NCLAT Clarifies Flexibility in Applying 90-Day Timeline for Schemes Under IBC
NCLAT Clarifies Flexibility in Applying 90-Day Timeline for Schemes Under IBC
Introduction
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench has held that the 90-day timeline prescribed under Regulation 2B(1) of the IBBI (Liquidation Process) Regulations, 2016 for completing a scheme of compromise or arrangement under Section 230 of the Companies Act, 2013 is directory and not mandatory.
Factual Background
M/s. Sarda Agro Oils Limited (Corporate Debtor) was placed under liquidation by order dated 09.01.2023. On 25.01.2024, M/s. Prakash Oil Depot (Appellant) submitted a scheme of arrangement under Section 230 of the Companies Act, 2013.
Procedural Background
The National Company Law Tribunal (NCLT), Hyderabad rejected the application filed by the Liquidator, Mr. G. Madhusudhan Rao (Appellant-Liquidator), seeking an additional 90 days to complete the scheme of arrangement. The NCLT held that the Appellants failed to comply with the statutory timeline for completing and operationalising the scheme.
Contentions of the Parties
Appellant's Contentions: The Appellant contended that the 90-day timeline cannot be applied rigidly, as it would frustrate the purpose of Section 230 of the Companies Act, 2013, and the Insolvency and Bankruptcy Code (IBC), which aim at revival of the Corporate Debtor and resolution of insolvency.
It was further argued that Section 230 does not prescribe a maximum time period, and therefore, a subordinate legislation like Regulation 2B cannot impose one.
Respondent's Contentions: The Respondent argued that the Appellants delayed the submission of the scheme and failed to finalise it within the prescribed timeline, thus justifying the NCLT’s rejection.
Tribunal's Observations
The Tribunal observed that the scheme of arrangement had already been approved by the Secured Financial Creditors after extensive deliberation. It noted that rigid enforcement of the 90-day limit did not appear sustainable, especially as extensions had already been granted previously.
Reasoning & Analysis
The bench comprising Justice Sharad Kumar Sharma (Judicial Member) and Jatindranath Swain (Technical Member) held that the statute does not create an absolute bar on granting extensions. Hence, the Adjudicating Authority may extend the period if it serves the objectives of the IBC, such as:
- Promoting revival of the Corporate Debtor
- Reducing litigation
- Respecting the commercial wisdom of stakeholders
The Tribunal also emphasized that commercial decisions of stakeholders should be given due regard, especially when the scheme has already been approved by the requisite majority.
Implications
The Tribunal's decision holds significance for interpreting Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016. It underscores the importance of flexibility and the non-mandatory nature of the 90-day period, particularly when it aligns with the IBC’s objective of corporate revival rather than corporate death.
Outcome
The Tribunal quashed the impugned order and granted a further 90 days to complete the scheme of arrangement, subject to compliance with Section 230(5) of the Companies Act, 2013, read with Rule 8 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
In this case the appellant was represented by Mr. Satish Parasaran, Senior Advocate, Mr. Pavan Kumar Gandhi & Ms. Tanushree Arvind, Advocates.
