ASHOK G. RAJANI Versus BEACON TRUSTEESHIP LTD. & ORS

ASHOK G. RAJANI Versus BEACON TRUSTEESHIP LTD. & ORS

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले



REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4911 OF 2021
ASHOK G. RAJANI ....Appellant (s)
Versus
BEACON TRUSTEESHIP LTD. & ORS. .…Respondent (s)
J U D G M E N T
Indira Banerjee, J.
This Appeal under Section 62 of the Insolvency and Bankruptcy
Code, 2016 (IBC) is against an interim order dated 18th August 2021
passed by the National Company Law Appellate Tribunal (NCLAT),
Principal Bench at New Delhi in Company Appeal (AT) (Insolvency) No.
598 of 2021, filed by the Appellant, whereby the NCLAT issued notice
of the Appeal, but did not restrain the Interim Resolution Professional
(IRP) from proceeding with Corporate Insolvency Resolution Process
(CIRP) of M/s Seya Industries Limited (hereinafter referred to as
“Corporate Debtor”). The NCLAT, however, restrained the IRP from
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constituting a Committee of Creditors (CoC) till the next date of
hearing. In the meanwhile, the Appellant and the Respondents were
given the opportunity to settle their disputes before the Adjudicating
Authority (NCLT) in terms of Section 12A of the IBC read with Rule 11 of
the National Company Law Tribunal Rules, 2016 (NCLT Rules). The
appeal was directed to be listed for hearing on 13th September 2021.
2. The Appellant is an erstwhile Director of Respondent No. 4, that
is the Corporate Debtor. The Corporate Debtor, a company
incorporated under the Companies Act, 1956 has been carrying on
business, inter alia, of manufacture of benzene based Speciality
Chemicals since 1990. It is stated that the Corporate Debtor had
invested about Rs.400 Crores in its existing manufacturing facilities
and had further invested about Rs.900 Crores in an integrated
Greenfield Mega Project for Speciality Chemicals.
3. According to the Appellant, the Corporate Debtor is the source of
livelihood for about 150 workmen, 40 unskilled workers and 75
employees on its payroll and is engaged with more than 200
Customers/Vendors. It is claimed that the Corporate Debtor has a net
worth of Rs. 972 Crores and fixed assets worth more than Rs.1500
Crores.
4. In order to expand its chemical manufacturing plant at Tarapur,
Palghar (Maharashtra), the Corporate Debtor raised capital and the
Respondent No.1 - M/s Beacon Trusteeship Limited (hereinafter
referred to as “Beacon Trusteeship”) committed to invest Rs. 100
2
Crores in the said integrated Greenfield Mega Project, in the form of
Rs.20 Crores, towards Compulsorily Convertible Preference Shares
(CCPS) and Rs. 80 Crores, by way of Non-Convertible Debentures
(NCDs). Thereafter the Appellant, the Corporate Debtor and
Respondent-Beacon Trusteeship executed a Debenture Trust Deed
(DTD), inter-alia, recording the terms and conditions of the issue of
said NCDs. The Respondent No. 1 was appointed, the Debenture
Trustee as recorded in the DTD. The DTD laid down the obligations of
the Corporate Debtor towards the NCDs.
5. On or about 11th March 2019, Beacon Trusteeship released a sum
of Rs.72,00,00,000/- (INR Seventy Two Crores) toward subscriptions of
360 Series A debentures and 360 Series B Debentures ("First tranche
Debentures"). The aforesaid amount was to be invested in capacity
expansion of the company and hence not available as cashflow. The
service of interest for the first tranche had to be met out of the second
tranche of Rs. 8 Crores to be invested by the Beacon Trusteeship which
would have created the cash flow for the same and the remaining
amount was to be invested for Capex investment. Beacon Trusteeship,
however, defaulted in making payment of the second tranche of Rs. 8
Crores.
6. In addition to the DTD dated 8th March 2019, the parties entered
into a Supplemental Deed dated 14th March 2019 revising certain
terms set out in DTD including the timelines and schedule for the
Interest Payment Dates.
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7. On 31st May 2019, the Corporate Debtor sent an email to the
Respondent Nos. 1 to 3, requesting payment of the second tranche of
Rs.8 Crores in terms of the DTD. The Corporate Debtor also issued
notice to the Respondent Nos.1 to 3 to make payment of second
tranche of Rs. 8 Crores.
8. On 12th September 2019, the Corporate Debtor took recourse to
Arbitration Proceedings against the other Respondents. Beacon
Trusteeship issued a notice to the Corporate Debtor regarding nonpayment of interest amount of Rs.2,18,95,890.41/-. Beacon Trusteeship
also issued an Enforcement Notice accelerating payment of the full
investment amount i.e. Rs.77,94,92,513/- as due on 17th October 2019
on account of non-payment of Rs.2,18,95,890.41/- being interest
coupon amount.
9. On 18th October 2019, the Respondent Nos. 1 to 3 invoked
Clause 6.1 of the share pledge agreement and transferred 26.60 lakh
shares worth Rs 91.78 Crores into the DEMAT Account(s) of the
Respondents.
10. Between 18th-20th October 2019, the Corporate Debtor initiated
Arbitration Proceedings before the High Court of Bombay. While the
Arbitral Proceedings, to which the Respondent Nos. 1 to 3 had
themselves agreed and consented to, were pending, they filed an
application under Section 7 of the IBC before the National Company
Law Tribunal (NCLT), Mumbai Bench.
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11. On 15th January 2020, the Corporate Debtor filed its statement
of claim seeking an award aggregating to Rs.848,75,30,000/- for losses
and damages suffered by it.
12. On 26th February 2020, the Respondents filed statement of
defence and counter claim seeking an award for payment of its claim
amounting to Rs.73,56,59,238/-.
13. On 24th March 2021, the Arbitrator passed an interim award in
favour of Beacon Trusteeship and other Respondents and directed the
Corporate Debtor to make payment of Rs.72,06,99,244/- along with
interest.
14. On 21st April 2021, being aggrieved by the order of the
Arbitrator, the Appellant and Corporate Debtor preferred an arbitration
petition under Section 34 of the Arbitration and Conciliation Act, 1996
before the High Court of Bombay which is still pending.
15. The NCLT, Mumbai Bench heard the matter and reserved its
order on 13th May 2021. On 1st July 2021, the Corporate Debtor and
the Respondents Nos. 1 to 3 filed a joint application before the NCLT,
Mumbai Bench requesting to defer the order as the parties were in the
process of arriving at a settlement and sought time till 10th July 2021.
16. On 12th July 2021, the Corporate Debtor and the Respondents
Nos. 1 to 3 again filed a joint application before the NCLT, Mumbai
Bench seeking further time till 23rd July 2021 for arriving at a
settlement. Thereafter, on 26th July 2021, they again sought time for
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settlement till 12th August 2021.
17. On 3rd August 2021, the NCLT, Mumbai Bench, rejected the
request of the parties for further deferment of orders for arriving at a
settlement and admitted and allowed the application under Section 7
of the IBC preferred by Respondent Nos. 1 to 3 against Corporate
Debtor.
18. Being aggrieved by the order dated 3rd August 2021 passed by
the NCLT, Mumbai Bench, admitting and allowing application for
initiating CIRP against the Corporate Debtor, the Appellant who is
Director of the Corporate Debtor filed an appeal being Company
Appeal (AT)(Insolvency) No. 598 of 2022 in the NCLAT, New Delhi.
19. On 8th August 2021, the parties had amicably settled their
disputes and entered into a formal settlement, a copy of which is
annexed to the paper book as annexure A-25.
20. On 10th August 2021, the NCLAT considering the settlement
arrived at between the parties, granted interim stay of publication
under Section 13 of the IBC and further gave liberty to the parties to
adopt procedure under Section 12A of IBC.
21. On 12th August 2021, the parties with the consent of the IRP filed
an application under Section 12A of the IBC before the NCLT, Mumbai.
However, the same has not been listed till date.
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22. On 18th August 2021, the NCLAT stayed the formation of CoC, but
declined to exercise its power under Rule 11 of the NCLAT Rules to take
on record the settlement and dispose of the matter. Further, the
NCLAT permitted the IRP to issue publication and also handover all
assets and proceed with the CIRP even though the matter had been
settled between the parties. Being dissatisfied by the order dated 18th
August 2021 of the NCLAT, the Appellant has preferred the present
Civil Appeal.
23. Section 12A of the IBC enables the Adjudicating Authority to
allow the withdrawal of an application admitted under Section 7 or
Section 9 or Section 10, on an application made by the applicant with
the approval of 90% voting shares of the Committee of Creditors in
such a manner as may be specified.
24. 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, in our view, no bar to
withdrawal by the applicant of an application admitted under Section 7
of the IBC.
25. In exercise of power conferred by Section 469 of the Companies
Act, 2013, the Central Government has made the National Company
Law Tribunal Rules, 2016, hereinafter, referred to as the “NCLT Rules”.
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Rule 11 of the NCLT Rules reads as :-
“11. Inherent Powers.- Nothing in these rules shall be
deemed to limit or otherwise affect the inherent powers of
the Tribunal to make such orders as may be necessary for
meeting the ends of justice or to prevent abuse of the
process of the Tribunal.”
26. As stated in its statement of objects and reasons, 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.
27. The statement says that 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.
28. 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.
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29. 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.
30. 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.
31. Mr. Mukul Rohtagi, learned Senior Counsel appearing on behalf of
the Appellant drew our attention to an order dated 25th August 2021,
passed by a Bench of coordinate strength comprising S. Abdul Nazeer
and Krishna Murari, J.J. in Civil Appeal No. 4993 of 2021, the relevant
part whereof is extracted hereinbelow:
“(3) We have heard learned counsel for the parties. It is not
in dispute that CoC has not been constituted so far. This
Court in Swiss Ribbons Private Limited and Anr. v. Union of
India and others- (2019) 4 SCC 17 has held that at any
stage, before a Committee of Creditors is constituted, a
party can approach National Company Law Tribunal (NCLT)
directly and that the Tribunal may, in exercise of its inherent
powers under Rule 11 of NCLT Rules, allow or disallow an
application for withdrawal or settlement. It was held thus:
82. It is clear that once the Code gets triggered by
admission of a creditor's petition under Sections 7 to
9, the proceeding that is before the adjudicating
9
authority, being a collective proceeding, is a
proceeding in rem. Being a proceeding in rem, it is
necessary that the body which is to oversee the
resolution process must be consulted before any
individual corporate debtor is allowed to settle its
claim. A question arises as to what is to happen
before a Committee of Creditors is constituted (as per
the timelines that are specified, a Committee of
Creditors can be appointed at any time within 30
days from the date of appointment of the interim
resolution professional). We make it clear that at any
stage where the Committee of Creditors is not yet
constituted, a party can approach NCLT directly,
which Tribunal may, in exercise of its inherent powers
under Rule 11 of NCLT Rules, 2016, allow or disallow
an application for withdrawal or settlement. This will
be decided after hearing all the parties concerned
and considering all relevant factors on the facts of
each case.”
 (emphasis supplied)
(4) In the instant case, as noticed earlier, the applicantrespondent no.1 had made an application before the
NCLT, Mumbai Bench, under Rule 11 of the NCLT Rules for
withdrawal of company petition filed under Section 9 of
the Insolvency and Bankruptcy Code, 2016 (IBC) on the
ground that the matter has been settled between the
Corporate debtor and the applicant-respondent no.1.
(5) Having heard learned counsel for the parties and
having regard to the facts and circumstances of the case,
we are of the view that the applicant-respondent no.1 was
justified in filing the application under Rule 11 of the NCLT
Rules for withdrawal of the company petition on the
ground that the matter has been settled between the
parties.”
32. 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
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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.

…………………………………,J.
 [ INDIRA BANERJEE ]
…………………………………,J.
 [ J.K. MAHESHWARI ]
NEW DELHI;
SEPTEMBER 22, 2022
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