Summary
Beacon Trusteeship, debenture trustee for debentures issued by Seya Industries, obtained admission of a Section 7 IBC application against the company while arbitration between them was pending. The parties then settled and, with the IRP's consent, applied to the NCLT under Section 12A for withdrawal, but the application was not listed. The NCLAT stayed constitution of the Committee of Creditors but declined to take the settlement on record under Rule 11, and let the CIRP proceed. A former director appealed. The Supreme Court held that before the Committee of Creditors is constituted, nothing bars the applicant from withdrawing an admitted Section 7 application, and the NCLT may permit it under Rule 11. The impugned order was interim and the Section 12A application pending, so the appeal was dismissed with a direction to the NCLT to decide that application.
Issues
- Whether an admitted Section 7 application can be withdrawn on settlement before the Committee of Creditors is constituted
- Whether the NCLT may permit such withdrawal under its inherent powers in Rule 11 of the NCLT Rules, 2016
- Whether an interim NCLAT order staying constitution of the Committee of Creditors warranted interference under Section 62
Provisions considered
- Section 12A, Insolvency and Bankruptcy Code, 2016Section 12A permits the applicant to withdraw an admitted Section 7 application. The requirement of approval by 90% of the Committee of Creditors' voting share can arise only after that Committee is constituted, so there is no bar before then. (¶¶ 23, 24)
- Rule 11, National Company Law Tribunal Rules, 2016Read with the IBC's objects, the NCLT's inherent power enables it to permit an applicant to withdraw a CIRP application on settlement before the Committee of Creditors is constituted, as recognised in Swiss Ribbons. (¶¶ 25, 28, 31)
- Section 62, Insolvency and Bankruptcy Code, 2016The appeal against an interim NCLAT order raised no question of law requiring determination by the Supreme Court. (¶¶ 1, 32)
Held
- Before the Committee of Creditors is constituted, an applicant may withdraw an application admitted under Section 7. The NCLT may allow this under Rule 11, read with the IBC's objects of time-bound resolution, value maximisation and ease of doing business. (¶¶ 24, 26, 27, 28)
- Given the corporate debtor's investments and the many people dependent on it for their livelihood, the applicant should be allowed to withdraw once the disputes are settled. The settlement cannot be stifled in anticipation of third-party claims, because withdrawal does not prevent other creditors from invoking the IBC. Nor is the urgency of the resolution timelines a reason to stifle it. (¶¶ 29, 30)
- Because the Section 12A application was pending before the NCLT and the NCLAT had stayed constitution of the Committee of Creditors, the impugned interim order did not call for interference. (¶ 32)
Result
Appeal dismissed. The NCLT was directed to take up and decide the pending settlement and withdrawal application in the light of the Court's observations.