(First Published on Linkedin)
In a recent NCLAT judgment, the boundaries between strict legal interpretation versus practical necessity and purposive interpretation were thoughtfully navigated. The NCLT addressed a question: Does Regulation 37(1) of the SEBI LODR Regulations which mandates an NOC from stock exchanges for schemes of arrangement prior to seeking NCLT approval, apply when a scheme is filed by a liquidator rather than the company?
Background: The case revolved around the liquidator of a corporate debtor, who proposed a Scheme of Arrangement under Section 230 of the Companies Act, 2013, aiming to revive the company in liquidation. The NCLT had earlier ruled that an NOC from the Bombay Stock Exchange (BSE) was mandatory under Regulation 37(1) of the LODR before proceeding. However, the appellants argued that since the scheme was submitted by the liquidator—not the company itself—the requirements of Regulation 37(1) should not apply, and that the exemption from applicability of Regulation 37 in cases of resolution plan under IBC equally would apply to schemes of arrangement presented pursuant to liquidation.
Key Takeaways:
1. Distinct Role of Liquidators: The NCLAT recognized the unique position of liquidators, who, under Section 230 , are treated as distinct entities separate from the company. This distinction was critical in determining that the procedural obligations under Regulation 37(1) of the LODR, which apply to companies, do not extend to liquidators.
2. Regulation 37(7) and Broader Applicability: The NCLAT further interpreted Regulation 37(7) of the LODR, which provides an exemption from obtaining an NOC for restructuring proposals under Section 31 of the IBC. It was held that this exemption should similarly apply to schemes of arrangement submitted by liquidators, given the shared objective of corporate revival.
3. Judicial Flexibility in Corporate Law: The ruling highlights the importance of flexible judicial interpretation, particularly in contexts where the strict application of regulations might obstruct the broader goal of business revival and therefore, the objectives of IBC. By allowing liquidators to proceed without the NOC requirement, the NCLAT facilitated a more efficient liquidation and revival process.
By purposively interpreting that the requirement of prior NOC from stock exchanges do not apply to schemes of arrangement presented pursuant to liquidation, the NCLAT has reinforced the need for a dynamic interpretation of laws that balances regulatory oversight with the practical necessities of corporate revival.