Inoperative Scheme of Arrangement Cannot Stall Insolvency Under IBC: SC

ENA Sectors 2026-02-26 16:20:22 New Delhi, Feb 26 (KNN) The Supreme Court on Tuesday held that insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) cannot be kept in abeyance on the basis of a Scheme of Arrangement that has become redundant due to non-compliance with statutory requirements. A Bench of Justices Sanjay Kumar and K. Vinod Chandran ruled that once the conditions under Section 7 of the IBC are met, the corporate insolvency resolution process (CIRP) must proceed, regardless of parallel company law proceedings. The court clarified that a compromise under Section 230 of the Companies Act, 2013 may be considered at an appropriate stage within the IBC process. Background The case arose from an application by Omkara Assets Reconstruction Pvt. Ltd. seeking initiation of CIRP to recover over Rs 154 crore in loans disbursed in 1999 and 2000, with default beginning on January 1, 2003. The corporate debtor relied on a Scheme of Arrangement approved in 2008 and sanctioned in 2019, stated to be pending before the Punjab and Haryana High Court. Courts Findings The Court found that statutory timelines under the Companies Act, 1956 and Companies (Court) Rules, 1959 were not followed. The second motion was not filed in time, and the sanction order was not submitted to the Registrar within the prescribed period. Holding the scheme redundant and inoperative, the Court said judicial discipline cannot defeat the object of the IBC, especially in matters involving public funds and economic interest. It ruled that the National Company Law Appellate Tribunal (NCLAT) erred in staying the insolvency proceedings. Proceedings to Continue The Court restored the admission order of the National Company Law Tribunal (NCLT) and allowed the interim resolution professional to proceed with the CIRP. Implications for MSME Creditors This judgment reinforces the time-bound and creditor-centric nature of the IBC. It sends a message that non-compliant restructuring schemes cannot be used to delay insolvency proceedings. For MSME creditors, this could mean legal certainty and improved recovery prospects. (KNN Bureau) 45291 https://knnindia.co.in/news/newsdetails/sectors/inoperative-scheme-of-arrangement-cannot-stall-insolvency-under-ibc-sc 2026-02-26 16:20:22 knnindia.co.in Inoperative Scheme of Arrangement Cannot Stall Insolvency Under IBC: SC