90-Day Timeline Under Regulation 2B Of IBBI Regulations For Schemes Of Compromise/Arrangement Is Directory, Not Mandatory: NCLAT, Chennai

Brief Facts

M/s. Sarda Agro Oils Limited (Corporate Debtor) was placed under liquidation by order dated 09.01.2023. On 25.01.2024, M/s. Prakash Oil Depot (Appellant) submitted a scheme of arrangement under Section 230 of the Companies Act, 2013. The National Company Law Tribunal (NCLT), Hyderabad in its impugned order dated 26.05.2025 held that the Liquidator, Mr. G. Madhusudhan Rao (Appellant-Liquidator) failed to comply with the statutory timeline for completing and operationalising the scheme of arrangement. The scheme of compromise/arrangement should have been filed within 30 days from 09.01.2023 and completed within 90 days from the commencement of liquidation as per Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016.

The NCLT, through a series of orders, excluded certain periods for calculating the prescribed time. Even then, the Appellants failed to finalise and present the scheme by 29.10.2024 (i.e., within 90 days from 31.07.2024). The Appellants submitted a cheque for ₹4.30 crores towards Earnest Money Deposit that was deposited on 31.05.2024. The Liquidator filed the application only on 26.04.2025, seeking 90 more days for completing the scheme. The NCLT rejected the application, finding no reason to extend the statutory timeline.

Before the NCLT, the Appellants argued that the delay was due to the late consent of a Financial Creditor (granted on 22.04.2025); that 100 per cent of secured creditors in the Stakeholder Consultation Committee had approved the scheme, and that the scheme offered a higher value than liquidation. The NCLT however, held that merely depositing the cheque of ₹4.30 crores on 31.05.2024 did not establish bona fides for the delay. It noted that approvals from the Financial Creditors were obtained belatedly, on 21.11.2024 and 22.04.2025 respectively, and therefore dismissed the application.

The Appellants filed the appeals against the impugned order passed by the NCLT in proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).

Issue

Whether the 90-day timeline prescribed under Regulation 2B(1) of the IBBI (Liquidation Process) Regulations, 2016 for completing a scheme of compromise/arrangement under Section 230 of the Companies Act, 2013 is mandatory or directory?

Contention

The Appellant contended that though Regulation 2B prescribes a restriction of time limit for completing the compromise or arrangement, the same cannot be applied rigidly, as that would frustrate the purpose of Section 230 of the Companies Act, 2013, and the IBC, which aim at insolvency resolution and revival of the Corporate Debtor. The Appellant further contended that Section 230 itself carves out an exception to meet the wider objective of dispute resolution through compromise. It was urged that since the principal section does not stipulate a maximum time period for completion of a scheme, it cannot be overridden by a subordinate legislation i.e. the Liquidation Regulations framed under Section 240 of the IBC.

Observations

The Tribunal observed that the scheme of arrangement had already been approved by the Secured Financial Creditors after extensive deliberation. It noted that the rigid enforcement of the 90 day limit under Regulation 2(B) did not appear sustainable as extensions had already been granted on three earlier occasions. The Tribunal recorded that the law does not restrict a further extension when it serves the objectives of IBC and helps reduce litigation. The Tribunal relied upon the judgment in Bharat Sharma, Resolution Applicant v. Reshma Mittal, RP (Now Liquidator) & Anr. [Company Appeal (AT) (Ins) No. 1275 & 1276 of 2022] where the Tribunal considered the same issue and observed that justice would be served by allowing the appellant to submit a compromise or arrangement scheme within a specified timeline.

The Tribunal further relied upon Y. Shivram Prasad v. S. Dhanpal & Ors. (2019), where the NCLAT observed that IBC is a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors; liquidation is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. In Y. Shivram Prasad, the Principal Bench had concluded that:

“Normally, the total period for liquidation is to be completed preferably within two years. … In case, for any reason the liquidation process under section 230 takes more time, it is open to the Adjudicating Authority (Tribunal) to extend the period if there is a chance of approval of arrangement of the scheme.”

The Tribunal observed that since the statute does not create any absolute bar on granting extensions, the provisions of Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016, should be treated as directory. Therefore, it held that the 90-day period under Regulation 2B is directory, not mandatory, and can be flexibly extended to ensure the objective of revival under the IBC and Section 230 of the Companies Act. The order stated:

“…it will be always the commercial wisdom of the parties, which has to come into play, in order to take a decision, after considering the viability, benefits and the propriety of the scheme by the requisite majority regarding grant of an extension of time… it has to give due respect to the commercial wisdom of the parties to the scheme while determining the usefulness of the scheme.”

The Tribunal clarified that it cannot act as a court of appeal to scrutinize the terms of the settlement or the contents of the scheme because the same falls within the realm of the commercial wisdom of the parties. The Tribunal stated that the scheme, once having been arrived at, should be given a pragmatic treatment and an effective conclusion for making the scheme effective particularly when it is not prejudicial to the interest of any of the parties to the proceedings.

On the interpretation of Regulation 2B, the Tribunal observed that:

“…there is no specific or an absolute bar under law to consider such a scheme of compromise/arrangement, at any time within the time period allowed for completion of the liquidation process, and that even if the said time period as stipulated for completion of the scheme is exhausted, then too the time period granted by the Ld. Tribunal, could be further extended, so as to bring the scheme of compromise/arrangement to its logical conclusion to shorten the litigation and to revive the Corporate Debtor.”

The Tribunal also relied on the judgment of the Supreme Court in Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. (2021), wherein it was observed that a concerted attempt should be made for the revival of the Corporate Debtor so as to save it from corporate death. It was also stated that after approval of the scheme of revival or the compromise and the sanction thereafter by the Tribunal, the scheme attains a binding character upon the stakeholders including the Liquidator, who then will have to ensure the enforceability of the scheme of arrangement even after the expiry of the time period provided therein.

The Tribunal further held that merely because there had been earlier extensions granted and the scheme was not implemented, this does not create an absolute restriction or a bar against the grant of further extension of time, especially when the scheme has been approved by the SCC (Stakeholder Consultation Committee) by majority.

Accordingly, the Tribunal quashed the impugned order and granted a further 90 days to complete the scheme of arrangement, subject to compliance with Section 230(5) of the Companies Act, 2013, read with Rule 8 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.

Case Title: M/S. Prakash Oil Depot vs. G. Madhusudhan Rao & Anr.

Case No.: Company Appeal (AT) (CH) (Ins) No.304/2025 (IA No.892/2025) with Company Appeal (AT) (CH) (Ins) No.306/2025 (IA No.901/2025)

For M/S. Prakash Oil Depot : Mr. Satish Parasaran, Senior Advocate; Mr. Pavan Kumar Gandhi & Ms. Tanushree Arvind, Advocates.

For G. Madhusudhan Rao (Liquidator for M/s Sarda Agro Oils Limited) : Mr. PH Arvindh Pandian, Senior Advocate; Mr. Avinash Krishnan Ravi, Advocate for Liquidator; Mr. G. Madhusudhan Rao, Liquidator.

Date of Judgment: 01.08.2025

Click Here To Download Order/Judgement