Insolvency and Bankruptcy Code, 2016 - Ss. 7, 12A, 62 – Arbitration proceedings between corporate debtor and respondent no. 1 to 3 were pending – Respondent nos.1 to 3 filed application u/s.7 of IBC before the NCLT – Arbitrator passed award directing corporate debtor to make payment – Parties arrived at a settlement – NCLAT considering settlement granted interim stay of publication u/s. 13 of the IBC – Parties filed application u/s. 12A of IBC before the NCLT with the consent of IRP and the same was pending – However, NCLAT staying the formation of CoC, permitted the IRP to issue publication and also to handover all assets and proceed with CIRP even though matter was settled between the parties – On appeal, held: Section 12A of the IBC clearly permits withdrawal of an application u/s. 7 of the IBC that has been admitted on an application made by the applicant – Before the Committee of Creditors is constituted, there is no bar to withdrawal by the applicant of an application admitted u/s. 7 of the IBC – Settlement cannot be stifled before the constitution of the CoC in anticipation of claims against the corporate debtor from third persons – There is no reason why the applicant for CIRP, should not be allowed to withdraw its application once disputes have been settled – NCLT directed to take up the settlement application.
Dismissing the appeal, the Court
HELD: 1. Section 12A of the IBC clearly permits withdrawal of an application under Section 7 of the IBC that has been admitted on an application made by the applicant. The question of approval of the Committee of Creditors by the requisite percentage of votes, can only arise after the Committee of Creditors is constituted. Before the Committee of Creditors is constituted, there is no bar to withdrawal by the applicant of an application admitted under Section 7 of the IBC. [Para 24][139-D-E]
2. The object of the IBC is to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance of interests of all stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India and matters connected therewith or thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets, encourage entrepreneurship, improve business and facilitate more investments leading to higher economic growth and development. [Para 26 & 27] [139-H; 140-A-C]
3. A reading of the statement of objects and reasons with the statutory Rule 11 of the NCLT Rules enables the NCLT to pass orders for the ends of justice including order permitting an applicant for CIRP to withdraw its application and to enable a corporate body to carry on business with ease, free of any impediment. Considering the investments made by the Corporate Debtor and considering the number of people dependant on the Corporate Debtor for their survival and livelihood, there is no reason why the applicant for the CIRP, should not be allowed to withdraw its application once its disputes have been settled. [Para 28 & 29][140-C-E]
4. The settlement cannot be stifled before the constitution of the Committee of Creditors in anticipation of claims against the Corporate Debtor from third persons. The withdrawal of an application for CIRP by the applicant would not prevent any other financial creditor from taking recourse to a proceeding under IBC. The urgency to abide by the timelines for completion of the resolution process is not a reason to stifle the settlement. [Para 30][140-E-F]
5. The application for settlement under Section 12A of the IBC is pending before the Adjudicating Authority (NCLT). The NCLAT has stayed the constitution of the Committee of Creditors. The order impugned is only an interim order which does not call for interference. In an appeal under Section 62 of the IBC, there is no question of law which requires determination by this Court. The appeal is, accordingly, dismissed. The NCLT is directed to take up the settlement application and decide the same in the light of the observations made above. [Para 32][142-B-C]
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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