Promoter barred from IBC can't use Company Law to get company back

He was banned from bidding for his own company under the IBC. So he tried a different law to get it back. The Supreme Court said — no.

Arun Kumar Jagatramka, once the promoter of Gujarat NRE Coke Limited (GNCL), watched his company slide into insolvency. He submitted a plan to rescue it. Then the Insolvency and Bankruptcy Code (IBC) added a new rule — Section 29A — that made him ineligible to bid. His plan was rejected. GNCL went into liquidation. But Jagatramka did not give up. He reached for another legal tool: a scheme of compromise and arrangement under Section 230 of the Companies Act, 2013. It was a clever move — a different law, a different route, the same goal. The Supreme Court had one question to answer: could a promoter barred under the IBC use the Companies Act to walk back in through a side door?

The air in the NCLT hearing room that April 2017 morning was thick with the smell of old files and fresh anxiety. GNCL had just filed an application under Section 10 of the IBC (a provision that lets a company initiate its own insolvency process). The tribunal admitted the case. A Committee of Creditors (CoC) was formed. Jagatramka submitted a resolution plan. But by November 2017, the newly inserted Section 29A of the IBC had kicked in. This section lists who cannot be a resolution applicant — essentially, who is barred from bidding for a distressed company. It targets defaulting promoters, wilful defaulters, and those whose accounts have been classified as non-performing assets. Jagatramka fell into this category. The CoC rejected his plan. The stack of resolution plans on the table suddenly felt thinner.

By January 2018, the NCLT ordered GNCL into liquidation under Section 33 of the IBC (the provision that triggers the sale of a company's assets to pay off creditors). Jagatramka appealed the liquidation order. The National Company Law Appellate Tribunal (NCLAT) dismissed his appeal in July 2018. The company was now in the hands of a liquidator, its assets destined to be sold piece by piece. The liquidator's notice, pinned to the company's notice board, carried the weight of finality.

The Companies Act detour

But Jagatramka had not exhausted his options. In May 2018 — even while his appeal against the liquidation order was pending — he filed an application before the NCLT under Section 230 of the Companies Act, 2013. Section 230 allows a company, its creditors, or its members to propose a scheme of compromise and arrangement. Think of it as a settlement plan: creditors agree to take less than they are owed, the company restructures, and everyone moves on. It is a tool designed for corporate rescue outside the IBC framework.

The NCLT allowed his application. Jagatramka seemed to have found a way around the IBC's strict bar. But Jindal Steel and Power Ltd. (JSPL), a creditor, appealed. The NCLAT reversed the NCLT's order in October 2019. The appellate tribunal held that a person ineligible under Section 29A of the IBC cannot use Section 230 of the Companies Act to bypass that bar. Jagatramka appealed to the Supreme Court. A similar case involving Kunwar Sachdev and Su-Kam Power Systems was tagged along. Both promoters now stood before the same question.

"It's a separate law" — "No, it's the same process"

The core dispute was deceptively simple. Jagatramka's lawyers argued that Section 29A operates only within the resolution mechanism under Chapter II of the IBC. That chapter deals with the Corporate Insolvency Resolution Process (CIRP) — the stage where a company is being rescued, not liquidated. Once a company enters liquidation under Chapter III, they said, the IBC's resolution framework is no longer in play. Section 230 of the Companies Act is a separate statute. You cannot read a bar from one law into another law, especially when Parliament did not explicitly say so.

The respondents — JSPL and the liquidator — countered that a Section 230 scheme proposed during IBC liquidation is not a standalone Companies Act proceeding. It is a facet of the liquidation process itself. The liquidator's powers under Section 35(1)(f) of the IBC (the provision that empowers the liquidator to apply to the NCLT for a compromise or arrangement) include the power to apply to the NCLT for such a scheme. If the IBC's prohibitions did not apply, a promoter barred under Section 29A could simply wait for liquidation, propose a scheme under the Companies Act, and regain control of the company — defeating the entire purpose of the IBC's eligibility bar.

The constitutional validity of Regulation 2B of the Liquidation Process Regulations was also challenged. This regulation, introduced by the Insolvency and Bankruptcy Board of India (IBBI), expressly bars persons ineligible under Section 29A from proposing a Section 230 scheme during liquidation. Jagatramka argued that the IBBI had overstepped its rule-making power under Section 240 of the IBC (the provision that allows the board to make regulations).

What the Supreme Court decided

The bench, led by Justice Dr Dhananjaya Y Chandrachud, delivered its judgment on December 27, 2020. The courtroom fell silent as the judgment was read. The court upheld the NCLAT's order and rejected Jagatramka's appeal. The reasoning was rooted in the IBC's overarching design.

The court held that when a company is in liquidation under Chapter III of the IBC, a scheme proposed under Section 230 of the Companies Act is not an independent proceeding. It is part of the liquidation process. The liquidator's power to apply for such a scheme comes from Section 35(1)(f) of the IBC. Therefore, the scheme must comply with the rigors and prohibitions of the IBC — including the bar under Section 29A. A person who cannot bid for the company during the resolution stage cannot use a different procedural vehicle to achieve the same result during liquidation.

In its ratio, the court declared: "When a company is in liquidation under the IBC, a scheme proposed under Section 230 of the Companies Act 2013 is a facet of the liquidation process under the IBC and must comply with the rigors and prohibitions of the IBC." This single sentence closed the door on any attempt to use the Companies Act as a bypass.

On Regulation 2B, the court ruled that it is clarificatory in nature, not a new prohibition. The regulation merely makes explicit what the IBC already implies: that the Section 29A bar extends to any scheme that would allow an ineligible person to regain control of a corporate debtor during liquidation. The regulation is valid because it is consistent with the object and purpose of the IBC — to keep defaulting promoters out of the restructuring process.

The court also relied on its earlier precedents. In Swiss Ribbons Pvt. Ltd. v. Union of India, the court had upheld the constitutional validity of Section 29A, noting that it was designed to prevent unscrupulous persons from regaining control of distressed companies. In Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, the court had emphasised that the IBC is a complete code and that its provisions must be interpreted in a manner that furthers its object of maximising value and promoting entrepreneurship. The court also cited Brilliant Alloys (P) Ltd. v. S Rajagopal and Meghal Homes Pvt. Ltd. v. Shree Niwas Girni K.K. Samiti to support its reasoning on the interplay between the IBC and the Companies Act.

Why this matters for practitioners and promoters

The judgment closes a potential loophole. If the Supreme Court had allowed Jagatramka's approach, every promoter barred under Section 29A could simply wait for liquidation, propose a scheme under the Companies Act, and reclaim the company. The IBC's eligibility bar would have been rendered toothless. The court made clear that the IBC is a complete code — its prohibitions travel with the corporate debtor through every stage of the insolvency process, including liquidation.

For practitioners, the judgment provides clarity on the scope of Section 29A. It is not limited to the resolution stage; it extends to any mechanism that would allow an ineligible person to regain control during liquidation. The liquidator's role under Section 35(1)(f) is now firmly anchored within the IBC framework, and any scheme proposed under Section 230 during IBC liquidation must pass muster under the IBC's eligibility requirements.

For promoters, the message is stark: the IBC's bar is comprehensive. Trying to use a different statute to achieve the same result will not work. The court has effectively stitched together the IBC and the Companies Act, ensuring that the former's prohibitions are not undermined by the latter's provisions.

THE PLAY: If you are ineligible under Section 29A of the IBC, do not attempt to regain control of a company in IBC liquidation through a scheme under Section 230 of the Companies Act — the bar follows you into liquidation.

The court ended where it began: with a promoter who tried every door, and found them all locked by the same key.