Defunct Scheme Of Arrangement Under Companies Act Cannot Stall IBC Proceedings: Supreme Court
Kirit Singhania
24 Feb 2026 8:47 PM IST
The Supreme Court on Tuesday held that insolvency proceedings under the IBC cannot be kept in abeyance on the basis of a Scheme of Arrangement that has become redundant and inoperative for non-compliance with statutory requirements.
The court reiterated that once the statutory requirements of Section 7 are met, insolvency must proceed notwithstanding any parallel company law proceedings.
A bench of Justices Sanjay Kumar and K. Vinod Chandran framed the core issue as whether pendency of proceedings relating to a Scheme of Arrangement before the High Court could justify keeping a CIRP in abeyance. Answering this, the court observed:
“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, as has been now attempted by the appellant herein, which would ensure rehabilitation of the Company. A compromise or an arrangement under Section 230 of the Companies Act, 2013 can also be entered into in an IBC proceeding at the appropriate stage.”
The case arose from an isnolvency application filed by Omkara Assets Reconstruction Pvt. Ltd seeking initiation of CIRP for recovery of over Rs 154 crore arising from term loans disbursed in April 1999 and December 2000, with default commencing from January 1, 2003. The corporate debtor resisted the plea on the ground that a Scheme of Arrangement approved in 2008 and later sanctioned in July 2019 was relied upon as being subsisting and pending before the Punjab and Haryana High Court.
Examining the statutory framework under Sections 391–394 of the Companies Act and the Companies (Court) Rules, 1959, the Court noted that the second motion was not filed within the prescribed timeline and the sanction order was not filed with the Registrar within the stipulated period.
Holding that judicial discipline cannot be stretched to defeat the object of the IBC, the court said:
“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. In cases having economic implications like the present one, at stake is not only public funds but rehabilitation of an industry, in the larger national interest, wherein financial probity is also of pre-eminence.”
Concluding the scheme had become “redundant and inoperative for sheer passage of time,” the court ruled that the NCLAT erred in keeping the insolvency proceedings in abeyance. It restored the NCLT's admission order and permitted the interim resolution professional to proceed with the CIRP.