Extension of Time for Section 230 Scheme Not Barred by Law: NCLAT Holds Regulation 2B as Directory to Promote Revival Over Liquidation
- REEDLAW
- Aug 3
- 4 min read
Updated: Aug 12
REEDLAW Legal News Network reports that the NCLAT has ruled that the 90-day limit under Regulation 2B of the Liquidation Process Regulations for implementing a scheme of arrangement under Section 230 of the Companies Act is not mandatory. The Tribunal emphasised that the Adjudicating Authority retains discretion to grant extensions, especially when revival is commercially viable and supported by stakeholders.
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, comprising Justice Sharad Kumar Sharma (Judicial Member) and Mr. Jatindranath Swain (Technical Member), while adjudicating a batch of two Company Appeals and connected Interlocutory Applications, held that the 90-day timeline prescribed under Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016, for implementing a scheme of arrangement under Section 230 of the Companies Act, 2013, is directory and not mandatory. The Adjudicating Authority retains the discretion to grant further extension where the revival of the Corporate Debtor is viable and supported by the commercial wisdom of the stakeholders, thereby advancing the IBC’s core objective of resolution over liquidation.
The National Company Law Appellate Tribunal (NCLAT) adjudicated two company appeals challenging the order of the NCLT, Hyderabad, which had rejected a request for extension of time to complete a scheme of arrangement under Section 230 of the Companies Act, 2013, read with Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016. The scheme, submitted by M/s Prakash Oil Depot for reviving M/s Sarda Agro Oils Ltd., was filed beyond the 90-day period permitted under Regulation 2B, despite earlier periods of exclusion granted by the Adjudicating Authority. Although an earnest money deposit of ₹4.30 crores had been submitted on 31.05.2024, the application for extension was delayed until 26.04.2025, prompting the NCLT to reject it on grounds of delay and strict interpretation of the regulation.
In appeal, the appellants contended that the scheme had secured approval from all secured creditors, offered superior value over liquidation, and aligned with the core objective of the Insolvency and Bankruptcy Code (IBC) to ensure resolution. They submitted that the delay resulted from procedural and institutional hurdles, such as the protracted internal approval process of banks, and not from intentional default. They relied on established precedents, including Swiss Ribbons Private Limited and Another v. Union of India and Others, REEDLAW 2019 SC 01504; Y. Shivram Prasad v. S. Dhanapal and Others, REEDLAW 2019 NCLAT Del 02566; and Arun Kumar Jagatramka v. Jindal Steel and Power Limited and Another, REEDLAW 2021 SC 03546, to argue that Regulation 2B should be construed as directory and not mandatory.
The NCLAT found merit in the appellants’ arguments and observed that the Adjudicating Authority had failed to appreciate the larger scheme of revival envisioned under the IBC. It emphasised that denying further extension would render earlier judicial exclusions meaningless, especially in light of the scheme’s potential to revive the corporate debtor. The Tribunal reiterated that Section 230 does not impose a rigid timeframe for implementation of schemes and that Regulation 2B must be interpreted flexibly to serve the Code’s resolution-centric objectives.
Drawing from its earlier rulings in Bharat Sharma, Resolution Applicant v. Reshma Mittal, RP (Now Liquidator) and Another, REEDLAW 2022 NCLAT Del 10563 and Sanjeev Mitla v. Madhusudhan Rao Gonugunta and Another, REEDLAW 2023 NCLAT Chn 11551, the NCLAT emphasised that the revival of the corporate debtor, if feasible, must be given precedence over liquidation. The Tribunal highlighted the significance of stakeholder consensus and clarified that the commercial wisdom of the Stakeholders Consultation Committee (SCC) must be respected, particularly when the scheme is viable and free of legal infirmities. It held that judicial scrutiny at this stage should not extend to the merits of the scheme but should be confined to the procedural validity of the extension request.
In light of the Supreme Court’s observations in Arun Kumar Jagatramka v. Jindal Steel and Power Limited and Another, REEDLAW 2021 SC 03546, the NCLAT reinforced the principle that the liquidator’s duty includes exploring revival through schemes under Section 230 even during liquidation, and that once such a scheme is approved and sanctioned, it becomes binding on all stakeholders. Accordingly, the Appellate Tribunal quashed the impugned order and allowed a further period of 90 days from the date of uploading the judgment for completion of the scheme, subject to compliance with Section 230(5) of the Companies Act, 2013, and Rule 8 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. All pending interlocutory applications were also disposed of.
Mr. Satish Parasaran, Senior Advocate, with Mr. Pavan Kumar Gandhi and Ms. Tanushree Arvind, Advocates, represented the appellant.
Mr. G. Madhusudhan Rao, Liquidator, appeared in person.
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