NCLT Hyderabad Rejects Sarda Agro Scheme, Says Section 230 Cannot Grant “Clean Slate” Like IBC Resolution Plan

March 6, 2026 : The National Company Law Tribunal (NCLT), Hyderabad Bench, has rejected a scheme of compromise and arrangement proposed for Sarda Agro Oils Limited, holding that Section 230 of the Companies Act, 2013 cannot be used to secure a blanket extinguishment of liabilities akin to a resolution plan under the Insolvency and Bankruptcy Code (IBC).

The order was passed in IA (IBC) 1795 of 2025 in CP(IB) No.102/7/HDB/2019 on March 6, 2026, by a Bench comprising Member (Judicial) Rajeev Bhardwaj and Member (Technical) Sanjay Puri. The Tribunal ultimately concluded that the “proposed scheme is rejected” and directed continuation of liquidation proceedings.

The application had been filed by the liquidator of Sarda Agro Oils Limited under Regulation 2B of the IBBI (Liquidation Process) Regulations, 2016 read with Section 230 of the Companies Act, seeking approval of a revival scheme submitted by M/s Prakash Oil Depot. The corporate debtor had entered CIRP following admission of a Section 7 petition on August 27, 2019, and was ordered into liquidation on January 9, 2023.

The scheme proposed a payment of ₹43 crore to secured financial creditors as full and final settlement against admitted claims exceeding ₹375 crore, implying a steep haircut. Operational creditors, including government dues, were to receive only about 0.5% of their admitted claims, while certain categories such as unsecured financial creditors were proposed to receive nothing.

Although the scheme secured approval from 77.30% of stakeholders in value during the meeting held on October 25, 2025, the Tribunal found significant structural and legal deficiencies.

A key concern was that the scheme sought sweeping extinguishment of liabilities, including statutory dues and contingent claims, while simultaneously preserving the corporate debtor’s right to recover unspecified receivables from third parties. The Tribunal noted that such a one-sided arrangement lacked transparency, particularly since detailed disclosures regarding receivables, valuations, and financial projections were absent or inconsistent.

The Regional Director and Registrar of Companies had also raised multiple objections, including inadequate disclosure of receivables, wide discrepancies in valuation reports, lack of clarity on source of funds, and disproportionate treatment of creditors. Notably, valuation reports reflected significant inconsistencies in asset values, raising doubts about the credibility of the financial basis of the scheme.

The Tribunal further flagged eligibility concerns regarding the scheme proponent. While one of the partners of Prakash Oil Depot was a shareholder, the scheme itself had been submitted by the partnership firm, which is not a recognised applicant under Section 230. This raised issues as to maintainability of the proposal.

Additionally, the scheme proposed release of personal guarantees and collateral securities upon payment of ₹43 crore, without adequate justification or valuation backing. It also contemplated extinguishment of a wide spectrum of claims, including future and contingent liabilities, which the Tribunal found impermissible within the framework of Section 230.

Emphasising the legal distinction between a compromise scheme and an IBC resolution plan, the Tribunal held that a scheme under Section 230 is consensual and class-based, binding only identified stakeholders, and cannot operate as a statutory discharge of all liabilities or bind non-consenting parties.

In view of these deficiencies, the Tribunal refused to sanction the scheme and directed that liquidation of Sarda Agro Oils Limited shall proceed in accordance with law.