The purpose of the ineligibility under Section 29A is to achieve a sustainable revival and to ensure that a person who is the cause of the problem either by a design or a default cannot be a part of the process of solution.

The purpose of the ineligibility under Section 29A is to achieve a sustainable revival and to ensure that a person who is the cause of the problem either by a design or a default cannot be a part of the process of solution.

The Hon’ble Supreme Court held that (i) prohibition placed by the Parliament in Section 29A and Section 35(1)(f) of the Insolvency and Bankruptcy Code, 2016 (IBC) must also attach itself to a scheme of compromise or arrangement under Section 230 of the Companies Act, 2013 (Act of 2013), when the company is undergoing liquidation under the auspices of the IBC, and (ii) Regulation 2B of IBBI (Liquidation Process) Regulations, 2016 is Constitutionally valid. 

In the instant case titled Arun Kumar Jagatramka v.  Jindal Steel and Power Ltd the issues that were raised before the Supreme Court were:

  1. Whether Scheme for Compromise and Arrangement can be made in terms of Sections 230 to 232 of the Companies Act in a liquidation proceeding under the Insolvency and Bankruptcy Code, 2016?

  2. If so permissible, whether the Promoter, who is ineligible under Section 29A of the I&B Code, is eligible to file an application for Compromise and Arrangement to submit a Resolution Plan?

With regard to the first issue, the SC held that the stages of submitting a resolution plan, selling assets of a company in liquidation and selling the company as a going concern during liquidation, all indicate that the promoter or those in the management of the company must not be allowed a back-door entry in the company and are hence, ineligible to participate during these stages.  Proposing a scheme of compromise or arrangement under Section 230 of the Companies Act of 2013, while the company is undergoing liquidation under the provisions of the IBC lies in a similar continuum. Thus, the prohibitions that apply in the former situations must naturally also attach to the latter to ensure that like situations are treated equally. It was further stated that the scheme of compromise or arrangement under Section 230 of the Act of 2013 cannot certainly be equated with a withdrawal simpliciter of an application, as is contemplated under Section 12-A of the IBC. 
With regard to the second issue, it was held that IBC has made a provision for ineligibility under Section 29A which operates during the CIRP. A similar provision is engrafted in Section 35(1)(f) which forms a part of the liquidation provisions contained in Chapter III as well.  In the context of the statutory linkage provided by the provisions of Section 230 of the Act of 2013 with Chapter III of the IBC, where a scheme is proposed for a company which is in liquidation under the IBC, it would be far-fetched to hold that the ineligibilities which attach under Section 35(1)(f) read with Section 29A would not apply when Section 230 is sought to be invoked. Such an interpretation would result in defeating the provisions of the IBC and must be eschewed. Hence, the Supreme Court dismissed the appeal stating that no merit was found in the appeal. It further stated that the prohibition placed by the Parliament in Section 29A and Section 35(1)(f) of the IBC must also attach itself to a scheme of compromise or arrangement under Section 230 of the Companies Act of 2013 when the company is undergoing liquidation under the auspices of the IBC. As such, Regulation 2B of the Liquidation Process Regulations, specifically the proviso to Regulation 2B(1), is also constitutionally valid.