Supreme Court shuts back-door arrangement for defaulting promoters

The SC order barred promoters of Gujarat NRE Coke, a defaulting company, from proposing a revival plan in the event of liquidation under IBC

Defaulting promoters, who are barred from a resolution plan under section 29A of the Insolvency and Bankruptcy Code (IBC), cannot use the scheme of arrangement and compromise to gain control of a company while it’s in liquidation, the Supreme Court said on Monday.
 
As such, the scheme of arrangement under Section 230 of the Companies Act does not stop anybody from proposing a plan. However, if this provision is used to revive a company which is facing liquidation under IBC, the rules of 29A will apply in keeping with the intent of the law, the top court clarified.