CIRP Withdrawal Cannot Be Allowed Unless Application Is Filed By Applicant Who Initiates Section 7 Application: NCLAT

Brief Facts

The present appeal has been filed by a Suspended Director of the Corporate Debtor against an order passed by the NCLT by which an IA was dismissed. The corporate debtor was incorporated on March 20, 2003. The corporate debtor entered into an MOU under which it transferred all its shareholdings to Accord Mediplus Pvt. Ltd when the debt against the CD accumulated.

Thereafter, funds amounting to ₹1.96 crores and ₹35 lakhs deposited in the CD were transferred by erstwhile directors (Respondents 6-12) to a Trust they controlled, following which they resigned in 2017 after executing a Share Purchase Agreement. Later, they filed an application under section 7 of the IBC in which they claimed Rs. 2.60 crore as debt.

This application was opposed on the ground that it was filed with a malafide intention. Despite this, the application was admitted. Subsequently, the appellant filed an IA seeking recall of the admission order on the ground that it had entered into a settlement with the creditors. But the application was rejected.

Contentions:

The appellant submitted that the Appellant came to know about relevant fact after reply was filed by Janseva Sahakari Bank, which clarified that the amount was transferred by Respondent Nos.6 to 9 in the CD, which was immediately transferred to the Trust controlled by them and from Trust, the amount was transferred for clearing the debt obligation of the Trust.

It was further argued that the Applicants being Respondent Nos.6 to 9, who have malafidely and fraudulently initiated the CIRP are opposing the settlement with the Financial Creditors under Section 12A. The Application for withdrawal can be filed only by the Applicant, i.e. Respondent Nos.6 to 9, who initiated the CIRP, hence, withdrawal under Section 12A is not permissible. However, the Adjudicating Authority does not lack jurisdiction to permit closure of the CIRP in the facts of the present case exercising its jurisdiction.

Finally, it was submitted that Respondent Nos.6 to 9, who have entered into an MoU and Share Purchase Agreement transferring their all rights in the Company with intent to regain the control has adopted this malafide and fraudulent exercise of initiation of CIRP.

Per contra, the respondents argued that they were never approached for any settlement and no settlement offer was made to them. It was also argued that invocation of section 65 is not justified as no new developments had taken place after the admission order passed by the NCLT.

Observations:

After going through the multiple IAs filed by the appellant and prayers made thereunder, the tribunal at the outset noted that the impugned order had already been challenged before the appellate tribunal and further before the Supreme Court as well but both appeals were dismissed.

Based on the above, the tribunal observed that “we are of the view that Adjudicating Authority did not commit any error in rejecting the prayer of the Appellant in IA No.2241 of 2024 for recall of the order dated 08.10.2021.”

In Glass Trust Company LLC v. BYJU Raveendran (2024) the Supreme Court has held that “Regulation 30A(3) provides that in cases where the application for withdrawal is moved before the constitution of the CoC, the IRP shall submit the application to the NCLT on behalf of the applicant within three days of receipt.”

“Regulations 30A (4) and (5) deal with the situation where the CoC has already been constituted. They provide that the CoC shall consider the application within seven days of receipt, and subsequently, if the application is approved by the CoC with a ninety-percent voting share, the RP must submit the application with the approval to the NCLT within three days of the approval.”

While applying the above ratio to the facts of the present case, it opined that Section 7 Application has been filed by Respondent Nos.6 to 9 and unless an Application is filed by the Applicant, who has initiated Section 7 Application, compliance of Section 12A read with Section 30A, cannot be made. We, thus, are of the view that present is not a case where CIRP can be withdrawn under Section 12A read with Regulation 30.

After referring to the Supreme Court judgment in SBI vs. Company Appeal Consortium of Murari Lal Jalan & Florian Fritsch (2024) , it observed that where there exists extraordinary circumstances warranting the exercise of such powers in order to ensure that the very salutary purpose of the Code, is not frustrated, then the Court will be well within its prerogative to exercise them to secure the object of the IBC.

It further added that “there can be no quarrel to the proposition that in a case where Adjudicating Authority comes to the conclusion that ingredients of Section 65 are attracted, i.e. Application has been filed with fraudulent or/ with malicious intent for the purpose other than the resolution of the Corporate Debtor, the Adjudicating Authority may impose on such person penalty. In a case where finding is returned within the meaning of Section 65, the Adjudicating Authority can very well exercise its inherent jurisdiction to close such CIRP proceedings.”

The tribunal further noted that IA No.1238 of 2022, in which averments and pleadings have been made within the meaning of Section 65 of the IBC, still pending consideration before the Adjudicating Authority and while hearing the said Application, the Adjudicating Authority directed for stay of voting on the Resolution Plan.

Finally, the tribunal concluded that “the order passed by Adjudicating Authority dated 21.08.2024, rejecting the prayer of the Appellant in IA No.2241 of 2024 to recall order of admission dated 08.10.2021 is upheld. IA No.1238 of 2022 filed by the Appellant on 11.05.2022, which is pending consideration before the Adjudicating Authority, be heard and decided by the Adjudicating Authority before proceeding further in the CIRP process.”

Accordingly, the present appeal was dismissed.

Case Title: Vidyadhar Sarfare & Anr Versus CS Anagha Anasingharaju & Ors.

Case Number: Company Appeal (AT) (Insolvency) No.1733 of 2024

Judgment Date: 18/12/2024

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