No Inherent Right To Withdraw Section 9 IBC Application And Refile: NCLAT New Delhi
Rajesh Kumar
21 Aug 2024 10:16 AM IST
The National Company Law Appellate Tribunal, Principal Bench, New Delhi bench of Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member) and Arun Baroka (Technical Member) has held that in proceedings under the Insolvency and Bankruptcy Code (IBC), an Applicant does not have an inherent right to withdraw an application filed under Section 9 at any stage and...
The National Company Law Appellate Tribunal, Principal Bench, New Delhi bench of Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member) and Arun Baroka (Technical Member) has held that in proceedings under the Insolvency and Bankruptcy Code (IBC), an Applicant does not have an inherent right to withdraw an application filed under Section 9 at any stage and subsequently request the liberty to file a new application.
Brief Facts:
The matter pertained to two appeals which were filed against the order issued by the National Company Law Tribunal (NCLT), Ahmedabad. These appeals arose from two Section 9 Applications filed by Florex Tiles (Appellant) under the Insolvency and Bankruptcy Code, 2016 (IBC).
The facts central to the first appeal were that the Appellant claiming an operational debt of Rs. 3,51,72,942/- due from the Corporate Debtor, M/s Greenstone Granite Pvt. Ltd., filed a Section 9 application under the IBC. The debt was based on invoices. The application was registered and the NCLT issued a notice to the Corporate Debtor. The Corporate Debtor appeared before the NCLT and subsequently filed IA No. 409 of 2024 alleging that the Appellant submitted false evidence related to its demand notice. Later, the Appellant's counsel sought permission to withdraw the application which the Corporate Debtor's counsel opposed. The NCLT directed the Appellant to file a formal request (pursish) for withdrawal and the case was adjourned. The Appellant filed the withdrawal pursish, and the NCLT allowed the withdrawal of the application but imposed a cost of Rs. 50,000/- to be paid to the Respondent for legal expenses. Aggrieved by this decision, the Appellant filed the appeal before the NCLAT.
The Appellant argued that the NCLT, while permitting the withdrawal of the application, was required to grant the Appellant liberty to file a fresh petition. It contended that the NCLT should have either allowed the withdrawal with the requested liberty in full or rejected the application entirely.
Observations by the NCLAT:
The matter revolved around the interpretation and application of Order 23 Rule 1 which governs the withdrawal of suits and the conditions under which a fresh suit may be instituted. The Appellant argued that the permission to file a fresh suit should be automatic upon withdrawal a claim that the NCLAT found to be contrary to the principles enshrined in Order 23 Rule 1, sub-rule (3). This sub-rule stipulates that the court's satisfaction is a prerequisite for allowing the institution of a fresh suit.
The NCLAT held that the mere act of withdrawing a suit does not entitle the plaintiff to automatically file a new one. The adjudicating authority must be convinced that there are sufficient grounds for permitting such a fresh suit. The NCLAT pointed out that the submission made by the Appellant contending an automatic right to file a fresh suit was inconsistent with these principles.
The NCLAT further noted that the proceedings under the IBC are governed by strict timelines, which are a fundamental aspect of the process. The Appellant's application under Section 9 of the IBC was pending for over a year without a valid reason for the delay. Given this, the NCLAT held that the Appellant could not claim an automatic right to file a fresh petition under Section 9 especially when the adjudicating authority already found no valid reasons in the appellant's pursis or other submissions to justify such a withdrawal with liberty to refile.
The NCLAT referred to the decision of the Supreme Court in K.S. Bhoopathy & Ors. v. Kokila & Ors where it was held that the withdrawal of a suit with liberty to file a fresh one is not a matter of right but a concession that the court may grant only when it is satisfied that there are sufficient grounds to do so. The Apex Court held that this discretion must be exercised cautiously considering the broader implications including potential delays in the judicial process and the risk of annulling rights vested in the defendants or third parties.
Similarly, in V. Rajendran & Anr. v. Annasamy Pandian (Dead) through legal representatives Karthyayani Natchiar, the Supreme Court held that the power to allow withdrawal of a suit is discretionary and that it must be exercised only when the conditions specified under Order 23 Rule 1(3) are met.
Therefore, the NCLAT agreed with the NCLT's decision to deny the Appellant's request to file a fresh application under Section 9 of the IBC noting that the timelines and procedural integrity of the IBC process must be upheld.
However, while the NCLAT upheld the adjudicating authority's decision to permit the withdrawal of the application without liberty to refile, it found that the imposition of a Rs. 50,000 cost was unnecessary.
Case Title: Florex Tiles vs M/s. Greenstone Granite Pvt. Ltd.
Case Number: Company Appeal (AT) (Insolvency) No.1487 of 2024
For Appellant : Atul Sharma, Mr. Shivanshu Kumar, Ms. Aditi Sharma, Advocates.
Date of Judgment: 13th August, 2024
