4) Where an application for withdrawal is under clause (b) of sub-regulation (1), the
committee shall consider the application, within sev
en days of its receipt.
(5) Where the application referred to in sub-regulation (4) is approved by the committee
F
with ninety percent voting share, the resolution professional shall submit such application
along with the approval of the committee, to the Adjudicating Authority on behalf of
the applicant, within three days of such approval.
(6) The Adjudicating Authority may, by order, approve the application submitted
under sub-regulation (3) or (5).
(7) Where the application is approved under sub-regulation (6), the applicant shall G
deposit an amount, towards the actual expenses incurred for the purposes referred to in
clause (a) or clause (b) of sub-regulation (2) till the date of approval by the Adjudicating
Authority, as determined by the interim resolution professional or resolution professional,
as the case may be, within three days of such approval, in the bank account of the
corporate debtor, failing which the bank guarantee received under sub-regulation (2)
shall be invoked, without prejudice to any other action permissible against the applicant
under the Code.” H
180 SUPREME COURT REPORTS [2021] 3 S.C.R.

A (a) before the constitution of the CoC, by the applicant through
the IRP; and
(b) after the constitution of the CoC, by the applicant through
the IRP or the RP as the case may be.
However, where the application under clause (b) is made after
B the issuance of the invitation for expression of interest, the applicant has
to state the reasons justifying withdrawal after the issuance of the
invitation. In the decision of this Court in Brilliant Alloys (supra), it has
been held that a withdrawal may be contemplated even after the issuance
of invitation of expression of interest. In Swiss Ribbons (supra),the
C provisions of Section 12-A were upheld against the challenge that they
violated Article 14 of the Constitution. Justice Rohinton F Nariman, while
adverting to the decision in Brilliant Alloys (supra), noted that Regulation
30-A(1) has been held not to be mandatory but directory because in a
given case an application for withdrawal may be allowed for exceptional
reasons even after issuance of an invitation for expression of interest
D under Section 36-A. Dealing with the provisions of Section 12-A, this
Court observed:
“82. It is clear that once the Code gets triggered by admission of
a creditor’s petition under Sections 7 to 9, the proceeding that is
before the adjudicating authority, being a collective proceeding, is
E a proceeding in rem. Being a proceeding in rem, it is necessary
that the body which is to oversee the resolution process must be
consulted before any individual corporate debtor is allowed to settle
its claim. A question arises as to what is to happen before a
Committee of Creditors is constituted (as per the timelines that
F are specified, a Committee of Creditors can be appointed at any
time within 30 days from the date of appointment of the interim
resolution professional). We make it clear that at any stage where
the Committee of Creditors is not yet constituted, a party can
approach NCLT directly, which Tribunal may, in exercise of its
inherent powers under Rule 11 of NCLT Rules, 2016, allow or
G disallow an application for withdrawal or settlement. This will be
decided after hearing all the parties concerned and considering all
relevant factors on the facts of each case.
83. The main thrust against the provision of Section 12-A is the
fact that ninety per cent of the Committee of Creditors has to
H
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 181
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

allow withdrawal. This high threshold has been explained in the A
ILC Report as all financial creditors have to put their heads
together to allow such withdrawal as, ordinarily, an omnibus
settlement involving all creditors ought, ideally, to be entered into
. This explains why ninety per cent, which is substantially all the
financial creditors, have to grant their approval to an individual
B
withdrawal or settlement. In any case, the figure of ninety per
cent, in the absence of anything further to show that it is arbitrary,
must pertain to the domain of legislative policy, which has been
explained by the Report (supra). Also, it is clear, that under Section
60 of the Code, the Committee of Creditors do not have the last
word on the subject. If the Committee of Creditors arbitrarily C
rejects a just settlement and/or withdrawal claim, NCLT, and
thereafter, NCLAT can always set aside such decision under
Section 60 of the Code. For all these reasons, we are of the view
that Section 12-A also passes constitutional muster.”
Distinction between a withdrawal simpliciter and scheme D
of arrangement
73. The submission is that on the withdrawal of the application
under Sections 7, 9 and 10, as the case may be, the company goes back
to the same promoter in spite of such a promoter being ineligible under
Section 29A for submitting a resolution plan. As such, it was urged that E
there is no reason or justification then to preclude a promoter from
presenting a scheme of compromise or arrangement under Section 230.
74. There is a fundamental fallacy in the submission. An application
for withdrawal under Section 12-A is not intended to be a culmination of
the resolution process. This, as the statutory scheme would indicate, is F
at the inception of the process. Rule 8 of the Adjudicating Authority
Rules, as we have seen earlier, contemplates a withdrawal before
admission. Section 12-A subjects a withdrawal of an application, which
has been admitted under Sections 7, 9 and 10, to the requirement of an
approval of ninety per cent voting shares of the CoC. The decision of
this Court in Swiss Ribbons (para 82 extracted above) stipulates that G
where the CoC has not yet been constituted, the NCLT, functioning as
the Adjudicating Authority, may be moved directly for withdrawal which,
in the exercise of its inherent powers under Rule 11 of the Adjudicating
Authority Rules, may allow or disallow the application for withdrawal or
settlement after hearing the parties and considering the relevant factors H
182 SUPREME COURT REPORTS [2021] 3 S.C.R.

A on the facts of each case. A withdrawal in other words is by the applicant.
The withdrawal leads to a status quo ante in respect of the liabilities of
the corporate debtor. A withdrawal under Section 12-A is in the nature
of settlement, which has to be distinguished both from a resolution plan
which is approved under Section 31 and a scheme which is sanctioned
under Section 230 of the Act of 2013. A resolution plan upon approval
B
under Section 31(1) of the IBC is binding on the corporate debtor, its
employees, members, creditors (including the central and state
governments), local authorities, guarantors and other stakeholders. The
approval of a resolution plan under Section 31 results in a “clean slate,”
as held in the judgment of this Court in Committee of Creditors of
C Essar Steel India Limited v. Satish Kumar Gupta45. Justice Rohinton
F Nariman, speaking for the three judge Bench of this Court, observed:
“105. Section 31(1) of the Code makes it clear that once a
resolution plan is approved by the Committee of Creditors it shall
be binding on all stakeholders, including guarantors. This is for the
D reason that this provision ensures that the successful resolution
applicant starts running the business of the corporate debtor on a
fresh slate as it were. In SBI v. V. Ramakrishnan [SBI v. V.
Ramakrishnan, (2018) 17 SCC 394 : (2019) 2 SCC (Civ) 458] ,
this Court relying upon Section 31 of the Code has held: (SCC p.
411, para 25)
E
“25. Section 31 of the Act was also strongly relied upon
by the respondents. This section only states that once a
resolution plan, as approved by the Committee of Creditors,
takes effect, it shall be binding on the corporate debtor as
well as the guarantor. This is for the reason that otherwise,
F under Section 133 of the Contract Act, 1872, any change
made to the debt owed by the corporate debtor, without
the surety’s consent, would relieve the guarantor from
payment. Section 31(1), in fact, makes it clear that the
guarantor cannot escape payment as the resolution plan,
G which has been approved, may well include provisions as
to payments to be made by such guarantor. This is perhaps
the reason that Annexure VI(e) to Form 6 contained in the
Rules and Regulation 36(2) referred to above, require
information as to personal guarantees that have been
45
H (2020) 8 SCC 531
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 183
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

given in relation to the debts of the corporate debtor. Far A
from supporting the stand of the respondents, it is clear
that in point of fact, Section 31 is one more factor in favour
of a personal guarantor having to pay for debts due
without any moratorium applying to save him.””
In the same vein, the Court observed: B
“107. For the same reason, the impugned NCLAT judgment
[Standard Chartered Bank v. Satish Kumar Gupta, 2019 SCC
OnLine NCLAT 388] in holding that claims that may exist apart
from those decided on merits by the resolution professional and
by the Adjudicating Authority/Appellate Tribunal can now be C
decided by an appropriate forum in terms of Section 60(6) of the
Code, also militates against the rationale of Section 31 of the Code.
A successful resolution applicant cannot suddenly be faced with
“undecided” claims after the resolution plan submitted by him has
been accepted as this would amount to a hydra head popping up
which would throw into uncertainty amounts payable by a D
prospective resolution applicant who would successfully take over
the business of the corporate debtor. All claims must be submitted
to and decided by the resolution professional so that a prospective
resolution applicant knows exactly what has to be paid in order
that it may then take over and run the business of the corporate E
debtor. This the successful resolution applicant does on a fresh
slate, as has been pointed out by us hereinabove. For these
reasons, NCLAT judgment must also be set aside on this count.”
75. The benefit under Section 31, following upon the approval of
the resolution plan, is that the successful resolution applicant starts running F
the business of the corporate debtor on “a fresh slate”. The scheme of
compromise or arrangement under Section 230 of the Act of 2013 cannot
certainly be equated with a withdrawal simpliciter of an application, as
is contemplated under Section 12-A of the IBC. A scheme of compromise
or arrangement, upon receiving sanction under Sub-section (6) of Section
230, binds the company, its creditors and members or a class of persons G
or creditors as the case may be as well as the liquidator (appointed
under the Act of 2013 or the IBC). Both, the resolution plan upon being
approved under Section 31 of the IBC and a scheme of compromise or
arrangement upon being sanctioned under Sub-section (6) of Section
230, represent the culmination of the process. This must be distinguished H
184 SUPREME COURT REPORTS [2021] 3 S.C.R.

A from a mere withdrawal of an application under Section 12-A. There is
a clear distinction between these processes, in terms of statutory context
and its consequences and the latter cannot be equated with the former.
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
B 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
C 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
D 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.
E
D.4 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
F 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.
G
IBBI discussion papers
78. IBBI initially brought out a discussion paper on 27 April 2019.
Para 3.1 of the discussion paper noted thus:
“3.1 Compromise or arrangement under Section 230 of the
H Companies Act 2013. If there is a proposal for a compromise or
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 185
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arrangement, a member, a creditor or the Liquidator may make A
an application to the NCLT under the Compromise Act 2013 (Act)
(not the Adjudicating Authority under the Code) and then proceed
in the manner directed by the NCTL in accordance with the Act.
While compromise or arrangement under Section 230 of the Act
is proposed, it must be utilize first and only on its closure/ failure,
B
liquidation under the Code may commence. The Code read with
regulations may provide that where a credible proposal is made to
the Liquidator under Section 230 of the Act for compromise or
arrangement of the CD within seven days of the order under
Section 33 of the Code for liquidation, the Liquidator shall file an
application under the said section within ten days of the order of C
liquidation under Section 33 of the Code. A member or a creditor
may file an application under Section 230 of the Act within 10
days of the order of liquidation. If approved by the NCLT, the
Liquidator shall complete the process under Section 230 within 90
days of the order of liquidation. The Regulations may provide that
D
liquidation process under the Coe shall commence at the earlier
of the four events:
(a) there is no proposal for compromise or arrangement within
ten days;
(b) the NCLT does not approve the application under Section E
230 of the Act,
(c) the process under Section 230 is not completed within 90
days or such extended period as may be allowed by the
NCLT, or
(d) the process under Section 230 is not sanctioned under F
Section 230(6) of the Act.
A tight time schedule is necessary for conclusion of the process
for compromise or arrangement to ensure that the liquidation
process is concluded without undue delay.”
G
79. IBBI noted in its discussion paper that the introduction of
ineligibilities stipulated under Section 29-A of the IBC to Section 230 of
the Act of 2013 would pose practical difficulties in its implementation.
IBBI observed:

H
186 SUPREME COURT REPORTS [2021] 3 S.C.R.

A “3.3.3 Ineligibility: Proviso to section 35(1)(f) of the Code mandates
that the Liquidator shall not sell the immovable and movable
property or actionable claims of the CD in liquidation to any person
who is not eligible to be a resolution applicant. This prohibits GCS
to persons ineligible under section 29A. However, the law does
not prohibit such ineligible persons to participate in compromise
B
or arrangement under section 230 of the Act. It may be necessary
to harmonise the provisions in the Code and the Act to provide
level playing field. Some stakeholders feel that the ineligibility norms
under section 29A of the Code may also apply to compromise or
arrangement under section 230 of the Act. Other stakeholders
C feel that unlike liquidation under the Code, which is mostly
Liquidator driven, the compromise or arrangement under the Act
is mostly driven by the Tribunal. Further, section 29A of the Code
has several exceptions, while section 230 of the Act deals with all
kinds of companies in all situations. There will be practical
difficulties in implementation of ineligibility for the purposes of
D
section 230 of the Act. Therefore, it is proposed that the ineligibility
norms under section 29A of the Code may not apply to compromise
or arrangement under section 230 of the Act.”
Be that as it may, the IBBI solicited public comments on its
proposals. The IBBI evolved its view on the issue of whether Section
E 29-A should be made applicable to Section 230 of the Act of 2013 in its
subsequent discussion paper.
80. The discussion paper brought out on 3 November 2019 by
IBBI discussed the applicability of Section 29A of the IBC to a
compromise and arrangement under Section 230 of the Act of 2013.
F The discussion paper notes that there were many instances where the
NCLAT had allowed the application under Section 230 of the Act of
2013. In that context, the discussion paper notes thus:
“21. Section 29 A of the Code prohibits certain persons from
becoming a resolution applicant/ submitting a resolution plan in a
G CIRP. Proviso to section 35(1)(f) of the Code mandates that a
Liquidator shall not sell the immoveable and moveable property
or actionable claims of the CD in liquidation to any person who is
not eligible to be a resolution applicant. These provisions were
inserted in the Code with effect from 23rd November, 2017, while
H section 230 of the Act was amended along with the enactment of
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 187
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the Code. There is no explicit prohibition on persons ineligible to A
submit resolution plans under section 29A from proposing
compromise or arrangement made under Section 230 of the Act,
which may result in person ineligible under section 29A acquiring
control of the CD. Thus, while section 29A of the Code is applicable
to a CD when it is under CIRP and when it is under Liquidation
B
Process, it is not applicable to the same CD when it is undergoing
compromise or arrangement, in between CIR process and
liquidation process. This has created an anomaly that section 29A
is applicable during the stage before and the stage after
compromise and arrangement and not during compromise and
arrangement. C
22. Section 29A of the Code keeps out a person, who is a wilfull
defaulter, who has an account with non-performing assets for a
long period, etc. and therefore, is likely to be a risk to a successful
resolution of insolvency of a company. This rationale equally applies
to the stage of compromise or arrangement. Non-applicability of D
section 29A at the stage of compromise or arrangement may
undermine the process and may reward unscrupulous persons at
the expense of creditors. Thus, it may be necessary to harmonise
the provisions in the Code and the Act to provide level playing
field.”
E
81. The discussion paper also notes that it was necessary to have
a discussion on the following amongst other issues:
“f. Should the persons ineligible under section 29A of the Code to
be a resolution applicant be barred from becoming a party in
compromise or arrangements under section 230 of the Companies F
Act, 2013?
g. Or, should applicability of section 230 of the companies act,
2013 during liquidation process under the Coe be reviewed?”
82. Thereafter, public comments were invited. The discussion
paper is what it professes to be – a matter for discussion in the public G
realm. This cannot be held to constitute an admission of IBBI that an
applicant who is ineligible under Section 29A may submit a scheme of
compromise or arrangement under Section 230 of the Act of 2013. The
validity of the provisions of Regulation 2B, more specifically the proviso,
has to be considered on their own footing.
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188 SUPREME COURT REPORTS [2021] 3 S.C.R.

A Section 196 of the IBC
83. The powers and functions entrusted to IBBI are specified in
Section 196 of the IBC. Section 196(1)(t) provides IBBI with the power
to frame regulations, as follows:
“(t) make regulations and guidelines on matters relating to
B insolvency and bankruptcy as may be required under this Code,
including mechanism for time bound disposal of the assets of the
corporate debtor or debtor; and”
Clause (t) empowers IBBI to make regulations and guidelines on
matters relating to insolvency and bankruptcy, as may be required under
C the IBC.
Section 240
Section 240(1) empowers IBBI with the power to make regulations
in the following terms:
D “(1) The Board may, by notification, make regulations consistent
with this Code and the rules made thereunder, to carry out the
provisions of this Code.”
Under Sub-Section (1) of Section 240, the power to frame
regulations is conditioned by two requirements: first, the regulations have
E to be consistent with the provisions of the IBC and the rules framed by
the Central Government; and second, the regulations must be to carry
out the provisions of the IBC. Regulation 2B meets both the requirements,
of being consistent with the provisions of IBC and of being made in
order to carry out the provisions of the IBC, for the reasons discussed
earlier in this judgment.
F
A clarificatory exercise
84. The principal ground of challenge to Regulation 2B is that the
regulation transgressed the authority of IBBI by introducing a
disqualification or ineligibility in regard to the presentation of an application
G for a scheme of compromise or arrangement under Section 230 of the
Act of 2013. It has been urged that IBBI, as an entity constituted by the
IBC, had no statutory jurisdiction to amend the provisions of Section 230
of the Act of 2013 or to impose a restriction which operates under the
purview of Section 230. The position in our view can be considered
from two perspectives, independent of the provisions of Regulation 2B.
H
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 189
POWER LTD. [DR. DHANANJAYA Y CHANDRACHUD, J.]

We have indicated in the discussion earlier that even in the absence of A
the 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 which is undergoing a liquidation under
the IBC. We have come to the conclusion, as noted for the reasons
indicated earlier, that in the case of a company which is undergoing
B
liquidation pursuant to the provisions of Chapter III of the IBC, a scheme
of compromise or arrangement proposed under Section 230 is a facet of
the liquidation process. The object of the scheme of compromise or
arrangement is to revive the company. The principle was enunciated in
the decision in Meghal Homes (supra) while construing the provisions
of erstwhile Section 391. The same rationale which permeates the C
resolution process under Chapter II (by virtue of the provisions of Section
29A) permeates the liquidation process under Chapter III (by virtue of
the provisions of Section 35(1)(f)). That being the position, there can be
no manner of doubt that the proviso to Regulation 2B is clarificatory in
nature. Even absent the proviso, a person who is ineligible under Section
D
29A would not be permitted to propose a compromise or arrangement
under Section 230 of the Act of 2013.We therefore do not find any merit
in the challenge to the validity of Regulation 2B.
E Epilogue
85. In paragraph 24 of our judgment, we noted the two issues E
which had been framed by the NCLAT in the impugned judgment in the
first of the appeals. The first issue was “Whether in a liquidation
proceeding under [IBC] the Scheme for Compromise and Arrangement
can be made in terms of Sections 230 to 232 of the [Act of 2013]”.
While we noted in paragraph 25, that no challenge has been made by the
appellant in regard to the finding of the NCLAT on this issue, it is F
imperative for us to make some remarks in relation to this issue and the
larger issue of judicial intervention by the NCLT and NCLAT while
adjudicating disputes under the IBC.
86. To begin with, we would like to take note of the observations
made by the Insolvency Law Committee in its Report of February 202046. G
The Committee began by acknowledging that the floating of schemes of
compromise or arrangement under Sections 230 to 232 of the Act, even
for companies undergoing liquidation, was not part of the framework
46
Available at <https://ibbi.gov.in/uploads/
resourcesc6cb71c9f69f66858830630da08e45b4.pdf> accessed on 10 March 2021 H
190 SUPREME COURT REPORTS [2021] 3 S.C.R.

A under the IBC. This, the Committee noted, had led to a multiplicity of
issues including, but not limited to, the duality of the role of the NCLT
(as a supervisory Adjudicatory Authority under the IBC versus the driving
Tribunal under the Act of 2013) and indeed the very question before us
in this case, whether the disqualification under Section 29A and proviso
to Section 35(1)(f) of the IBC also attaches to Section 230 of the Act of
B
2013. However, the Committee notes that judicial intervention by the
NCLAT along with the IBBI’s introduction of new regulations have led
to some alignment in the two frameworks.
87. The Committee thereafter notes that the introduction of such
schemes into the framework of the IBC may be worrisome since it will
C alter the incentives during the CIRP and lead to destructive delays, which
often plagued the process under the Sick Industrial Companies (Special
Provisions) Act, 1985.47 However, it nonetheless also acknowledges the
benefits such schemes may have to offer48. Even so, the Committee
concludes by noting that such schemes, if at all they are to be brought in,
D should not be under the Act of 2013 but the IBC itself. The Report notes
thus:
“4.6…However, the Committee was of the view that such a
process for compromise or settlement need not be effected only
through the schemes mechanism under the Companies Act, 2013,
E and felt that the liquidator could be given the power to effect a
compromise or settlement with specific creditors with respect to
their claims against the corporate debtor under the Code.
4.7 Given the incompatibility of schemes of arrangement
and the liquidation process, the Committee recommended
F that recourse to Section 230 of the Companies Act, 2013
for effecting schemes of arrangement or compromise should
not be available during liquidation of the corporate debtor
under the Code. However, the Committee felt that an
appropriate process to allow the liquidator to effect a
compromise or settlement with specific creditors should
G be devised under the Code.”
(emphasis in original)
47
Ibid, at para 4.5.
48
Ibid, para 4.6; In the Indian context, see Umakanth Varottil, ‘The Scheme of
Arrangement as a Debt Restructuring Tool in India: Problems and Prospects’ (March
H 2017) NUS Working Paper 2017/005 available at <http://law.nus.edu.sg/wp>
ARUN KUMAR JAGATRAMKA v. JINDAL STEEL AND 191
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88. Due to the ambiguity in the application of the two frameworks, A
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.
B
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 C
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 D
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 E
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 F
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 G
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
H
192 SUPREME COURT REPORTS [2021] 3 S.C.R.

A behaviour of the insolvency professional are directed to the
Regulator/Adjudicator.”
90. Once again, we must clarify that our observations here are
not on the merits of the issue, which has not been challenged before us,
but only limited to serve as guiding principles to the benches of NCLT
B and NCLAT adjudicating disputes under the IBC, going forward.
F 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
C 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. The
D civil appeals and writ petition are accordingly dismissed.
92. Pending application(s), if any, stand disposed of.

Nidhi Jain Appeals and writ petition dismissed.

E

F

G

H