ABHISHEK SINGH VERSUS HUHTAMAKI PPL LTD. & ANR.
ABHISHEK SINGH VERSUS HUHTAMAKI PPL LTD. & ANR.
Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(s). OF 2023
(Arising out of SLP (Civil) No.6452 of 2021)
ABHISHEK SINGH ...APPELLANT(S)
VERSUS
HUHTAMAKI PPL LTD. & ANR. ...RESPONDENT(S)
J U D G M E N T
VIKRAM NATH, J.
Leave granted.
2. The appellant, a suspended Director of the Corporate
Debtor1: Manpasand Beverages Ltd. (respondent 2), has
filed this appeal assailing the correctness of the order dated
13.04.2021 passed by the National Company Law
1
In short “CD”
2
Tribunal2, Ahmedabad Bench at Ahmedabad in I.A. No.196
of 2021 arising out of C.P.(I.B.) No.503 of 2019 rejecting the
application of the appellant under section 12A of Insolvency
and Bankruptcy Code, 20163 for withdrawal of the
Corporate Insolvency Resolution Process4.
3. CD is in the business of manufacturing and
distribution of fruit beverages. It has approximately 700
employees and a turnover of Rs.984.96 Crores in the
Financial Year 2018-2019. The Operational Creditor5
Huhtamaki PPL Ltd. (respondent No.1) used to supply
packaging material to the CD.
4. The OCs filed a petition under section 9 of IBC before
the NCLT, stating a total outstanding amount of
Rs.1,31,00,825/- against the CD. This was registered as CP
(IB) No. 503 of 2019.
2
In short, “NCLT”
3
In short, “IBC”
4
In short, “CIRP”
5
In short “OC”
3
5. The NCLT by order dated 01.03.2021 passed an order
admitting the petition and initiating CIRP. Two days
thereafter i.e. 03.03.2021, the OCs and the CD entered into
a settlement wherein the CD was required to pay an
amount of Rs.95.72 lakhs. The above settlement was
arrived at even before the Committee of Creditors6 could be
constituted.
6. On 4th March, 2021, the OCs received Rs.50 Lakhs and
again on 8th March, 2021, it received the balance amount
of Rs.45.72 lakhs. Thus, the total amount to be paid as per
the settlement, was paid to the OCs. The Interim Resolution
Professional7 on 10th March, 2021 moved an application
under Regulation 30A of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for Corporate
Persons) Regulations, 20188 seeking withdrawal of CIRP
against the CD. Along with it the application of OCs dated
09.03.2021 was also attached which was moved under
6
In short “CoC”
7
In short “IRP”
8
In short “IBBI Regulations”
4
section 12A of IBC. The application for withdrawal was
registered as IA No. 196 of 2021.
7. In the meantime, an appeal was preferred against the
admission order dated 01.03.2021 before the National
Company Law Appellate Tribunal9 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 said order dated
26.03.2021 is reproduced below:
“Mr. Vikram Nankani, Advocate appears for the
Appellant. He submits that Respondent No.1 –
Operational Creditor filed CP (IB)
No.503/9/NCLT/AHM/2019 before Adjudicating
Authority (NCLT Ahmedabad Bench, Court No.1).
The Application was filed under section 9 of
Insolvency and Bankruptcy Code, 2016 (IBC in
short) against the Respondent No.2
M/s.Manpasand Beverages Ltd. the Corporate
9
In short “NCLAT”
5
Debtor. Appellant is the Director of the Suspended
Board of the Corporate Debtor. Respondent No.3 is
Interim Resolution Professional.
2. Learned counsel for the Appellant submits that
the Application was admitted by the Impugned
Order and Appeal is filed. It is stated that
thereafter the Appellant has settled the claim of
Operational Creditor and the Operational Creditor
has filed Application for withdrawal copy of which
is at Page 348 and even the IRP has filed
Application before the Adjudicating Authority copy
of which is at page 368. The Application for
withdrawal under section 12A of IBC has been filed
through IRP. Mr. Salil Thakore, Advocate agrees
with the Learned Counsel for the Appellant that
there has been a settlement and accordingly
Application under section 12A of IBC has ben filed.
The Learned Counsel for IRP however states that
the money has been paid violating moratorium
which the IRP has reported to the Adjudicating
Authority.
3.Mr. Hitesh Buch, PCS also agrees that settlement
has taken place.
4. Learned counsel for the Appellant submits that
considering these facts, the Appeal may be allowed
to be withdrawn with liberty to seek restoration in
case the effort with regard to section 12 A of IBC
runs into difficulty. The Learned Counsel for IRP
6
accepts that Committee of Creditors (CoC in short)
has not been constituted.
5.The learned counsel for the Appellant submits
that he is making request for withdrawal of the
Appeal under instructions from the Appellant.
6. Considering the objects of IBC, we have no
reason to doubt that the Adjudicating Authority
without standing on technicalities would pass
appropriate Orders, if settlement has taken place
between the Original Operational Creditor and
Corporate Debtor and CoC is not yet constituted.
7(A) For reasons stated above, the Appeal is
permitted to be withdrawn with liberty to seek
restoration of the Appeal in case at any future time
the effort to settle in terms of section 12A of IBC
runs into difficulty and does not happen.
7(B) Till the Adjudicating Authority decides
Application under section 12 A of IBC which is
stated to have already been filed, CoC may not be
constituted.
The Appeal is disposed with observations and
directions as above.”
8. NCLT by the impugned judgment and order dated
13.04.2021 rejected the settlement application and fixed
the matter for disposal of the application under Regulation
30A of IBBI Regulations after hearing all creditors.
7
9. Subsequent to the above order of NCLT dated
13.04.2021, the IRP constituted the CoC on 15.04.2021.
The appellant preferred the SLP on 19.04.2021. This Court
vide order dated 20.04.2021 while issuing notice, directed
the parties to maintain status quo.
10. It would be pertinent to mention here that primary
opposition is by the IRP by way of an intervention
application. The OC is not opposing the appeal in as much
as it had already received the full amount as per the
settlement dated 03.03.2021. Further, three other
applications for intervention/impleadment have been filed
by creditors of the CD, who allegedly had raised their claims
before the IRP.
11. Before proceeding any further, the relevant statutory
provisions may be noticed.
12. Rule 11 of The National Company Law Tribunal Rules,
201610 confer inherent powers on the NCLT to pass
10 In short “the NCLT Rules”
8
appropriate orders for meeting the ends of justice or to
prevent abuse of the process of the Tribunal. The said rule
is reproduced hereunder:
“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.”
13. Section 12A of IBC which was inserted w.e.f.
06.06.2018 permits withdrawal of applications admitted
under sections 7, 9 or 10 of IBC, with the approval of 90
percent voting share of the CoC in such manner as may be
specified. The said provision is reproduced below:
“12A. Withdrawal of application admitted under
section 7,9 or 10 – The Adjudicating Authority may
allow the withdrawal of application admitted under
section 7 or section 9 or section 10, on an application
made by the applicant with the approval of ninety per
cent voting share of the committee of creditors, in such
manner as may be specified.”
14. Regulation 30A of IBBI Regulations was introduced
after insertion of section 12A in IBC. It provided the
mechanism of dealing with applications filed for
9
withdrawal. Later on, it was substituted by notification
dated 25.07.2019 in IBBI Regulations. According to the
said provision, withdrawal under section 12A of IBC could
be moved before Adjudicating Authority by the applicant
through IRP before constitution of the CoC and in case the
CoC has been constituted, then also by the applicant
through IRP or the RP. However, the applicant would be
required to justify the withdrawal by giving reasons. It
further provides the procedure for dealing with such an
application. Regulation 30A of IBBI Regulations, as it
stands today, is reproduced hereunder:
“30A. Withdrawal of application. (1) An application for
withdrawal under section 12A may be made to the
Adjudicating Authority –
(a) before the constitution of the committee, by the
applicant through the interim resolution
professional;
(b) after the constitution of the committee, by the
applicant through the interim resolution professional
or the resolution professional, as the case may be:
Provided that where the application is made under
clause (b) after the issue of invitation for expression of
interest under regulation 36A, the applicant shall state
the reasons justifying withdrawal after issue of such
invitation.
10
(2) The application under sub-regulation (1) shall be
made in Form-F A of the Schedule accompanied by a
bank guarantee-
(a) towards estimated expenses incurred on or by
the interim resolution professional for purposes of
regulation 33, till the date of filing of the application
under clause (a) of sub-regulation (1); or
(b) towards estimated expenses incurred for
purposes of clauses (aa), (ab), (c) and (d) of regulation
31, till the date of filing of the application under
clause (b) of sub-regulation (1).
(3) Where an application for withdrawal is under clause
(a) of sub-regulation (1), the interim resolution
professional shall submit the application to the
Adjudicating Authority on behalf of the applicant,
within three days of its receipt.
(4) Where an application for withdrawal is under clause
(b) of sub-regulation (1), the committee shall consider
the application, within seven days of its receipt.
(5) Where the application referred to in sub-regulation
(4) is approved by the committee with ninety percent
voting share, the resolution professional shall submit
such application along with the approval of the
committee, to the Adjudicating Authority on behalf of
the applicant, within three days of such approval.
(6) The Adjudicating Authority may, by order, approve
the application submitted under sub-regulation (3) or
(5).
(7) Where the application is approved under subregulation (6), the applicant shall deposit an amount,
towards the actual expenses incurred for the purposes
referred to in clause (a) or clause (b) of sub-regulation
(2) till the date of approval by the Adjudicating
Authority, as determined by the interim resolution
professional or resolution professional, as the case may
be, within three days of such approval, in the bank
account of the corporate debtor, failing which the bank
guarantee received under sub-regulation (2) shall be
11
invoked, without prejudice to any other action
permissible against the applicant under the Code. ”
15. NCLT, in the impugned order while rejecting I.A.No.196
of 2021 filed by the OCs, recorded the following findings:
i. The facts relating to the settlement and the fulfilment
of the terms of the settlement are not disputed;
ii. The suspended directors of the CD despite the
moratorium having commenced with effect from
01.03.2021 have not only made transactions of deposit
but also withdrawal from the account of the CD. They
have thus violated the directions contained in the
admission order dated 01.03.2021;
iii. Although the IRP had made submissions that the
suspended director having transferred huge amount
from the account of the company to his personal
account and from there having made the payment to
the OC under the settlement but the same was not
conclusively proved;
12
iv. The suspended director and their counsel made
frivolous arguments before the NCLT which were
contrary to record in order to obtain favourable orders;
v. As many as 35 claims of creditors both operational and
financial have been filed in the meantime. As such
withdrawal of the proceedings would adversely affect
their rights;
vi. The proceedings once admitted and IRP having
initiated, such proceedings are in rem and all stake
holders can participate in the proceedings with their
respective claims; and
vii. Regulation 30A of IBBI Regulations was not binding
upon it and such provision would not be of any help to
the CD or its suspended Directors;
16. Heard learned counsel for the parties and perused the
material on record.
17. Shri Shyam Divan, learned senior counsel appearing
for the appellant referring to statutory provisions like
13
section 12A of IBC, Regulation 30A of IBBI Regulations and
also to Rule 11 of the NCLT Rules, 2016 submitted that
such provisions clearly permit settlement between the
creditor and the debtor and withdrawal of proceedings prior
to the constitution of CoC. According to him, once the
settlement was arrived at and acted upon prior to the
constitution of CoC, the NCLT committed a grave error in
not allowing the withdrawal of the proceedings. He has
placed reliance on a number of orders/judgments passed
by this Court exercising powers under Article 142 of the
Constitution allowing withdrawal of such petitions where
settlement had been arrived at and also certain orders
passed by NCLAT permitting withdrawal before constitution
of CoC. Reliance was also placed upon a judgment of this
Court in the case of Swiss Ribbons (P) Ltd. V. Union of
India11 dated 25.01.2019 whereafter the Central
Government vide Notification dated 25th July, 2019 inserted
11 (2019) 4 SCC 17
14
Regulation 30A in IBBI Regulations which permitted
withdrawal of petitions before constitution of CoC.
18. Further submission advanced by Mr.Divan is to the
effect that NCLT was swayed by the fact that there were
several other creditors who had raised their claims against
the CD and as such without hearing such creditors,
permission of withdrawal would not be proper. This,
according to the learned senior counsel, was an error
committed by the NCLT inasmuch as these third party
claims could not have been taken into consideration nor
they should have weighed with the NCLT in forming its
opinion. Once the CoC had not been constituted the claims
of other creditors would not come into play to defeat the
settlement arrived at between the OC and the CD. In
support of the said submission he has placed reliance upon
a judgment of this Court in the case of Ashok G. Rajani v.
Beacon Trusteeship Ltd.& Ors.12 Reliance is also placed
12 (2022) SCC Online SC 1275.
15
upon another order of this Court in the case of Kamal
K.Singh v. Dinesh Gupta & Anr., dated 25.08.2021 in Civil
Appeal No.4993 of 2021.
19. The next submission relates to the objection taken by
the IRP that the suspended Director had transferred huge
amounts from the account of the CD during the period of
moratorium i.e. after 1 March, 2021 upto 18 March 2021
into his personal account as also other third parties.
Further the amount so transferred in the personal account
of the suspended Director was utilized in paying off the
amount as per the settlement to the OC. The submission
made by learned senior Counsel is to the effect that the
NCLT itself recorded a finding that the above objection
taken by the IRP was not conclusively established. His
submission is that despite the said finding the NCLT was
apparently influenced by the objection taken by the IRP.
20. Lastly, it was submitted by Shri Divan, that the NCLT
had no jurisdiction to declare or hold that Regulation 30A
16
of IBBI Regulations was not binding on it; NCLT committed
a grave error of law in ignoring the said provision. According
to him, it was beyond the power of the NCLT to have
discarded a statutory provision.
21. Based on the above points it was submitted that the
appeal deserves to be allowed, the impugned order of the
NCLT be set aside and the withdrawal of the proceedings be
allowed.
22. On the other hand, the IRP and other interveners have
strongly opposed the appeal. The submissions advanced on
their behalf are the same as were raised before the NCLT
which had found favour therein resulting into the passing
of the impugned order. In effect they supported the findings
of the NCLT. Additionally, it has been objected on their
behalf that the appellant ought to have availed alternative
remedy by filing an appeal before the NCLAT. The IRP has
also raised the issue regarding non-clearance of his funds
with respect to the expenditure incurred by him. In support
17
of the submissions, reliance is placed upon the following
judgments:
(1) P. Mohanraj v. Shah Bros. ISPAT (P) Ltd.13
(2) Swiss Ribbons Private Limited & Anr. v. Union of
India & Ors. (supra)
(3) Dena Bank (Now Bank of Baroda) v. Shivakumar
Reddy & Anr.14
(4) MSTC Limited v. Adhunik Metalliks Ltd. and
others15;
(5) Indian Overseas Bank v. Mr. Dinkar T.
Venkatsubramaniam, Resolution Professional for
Amtek Auto Limited16;
(6) Manoj K. Daga v. ISGEC Heavy Engineering
Limited and others17;
(7) Narayanamma and anr. v. Govindappa and Ors.18
(8) Ram Saran Das v. CTO Calcutta & Anr.19
(9) Titaghur Paper Mills Co. Ltd. v. State of Orissa20
13 (2021) 6 SCC 258
14 (2021) 10 SCC 330
15 (2019) SCC Online NCLAT 146
16 (2017) SCC Online NCLAT 584
17 (2020) SCC Online NCLAT 869
18 (2019) 19 SCC 42
19 AIR 1962 SC 1362
20 (1983) 2 SCC 433
18
23. The facts as stated above are not disputed. The
application had been filed prior to the constitution of the
CoC. The settlement had been arrived at within two days
of the admission order. The payment as per the
settlement had been made within the next five days i.e.
in a weeks’ time from the date of admission. The
application for withdrawal was filed on the 10th day. The
NCLT ought to have immediately taken the decision on
the application. Once the parties had settled the dispute
even before the CoC had been constituted, the
application ought to have been allowed then and there
rather than await the other creditors to jump into the fray
and allow the IRP to proceed further.
24. On behalf of the appellant number of orders of this
Court have been relied upon wherein the power under
Article 142 of the Constitution was exercised to approve
the settlement and permit withdrawal of cases wherein
CIRP had been initiated. We could have also done the
19
same which would have been an easy way out but
considering the order passed by the NCLT rejecting the
application for withdrawal and further the IRP and three
other OCs having filed intervention applications, we are
embarking upon to decide the issues raised and as to
what should be the course adopted by NCLT in dealing
with withdrawal matters before the constitution of CoC.
We take up the issues one by one.
Alternative Remedy
25. 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 we are not inclined to entertain the said objection
relating to availability of alternative remedy of filing the
appeal before the NCLT. We may also note here that IBC
20
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.
Violation of the Moratorium
26. 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. In this respect, it would suffice to state that
even the NCLT was not satisfied with the said submission
of the IRP and has not approved the same. Secondly, even
if there was any transaction from the account of the CD,
21
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.
Multiple claims of OCs
27. With respect to the said objection, it only needs to
be mentioned that 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 present case is accepted and the
proceedings allowed to be withdrawn.
Claims for expenses for IRP
28. Any amount spent by the IRP legally admissible to
him could always be recovered in the same proceedings
22
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.
Judgments relied upon:
29. In the facts and circumstances of the present case
and for the discussion made above none of the judgments
relied upon by the intervenors are of any help to the
intervenors. Briefly the same are discussed hereinafter.
30. The interveners have relied upon P.Mohanraj
(supra), Swiss Ribbons (supra), Dena Bank (supra),
MSTC Limited (supra), Indian Overseas Bank (supra)
and Manok K. Daga (supra), for the proposition that
settlement would be in violation of moratorium as
payments have been made after transferring money from
the CD account after initiation of CIRP. As already
recorded above, we have held that firstly, the NCLT itself
was not satisfied that moratorium had been violated and
even if it had been violated, at best it would amount to a
23
wrongful trading/transaction and the same, if
established, could always be recovered by the IRP or the
RP in appropriate proceedings for CIRP by other OCs
under section 66 of IBC. However, the present settlement
could not be stalled. Thus, these cases are of no help to
the intervenors.
31. The case of Narayanamma and another (supra) has
been relied upon for the proposition that this Court
would not put a seal on an illegal act of the suspended
Directors of the CD as they have transferred funds out
of CD’s account after application was admitted. Here
also, we may only add that as NCLT itself was not
satisfied with such violation, no benefit can be derived
by the intervenors.
32. Lastly, the intervenors have relied upon Ram Saran
Das (supra) and Titaghur Paper Mills (supra) for the
proposition that the appeal deserves to be dismissed as
the appellant did not avail the alternative remedy. This
24
aspect also, for the reasons recorded above, does not
benefit the interveners in any way.
Legality of the impugned order:
33. Now coming to the legality and the correctness of
the impugned order passed by the NCLT in the present
appeal. Majority of the findings recorded in the impugned
orders are already covered above. An important issue
remains to be considered is the finding recorded by the
NCLT that Regulation 30A of IBBI Regulations was not
binding upon it and could not be of any help to the CD
or its suspended Directors. In this respect, we may first
refer to the judgment of this Court in the case of Swiss
Ribbons (supra). Section 12A of IBC permitted
withdrawal of applications admitted under sections 7, 9
or 10 of IBC. But the said provision envisaged a situation
where the withdrawal application would be filed after the
CoC has been constituted, as it requires approval of 90
per cent voting shares of CoC. There was no provision
25
which would deal with withdrawal of proceedings before
constitution of CoC. Even Regulation 30A, as it existed
earlier, did not contemplate of consideration of an
application for withdrawal filed before constitution of
CoC. This issue was flagged by this Court in the case of
Swiss Ribbons (supra) in paragraph 82 thereof which is
reproduced hereunder:
“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 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.”
26
This Court had required the NCLT to invoke its powers
under Rule 11 of the NCLT Rules.
34. It was after the observations made by this Court in
the case of Swiss Ribbons (supra), as noted above and
also considering the aspect that large number of orders
were being passed by this Court invoking Article 142 of
the Constitution that IBBI Regulations which were
framed by the Insolvency and Bankruptcy Board of
India21 exercising powers conferred under sections 5, 7,
9, 14, 15, 17, 18, 21, 24, 25, 29, 30, 196, 208 read with
section 240 substituted section 30A vide notification
dated 25.07.2019. The Board was conferred with powers
to frame regulations for various purposes referred to in
section 240 of IBC and the other allied sections. These
regulations may be subordinate in character but would
still carry a statutory flavor and would be binding on the
NCLT. The NCLT committed an error in holding that
21 In short “IBBI”
27
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(supra) which was dated
25.01.2019.
35. Section 12A of IBC permits withdrawal of
applications admitted under sections 7, 9 and 10 of IBC.
It permits withdrawal of such applications with approval
of 90 percent voting share of CoC in such manner as may
be specified. The role of CoC and 90 percent of its voting
share approving the said withdrawal would come into
play only when CoC has been constituted. Section 12A
did not specifically mention withdrawal of such
applications where CoC had not been constituted but at
the same time it does not debar entertaining applications
for withdrawal even before constitution of CoC.
Therefore, the application under section 12A for
withdrawal cannot be said to be kept pending for
28
constitution of CoC, even where such application was
filed before constitution of CoC. 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 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.
Thus, NCLT fell in error in taking a contrary view.
36. In Kamal K. Singh (supra), relying upon paragraph
82 of the report in the case of Swiss Ribbons (supra),
the Supreme Court, which was dealing with a similar
situation where the settlement had been arrived before
29
constitution of CoC allowed the proceedings to be
withdrawn and held that the applications filed under
Rule 11 of the NCLT Rules would be maintainable and
the OCs therein was justified in moving such
application.
37. In the case of Ashok G. Rajani (supra), the
settlement had been arrived at between the parties on
08.08.2021, after the NCLT had admitted the application
under section 7 of IBC vide order dated 03.08.2021. On
appeal, the NCLAT vide order dated 18.08.2021 stayed
the formation of CoC but declined to exercise its powers
under Rule 11 of the NCLAT Rules. The said order was
challenged before this Court. This Court in its order in
paragraphs 29 and 30 gave reasons as to why the
applications for withdrawal cannot be stifled before the
constitution of CoC by third parties. The said paragraphs
are reproduced below:
“29. Considering the investments made by the
Corporate Debtor and considering the number of
people dependant on the Corporate Debtor for their
30
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.”
38. This Court relying upon the order in the case of
Kamal K. Singh (supra) issued directions in paragraph
32 to the NCLT to take up the settlement application and
decide the same in the light of observations made
therein. The said paragraph is reproduced hereunder:
“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 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.”
31
39. One more aspect needs to be flagged here. 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.
40. Both the parties have relied upon paragraph 82 of the
judgment in the case of Swiss Ribbons (supra).
According to the appellant, the NCLT ought to have
exercised its inherent powers under Rule 11 of the NCLT
Rules whereas for the intervenors it is submitted that
this Court had observed that power under Rule 11 would
be exercised after hearing all concerned parties. It may
32
be noted that 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 of IBBI Regulations 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.
41. 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
33
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.
42. For all the reasons recorded above, the impugned
order of the NCLT cannot be sustained. The application
filed under Regulation 30A of IBBI Regulations deserves
to be allowed.
43. Accordingly, the appeal is allowed and the
impugned order of NCLT is set aside. Further, the
Application No. 196 of 2021 also deserves to be allowed
along with the application under Regulation 30A of IBBI
Regulations. The Application under section 9 of IBC filed
by the OCs shall stand withdrawn. It is further provided
that any claim for expenses incurred may be dealt with
by the NCLT in accordance with law.
44. We make it clear that any observations made in
this judgment will not, in any manner, affect the claim of
other creditors of whatever category and they would be
34
free to raise their own independent claims in appropriate
proceedings which would be dealt with in accordance
with law.
45. Pending applications, if any, are disposed of.
…………..........................J.
[B. R. GAVAI]
.………….........................J.
[VIKRAM NATH]
NEW DELHI
MARCH 28, 2023.
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