Insolvency and Bankruptcy Code, 2016 – s.62 – Appeal to Supreme Court – “any person aggrieved” – Appellant claiming to be a Financial Creditor, if falls within the ambit of the phrase “any person aggrieved” and has the locus standi to institute the present appeal:
Held: Yes – Under Section 62 governing statutory appeals to the Supreme Court from the orders of the NCLAT, “any person” aggrieved by the order of the NCLAT may file an appeal before the Supreme Court – Section 61 which provides for appeals to NCLAT from orders of the NCLT uses similar language – The use of the phrase “any person aggrieved” indicates that there is no rigid locus requirement to institute an appeal challenging an order of the NCLT, before the NCLAT or an order of the NCLAT, before this Court – Any person who is aggrieved by the order may institute an appeal, and nothing in the provision restricts the phrase to only the applicant creditor and the corporate debtor – Once the CIRP is initiated, the proceedings are no longer restricted to the individual applicant creditor and the corporate debtor but rather become collective proceedings (in rem), where all creditors, such as the appellant, are necessary stakeholders – Appellant is not an unrelated party to the CIRP, but is an entity whose claims had been verified by the IRP. [Paras 75, 76]
Insolvency and Bankruptcy Code, 2016 – s.12A – National Company Law Appellate Tribunal Rules, 2016 – r.11 – CIRP Regulations 2016 – Regulation 30A – Second respondent-BCCI (an Operational Creditor had executed the ‘Team Sponsor Agreement’ with the Corporate Debtor-third respondent) filed application under Section 9 of the IBC, w.r.t an operational debt of approx. Rs.158 crore payable by the third respondent under the aforesaid Agreement – Petition admitted by NCLT, CIRP initiated against third respondent – Invoking inherent powers under Rule 11, NCLAT approved a settlement between the parties and set aside the order of NCLT – When the settlement was sought by the first respondent (former director of the Corporate Debtor) before NCLAT, the Section 9 petition had already been admitted and the Section 7 petition had also been disposed of on that basis – However, admittedly, the CoC had not been constituted – NCLAT stayed the formation of the CoC:
Held: In such cases, the legal framework mandates that an
(i) application for withdrawal be moved; (ii) the application has to be moved through the IRP; and (iii) it be placed before the NCLT for approval – None of these requirements were met – Despite grave deviations, NCLAT still proceeded with approving the settlement and setting aside the CIRP by invoking its inherent power under Rule 11 – Recourse to Rule 11 was not warranted – ‘Inherent powers’ cannot be used to subvert legal provisions, which exhaustively provide for a procedure – To permit the NCLAT to circumvent this detailed procedure by invoking its inherent powers under Rule 11 would be contrary to the carefully crafted procedure for withdrawal – NCLAT provided no reasons for deviating from this procedure or the urgency to approve the settlement without following the procedure – The correct course of action by the NCLAT would have been to stay the constitution of the CoC and direct the parties to follow the course of action in Section 12A read with Regulation 30A of the CIRP Regulations 2016 – Even if the procedural infirmity is kept aside, once the CIRP was admitted, the proceedings became collective, and all creditors of the Corporate Debtor became stakeholders – NCLT must hear all the concerned parties and consider all relevant factors on the facts of each case even while invoking Rule 11 to allow withdrawal – Appellant raised detailed objections before the NCLAT to the source of the funds for the settlement and a reasonable apprehension that there was round tripping of funds, in violation of the order passed by the Delaware Court – These objections were summarily dismissed by the NCLAT, relying solely on the undertaking filed by one of the former directors of the Corporate Debtor – NCLAT did not adequately address the alleged facts such as the fraudulent transfer of USD
533 million to a hedge fund in the United States; the orders of the US Court restraining the brothers from transferring or dissipating the amount; the contempt proceedings against one of the former directors of the Corporate Debtor; the ongoing investigation by ED against the first respondent and the Corporate Debtor; and other attempts by the Corporate Debtor to dissipate assets – Impugned judgment of the NCLAT approving the settlement between the parties and setting aside the order of the NCLT admitting the Section 9 petition, set aside – However, appellant’s objections to the settlement agreement on merits not adjudicated as the issues raised are subject matter of several litigations in different fora, including the United States Bankruptcy Court, District of Delaware and investigation by various authorities, including the ED, which are pending – CoC constituted, parties may invoke their remedies, to seek a withdrawal or settlement of claims – CoC to maintain amount of Rs.158 crores, along with accrued interest, if any, in an escrow account until further developments and to abide by the further directions of NCLT. [Paras 79-81, 86-88] Insolvency and Bankruptcy Code, 2016 – ss.7, 9, 10, 12A – Insolvency and Bankruptcy (Second Amendment) Act, 2018 – National Company Law Tribunal Rules, 2016 – r.8 – CIRP Regulations 2016 – Regulation 30A – IBBI (CIRP) (Third Amendment) Regulations, 2018 – 2019 Amendment to Regulation 30A of the CIRP Regulations w.e.f. 25-07-2019 – Procedure for the withdrawal of CIRP or settlement of claims – Four stages:
Held: (i) Before the application under Sections 7, 9 or 10 is admitted by the NCLT; (ii) After an application under Sections 7, 9, or 10 is admitted, but before the CoC has been constituted; (iii) After an application under Section 7, 9 or 10 is admitted, the CoC has been constituted and the invitation for expression of interest has not been issued; (iv) After an application under Section 7, 9 or
10 is admitted, the CoC has been formed and the invitation for expression of interest has been issued – Explained – In view of the detailed procedure to deal with withdrawal or settlement at both stages post admission- before and after the CoC is constituted, the requirement to invoke discretionary power such as Rule 11 of the NCLT Rules, or Rule 11 of the NCLAT Rules or even the power of this Court under Article 142 of the Constitution of India no longer arises. [Para 63, 64]
National Company Law Appellate Tribunal Rules, 2016 – r.11 – Scope of powers under – Stated – National Company Law Tribunal Rules, 2016 – r.8 – Code of Civil Procedure, 1908 – s.151.
CIRP Regulations 2016 – Regulation 30A – IBBI (CIRP) (Third Amendment) Regulations, 2018 – 2019 Amendment to Regulation 30A w.e.f. 25-07-2019 – Requirement under Regulation 30A (1) to move an application before the NCLT through the IRP, in cases where the CoC is not constituted, whether a mere technicality which can be dispensed with: Held: No – The fact that the application is to be submitted by the IRP rather than the parties themselves is not a distinction without difference – Once the application is admitted and CIRP is initiated, it is the IRP who takes charge of the affairs of the corporate debtor – The proceedings become collective proceedings and the interests of the former management of the corporate debtor, become disjunct from the interest of the corporate debtor – Therefore, the parties (such as the former management of the corporate debtor) must submit their application for withdrawal through the IRP who is now the person in control of the insolvency proceedings – NCLT conducts an adjudicatory exercise when the application for withdrawal is placed before it and the procedure is not a mere technicality. [Para 66]
Insolvency and Bankruptcy Code, 2016 – Chapter II – ss.7, 9,
10 – Insolvency and Bankruptcy (Second Amendment) Act, 2018 – s.12A – CIRP Regulations 2016 – Regulation 30A – Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 – r.8 – Withdrawal and settlement of claims – Evolution of law – Discussed.
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Divya Pandey. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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