The Companies Act, 2013 (“the Act”) and the Insolvency and Bankruptcy Code, 2016 (“IBC”) provide two distinct routes for corporate restructuring. The Act's Sections 230 to 232 provide a scheme of arrangement, while the IBC provides the corporate insolvency resolution process (“CIRP”) and liquidation. The two regimes overlap, and the choice between them is a critical strategic decision.
The IBC's Override
Section 238 of the IBC gives the Code an overriding effect over any other law inconsistent with it. The Supreme Court has held that the IBC is a special statute, and that its provisions prevail in the event of a conflict. The NCLT's jurisdiction under the IBC is distinct from its jurisdiction under the Act, and the two cannot be exercised simultaneously in a manner that defeats the IBC's scheme.
The Scheme During CIRP
The NCLT has held that a scheme of arrangement under Section 230 cannot be considered during the CIRP in the absence of a liquidation order. The CIRP is a self-contained process, and the scheme route is not available as a parallel remedy. The NCLAT has, however, held that a scheme for the revival of a company in liquidation can be considered under Section 230, and that such a scheme is in the same continuum as a resolution plan under Section 31 of the IBC.
The Discretionary Restraint
The NCLT has the discretion to restrain the admission of an application under Section 7 of the IBC where a scheme of arrangement has already been sanctioned by the competent authority. The NCLAT has emphasised that the word “may” in Section 7 confers discretion on the NCLT, and that the discretion can be exercised to prevent the abuse of the process.
The Strategic Choice
The choice between the Act and the IBC depends on the company's financial position, the creditors' attitude, and the desired outcome. The IBC is the preferred route for an insolvent company with a viable business that can be rescued, while the Act's scheme route is preferred where the company is solvent and the restructuring is consensual.
Call to Action
Anuj Desai & Associates advises companies and creditors on the choice between the Companies Act scheme and the IBC—from the Section 238 analysis and the CIRP interface to the NCLT's discretionary restraint. If you are considering a restructuring, we can help you choose the right route.
📧 office@anujdesaiassociates.com
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