Insolvency and Bankruptcy Code, 2016: ss.9 and 12A – Interpretation of s. 12A and Regn 30A – Withdrawal of application of Corporate Insolvency Resolution Process-CIRP before the constitution of Committee of Creditors-CoC – Validity of – Held: s.12A permits withdrawal of applications admitted u/ss. 7, 9 and 10 – s. 12A does not debar entertaining applications for withdrawal even before constitution of CoC – Application u/s. 12A cannot be said to be kept pending for constitution of CoC, even where such application was filed before the constitution of CoC – Furthermore, Regn 30A clearly provided for withdrawal applications being entertained before constitution of CoC – It does not in anyway conflicts or is in violation of s.12A – There is no inconsistency in the two provisions – It only furthers the cause introduced vide s.12A – On facts, petition u/s.9 filed by Operational Creditor-OC before NCLT for its outstanding amount against the Corporate DebtorCD – Petition admitted and CIRP initiated – Within two days of admission order, OCs and CD entered into a settlement for payment of the amount even before constitution of CoC – After receipt of the settlement amount, OC filed application u/s.12A and Interim Resolution Professional filed an application u/Regn 30A seeking withdrawal of CIRP against the CD – However, the NCLT rejected the withdrawal application – Said order cannot be sustained – NCLT erred in taking a contrary view – At the time when the application for withdrawal of the proceedings was filed the CoC was not constituted as such there could not have been any other concerned parties except the OC, CD and IRP – It was only because of the delay caused by the NCLT in disposing of the applications u/s. 12A and Regn 30A that large number of creditors filed their claims – Inherent powers are to be invoked in order to meet the ends of justice which the NCLT failed to invoke – Thus, application filed u/Regn 30A allowed and application u/s. 9 filed by the OCs stands withdrawn – Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2018 – Regn. 30 A.
Allowing the appeal, the Court
HELD: 1.1 Plea of alternative remedy is a self-imposed restriction by the superior Courts and is never an absolute bar unless barred by the statute. Further, in the present case, this Court had entertained the SLP in 2021 itself and had granted an order of status quo on 20.04.2021. Substantial time has passed since then. As such this Court is not inclined to entertain the said objection relating to availability of alternative remedy of filing the appeal before the NCLT. IBC provides a statutory timeframe for disposal of matters. Further, such matters being commercial in nature keeping these matters pending for long, frustrates the very object of IBC. [Para 25][609-E-G]
1.2 The intervenors have vehemently contended that after 01.03.2021, once the NCLT has admitted the petition and had issued restraint order, section 14 of IBC had come into play; the transactions made in the accounts of the CD would be unlawful and illegal as such payment of the settlement amount from the funds of the CD transferred to the account of the suspended Director after 01.03.2021 ought to be rejected and no discretion should be exercised permitting withdrawal of the proceedings. Even the NCLT was not satisfied with the submission of the IRP and has not approved the same. Secondly, even if there was any transaction from the account of the CD, the same may at best be held to be a wrongful transaction and in any other proceedings where CIRP is initiated the amount so transferred could be recovered under section 66 of IBC by the IRP or the RP subject to establishing that the said transactions would be hit by the said provision. [Para 26][609-G-H; 610-A-C]
1.3 Other creditors would have their own right to avail such legal remedies as may be available to them under law with respect to their claims. The rights of the creditors for their respective claims do not get whittled down or adversely affected if the settlement with the OC in the instant case is accepted and the proceedings allowed to be withdrawn. [Para 27][610-D]
1.4 Any amount spent by the IRP legally admissible to him could always be recovered in the same proceedings and the NCLT or the Adjudicating Authority would be well within its power to get the same cleared under Clause 7 of Regulation 30A of IBBI Regulations. [Para 28]
1.5 The NCLT committed an error in holding that the Regulation 30A would have no binding effect. This would amount to defeating the very purpose of substituting Regulation 30A in IBBI Regulations on 25.07.2019 after the judgment of Swiss Ribbons’s case which was dated 25.01.2019. Section 12A of IBC permits the withdrawal of applications admitted under sections 7, 9, and 10 of IBC. The withdrawal of such an application is with the approval of 90 percent voting of the CoC. Section 12A did not provide particularly for a situation wherein the CoC has not been constituted but, the Court held that Section 12A does not debar entertaining applications for withdrawal of CIRP even prior to the Constitution of CoC. Therefore, the application u/s 12 A for withdrawal cannot be said to be kept pending for the constitution of the CoC, even where such an application was filed before the constitution of the CoC. 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 introduced vide section 12A of IBC. NCLT fell in error in taking a contrary view. [Paras 34 and 35][612-F-G; 613-A-C]
1.6 From a perusal of the order of the NCLT it appears that it was annoyed with the conduct of CD and its counsel. NCLT has recorded its displeasure and annoyance at a couple of places referring to the conduct of the CD and its counsel before the NCLAT, and maybe for this reason, the NCLT passed the impugned order ignoring the observation in the NCLAT order dated 26.03.2021 which had specifically expressed that the Adjudicating Authority (NCLT) would pass orders on the withdrawal application without standing on technicalities. [Para 39][614-E-F]
1.7 At the time when the application for withdrawal of the proceedings was filed the CoC was not constituted as such there could not have been any other concerned parties except the OC, CD and IRP. It was only because of the delay caused by the NCLT in disposing of the applications under section 12A of IBC and Regulation 30A that large number of creditors filed their claims. The inherent powers are to be invoked in order to meet the ends of justice which, in our opinion, the NCLT failed to invoke. Regulation 30A of IBBI Regulations provide a complete mechanism for dealing with the applications filed under such provision. The issue raised by the IRP regarding its claim for expenses is well taken care of under the said provision. Various safeguards have been provided in Regulation 30A of IBBI Regulations to be fulfilled by the OC which apparently have been fulfilled as there is no complaint in that regard either by the IRP nor it is apparent from the impugned order of the NCLT. Thus, the objection raised by the IRP does not merit any consideration in this appeal. [Para 40, 41][614-G-H; 615-A-C]
1.8 The impugned order of NCLT cannot be sustained and is set aside. The application for withdrawal u/s 12A is allowed along with the application under Regulation 30A of IBBI Regulations. The Application u/s 9 of IBC filed by the OCs shall stand withdrawn. [Para 43][615-D]
Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC
17 : [2019] 3 SCR 535; Kamal K.Singh v. Dinesh Gupta & Anr., dated 25.08.2021 in Civil Appeal No. 4993 of 2021 – relied on.
Ashok G. Rajani v. Beacon Trusteeship Ltd.& Ors. (2022) SCC Online SC 1275; P. Mohanraj v. Shah Bros. ISPAT (P) Ltd. (2021) 6 SCC 258; Dena Bank (Now Bank of Baroda) v. Shivakumar Reddy & Anr. (2021) 10 SCC 330; MSTC Limited v. Adhunik Metalliks Ltd. and others (2019) SCC Online NCLAT 146; Indian Overseas
Bank v. Mr. Dinkar T. Venkatsubramaniam, Resolution Professional for Amtek Auto Limited (2017) SCC Online NCLAT 584; Manoj K. Daga v. ISGEC Heavy Engineering Limited and others (2020) SCC Online NCLAT 869; Narayanamma and anr. v. Govindappa and Ors. (2019) 19 SCC 42; Ram Saran Das v. CTO Calcutta & Anr. AIR 1962 SC 1362; Titaghur Paper Mills Co. Ltd. v. State of Orissa (1983) 2 SCC 433:[1983] 2 SCR 743 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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