GLAS TRUST COMPANY LLC versus BYJU RAVEENDRAN & ORS. (23/10/2024) — Supreme Court headnote

AI-generated headnote. Verify against the judgment before relying on it. Paragraph numbers refer to the judgment.

Summary

The Supreme Court set aside the NCLAT's approval, under its inherent powers in Rule 11 of the NCLAT Rules 2016, of a settlement between BCCI and the corporate debtor (Think and Learn Pvt Ltd) that closed an admitted CIRP before the committee of creditors was formed. Once a CIRP is admitted, withdrawal must follow Section 12A of the IBC read with Regulation 30A of the CIRP Regulations, which now cover every stage, so inherent powers cannot be used to bypass that procedure. A financial creditor that was not a party to the settlement had locus to appeal as a 'person aggrieved'.

Issues

Whether a creditor who was not a party to the settlement between the operational creditor and the corporate debtor has locus to appeal to the Supreme Court under Section 62 of the IBC.
Whether the NCLAT could invoke its inherent powers under Rule 11 of the NCLAT Rules 2016 to approve a settlement and set aside an admitted CIRP when Section 12A and Regulation 30A prescribe a procedure for withdrawal.
Whether the NCLAT adequately dealt with the appellant's objections about the source of the settlement funds.

Provisions considered

Section 12A, Insolvency and Bankruptcy Code, 2016Read as permitting withdrawal of an admitted application under Sections 7, 9 or 10 on an application by the applicant with 90 per cent CoC approval. The high threshold reflects that an admitted CIRP is a proceeding involving all creditors. Together with Regulation 30A and Rule 8 of the Application Rules it forms an exhaustive scheme for withdrawal at every stage. (¶¶ 51, 52, 63, 64, 80)
Regulation 30A (as amended w.e.f. 25 July 2019), Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016Traced from its original form to the 2019 amendment made in response to Swiss Ribbons and Brilliant Alloy. Before the CoC is constituted, the withdrawal application must be made by the applicant through the IRP in Form FA and placed before the NCLT, which must hear the parties concerned and apply its mind; routing through the IRP is not a mere technicality. (¶¶ 53, 54, 55, 59, 60, 61, 62, 63, 65, 66, 79)
Rule 11, National Company Law Appellate Tribunal Rules, 2016Read as preserving inherent powers in terms mirroring Section 151 CPC. Inherent powers cannot be exercised in conflict with an exhaustive prescribed procedure; any deviation must be justified as necessary to prevent abuse of process. The NCLAT's use of Rule 11 to approve the settlement was held unwarranted. (¶¶ 68, 69, 70, 71, 80)
Section 151, Code of Civil Procedure, 1908Relied on, with Ram Chand and Sons Sugar Mills, for the principle that where express provisions exhaustively cover a topic, inherent power cannot be exercised on that topic otherwise than as prescribed. (¶¶ 67, 69, 70)
Section 62 (with Section 61), Insolvency and Bankruptcy Code, 2016The words 'any person aggrieved' impose no rigid locus requirement and are not confined to the applicant creditor and corporate debtor; the appellant, whose claim had been verified by the IRP and who had sought impleadment before the NCLAT, could appeal. (¶¶ 74, 75, 76)
Rule 8, Insolvency (Application to Adjudicating Authority) Rules, 2016Governs withdrawal before admission, when proceedings are still in personam between the applicant creditor and the corporate debtor. (¶¶ 46, 63)

Held

Admission of an application under Sections 7, 9 or 10 changes the character of the proceedings: they cease to be in personam between the applicant and the corporate debtor and become collective proceedings in rem in which all creditors are stakeholders, while management vests in the IRP and the interests of the former management separate from those of the corporate debtor. (¶¶ 42, 43, 44)
The IBC framework now prescribes withdrawal at four stages: before admission (Rule 8); after admission but before the CoC is constituted (Regulation 30A(1)(a), through the IRP to the NCLT); after the CoC is constituted (Section 12A with 90 per cent CoC approval); and after the invitation for expressions of interest (the same, with reasons). Because this framework is exhaustive, recourse to Rule 11 of the NCLT or NCLAT Rules, or to Article 142, no longer arises. (¶¶ 63, 64)
When withdrawal is sought before the CoC is formed, the NCLT is not a post office: it performs an adjudicatory exercise, hearing the concerned parties and considering all relevant factors, and the requirement that the application go through the IRP reflects the IRP's control of the corporate debtor. (¶¶ 63, 65, 66)
Inherent powers supplement but cannot override express provisions; where a procedure is exhaustively prescribed, power must be exercised only in that manner, and claims to residuary or inherent powers in insolvency matters must be closely scrutinised for consistency with the IBC framework. (¶¶ 69, 70, 71)
Here the CIRP had been admitted but no CoC constituted. No formal withdrawal application was filed, it was not routed through the IRP, and it was made in appeal before the NCLAT instead of the NCLT. The NCLAT gave no reasons for departing from the procedure; it should have stayed constitution of the CoC and directed the parties to proceed under Section 12A and Regulation 30A. (¶¶ 78, 79, 80)
Even apart from procedure, the NCLAT dismissed the appellant's objections on the source of funds and alleged round-tripping by relying solely on an undertaking of the payer, without adequately addressing the matters raised, which was inconsistent with the duty to hear all concerned parties in collective proceedings. (¶ 81)
The order in Kamal K. Singh v. Dinesh Gupta and the judgment in Ashok G. Rajani v. Beacon Trusteeship, which upheld use of Rule 11 before CoC formation without considering amended Regulation 30A, were held per incuriam on this point (expressly so for Kamal K. Singh); the decision upholding Regulation 30A as a complete mechanism, where the IRP had in fact applied under it, was distinguished. (¶¶ 82, 83, 84, 85)
A financial creditor whose claim was verified by the IRP, which objected before the NCLAT, is a 'person aggrieved' with locus to appeal under Section 62 against approval of a settlement between another creditor and the corporate debtor. (¶¶ 73, 75, 76)

Result

Appeal allowed and NCLAT judgment of 2 August 2024 set aside, without deciding the objections to the settlement on merits or making findings on any party's conduct. As the CoC had since been constituted, parties were left free to seek withdrawal or settlement under the governing framework. The Rs 158 crore held in escrow, with interest, to be deposited with the CoC and kept in escrow subject to NCLT directions; civil appeal and SLP disposed of.