Non-executive director who wasn’t involved in the management of Co. affairs couldn’t be disqualified u/s 29A: NCLAT

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Non-executive director

Case Details: Atiuttam Prasad Singh v. Utsav Securities (P.) Ltd. - [2022] 142 taxmann.com 236 (NCLAT-New Delhi)

Judiciary and Counsel Details

    • Justice Ashok Bhushan, Chairperson, M. Satyanarayana Murthy, Judicial Member & Barun Mitra, Technical Member
    • PCS Mohd. Nazim Khan for the Appellant.
    • S.P. Singh, Adv. for the Respondent.

Facts of the Case

In the instant case, the CIRP was initiated against the corporate debtor-non Govt. Co. Since, no resolution plan was submitted, the corporate debtor went into liquidation and in this process, the appellant-independent director of the corporate debtor submitted a scheme of ‘compromise and arrangement’.

The Adjudicating Authority (NCLT) by impugned order rejected the same holding that in terms of section 29j(ii) and regulation 2B of the IBBI (Liquidation Process) Regulations, 2016, the independent director was a related person and thus disqualified to submit such a scheme of compromise and arrangement during the liquidation process.

Thereafter, an appeal was made to the National Company Law Appellate Tribunal (NCLAT) against the order passed by the NCLT.

The liquidator challenged the impugned order passed by the NCLT on the ground that the independent director was not disqualified either under section 29A or in terms of regulation 2B of the IBBI (Liquidation Process) Regulations and therefore, the order was ex facie erroneous and requested to pass appropriate orders.

NCLAT Held

The NCLAT observed that under the proviso to regulation 2B of the IBBI (Liquidation Process) Regulations,

“a person who is ineligible to submit a resolution plan under section 29A shall not be permitted to propose a compromise or arrangement under section 230 of the Companies Act, 2013”.

The NCLAT held that the independent non-executive director was neither having control as defined under the Companies Act, 2013 nor involved in the management of the company affairs. Therefore, no disqualification u/s 29A could be attached to him as per regulation 2B of Liquidation Process Regulations to submit such a scheme of compromise and arrangement.

The NCLAT further held that the Adjudicating Authority (NCLT) committed a grave error in dismissing the application and the same was set aside holding that the appellant being an independent non-executive director to submit a scheme of compromise and arrangement during the liquidation process.

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