IBC - No Bar To Withdraw Admitted CIRP Application Before Constitution Of Committee Of Creditors : Supreme Court

The Supreme Court observed that there is no bar to withdrawal of an admitted CIRP application before constitution of Committee of Creditors.

The settlement cannot be stifled before the constitution of the Committee of Creditors in anticipation of claims against the Corporate Debtor from third persons, the bench of Justices Indira Banerjee and JK Maheshwari said.

The court observed thus while dismissing appeal against NCLAT order which gave the parties the opportunity to settle their disputes before the Adjudicating Authority (NCLT) in terms of Section 12A of the IBC read with Rule 11 of the National Company Law Tribunal Rules, 2016 (NCLT Rules). 

The bench noted that Section 12A of the IBC enables the Adjudicating Authority to allow the withdrawal of an application admitted under Section 7 or Section 9 or Section 10, on an application made by the applicant with the approval of 90% voting shares of the Committee of Creditors in such a manner as may be specified. It said;

"Section 12A of the IBC clearly permits withdrawal of an application under Section 7 of the IBC that has been admitted on an application made by the applicant. The question of approval of the Committee of Creditors by the requisite percentage of votes, can only arise after the Committee of Creditors is constituted. Before the Committee of Creditors is constituted, there is, in our view, no bar to withdrawal by the applicant of an application admitted under Section 7 of the IBC."

The court further noted that Rule 11 of the NCLT Rules enables the NCLT to pass orders for the ends of justice including order permitting an applicant for CIRP to withdraw its application and to enable a corporate body to carry on business with ease, free of any impediment. While dismissing the appeal, it said:

"Considering the investments made by the Corporate Debtor and considering the number of people dependant on the Corporate Debtor for their survival and livelihood, there is no reason why the applicant for the CIRP, should not be allowed to withdraw its application once its disputes have been settled.. The settlement cannot be stifled before the constitution of the Committee of Creditors in anticipation of claims against the Corporate Debtor from third persons. The withdrawal of an application for CIRP by the applicant would not prevent any other financial creditor from taking recourse to a proceeding under IBC. The urgency to abide by the timelines for completion of the resolution process is not a reason to stifle the settlement."

Case details

Ashok G. Rajani vs Beacon Trusteeship Ltd. | 2022 LiveLaw (SC) 790 | CA 4911 OF 2021 | 22 September 2022 | Justices Indira Banerjee and JK Maheshwari

Headnotes

Insolvency and Bankruptcy Code, 2016 ; Section 12A -  National Company Law Tribunal Rules, 2016 ; Rule 11 - Section 12A clearly permits withdrawal of an application under Section 7 IBC that has been admitted - The question of approval of the Committee of Creditors by the requisite percentage of votes, can only arise after the Committee of Creditors is constituted - Before the Committee of Creditors is constituted, there is no bar to withdrawal by the applicant of an application admitted under Section 7 IBC -  The settlement cannot be stifled before the constitution of the Committee of Creditors in anticipation of claims against the Corporate Debtor from third persons. The withdrawal of an application for CIRP by the applicant would not prevent any other financial creditor from taking recourse to a proceeding under IBC. The urgency to abide by the timelines for completion of the resolution process is not a reason to stifle the settlement - Rule 11 of the NCLT Rules enables the NCLT to pass orders for the ends of justice including order permitting an applicant for CIRP to withdraw its application and to enable a corporate body to carry on business with ease, free of any impediment. (Para 23-30)

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