Summary
Two days after the NCLT admitted an operational creditor's petition under Section 9 of the Insolvency and Bankruptcy Code against a beverage company, the parties settled and the amount was paid within a week; the interim resolution professional filed the withdrawal application under Regulation 30A before any committee of creditors was constituted. The NCLT nevertheless rejected the withdrawal, citing alleged payments in breach of the moratorium, claims lodged by other creditors and its view that Regulation 30A did not bind it. The Supreme Court allowed the suspended director's appeal: Section 12A does not bar withdrawal before the committee is constituted, substituted Regulation 30A has statutory force and binds the NCLT, claims of other creditors cannot stifle a pre-committee settlement, and any alleged wrongful transfer can be pursued separately under Section 66.
Issues
- Whether an application for withdrawal of an admitted insolvency petition filed under Section 12A of the Insolvency and Bankruptcy Code, 2016 and Regulation 30A before constitution of the committee of creditors can be refused on account of claims by other creditors or alleged breach of the moratorium.
- Whether Regulation 30A of the CIRP Regulations binds the NCLT and whether the NCLT should have exercised its inherent powers under Rule 11 of the NCLT Rules to allow withdrawal.
Provisions considered
- Section 12A, Insolvency and Bankruptcy Code, 2016Withdrawal of an admitted application requires ninety per cent approval of the committee of creditors only once the committee exists; the section does not debar withdrawal applications before the committee is constituted and such applications cannot be kept pending to await its constitution. (¶¶ 13, 33, 35)
- Regulation 30A (as substituted on 25.07.2019), Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016Provides a complete mechanism for withdrawal before and after constitution of the committee, including the applicant's bank guarantee and payment of the resolution professional's expenses; framed under statutory power, it carries statutory flavour and binds the NCLT, and does not conflict with Section 12A. (¶¶ 14, 34, 35, 41)
- Rule 11, National Company Law Tribunal Rules, 2016Inherent powers to meet the ends of justice, which Swiss Ribbons directed the NCLT to use for settlements before the committee is constituted; the NCLT failed to invoke them. (¶¶ 12, 33, 40)
- Sections 14 and 66, Insolvency and Bankruptcy Code, 2016Even if funds moved from the corporate debtor's account during the moratorium, which the NCLT itself did not find established, that would at most be a wrongful transaction recoverable under Section 66 in any later resolution process and could not stall the settlement. (¶¶ 26, 30)
Held
- Where the dispute was settled within two days of admission, paid within a week and the withdrawal application filed on the tenth day before any committee of creditors existed, the NCLT ought to have allowed it then and there rather than await other creditors; the plea of alternative remedy before the NCLAT is a self-imposed restriction and was not entertained given the status quo order of 2021 and the Code's statutory timelines. (¶¶ 23, 24, 25)
- The rights of other creditors are not whittled down by acceptance of the settlement, as they may pursue their own remedies; following Ashok G. Rajani and Kamal K. Singh, a settlement cannot be stifled before constitution of the committee in anticipation of third-party claims, and the large number of claims here arose only because of the NCLT's delay. (¶¶ 27, 36, 37, 38, 40, 44)
- The NCLT erred in holding that Regulation 30A was not binding; the regulation was substituted after Swiss Ribbons flagged the gap for pre-committee withdrawals and furthers the purpose of Section 12A. The resolution professional's expenses are taken care of under Regulation 30A(7), and the NCLT appears to have been swayed by annoyance at the conduct of the corporate debtor and its counsel contrary to the NCLAT's observation that it should act without standing on technicalities. (¶¶ 28, 33, 34, 35, 39, 41)
Result
Appeal allowed; NCLT order dated 13.04.2021 set aside; the withdrawal application and the application under Regulation 30A allowed and the operational creditor's petition under Section 9 of the Code treated as withdrawn; claims for the resolution professional's expenses to be dealt with by the NCLT in accordance with law; other creditors free to pursue independent claims; pending applications disposed of.