2019 (8) TMI 1731 - AT - Insolvency and Bankruptcy

Seeking withdrawal of application - Appellant settled the matter on behalf of the Corporate Debtor with 1st Respondent and Financial Creditor prior to the constitution of the Committee of Creditors - HELD THAT - The Hon ble Supreme Court in Swiss Ribbons Pvt. Ltd. Vs. Union of India 2019 (1) TMI 1508 - SUPREME COURT held that the Directors or the shareholders of the Corporate Debtor may settle before the constitution of the Committee of Creditors and it was observed that in such case it was open to the Adjudicating Authority to exercise its inherent jurisdiction under Rule 11 of the NCLT Rules 2016. Normally before the constitution of Committee of Creditors if on behalf of the Corporate Debtor a shareholder or Director settles the claim of the Applicant who files an application u/s 7 or 9 of the I B Code the Adjudicating Authority in normal course can exercise its inherent power under Rule 11 of the NCLT Rules 2016 - However it is seen that when allowing an application under Rule 11 of the NCLT Rules 2016 may result into triggering a large number of cases as a number of creditors including the Financial Creditors (allottees) are also in the queue to trigger the process against the Corporate Debtor it is open to the Adjudicating Authority to refuse to exercise its inherent power under Rule 11 of the NCLT Rules 2016 otherwise it may result into triggering number of cases. The Appellant or shareholders on behalf of the Corporate Debtor allowed to move an application u/s 12A for settling the claim of all the Creditors particularly the allottees stating how they will take care of the allottees and other lenders and in such cases the Committee of Creditors uninfluenced by the order passed by the Adjudicating Authority - appeal disposed off.

Summary

Issues:
1. Settlement of claim by Corporate Debtor prior to constitution of Committee of Creditors.
2. Invocation of inherent power under Rule 11 of NCLT Rules, 2016.
3. Adjudicating Authority's discretion in exercising inherent power.
4. Possibility of triggering multiple cases by allowing settlement before constitution of Committee of Creditors.
5. Permission for Appellant or shareholders to move application under Section 12A for settling claims of all creditors.
6. Clarification on Corporate Insolvency Resolution Process and Resolution Professional's responsibilities.

Analysis:
1. The Appellant settled the matter on behalf of the Corporate Debtor with the 1st Respondent and Financial Creditor before the constitution of the Committee of Creditors, leading to the filing of an application under Rule 11 of the NCLT Rules, 2016.
2. The Adjudicating Authority, considering the opposition from home buyers of the Corporate Debtor, referred to the decision in "Swiss Ribbons Pvt. Ltd. Vs. Union of India" by the Supreme Court and declined to invoke inherent power under Rule 11 of the NCLT Rules, 2016.
3. The Supreme Court's ruling in "Swiss Ribbons Pvt. Ltd. Vs. Union of India" emphasized that the Adjudicating Authority can exercise inherent jurisdiction under Rule 11 before the constitution of the Committee of Creditors if the Directors or shareholders settle claims.
4. The Adjudicating Authority can typically use its inherent power under Rule 11 before the formation of the Committee of Creditors, but caution is advised to prevent triggering numerous cases by allowing settlements that may affect various creditors.
5. The Appellant or shareholders are permitted to submit an application under Section 12A to settle all creditors' claims, ensuring the Committee of Creditors independently reviews and potentially approves the withdrawal of the application under Section 7 of the I&B Code.
6. The judgment clarifies that the Corporate Insolvency Resolution Process continues without stay, with the Resolution Professional and Committee of Creditors mandated to follow legal procedures, maintain the Corporate Debtor as a going concern, and ensure cooperation from the Appellant and Promoters in project and asset handover.

This detailed analysis of the judgment addresses the issues of settlement before the Committee of Creditors' constitution, the invocation of inherent powers, the Adjudicating Authority's discretion, potential case triggers, settlement under Section 12A, and responsibilities in the Corporate Insolvency Resolution Process.