90-Day Timeline Under Regulation 2B Of IBBI Regulations For Schemes Of Compromise/Arrangement Is Directory, Not Mandatory: NCLAT, Chennai

The National Company Law Appellate Tribunal (NCLAT) Chennai bench comprising Justice Sharad Kumar Sharma (Judicial Member) and Jatindranath Swain (Technical Member) have held that the 90-day timeline prescribed under Regulation 2B(1) of the IBBI (Liquidation Process) Regulations, 2016 for completing a scheme of compromise or arrangement under Section 230 of the Companies Act, 2013 is directory and not mandatory. The Tribunal held that the statute does not create an absolute bar on granting extensions, and therefore, the Adjudicating Authority may extend the period if it serves the objectives of the Insolvency and Bankruptcy Code, 2016 (IBC) by promoting revival of the Corporate Debtor, reducing litigation, and respecting the commercial wisdom of the stakeholders. Brief Facts M/s. Sarda Agro Oils Limited (Corporate Debtor) was placed under liquidation by order dated 09.01.2023. On 25.01.2024, M/s. Prakash Oil Depot (Appellant) submitted a scheme of arrangement under Section 230 of the Companies Act, 2013. The National Company Law Tribunal (NCLT), Hyderabad in its impugned order dated 26.05.2025 held that the Liquidator, Mr. G. Madhusudhan Rao (Appellant-Liquidator) failed to comply with the statutory timeline for completing and operationalising the scheme of arrangement. The scheme of compromise/arrangement should have been filed within 30 days from 09.01.2023 and completed within 90 days from the commencement of liquidation as per Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016.The NCLT, through a series of orders, excluded certain periods for calculating the prescribed time. Even then, the Appellants failed to finalise and present the scheme by 29.10.2024 (i.e., within 90 days from 31.07.2024). The Appellants submitted a cheque for ₹4.30 crores towards Earnest Money Deposit that was deposited on 31.05.2024. The Liquidator filed the application only on 26.04.2025, seeking 90 more days for completing the scheme. The NCLT rejected the application, finding no reason to extend the statutory timeline.Before the NCLT, the Appellants argued that the delay was due to the late consent of a Financial Creditor (granted on 22.04.2025); that 100 per cent of secured creditors in the Stakeholder Consultation Committee had approved the scheme, and that the scheme offered a higher value than liquidation. The NCLT however, held that merely depositing the cheque of ₹4.30 crores on 31.05.2024 did not establish bona fides for the delay. It noted that approvals from the Financial Creditors were obtained belatedly, on 21.11.2024 and 22.04.2025 respectively, and therefore dismissed the application. The Appellants filed the appeals against the impugned order passed by the NCLT in proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). Issue Whether the 90-day timeline prescribed under Regulation 2B(1) of the IBBI (Liquidation Process) Regulations, 2016 for completing a scheme of compromise/arrangement under Section 230 of the Companies Act, 2013 is mandatory or directory? Contention The Appellant contended that though Regulation 2B prescribes a restriction of time limit for completing the compromise or arrangement, the same cannot be applied rigidly, as that would frustrate the purpose of Section 230 of the Companies Act, 2013, and the IBC, which aim at insolvency resolution and revival of the Corporate Debtor. The Appellant further contended that Section 230 itself carves out an exception to meet the wider objective of dispute resolution through compromise. It was urged that since the principal section does not stipulate a maximum time period for completion of a scheme, it cannot be overridden by a subordinate legislation i.e. the Liquidation Regulations framed under Section 240 of the IBC. Observations The Tribunal observed that the scheme of arrangement had already been approved by the Secured Financial Creditors after extensive deliberation. It noted that the rigid enforcement of the 90 day limit under Regulation 2(B) did not appear sustainable as extensions had already been granted on three earlier occasions. The Tribunal recorded that the law does not restrict a further extension when it serves the objectives of IBC and helps reduce litigation. The Tribunal relied upon the judgment in Bharat Sharma, Resolution Applicant v. Reshma Mittal, RP (Now Liquidator) & Anr. [Company Appeal (AT) (Ins) No. 1275 & 1276 of 2022] where the Tribunal considered the same issue and observed that justice would be served by allowing the appellant to submit a compromise or arrangement scheme within a specified timeline. The Tribunal further relied upon Y. Shivram Prasad v. S. Dhanpal & Ors. (2019), where the NCLAT observed that IBC is a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors; liquidation is only availed of as a last resort if...

90-Day Timeline Under Regulation 2B Of IBBI Regulations For Schemes Of Compromise/Arrangement Is Directory, Not Mandatory: NCLAT, Chennai

Tazeen Ahmed

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