The IBC has overriding effect over the Companies Act, and failure to comply with statutory timelines renders a Scheme of Arrangement unenforceable, enabling initiation of Corporate Insolvency Resolution Proceedings.

JUDGMENT :

K. VINOD CHANDRAN, J.

1. Judicial impropriety vis-a-vis financial rectitude is the moot question arising in this appeal in the context of the proceedings pending under the Companies Act, 1956 and that initiated under the Insolvency and Bankruptcy Code, 2016 (for short, the IBC). The Stressed Assets Stabilization Fund of the bank who financed respondent No.2, approached the Adjudicating Authority under the IBC, the Company Law Tribunal, for initiating Corporate Insolvency Resolution Proceedings (CIRP) for recovery of an amount of Rs.154,33,12,274/- with future interest; on the principal of Rs.10,60,00,000/- disbursed by way of two term loans on 05.04.1999 and 12.12.2000; the default having commenced from 01.01.2003. Respondent No.2 resisted the claim on the grounds of pending proceedings with respect to a Scheme of Arrangement (SOA) under Sections 391 to 394 of the Companies Act before the Punjab and Haryana High Court and alleged suppression of such fact before the Adjudicating Authority.

2. The Tribunal observed that respondent No.2 failed to establish compliance with the provisions of Section 391 of the Companies Act and noticing the contention of the appellant that the SOA had become defunct, invoked the provisions of Section 7 of the IBC based on the decisions of this Court, with reliance placed on Section 238 of the IBC. The consequences, including that of moratorium under Section 14 and the prohibitions thereunder were listed out as directions and an Interim Resolution Professional (IRP) was appointed. Respondent No.1, the erstwhile director of the Corporate Debtor (CD), approached the Company Law Appellate Tribunal which kept in abeyance the application filed before the Adjudicating Authority until disposal of the proceedings pending before the Punjab and Haryana High Court. In the present appeal, this Court issued an interim order reviving the moratorium and permitting the IRP to resume charge of the CD.

3. Mr. Neeraj Kishan Kaul, learned Senior Counsel appearing for the appellant submitted that the proceeding before the High Court is of no consequence, especially looking at the overriding effect of the IBC as provided under Section 238 . It is pointed out that under Section 391 there are two motions required before the Company Court, first an application to call for a meeting of the stake holders and then to obtain sanction for the scheme, if it is passed with a majority of three-fourths of the members, present and voting. There is also prescribed a time for moving the second motion and the submission of the order of approval before the Registrar of Companies within the time prescribed, which are statutorily mandated to bring into force the SOA. This was never complied with by respondent No.2, thus making the scheme defunct and unenforceable by reason only of the gross delay. Though consent was initially granted by the creditors for the SOA, the same was not acted upon and even before a second motion was moved, the consent was expressly withdrawn by written communication addressed to respondent No.2. The proceeding before the High Court is now contested independently which would not disable the appellant, whose debts have mounted astronomically from approaching the adjudicating authority under the IBC for initiating a CIRP.

4. We were taken through the decisions of this Court which categorically and unequivocally found the provisions of IBC to have overriding effect as against the inconsistent provisions in any other law