Trivedi and Parashar (Advocates and Solicitors)
JUDICIAL UPDATES -
I. Supreme Court
IBC - APPLICATION FOR WITHDRAWAL OF CIRP IS MAINTAINABLE PRIOR TO CONSTITUTION OF THE CoC.
In the matter of Abhishek Singh v. Huhtamaki PPL Ltd. & Anr. [Civil Appeal No. 2241 of 2023], the Appellant was a suspended Director of the Corporate Debtor who was engaged in the business of manufacturing and distributing fruit beverages. The Respondent was an Operational Creditor who used to supply packaging material to the Corporate Debtor. In response to the Corporate Debtor’s fault of Rs. 1,31,00,825/-, the Respondent filed a Petition u/s 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) to initiate Corporate Insolvency Resolution Process (“CIRP”). The CIRP was initiated against the Corporate Debtor, and both the Respondent and the Appellant entered into settlement after two days of initiation of CIRP, even though the Committee of Creditors (“CoC”) was not yet constituted.
Under the terms of the settlement, the Corporate Debtor was required to pay Rs 95,72,000/-, which was paid within 5 days. On March 10, 2021, the Corporate Debtor's Interim Resolution Professionals (“IRP”) filed an application with the NCLT pursuant to Section 30A of the IBBI (Insolvency Resolution Procedures) Regulations, 2018 seeking to revoke the CIRP against Corporate Debtor.
The Appellant also filed an application to have the CIRP revoked under Section 12A of the IBC. Subsequently, the Corporate Debtor appealed to the National Company Law Appellate Tribunal (“NCLAT”) against the order dated March 1, 2021 apparently on the ground that Section 9 of IBC petition was not maintainable as there was a pre-existing dispute. On 26.03.2021, the appeal was withdrawn before the NCLAT with liberty to apply for revival of the appeal in case the settlement failed. The NCLAT while allowing the withdrawal of the appeal granted stay of formation of CoC. The NCLAT also suspended the formation of the CoC pending the decision of the NCLT on the application under Section 12A of the IBC. On April 13, 2021 the NCLT observed that as many as 35 creditors had filed claims during the pendency of the application and that withdrawal of the proceedings would adversely affect their rights. Furthermore, the NCLT stated that Section 30A of the CIRP Regulations is not binding on it, and such clauses do not provide any assistance to the Corporate Debtor or the Appellant. Accordingly, NCLT rejected the application for a Section 12A settlement and determined the matter of processing the application under Section 30A after hearing all creditors. Aggrieved by the order dated 13.04.2021 of NCLT, the Appellant filed an appeal before the Supreme Court.
The Supreme Court after observing all the facts held that-
“The IBBI which had the power to frame Regulations wherever required and in particular section 240 of IBC for the subjects covered therein had accordingly substituted Regulation 30A dealing with the procedure for disposal of application for withdrawal filed under section 12A of IBC. The substituted Regulation 30A of IBC as it stands today clearly provided for withdrawal applications being entertained before the constitution of CoC. It does not in any way conflicts or is in violation of section 12A of IBC. There is no inconsistency in the two provisions. It only furthers the cause of introducing vide section 12A of IBC. Thus, NCLT made an error in taking a contrary view.”
The bench opined that Section 12A of the IBC allows withdrawal of applications accepted u/s 7, 9 and 10 of the IBC. When exiting after the constitution of the CoC, the consent of 90% of the CoC members is required. However, Section 12A does not even prohibit the acceptance of a withdrawal application before the CoC is constituted, so the application cannot wait for the CoC to be constituted. Furthermore, The Court relied on Swiss Ribbons (P) Ltd. vs Union of India [2019 4 SCC 17], which held that NCLT could invoke its inherent powers to allow/disallow withdrawals where the CoC has not yet been established under Rule 11 of the NCLT Rules, 2016. The Court observed that in this case, the NCLT had failed to invoke its inherent powers to meet the ends of justice.
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