2019 (9) TMI 1445 - Tri - Insolvency and Bankruptcy

Permission for withdrawal of application - compromise arrived before constitution of CoC - Section 12A of Insolvency and Bankruptcy Code, 2016 - HELD THAT - Admittedly in the present case the compromise was arrived at between the corporate debtor and the petitioner financial creditor before the Constitution of Committee of Creditors. Accordingly, inherent power of the Tribunal can be used in allowing the withdrawal in appropriate cases as per the precedent laid down by Honble Supreme Court in SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. 2019 (1) TMI 1508 - SUPREME COURT . Once the Code is triggered after admission of the application the proceedings becomes a collective proceeding and proceeding in rem. Therefore, inherent power is to be used by the Adjudicating Authority after hearing the parties and considering all relevant factors of each case - In the present case the application has been wrongly filed under Section 12A of the Code as meetings of CoC has not yet commenced and therefore applicability of Section 12A does not arise. It is seen that petitioner has 14.92%, whereas the other financial creditor has 85.08% of the financial debt of the corporate debtor. Therefore, the present application cannot be allowed at the back of the financial creditor who holds 85.08% of the financial debt, as it will cause prejudice to such financial creditor. That apart once the application is allowed it may amount to preferential payment of 100% debt of the petitioner, whereas the other financial creditor may be exposed to substantial haircut - this is not a fit case to use inherent power at this stage of the proceeding and at the back of the other financial creditor holding 85.08% of the financial debt. Application dismissed.

Summary

Issues:
1. Application for withdrawal under Section 12A of the Insolvency and Bankruptcy Code, 2016.
2. Settlement between the petitioner and the corporate debtor before the Constitution of Committee of Creditors.
3. Applicability of Section 12A and inherent powers of the Tribunal.
4. Proportion of financial debt among creditors and potential prejudice.

Issue 1: Application for withdrawal under Section 12A of the Insolvency and Bankruptcy Code, 2016

The petitioner, a Financial Creditor, filed an application under Section 12A of the Insolvency and Bankruptcy Code seeking permission to withdraw the application bearing Company Petition No. (IB)-1014 (PB) /2019 due to a settlement with the management of the Corporate debtor before the Constitution of Committee of Creditors.

Issue 2: Settlement between the petitioner and the corporate debtor before the Constitution of Committee of Creditors

The Tribunal highlighted that the settlement between the corporate debtor and the petitioner financial creditor occurred before the Constitution of Committee of Creditors. The Tribunal referred to the Swiss Ribbons Case, emphasizing that the inherent power of the Tribunal can be utilized to allow withdrawal in such cases before the formation of the CoC.

Issue 3: Applicability of Section 12A and inherent powers of the Tribunal

The Tribunal noted that the application was incorrectly filed under Section 12A as the meetings of CoC had not commenced, rendering the applicability of Section 12A irrelevant. It was emphasized that once the Code is triggered post-admission, the proceedings become collective and in rem, necessitating the use of inherent power by the Adjudicating Authority after considering all relevant factors.

Issue 4: Proportion of financial debt among creditors and potential prejudice

Upon reviewing the claims received by the IRP, it was revealed that the petitioner held 14.92% of the financial debt, while another financial creditor held 85.08%. The Tribunal concluded that allowing the application at the expense of the creditor with 85.08% financial debt would be prejudicial and could lead to preferential treatment, potentially causing substantial harm to the other financial creditor. Consequently, the Tribunal dismissed the application, deeming it unsuitable to exercise inherent power at that stage.

This judgment underscores the importance of considering the stage of proceedings, proportion of financial debt among creditors, and potential prejudice when evaluating applications for withdrawal under the Insolvency and Bankruptcy Code. It clarifies the role of the Tribunal's inherent powers in such scenarios and highlights the need for a balanced approach to safeguard the interests of all parties involved in insolvency resolution processes.