IBC | Application Under Section 12A For Withdrawal Of CIRP Is Maintainable Prior To Constitution Of CoC : Supreme Court

The Supreme Court has held that Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2018, is binding upon the National Company Law Tribunal (“NCLT”).

The Bench comprising of Justice B.R. Gavai and Justice Vikram Nath, while adjudicating an appeal filed in Abhishek Singh v Huhtamaki Ppl Ltd. & Anr., has held that Section 12A of the Insolvency and Bankruptcy Code, 2016 (“IBC”) does not debar entertaining applications for withdrawal of Corporate Insolvency Resolution Process (“CIRP”) even before constitution of the Committee of Creditors (“CoC”). Further, Regulation 30A of CIRP Regulations furthers the cause of Section 12A of IBC and they both are not conflicting provisions.

BACKGROUND FACTS

Manpasand Beverages Ltd. (“Corporate Debtor”) is engaged in the business of manufacturing and distribution of fruit beverages. Huhtamaki PPL Ltd. (“Operational Creditor”) used to supply packaging material to the Corporate Debtor.

The Operational Creditor filed a petition under Section 9 of IBC, seeking initiation of CIRP against the Corporate Debtor, over a default of Rs.1,31,00,825/-. The NCLT admitted the petition and initiated CIRP against the Corporate Debtor on 01.03.2021.

Two days after initiation of CIRP, when the Committee of Creditors (“CoC”) was not even constituted, the Parties entered into Settlement. As per Settlement terms, the Corporate Debtor was required to pay Rs. 95.72 Lakhs and the same was paid within 5 days. On 10.03.2021 the Interim Resolution Professional (“IRP”) of the Corporate Debtor filed an application before NCLT under Regulation 30A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2018 (“CIRP Regulations”), seeking withdrawal of CIRP against the Corporate Debtor. The Suspended Director (“Appellant”) of the Corporate Debtor also filed an application under Section 12A of IBC for withdrawal of CIRP.

In the meantime, the Corporate Debtor had filed an appeal before the National Company Law Appellate Tribunal (“NCLAT”) against the Order dated 01.03.2021, which was withdrawn, with liberty to revive the appeal in case the settlement failed. The NCLAT also stayed the formation of CoC till the NCLT decides the application under Section 12A of IBC.

On 13.04.2021 the NCLT observed that during the pendency of the application as many as 35 creditors have filed their claims and withdrawal of proceedings would adversely affect their rights. Further, the Regulation 30A of CIRP Regulations was not binding upon NCLT and such provision would not be of any help to the Corporate Debtor or its Suspended Directors. Accordingly, the NCLT rejected the settlement application u/s 12A of IBC and fixed the matter for disposal of the application under Regulation 30A after hearing all creditors.

The IRP constituted the CoC on 15.04.2021. In view of these developments, the Suspended Director of Corporate Debtor (“Appellant”) filed an appeal before the Supreme Court against the order dated 13.04.2021 of NCLT.

SUPREME COURT VERDICT

NCLT is bound by Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2018

The Bench placed reliance on the judgment in Swiss Ribbons (P) Ltd. V. Union of India, (2019) 4 SCC 17, wherein it was held that NCLT may invoke its inherent powers under Rule 11 of NCLT Rules, 2016 to allow/disallow an application for withdrawal or settlement, when CoC has not been constituted. Further, the Supreme Court had passed a large number of orders by invoking Article 142 of the Constitution to withdraw/settle cases under IBC. In this backdrop, the IBBI had substituted Section 30A on 25.07.2019, which provided for filing an application for withdrawal of CIRP u/s 12A of IBC through the IRP/RP. It was observed as under:

“The Board was conferred with powers to frame regulations for various purposes referred to in section 240 of IBC and the other allied sections. These regulations may be subordinate in character but would still carry a statutory flavor and would be binding on the NCLT. The NCLT committed an error in holding that Regulation 30A would have no binding effect. This would amount to defeating the very purpose of substituting Regulation 30A in IBBI Regulations on 25.07.2019 after the judgment of Swiss Ribbons(supra) which was dated 25.01.2019.”

Section 12A of IBC does not debar entertaining applications for withdrawal even before constitution of CoC

The Bench opined that Section 12A of IBC permits withdrawal of applications admitted under Sections 7, 9 and 10 of IBC. The approval of 90% of CoC members would be required when withdrawal is being made after constitution of CoC. However, Section 12A does not debar entertaining applications for withdrawal even before constitution of CoC and thus the said application cannot be kept pending for constitution of CoC. It has been held as under:

“The IBBI which had the power to frame Regulations wherever required and in particular section 240 of IBC for the subjects covered therein had accordingly substituted Regulation 30A dealing with the procedure for disposal of application for withdrawal filed under section 12A of IBC. The substituted Regulation 30A of IBC as it stands today clearly provided for withdrawal applications being entertained before constitution of CoC. It does not in any way conflicts or is in violation of section 12A of IBC. There is no inconsistency in the two provisions. It only furthers the cause introduced vide section 12A of IBC. Thus, NCLT fell in error in taking a contrary view.”

The Bench further held that large number of creditors filed their claim due to the delay on the part of NCLT is disposing of applications under Section 12A of IBC and Regulation 30A of CIRP Regulations. The inherent powers are to be invoked in order to meet the ends of justice which the NCLT failed to invoke, the Bench held.

The NCLT’s order dated 13.04.2021 has been set aside. The Bench has allowed the withdrawal application filed under Regulation 30A by the IRP. However, the order would not affect the claim of the creditors of the Corporate Debtor and they shall raise their claims in appropriate proceedings.

Case Title: Abhishek Singh v Huhtamaki Ppl Ltd. & Anr.

Citation: 2023 LiveLaw (SC) 250

Insolvency and Bankruptcy Code 2016- Section 12 A-  Section 12A does not debar entertaining applications for withdrawal even before constitution of CoC;  application cannot be kept pending for constitution of CoC- Para 35

Insolvency and Bankruptcy Code 2016- Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2018, is binding upon the National Company Law Tribunal (“NCLT”) - Para 34

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