ABHISHEK SINGH versus HUHTAMAKI PPL LTD. & ANR. on 28 March 2023

596

[2023] 4 S.C.R. 596

SUPREME COURT REPORTS

[2023] 4 S.C.R.

A

ABHISHEK SINGH

v.

HUHTAMAKI PPL LTD. & ANR.

(Civil Appeal No(s). 2241 of 2023)

B

MARCH 28, 2023

[B. R. GAVAI AND VIKRAM NATH, JJ.]

Insolvency and Bankruptcy Code, 2016: ss.9 and 12A –Interpretation of s. 12A and Regn 30A – Withdrawal of applicationof Corporate Insolvency Resolution Process-CIRP before theCconstitution of Committee of Creditors-CoC – Validity of – Held:s.12A permits withdrawal of applications admitted u/ss. 7, 9 and 10– s. 12A does not debar entertaining applications for withdrawaleven before constitution of CoC – Application u/s. 12A cannot besaid to be kept pending for constitution of CoC, even where suchDapplication was filed before the constitution of CoC – Furthermore,Regn 30A clearly provided for withdrawal applications beingentertained before constitution of CoC – It does not in anywayconflicts or is in violation of s.12A – There is no inconsistency inthe two provisions – It only furthers the cause introduced vide s.12A– On facts, petition u/s.9 filed by Operational Creditor-OC beforeENCLT for its outstanding amount against the Corporate Debtor-CD – Petition admitted and CIRP initiated – Within two days ofadmission order, OCs and CD entered into a settlement for paymentof the amount even before constitution of CoC – After receipt of thesettlement amount, OC filed application u/s.12A and InterimFResolution Professional filed an application u/Regn 30A seekingwithdrawal of CIRP against the CD – However, the NCLT rejectedthe withdrawal application – Said order cannot be sustained – NCLTerred in taking a contrary view – At the time when the applicationfor withdrawal of the proceedings was filed the CoC was notconstituted as such there could not have been any other concernedGparties except the OC, CD and IRP – It was only because of thedelay caused by the NCLT in disposing of the applications u/s. 12Aand Regn 30A that large number of creditors filed their claims –Inherent powers are to be invoked in order to meet the ends ofjustice which the NCLT failed to invoke – Thus, application filed u/HRegn 30A allowed and application u/s. 9 filed by the OCs stands withdrawn – Insolvency and Bankruptcy Board of India (InsolvencyResolution Process for Corporate Persons) Regulations, 2018 –Regn. 30 A.

Allowing the appeal, the Court

HELD: 1.1 Plea of alternative remedy is a self-imposedrestriction by the superior Courts and is never an absolute barunless barred by the statute. Further, in the present case, thisCourt had entertained the SLP in 2021 itself and had granted anorder of status quo on 20.04.2021. Substantial time has passedsince then. As such this Court is not inclined to entertain thesaid objection relating to availability of alternative remedy of filingthe appeal before the NCLT. IBC provides a statutory timeframefor disposal of matters. Further, such matters being commercialin nature keeping these matters pending for long, frustrates thevery object of IBC. [Para 25][609-E-G]

1.2 The intervenors have vehemently contended that after01.03.2021, once the NCLT has admitted the petition and hadissued restraint order, section 14 of IBC had come into play; thetransactions made in the accounts of the CD would be unlawfuland illegal as such payment of the settlement amount from thefunds of the CD transferred to the account of the suspendedDirector after 01.03.2021 ought to be rejected and no discretionshould be exercised permitting withdrawal of the proceedings.Even the NCLT was not satisfied with the submission of the IRPand has not approved the same. Secondly, even if there was anytransaction from the account of the CD, the same may at best beheld to be a wrongful transaction and in any other proceedingswhere CIRP is initiated the amount so transferred could berecovered under section 66 of IBC by the IRP or the RP subjectto establishing that the said transactions would be hit by the saidprovision. [Para 26][609-G-H; 610-A-C]

1.3 Other creditors would have their own right to avail suchlegal remedies as may be available to them under law with respectto their claims. The rights of the creditors for their respectiveclaims do not get whittled down or adversely affected if thesettlement with the OC in the instant case is accepted and theproceedings allowed to be withdrawn. [Para 27][610-D]

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A1.4 Any amount spent by the IRP legally admissible to himcould always be recovered in the same proceedings and the NCLTor the Adjudicating Authority would be well within its power toget the same cleared under Clause 7 of Regulation 30A of IBBIRegulations. [Para 28]B1.5 The NCLT committed an error in holding that theRegulation 30A would have no binding effect. This would amountto defeating the very purpose of substituting Regulation 30A inIBBI Regulations on 25.07.2019 after the judgment of SwissRibbons’s case which was dated 25.01.2019. Section 12A of IBCpermits the withdrawal of applications admitted under sectionsC

7, 9, and 10 of IBC. The withdrawal of such an application is withthe approval of 90 percent voting of the CoC. Section 12A didnot provide particularly for a situation wherein the CoC has notbeen constituted but, the Court held that Section 12A does notdebar entertaining applications for withdrawal of CIRP even priorDto the Constitution of CoC. Therefore, the application u/s 12 Afor withdrawal cannot be said to be kept pending for theconstitution of the CoC, even where such an application was filedbefore the constitution of the CoC. The substituted Regulation30A of IBC as it stands today clearly provided for withdrawalapplications being entertained before the constitution of CoC. ItEdoes not in any way conflicts or is in violation of section 12A ofIBC. There is no inconsistency in the two provisions. It onlyfurthers the cause introduced vide section 12A of IBC. NCLTfell in error in taking a contrary view. [Paras 34 and 35][612-F-G;613-A-C]F

1.6 From a perusal of the order of the NCLT it appears thatit was annoyed with the conduct of CD and its counsel. NCLT hasrecorded its displeasure and annoyance at a couple of placesreferring to the conduct of the CD and its counsel before theNCLAT, and maybe for this reason, the NCLT passed theGimpugned order ignoring the observation in the NCLAT orderdated 26.03.2021 which had specifically expressed that theAdjudicating Authority (NCLT) would pass orders on thewithdrawal application without standing on technicalities. [Para39][614-E-F]

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1.7 At the time when the application for withdrawal of theproceedings was filed the CoC was not constituted as such therecould not have been any other concerned parties except the OC,CD and IRP. It was only because of the delay caused by the NCLTin disposing of the applications under section 12A of IBC andRegulation 30A that large number of creditors filed their claims.The inherent powers are to be invoked in order to meet the endsof justice which, in our opinion, the NCLT failed to invoke.Regulation 30A of IBBI Regulations provide a completemechanism for dealing with the applications filed under suchprovision. The issue raised by the IRP regarding its claim forexpenses is well taken care of under the said provision. Varioussafeguards have been provided in Regulation 30A of IBBIRegulations to be fulfilled by the OC which apparently have beenfulfilled as there is no complaint in that regard either by the IRPnor it is apparent from the impugned order of the NCLT. Thus,the objection raised by the IRP does not merit any considerationin this appeal. [Para 40, 41][614-G-H; 615-A-C]

1.8 The impugned order of NCLT cannot be sustained andis set aside. The application for withdrawal u/s 12A is allowedalong with the application under Regulation 30A of IBBIRegulations. The Application u/s 9 of IBC filed by the OCs shallstand withdrawn. [Para 43][615-D]

Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC17 : [2019] 3 SCR 535; Kamal K.Singh v. Dinesh Gupta& Anr., dated 25.08.2021 in Civil Appeal No. 4993 of2021 – relied on.

Ashok G. Rajani v. Beacon Trusteeship Ltd.& Ors. (2022)SCC Online SC 1275; P. Mohanraj v. Shah Bros. ISPAT(P) Ltd. (2021) 6 SCC 258; Dena Bank (Now Bank ofBaroda) v. Shivakumar Reddy & Anr. (2021) 10 SCC330; MSTC Limited v. Adhunik Metalliks Ltd. and others(2019) SCC Online NCLAT 146; Indian OverseasBank v. Mr. Dinkar T. Venkatsubramaniam, ResolutionProfessional for Amtek Auto Limited (2017) SCCOnline NCLAT 584; Manoj K. Daga v. ISGEC HeavyEngineering Limited and others (2020) SCC OnlineNCLAT 869; Narayanamma and anr. v. Govindappa AB

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Aand Ors. (2019) 19 SCC 42; Ram Saran Das v. CTOCalcutta & Anr. AIR 1962 SC 1362; Titaghur PaperMills Co. Ltd. v. State of Orissa (1983) 2 SCC433:[1983] 2 SCR 743 – referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No.2241of 2023.

DFrom the Judgment and Order dated 13.04.2021 of the NationalCompany Law Tribunal in IA No.196 of 2021.

Shyam Divan, Sr. Adv., Abhijit Sinha, Mahesh Agarwal, NachiketDave, Himanshu Satija, Ms. Swaroop George, E. C. Agrawala,Pradhuman Gohil, Mrs. Taruna Singh Gohil, Ms. Ranu Purohit, AlapatiESahithya Krishna, Advs. for the Appellant.

Tushar Mehta, S.G., Kanu Agrawal, Saurabh Roy, Ms. DeepabaliDutta, Ms. Ruchi Gour Narula, Arvind Kumar Sharma, Ms. AnannyaGhosh, Kinshuk Chatterjee, Anirudh Sanganeria, Shamik ShirishbhaiSanjanwala, Sameer Abhyankar, Sarthak Ghonkrokta, Sunil Fernandes,FMs. Priyansha Sharma, Divyansh Tiwari, Advs. for the Respondents.

The Judgment of the Court was delivered by VIKRAM NATH, J.

Leave granted.G

2. The appellant,a suspended Director of the CorporateDebtor[1]:Manpasand Beverages Ltd. (respondent 2),has filed this appealassailing the correctness of the order dated 13.04.2021 passed by theNational Company Law Tribunal[2], Ahmedabad Bench at Ahmedabad in 1 In short “CD”H2 In short, “NCLT”

I.A. No.196 of 2021 arising out of C.P.(I.B.) No.503 of 2019 rejectingthe application of the appellant under section 12A of Insolvency andBankruptcy Code, 2016[3] for withdrawal of the Corporate InsolvencyResolution Process[4].

3. CD is in the business of manufacturing and distribution of fruitbeverages. It has approximately 700 employees and a turnover ofRs.984.96 Crores in the Financial Year 2018-2019. The OperationalCreditor[5]Huhtamaki PPL Ltd.(respondent No.1) used to supply packagingmaterial to the CD.

4. The OCs filed a petition under section 9 of IBC before theNCLT, stating a total outstanding amount of Rs.1,31,00,825/- against theCD. This was registered as CP (IB) No. 503 of 2019.

5. The NCLT by order dated 01.03.2021 passed an order admittingthe petition and initiating CIRP. Two days thereafter i.e. 03.03.2021, theOCs and the CD entered into a settlement wherein the CD was requiredto pay an amount of Rs.95.72 lakhs. The above settlement was arrivedat even before the Committee of Creditors[6] could be constituted.

6. On 4[th] March, 2021, the OCs received Rs.50 Lakhs and againon 8[th] 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 theOCs. The Interim Resolution Professional[7] on 10[th] March, 2021 movedan application under Regulation 30A of the Insolvency and BankruptcyBoard of India (Insolvency Resolution Process for Corporate Persons)Regulations, 2018[8] seeking withdrawal of CIRP against the CD. Alongwith it the application of OCs dated 09.03.2021 was also attached whichwas moved under section 12A of IBC. The application for withdrawalwas registered as IA No. 196 of 2021.

7. In the meantime, an appeal was preferred against the admissionorder dated 01.03.2021 before the National Company Law AppellateTribunal[9] apparently on the ground that section 9 of IBC petition was notmaintainable as there was a pre-existing dispute. On 26.03.2021, the 3 In short, “IBC”

4 In short, “CIRP”

5 In short “OC”

6 In short “CoC”

7 In short “IRP”

8 In short “IBBI Regulations”

9 In short “NCLAT”

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Aappeal was withdrawn before the NCLAT with liberty to apply for revivalof the appeal in case the settlement failed. The NCLAT while allowingthe withdrawal of the appeal granted stay of formation of CoC. The saidorder dated 26.03.2021 is reproduced below:

“Mr. Vikram Nankani, Advocate appears for the Appellant. HeBsubmits 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 wasfiled under section 9 of Insolvency and Bankruptcy Code, 2016(IBC in short) against the Respondent No.2 M/s.ManpasandBeverages Ltd. the Corporate Debtor. Appellant is the DirectorCof the Suspended Board of the Corporate Debtor. RespondentNo.3 is Interim Resolution Professional.

2. Learned counsel for the Appellant submits that the Applicationwas admitted by the Impugned Order and Appeal is filed. It isstated that thereafter the Appellant has settled the claim ofDOperational Creditor and the Operational Creditor has filedApplication for withdrawal copy of which is at Page 348 andeven the IRP has filed Application before the Adjudicating Authoritycopy of which is at page 368. The Application for withdrawalunder section 12A of IBC has been filed through IRP. Mr. SalilEThakore, Advocate agrees with the Learned Counsel for theAppellant that there has been a settlement and accordinglyApplication under section 12A of IBC has ben filed. The LearnedCounsel for IRP however states that the money has been paidviolating moratorium which the IRP has reported to theAdjudicating Authority.F3. Mr. Hitesh Buch, PCS also agrees that settlement has takenplace.

4. Learned counsel for the Appellant submits that considering thesefacts, the Appeal may be allowed to be withdrawn with liberty toseek restoration in case the effort with regard tosection 12 A ofGIBC runs into difficulty. The Learned Counsel for IRP acceptsthat Committee of Creditors (CoC in short) has not beenconstituted.

5. The learned counsel for the Appellant submits that he is makingrequest for withdrawal of the Appeal under instructions from theHAppellant.

6. Considering the objects of IBC, we have no reason to doubtthat the Adjudicating Authority without standing on technicalitieswould pass appropriate Orders, if settlement has taken placebetween the Original Operational Creditor and Corporate Debtorand CoC is not yet constituted.

7(A) For reasons stated above, the Appeal is permitted to bewithdrawn with liberty to seek restoration of the Appeal in caseat any future time the effort to settle in terms of section 12A ofIBC runs into difficulty and does not happen.

7(B) Till the Adjudicating Authority decides Application undersection 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 13.04.2021rejected the settlement application and fixed the matter for disposal ofthe application under Regulation 30A of IBBI Regulations after hearingall creditors.

9. Subsequent to the above order of NCLT dated 13.04.2021, theIRP constituted the CoC on 15.04.2021. The appellant preferred theSLP on 19.04.2021. This Court vide order dated 20.04.2021 while issuingnotice, directed the parties to maintain status quo.

10. It would be pertinent to mention here that primary oppositionis by the IRP by way of an intervention application. The OC is notopposing the appeal in as much as it had already received the full amountas per the settlement dated 03.03.2021.Further, three other applicationsfor 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 provisionsmay be noticed.

12. Rule 11 of The National Company Law Tribunal Rules, 2016[10]confer inherent powers on the NCLT to pass appropriate orders formeeting the ends of justice or to prevent abuse of the process of theTribunal. The said rule is reproduced hereunder:

“11. Inherent powers- Nothing in these rules shall be deemedto limit or otherwise affect the inherent powers of the Tribunal to 10 In short “the NCLT Rules”

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Amake such orders as may be necessary for meeting the ends ofjustice or to prevent abuse of the process of the Tribunal.”

13. Section 12A of IBC which was inserted w.e.f. 06.06.2018permits withdrawal of applications admitted under sections 7, 9 or 10 ofIBC, with the approval of 90 percent voting share of the CoC in suchBmanner as may be specified. The said provision is reproduced below:

“12A. Withdrawal of application admitted under section 7,9or 10 – The Adjudicating Authority may allow the withdrawal ofapplication admitted under section 7 or section 9 or section 10, onan application made by the applicant with the approval of ninetyper cent voting share of the committee of creditors, in such mannerCas may be specified.”

14. Regulation 30A of IBBI Regulations was introduced afterinsertion of section 12A in IBC. It provided the mechanism of dealingwith applications filed for withdrawal. Later on, itwas substituted bynotification dated 25.07.2019 in IBBI Regulations. According to the saidDprovision, withdrawal under section 12A of IBC could be moved beforeAdjudicating Authority by the applicant through IRP before constitutionof the CoC and in case the CoC has been constituted, then also by theapplicant through IRP or the RP.However, the applicant would be requiredto justify the withdrawal by giving reasons. It further provides theprocedure for dealing with such an application. Regulation 30A of IBBIERegulations,as it stands today, is reproduced hereunder:

“30A. Withdrawal of application. (1) An application forwithdrawal under section 12A may be made to the AdjudicatingAuthority –

(a) before the constitution of the committee, by the applicantFthrough the interim resolution professional; (b) after the constitution of the committee, by the applicantthrough the interim resolution professional or the resolutionprofessional, as the case may be:

Provided that where the application is made under clause (b) afterGthe issue of invitation for expression of interest under regulation36A, the applicant shall state the reasons justifying withdrawalafter issue of such invitation.

(2) The application under sub-regulation (1) shall be made in Form-FA of the Schedule accompanied by a bank guarantee- H

(a) towards estimated expenses incurred on or by the interimresolution professional for purposes of regulation 33, till the dateof 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 theapplication under clause (b) of sub-regulation (1).

(3) Where an application for withdrawal is under clause (a) ofsub-regulation (1), the interim resolution professional shall submitthe application to the Adjudicating Authority on behalf of theapplicant, within three days of its receipt.

(4) Where an application for withdrawal is under clause (b) ofsub-regulation (1), the committee shall consider the application,within seven days of its receipt.

(5) Where the application referred to in sub-regulation (4) isapproved by the committee with ninety percent voting share, theresolution professional shall submit such application along withthe approval of the committee, to the Adjudicating Authority onbehalf of the applicant, within three days of such approval.

(6) The Adjudicating Authority may, by order, approve theapplication submitted under sub-regulation (3) or (5).

(7) Where the application is approved under sub-regulation (6),the applicant shall deposit an amount, towards the actual expensesincurred for the purposes referred to in clause (a) or clause (b) ofsub-regulation (2) till the date of approval by the AdjudicatingAuthority, as determined by the interim resolution professional orresolution professional, as the case may be, within three days ofsuch approval, in the bank account of the corporate debtor, failingwhich the bank guarantee received under sub-regulation (2) shallbe invoked, without prejudice to any other action permissibleagainst the applicant under the Code. “

15. NCLT, in the impugned order while rejecting I.A.No.196 of2021 filed by the OCs, recorded the following findings:

i.The facts relating to the settlement and the fulfilment ofthe terms of the settlement are not disputed; A

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Aii.The suspended directors of the CD despite the moratoriumhaving commenced with effect from 01.03.2021 have notonly made transactions of deposit but also withdrawal fromthe account of the CD. They have thus violated thedirections contained in the admission order dated 01.03.2021; Biii.Although the IRP had made submissions that the suspendeddirector having transferred huge amount from the accountof the company to his personal account and from therehaving made the payment to the OC under the settlementbut the same was not conclusively proved;

Civ.The suspended director and their counsel made frivolousarguments before the NCLT which were contrary to recordin order to obtain favourable orders;

v.As many as 35 claims of creditors both operational andfinancial have been filed in the meantime. As suchDwithdrawal of the proceedings would adversely affect theirrights;

vi.The proceedings once admitted and IRP having initiated,such proceedings are in rem and all stake holders canparticipate in the proceedings with their respective claims;and E

vii.Regulation 30A of IBBI Regulations was not binding uponit and such provision would not be of any help to the CD orits suspended Directors;

16. Heard learned counsel for the parties and perused the materialFon record.

17. Shri Shyam Divan, learned senior counsel appearing for theappellant referring to statutory provisions like section 12A of IBC,Regulation 30A of IBBI Regulations and alsoto Rule 11 of the NCLTRules, 2016 submitted that such provisions clearly permit settlementGbetween the creditor and the debtor and withdrawal of proceedings priorto the constitution of CoC. According to him, once the settlement wasarrived at and acted upon prior to the constitution of CoC, the NCLTcommitted a grave error in not allowing the withdrawal of the proceedings.He has placed reliance on a number of orders/judgments passed by thisCourt exercising powers under Article 142 of the Constitution allowingH

withdrawal of such petitions where settlement had been arrived at andalso certain orders passed by NCLAT permitting withdrawal beforeconstitution of CoC.Reliance was also placed upon a judgment of thisCourt in the case of Swiss Ribbons (P) Ltd.V. Union of India11dated 25.01.2019 whereafter the Central Government vide Notificationdated 25[th] July, 2019 inserted Regulation 30A in IBBI Regulations whichpermitted withdrawal of petitions before constitution of CoC.

18. Further submission advanced by Mr.Divan is to the effectthat NCLT was swayed by the fact that there were several other creditorswho had raised their claims against the CD and as such without hearingsuch creditors, permission of withdrawal would not be proper. This,according to the learned senior counsel, was an error committed by theNCLT inasmuch as these third party claims could not have been takeninto consideration nor they should have weighed with the NCLT informing its opinion. Once the CoC had not been constituted the claimsof other creditors would not come into play to defeat the settlementarrived at between the OC and the CD. In support of the said submissionhe has placed reliance upon a judgment of this Court in the case ofAshok G. Rajaniv. Beacon Trusteeship Ltd.&Ors.12 Reliance isalso placed upon another order of this Court in the case of KamalK.Singh v. Dinesh Gupta & Anr.,dated 25.08.2021 in Civil AppealNo.4993 of 2021.

19. The next submission relates to the objection taken by the IRPthat the suspended Director had transferred huge amounts from theaccount 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 thirdparties. Further the amount so transferred in the personal account of thesuspended Director was utilized in paying off the amount as per thesettlement to the OC. The submission made by learned senior Counselis to the effect that the NCLT itself recorded a finding that the aboveobjection taken by the IRP was not conclusively established. Hissubmission is that despite the said finding the NCLT was apparentlyinfluenced by the objection taken by the IRP.

20. Lastly, it was submitted by Shri Divan, that the NCLT had nojurisdiction to declare or hold that Regulation 30A of IBBI Regulationswas not binding on it; NCLT committed a grave errorof law in ignoring 11 (2019) 4 SCC 17

12 (2022) SCC Online SC 1275.

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Athe said provision. According to him, it was beyond the power of theNCLT to have discarded a statutory provision.

21. Based on the above points it was submitted that the appealdeserves to be allowed, the impugned order of the NCLT be set asideand the withdrawal of the proceedings be allowed.

B22. On the other hand, the IRP and other interveners have stronglyopposed the appeal. The submissions advanced on their behalf are thesame as were raised before the NCLT which had found favour thereinresulting into the passing of the impugned order. In effect they supportedthe findings of the NCLT.Additionally, it has been objected on their behalfthat the appellant ought to have availed alternative remedy by filing anCappeal before the NCLAT. The IRP has also raised the issue regardingnon-clearance of his funds with respect to the expenditure incurred byhim. In support of the submissions, reliance is placed upon the followingjudgments:

(1) P. Mohanrajv. Shah Bros. ISPAT (P) Ltd.13

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(2) Swiss Ribbons Private Limited &Anr.v.Union of India&Ors. (supra)

(3) Dena Bank (Now Bank of Baroda)v. ShivakumarReddy &Anr.14

(4) MSTC Limited v. AdhunikMetalliks Ltd. andEothers[15];

(5) Indian Overseas Bank v. Mr. Dinkar T.Venkatsubramaniam, Resolution Professional forAmtek Auto Limited[16];

(6) Manoj K. Daga v. ISGEC Heavy Engineering LimitedFand others[17];

(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

G13 (2021) 6 SCC 25814 (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 4219 AIR 1962 SC 1362H20 (1983) 2 SCC 433

23. The facts as stated above are not disputed. The applicationhad been filed prior to the constitution of the CoC. The settlement hadbeen arrived at within two days of the admission order. The payment asper the settlement had been made within the next five days i.e. in aweeks’ time from the date of admission. The application for withdrawalwas filed on the 10[th] day. The NCLT ought to have immediately takenthe decision on the application. Once the parties had settled the disputeeven before the CoC had been constituted, the application ought to havebeen allowed then and there rather than await the other creditors tojump into the fray and allow the IRP to proceed further.

24. On behalf of the appellant number of orders of this Courthave been relied upon wherein the power under Article 142 of theConstitution was exercised to approve the settlement and permitwithdrawal of cases wherein CIRP had been initiated. We could havealso done the same which would have been an easy way out butconsidering the order passed by the NCLT rejecting the application forwithdrawal and further the IRP and three other OCs having filedintervention applications, we are embarking upon to decide the issuesraised and as to what should be the course adopted by NCLT in dealingwith withdrawal matters before the constitution of CoC. We take up theissues one by one.

Alternative Remedy

25. Plea of alternative remedy is a self-imposed restriction by thesuperior Courts and is never an absolute bar unless barred by the statute.Further, in the present case, this Court had entertained the SLP in 2021itself and had granted an order of status quo on 20.04.2021.Substantialtime has passed since then.As such we are not inclined to entertain thesaid objection relating to availability of alternative remedy of filing theappeal before the NCLT. We may also note here that IBC provides astatutory timeframe for disposal of matters. Further, such matters beingcommercial in nature keeping these matters pending for long, frustratesthe very object of IBC.

Violation of the Moratorium

Violation of the Moratorium

26. The intervenors have vehemently contended that after01.03.2021, once the NCLT has admitted the petition and had issuedrestraint order, section 14 of IBC had come into play; the transactionsmade in the accounts of the CD would be unlawful and illegal as such AB

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Apayment of the settlement amount from the funds of the CD transferredto the account of the suspended Director after 01.03.2021 oughtto berejected and no discretion should be exercised permitting withdrawal ofthe proceedings. In this respect, it would suffice to state that even theNCLT was not satisfied with the said submission of the IRP and has notapproved the same. Secondly, even if there was any transaction fromBthe account of the CD, the same may at best be held to be a wrongfultransaction and in any other proceedings where CIRP is initiated theamount so transferred could be recovered under section 66 of IBC bythe IRP or the RP subject to establishing that the said transactions wouldbe hit by the said provision.CMultiple claims of OCs

27. With respect to the said objection, it only needs to be mentionedthat other creditors would have their own right to avail such legal remediesas may be available to them under law with respect to their claims. Therights of the creditors for their respective claims do not get whittledDdown or adversely affected if the settlement with the OC in the presentcase 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 couldEalways be recovered in the same proceedings and the NCLT or theAdjudicating Authority would be well within its power to get the samecleared under Clause 7 of Regulation 30A of IBBI Regulations.

Judgments relied upon:

29. In the facts and circumstances of the present case and for theFdiscussion made above none of the judgments relied upon by theintervenors are of any help to the intervenors. Briefly the same arediscussed hereinafter.

30. The interveners have relied upon P.Mohanraj (supra), SwissRibbons (supra), Dena Bank (supra), MSTC Limited (supra), IndianGOverseas Bank (supra) and Manok K. Daga (supra), for the propositionthat settlement would be in violation of moratorium as payments havebeen made after transferring money from the CD account after initiationof CIRP. As already recorded above, we have held that firstly, the NCLTitself was not satisfied that moratorium had been violated and even if ithad been violated, at best it would amount to a wrongful trading/transactionH

and the same, if established, could always be recovered by the IRP orthe RP in appropriate proceedings for CIRP by other OCs under section66 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 beenrelied upon for the proposition that this Court would not put a seal on anillegal act of the suspended Directors of the CD as they have transferredfunds 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 theappeal deserves to be dismissed as the appellant did not avail thealternative remedy. This 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 impugnedorder passed by the NCLT in the present appeal.Majority of the findingsrecorded in the impugned orders are already covered above.An importantissue remains to be considered is the finding recorded by the NCLT thatRegulation 30A of IBBI Regulations was not binding upon it and couldnot 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 SwissRibbons (supra). Section 12A of IBC permitted withdrawal ofapplications admitted under sections 7, 9 or 10 of IBC.But the saidprovision envisaged a situation where the withdrawal application wouldbe filed after the CoC has been constituted, as it requires approval of 90per cent voting shares of CoC. There was no provision which woulddeal with withdrawal of proceedings before constitution of CoC. EvenRegulation 30A, as it existed earlier, did not contemplate of considerationof an application for withdrawal filed before constitution of CoC. Thisissue 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 ofa creditor’s petition under Sections 7 to 9, the proceeding that isbefore the adjudicating authority, being a collective proceeding, isa proceeding in rem. Being a proceeding in rem, it is necessary A

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Athat the body which is to oversee the resolution process must beconsulted before any individual corporate debtor is allowed to settleits claim. A question arises as to what is to happen before aCommittee of Creditors is constituted (as per the timelines thatare specified, a Committee of Creditors can be appointed at anytime within 30 days from the date of appointment of the interimBresolution professional). We make it clear that at any stage wherethe Committee of Creditors is not yet constituted, a party canapproach NCLT directly, which Tribunal may, in exercise of itsinherent powers under Rule 11 of NCLT Rules, 2016, allow ordisallow an application for withdrawal or settlement. This will beCdecided after hearing all the parties concerned and considering allrelevant factors on the facts of each case.”This Court had required the NCLT to invoke its powers underRule 11 of the NCLT Rules.

34. It was after the observations made by this Court in the caseDof Swiss Ribbons (supra), as noted above and also considering theaspect that large number of orders were being passed by this Courtinvoking Article 142 of the Constitution that IBBI Regulations whichwere framed by the Insolvency and Bankruptcy Board of India[21]exercising powers conferred under sections 5, 7, 9, 14, 15, 17, 18, 21, 24,E25, 29, 30, 196, 208 read with section 240 substituted section 30A videnotification dated 25.07.2019. The Board was conferred with powers toframe regulations for various purposes referred to insection 240 of IBCand the other allied sections. These regulations maybe subordinate incharacter but would still carry a statutory flavor and would be binding onthe NCLT. The NCLT committed an error in holding that RegulationF30A would have no binding effect. This would amount to defeating thevery purpose of substituting Regulation 30A in IBBI Regulations on25.07.2019 after the judgment of Swiss Ribbons(supra) which wasdated 25.01.2019.

35. Section 12A of IBC permits withdrawal of applications admittedGunder sections 7, 9 and 10 of IBC. It permits withdrawal of suchapplications with approval of 90 percent voting share of CoC in suchmanner as may be specified. The role of CoC and 90 percent of itsvoting share approving the said withdrawal would come into play onlywhen CoC has been constituted. Section 12A did not specifically mentionH21 In short “IBBI”

withdrawal of such applications where CoC had not been constitutedbut at the same time it does not debar entertaining applications forwithdrawal even before constitution of CoC. Therefore, the applicationunder section 12A for withdrawal cannot be said to be kept pending forconstitution of CoC, even where such application was filed beforeconstitution of CoC. The IBBI which had the power to frame Regulationswherever required and in particular section 240 of IBC for the subjectscovered therein had accordingly substituted Regulation 30A dealing withthe procedure for disposal of application for withdrawal filed under section12A of IBC. The substituted Regulation 30A of IBC as it stands todayclearly provided for withdrawal applications being entertained beforeconstitution of CoC. It does not in any way conflicts or is in violation ofsection 12A of IBC. There is no inconsistency in the two provisions. Itonly furthers the cause introduced vide section 12A of IBC. Thus, NCLTfell in error in taking a contrary view.

36. In Kamal K. Singh (supra), relying upon paragraph 82 of thereport in the case of Swiss Ribbons (supra), the Supreme Court, whichwas dealing with a similar situation where the settlement had been arrivedbefore constitution of CoC allowed the proceedings to be withdrawnand held that the applications filed under Rule 11 of the NCLT Ruleswould be maintainable and the OCs therein was justified in moving suchapplication.

37. In the case of Ashok G. Rajani (supra), the settlement hadbeen arrived at between the parties on 08.08.2021, after the NCLT hadadmitted the application under section 7 of IBC vide order dated03.08.2021. On appeal, the NCLAT vide order dated 18.08.2021 stayedthe formation of CoC but declined to exercise its powers under Rule 11of 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 whythe applications for withdrawal cannot be stifled before the constitutionof CoC by third parties. The said paragraphs are reproduced below:

“29. Considering the investments made by the Corporate Debtorand considering the number of people dependant on the CorporateDebtor for their survival and livelihood, there is no reason whythe applicant for the CIRP, should not be allowed to withdraw itsapplication once its disputes have been settled.

30. The settlement cannot be stifled before the constitution of theCommittee of Creditors in anticipation of claims against the A

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ACorporate Debtor from third persons. The withdrawal of anapplication for CIRP by the applicant would not prevent any otherfinancial creditor from taking recourse to a proceeding under IBC.The urgency to abide by the timelines for completion of theresolution process is not a reason to stifle the settlement.”

B38. This Court relying upon the order in the case of Kamal K.Singh (supra) issued directions in paragraph 32 to the NCLT to take upthe settlement application and decide the same in the light of observationsmade therein. The said paragraph is reproduced hereunder:

“32. The application for settlement under Section 12A of the IBCCis pending before the Adjudicating Authority (NCLT). The NCLAThas stayed the constitution of the Committee of Creditors. Theorder impugned is only an interim order which does not call forinterference. In an appeal under Section 62 of the IBC, there isno question of law which requires determination by this Court.The appeal is, accordingly, dismissed. The NCLT is directed toDtake up the settlement application and decide the same in the lightof the observations made above.”

39. One more aspect needs to be flagged here.From a perusal ofthe order of the NCLT it appears that it was annoyed with the conductof CD and its counsel. NCLT has recorded its displeasure and annoyanceEat a couple of places referring to the conduct of the CD and its counselbefore the NCLAT, and maybe for this reason, the NCLT passed theimpugned order ignoring the observation in the NCLAT order dated26.03.2021 which had specifically expressed that the AdjudicatingAuthority (NCLT) would pass orders on the withdrawal applicationFwithout standing on technicalities.

40. Both the parties have relied upon paragraph 82 of the judgmentin the case of Swiss Ribbons (supra). According to the appellant, theNCLT ought to have exercised its inherent powers under Rule 11 of theNCLT Rules whereas for the intervenors it is submitted that this CourtGhad observed that power under Rule 11 would be exercised after hearingall concerned parties. It may be noted that at the time when the applicationfor withdrawal of the proceedings was filed the CoC was not constitutedas such there could not have been any other concerned parties exceptthe OC, CD and IRP. It was only because of the delay caused by theNCLT in disposing of the applications under section 12A of IBC andHRegulation 30A of IBBI Regulations that large number of creditors filed their claims. The inherent powers are to be invoked in order to meet theends of justice which, in our opinion, the NCLT failed to invoke.

41. Regulation 30A of IBBI Regulations provide a completemechanism for dealing with the applications filed under such provision.The issue raised by the IRP regarding its claim for expenses is welltaken care of under the said provision. Various safeguards have beenprovided in Regulation 30A ofIBBI Regulations to be fulfilled by the OCwhich apparently have been fulfilled as there is no complaint in thatregard either by the IRP nor it is apparent from the impugned order ofthe NCLT. Thus, the objection raised by the IRP does not merit anyconsideration in this appeal.

42. For all the reasons recorded above, the impugned order of theNCLT cannot be sustained. The application filed under Regulation 30Aof IBBI Regulations deserves to be allowed.

43. Accordingly, the appeal is allowed and the impugned order ofNCLT is set aside. Further, the Application No. 196 of 2021 also deservesto be allowed along with the application under Regulation 30A of IBBIRegulations. The Application under section 9 of IBC filed by the OCsshall stand withdrawn. It is further provided that any claim for expensesincurred may be dealt with by the NCLT in accordance with law.

44. We make it clear that any observations made in this judgmentwill not,in any manner,affect the claim of other creditors of whatevercategory and they would be free to raise their own independent claimsin appropriate proceedings which would be dealt with in accordancewith law.

45. Pending applications, if any, are disposed of.

Nidhi Jain

Appeal allowed.

(Assisted by : Parth Goswami and Tamana, LCRAs)

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