2019 (2) TMI 1750 - AT - Insolvency and Bankruptcy

Application for withdrawal of the Insolvency Resolution Proceeding - Corporate Debtor reached settlement with the Respondent - Section 7 of the I B Code for initiation of Corporate Insolvency Resolution Process - HELD THAT - Learned counsel appearing on behalf of the Resolution Professional accepts that no Committee of Creditors was constituted and the parties have reached settlement. This is also accepted by learned counsel for Respondent Nos. 1 2 and 3 (Financial Creditors). In the present case as the parties have reached settlement before constitution of the Committee of Creditors exercising power under Rule 11 of the National Company Law Appellate Tribunal Rules 2016 the impugned order dated 16th January 2019 is set aside and proceedings dismissed as withdrawn.

Summary

Issues:
1. Application under Section 7 of the I&B Code for initiation of Corporate Insolvency Resolution Process.
2. Settlement reached between Shareholder and Financial Creditors before the constitution of Committee of Creditors.
3. Application for withdrawal of the Insolvency Resolution Proceeding based on the Supreme Court decision.
4. Power of the Appellate Tribunal under Rule 11 of the NCLAT Rules, 2016.
5. Disposal of the application under Section 7 against the Corporate Debtor by the Adjudicating Authority.

Issue 1: Application under Section 7 of the I&B Code
The case involved an application under Section 7 of the Insolvency and Bankruptcy Code for the initiation of Corporate Insolvency Resolution Process against a specific Corporate Debtor. The Adjudicating Authority admitted the application, leading to the commencement of the insolvency proceedings.

Issue 2: Settlement before the constitution of Committee of Creditors
Before the formation of the Committee of Creditors, a settlement was reached between the Shareholder of the Corporate Debtor and the Financial Creditors. This settlement prompted the Appellant to file an application for the withdrawal of the insolvency proceedings.

Issue 3: Application for withdrawal based on Supreme Court decision
The application for withdrawal was made in light of a decision by the Hon'ble Supreme Court in the case of 'Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors.' The Supreme Court emphasized the importance of consulting the overseeing body before allowing individual debtors to settle claims, especially in cases where the Committee of Creditors had not been constituted.

Issue 4: Power of the Appellate Tribunal under Rule 11 of the NCLAT Rules, 2016
The Appellate Tribunal, exercising its power under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016, set aside the impugned order and dismissed the insolvency application as withdrawn due to the settlement reached before the formation of the Committee of Creditors. The settlement was directed to be followed as per the Tribunal's decision.

Issue 5: Disposal of the application under Section 7 by the Adjudicating Authority
The Adjudicating Authority disposed of the application under Section 7 against the Corporate Debtor, providing directions for the filing of claims and leaving the option open for revival in case the initial order was set aside. The Authority's decision was influenced by the settlement reached between the parties.

This judgment showcases the significance of settlements in insolvency proceedings, the role of the overseeing body, and the legal implications of withdrawal applications based on relevant court decisions.