Introduction
Corporate debtors often seek to preserve older restructuring frameworks, while financial creditors insist that once those frameworks lose legal and commercial viability, the IBC must take its course. The Supreme Court’s recent decision in Omkara Assets Reconstruction Pvt. Ltd. v. Amit Chaturvedi1 confronts a variant of this tension.
Primacy of IBC over defunct Scheme of Arrangement (SOA)
The issue arose when the financial creditor filed a section 7 application seeking initiation of CIRP against the corporate debtor for outstanding dues exceeding ₹154 crores. The corporate debtor resisted the insolvency petition on a seemingly technical ground stating that a Scheme of Arrangement approved by creditors in 2008 was pending before the Punjab and Haryana High Court under Sections 391–394 of the Companies Act and that initiating CIRP while the scheme proceedings remained pending would violate judicial discipline.
The NCLT admitted the CIRP, observing that the scheme had effectively become defunct due to non-compliance with statutory timelines. However, the NCLAT stayed the insolvency proceedings, holding that the High Court proceedings should first be resolved. Aggrieved by NCLAT’s decision, the financial creditor took the matter to the Supreme Court.
The Supreme Court scrutinized the statutory mechanics governing the “scheme of arrangement” under Section 391 of the companies act, 1956 and the Companies (court) Rules, 1959.
The court highlighted three critical procedural stages, the first motion is a meeting of creditors which was recorded in July 2008. The second motion was to be an application seeking sanction of the scheme which was not filed within the prescribed timeline, the third critical procedural stage was filing with the registrar which was not filed within 30 days as per statutory requirement for enforceability. Consequently, the court concluded that the scheme had become “redundant and inoperative for sheer passage of time”.
The Supreme Court held that the scheme never came into operation due to non-compliance with mandatory statutory timelines. The scheme’s financial terms were based on debt calculations from 2008, while the debt had escalated dramatically over the following decade. Therefore, even assuming formal approval existed, the scheme had become commercially and legally obsolete.
Relying on A. Navinchandra Steels Pvt. Ltd. v. Srei Equipment Finance Ltd.2, the Court reiterated that insolvency petitions are not barred merely because parallel company-law proceedings exist.
The Court implicitly reinforced the hierarchy established by Section 238 of IBC 2016, which grants the IBC overriding effect over inconsistent laws. Thus, A stale or defective company-law scheme cannot eclipse a valid Section 7 application and Legacy proceedings cannot suspend insolvency resolution mechanisms designed for revival.
The judgment also analysed Section 434(1)(c) of the Companies Act, 2013 and the Companies (Transfer of Pending Proceedings) Rules, 2016. The Court observed that when the 2016 Rules came into force, the second motion under Section 391 was still pending and because the matter was not reserved for orders, it should have been transferred to the NCLT. Thus, the High Court’s continuing jurisdiction itself appeared doubtful. While the Court labelled these observations prima facie, they further weakened the argument that the High Court proceedings should stall CIRP.
The Court relied on A. Navinchandra Steels (P) Ltd. v. Srei Equipment Finance Ltd. for the principle that proceedings under Sections 7 and 9 of the IBC are independent remedies and are not displaced merely because winding-up proceedings exist in relation to the same company.
The respondent’s attempt to distinguish Sunil Kumar Sharma v. ICICI Bank Ltd.3 on the ground that the scheme here had already been approved was rejected. The Court held, on the facts before it, that the 2008 scheme never truly came into operation, and that the later sanction could not be treated as a meaningful bar to CIRP where statutory timelines had not been complied with and the proceeding itself suffered from serious jurisdictional difficulty.
Against that background, Section 238 reinforced the conclusion that the IBC could not be subordinated to an inconsistent and defunct legacy proceeding.
Conclusion
The judgment in Omkara Assets Reconstruction Pvt. Ltd. v. Amit Chaturvedi limits the corporate debtor’s options to use legacy company law proceedings as a means of stalling commencement of CIRP. By restoring the NCLT’s order the court has confirmed that a Section 7 proceeding cannot be kept in abeyance merely because an earlier Scheme of Arrangement survives on paper after losing legal efficacy, creditor support, and commercial relevance.
Expositor(s): Adv. Jahnobi Paul
