Kiran Raj

The Supreme Court of India Division Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran on Tuesday (February 24) set aside the NCLAT order that had kept insolvency proceedings against a corporate debtor in abeyance due to pending High Court proceedings on a Scheme of Arrangement and restored the NCLT’s admission of CIRP. The dispute concerned whether an unimplemented and time-barred arrangement scheme under the Companies Act could prevent a financial creditor’s insolvency action under the IBC; the Court held it could not and permitted the IRP to proceed.

The appeal arose from proceedings initiated by a financial creditor under the Insolvency and Bankruptcy Code, 2016 (IBC) seeking commencement of Corporate Insolvency Resolution Proceedings (CIRP) against a corporate debtor for recovery of Rs.154,33,12,274/- with future interest, based on a principal sum of Rs.10,60,00,000/- disbursed through two term loans in 1999 and 2000, with default commencing from 01.01.2003.

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The corporate debtor opposed the application on the ground that a Scheme of Arrangement (SOA) under Sections 391 to 394 of the Companies Act, 1956 was pending before the High Court. The Adjudicating Authority Invoked Section 7 of the IBC and appointed an Interim Resolution Professional (IRP), noting non-compliance with statutory requirements under Section 391.

The Appellate Tribunal kept the insolvency proceedings in abeyance pending disposal of the High Court proceedings. The appeal before the Supreme Court concerned whether the pendency of the SOA proceedings could stall initiation of CIRP, particularly in light of Section 238 of the IBC and the Companies (Transfer of Pending Proceedings) Rules, 2016.

The Court observed, “Judicial impropriety vis-a-vis financial rectitude is the moot question arising in this appeal in the context of the proceedings pending under the Companies Act, 1956 and that initiated under the Insolvency and Bankruptcy Code, 2016.”

It recorded the statutory framework under Section 391, noting, “On such meeting being called, held and concluded with the required majority, under sub-section (2) there is a further requirement of sanction by the Court. The proviso also requires that the order of sanction made by the Court under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar.”

Regarding compliance, the Court observed, “We cannot find even a pretense of the timelines statutorily prescribed having been complied with.” It further stated, “The SOA, the terms of which were as on the year 2008, would have thus become redundant and inoperative as of now or even in 2023 when the filing was done before the Registrar of Companies which makes the SOA for all practical purposes defunct.”

On the effect of pending proceedings, the Court stated, “There would be no reason to stall the IBC proceedings on the ground of judicial discipline, based on the pending proceedings before the High Court.”

Referring to precedent A. Navinchandra Steels (P) Ltd. v. Srei Equipment Finance Ltd., it quoted, “A conspectus of the aforesaid authorities would show that a petition either under Section 7 or Section 9 IBC is an independent proceeding which is unaffected by winding-up proceedings that may be filed qua the same company.”

The Court recorded, “Judicial discipline, though a corner stone of justice, equity and fairness; ensuring continued public trust in judicial institutions, cannot be urged by tardy litigators engaged in fractious and opulent litigations aimed at jeopardizing public funds and putting the economy in a hostage situation.”

It clarified, “We make it clear that the observations are merely prima facie, but we find no reason to stall the proceedings for initiation of the CIRP by resorting to the provisions of the IBC.”

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The Court directed, “We find absolutely no reason to sustain the order of the Appellate Tribunal, and we set aside the same restoring the order of the Company Law Tribunal, the Adjudicating Authority under the IBC. The IRP hence would be entitled to proceed and our interim direction to keep the management in the loop of the day-to-day affairs, stands vacated. The appeal stands allowed.” and “Pending applications, if any, shall also stand disposed of.”

Case Title: Omkara Assets Reconstruction Private Limited v. Amit Chaturvedi and Ors.
Neutral Citation: 2026 INSC 189
Case Number: Civil Appeal No.11417 of 2025
Bench: Justice Sanjay Kumar and Justice K. Vinod Chandran