Courtroom . Promoters, keep out

A promoter of a company undergoing insolvency process cannot suggest a “scheme of compromise and arrangement” between the company and lenders, the Supreme Court (SC) has said. This is so even if there are no resolution plans submitted.

Arun Kumar Jagatramka, promoter of Gujarat NRE Coke Ltd, was allowed by the National Company Law Tribunal (NCLT) to negotiate a compromise between the company and its lenders after no bids were received for the company even after the mandated 270-day period.

Jindal Steel and Power, one of the unsecured creditors, challenged the tribunal order before the appellate tribunal, which set aside the tribunal’s order, saying that in the absence of bids, the company will go into liquidation. The promoters cannot organise settlement, just in order to keep the company a going concern, it said. The Insolvency and Bankruptcy Code (IBC) clearly prohibits promoters from submitting resolution plans for their companies,

Jagatramka had moved the application under Companies Act, 2013, which permits “compromises or arrangements” between companies and their lenders, notes a report in Livelaw.in. The NCLT had permitted the former promoter to convene meetings between shareholders and creditors stating that IBC’s larger objective is to keep the companies as going concerns.

After the appellate tribunal, on October 14, 2019, set aside the order, Jagatramka moved the apex court seeking restoration of the tribunal order. However, a bench of the SC, comprising Justice DY Chandrachud and Justice MR Shah stressed that the IBC specifically disqualified former promoters from participating in insolvency process. This disqualification extends to the effort to reach common ground under Companies Act, 2013, it said.