Application U/S 12A Of IBC Can Be Withdrawn By Resolution Professional Before It Is Heard Or Allowed: NCLAT

Brief Facts

The suspended director of the corporate debtor has filed these two appeals challenging two orders passed by the NCLT. These appeals stemmed from an application filed under section 9 of the code by the operational creditor which was admitted.

The parties settled amongst themselves, consequent of which an application under section 12A was filed. Thereafter, claims filed by the Mitsubishi Heavy Industries Ltd. (MHIL) as a financial creditor which were admitted by the RP. Consequently, the RP said during the hearing that cheque issued to the operational creditor had also been encashed.

Thereafter, the MHIL was informed by the RP about the decision taken by the CoC regarding CIRP withdrawal and that an application under section 12A had also been filed. Subsequently, claim of the MHIL was admitted by the RP and during the hearing it was confirmed that cheque issued to the operational creditor had been encashed.

The Resolution Professional filed a purshish before the Adjudicating Authority for withdrawal of the application filed under Section 12A on the ground that MHIL's claim being admitted, CoC was required to be re-constituted. The Adjudicating Authority noticing the aforesaid statement of the Resolution Professional and taking note of the purshish for withdrawal allowed the Resolution Professional to withdraw IA No.1345 of 2024.

The appellant contended that the procedures as prescribed in Section 12A has to be followed for withdrawal of the CIRP and no withdrawal can be permitted contrary to the procedure prescribed as observed by the Supreme Court in the Glass Trust Case.

It was also argued that the Resolution Professional was only a representative of the Operational Creditor and Resolution Professional had no jurisdiction and authority to withdraw the application under Section 12A.

It was also argued that in any view of the matter, as per Regulation 12(3) of the CIRP Regulations where the new Financial Creditor is included in the committee after admission of its claim, such inclusion shall not affect the validity of any decision taken by the committee prior to such inclusion.

It was further submitted that the order of the Adjudicating Authority permitting withdrawal is against the procedures as contemplated by Section 12A r/w Regulation 30A. Counsel for the Appellant relying on the judgment of the Hon'ble Supreme Court in GLAS Trust Company LLC v. BYJU Raveendran & Ors (2024) submits that the procedures as prescribed in Section 12A has to be followed for withdrawal of the CIRP and no withdrawal can be permitted contrary to the procedure prescribed.

On the other hand, the respondent argued that the withdrawal of the application under Section 12A without considering the claim of MHIL cannot be permitted. Counsel for the Respondent heavily relied on the judgment of the Hon'ble Supreme Court in “GLAS Trust Company LLC” (Supra).

It was also argued that the decision was taken by the CoC on 16.08.2024 for permitting withdrawal of the CIRP that was prior to admission of the claim of MHIL on 16.09.2024. After 16.09.2024 when the MHIL as Financial Creditor has been accepted which has voting share of 92.35%, no withdrawal can be permitted.

Finally, it was submitted that the Appellant who is a Suspended Director of the Corporate Debtor has no role to play in application under Section 12A filed by the Resolution Professional and it is the Resolution Professional who has to conduct the Insolvency Process including application under Section 12A.

Observations:

The tribunal noted that Regulation 30A clearly provides that application for withdrawal has to be filed through the Interim Resolution Professional or the Resolution Professional as the case may be.

It further observed that the Supreme Court in GLAS Trust Company LLC v. BYJU Raveendran & Ors (2024) has laid down that after admission of CIRP, the CIRP process becomes in rem proceeding and it is the Resolution Professional who has to thereafter conduct the proceeding and after proceedings having become in rem, they are no longer the preserve of only the applicant creditor and the corporate debtor and even creditors who were not the original applicants, become necessary stakeholders.

The tribunal also observed that “in view of the law as laid down by the Hon'ble Supreme Court, it is clear that it is the IRP/RP who is the person in control of the insolvency proceedings including the proceedings initiated by Resolution Professional for withdrawal under Section 12A.”

It further said that there can be no quarrel to the statutory scheme as delineated by Regulation 12(3). What is provided in Regulation 12(3) that validity of any decision taken by the committee prior to such inclusion shall not be affected. Present is not a case where anyone is impugning the validity of decision taken in the 3rd CoC meeting held on 16.08.2024.

It further added that when the claim has been admitted ignoring the admission to such claim, Section 12A application could not have been allowed which was filed much before admission of the claim of Financial Creditor who now controls the vote share of 92.35%.

The tribunal further opined that “the withdrawal of the application under section 12A is attributed to a subsequent event that happened after August 16, 2024 namely the admission of the claims of the MHIL on September 16, 2024 which was previous to the hearing or approval of the section 12A application.The RP has rightly brought into the notice of the Adjudicating Authority on 17.09.2024 when application came for hearing that claim has been admitted and CoC has to be re-constituted.”

Finally, the tribunal concluded that “we, thus, are fully satisfied that the Resolution Professional had every jurisdiction to file purshish to withdraw of the application. In the facts of the present case, Adjudicating Authority has permitted withdrawal of Section 12A application in accordance with law by order dated 12.11.2024.”

Case Title: Mehul Patel (Member of Suspended Board of Anupam Port Cranes Corporation Ltd.) Vs. Nandish S. Vin & Anr

Case Number: Company Appeal (AT) (Insolvency) No.2191 of 2024

Judgment Date: 23/12/2024

Click Here To Read/Download The Order