2021 (2) TMI 1277 - SC - Insolvency and Bankruptcy

Seeking withdrawal of application under Section 12A of the Insolvency and Bankruptcy Code 2016 - preferential transaction within the prohibition contained in Section 43 or not - HELD THAT - Reliance placed on Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016, under which the adjudicating authority may permit withdrawal of an application on a request made by the applicant before its admission. Consequently, it has been urged that the private settlement which was entered into between the first and second respondents is contrary to the express provisions of the IBC and may even amount to a preferential transaction within the prohibition contained in Section 43. The impugned judgment and order of the NCLAT shall remain stayed - Issue notice, returnable in three weeks.

Summary

Issues involved:
- Interpretation of Section 12A of the Insolvency and Bankruptcy Code 2016
- Validity of a private settlement in insolvency proceedings
- Application of Regulation 30A and Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016

Analysis:

1. Interpretation of Section 12A of the Insolvency and Bankruptcy Code 2016:
The appeal in question arose from an order of the National Company Law Appellate Tribunal regarding the admission of an application against a Corporate Debtor under the Corporate Insolvency Resolution Process. The appellant highlighted the provisions of Section 12A of the Insolvency and Bankruptcy Code 2016, which allows for the withdrawal of an application with the approval of a 90% voting share of the Committee of Creditors. The appellant argued that the withdrawal can be made in accordance with Regulation 30A, which specifies the manner in which the withdrawal can take place. It was emphasized that Section 12A came into effect from 6 June 2018, while Regulation 30A was enforced from 25 July 2019.

2. Validity of a private settlement in insolvency proceedings:
The appellant contended that a private settlement entered into between the first and second respondents after the admission of the application may be contrary to the express provisions of the Insolvency and Bankruptcy Code. It was suggested that such a settlement could potentially amount to a preferential transaction within the prohibition contained in Section 43 of the Code. The argument was made that the settlement might not align with the procedural requirements and objectives of the insolvency proceedings, raising concerns about the legality and fairness of the arrangement.

3. Application of Regulation 30A and Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016:
In addition to Section 12A, reliance was placed on Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016. This rule allows the adjudicating authority to permit the withdrawal of an application upon a request made by the applicant before its admission. The submission was made that the private settlement between the parties might not align with the procedural requirements set forth in Rule 8, further emphasizing the need for adherence to the statutory framework governing insolvency proceedings. The Court issued an ad-interim order staying the impugned judgment and restraining the respondents from taking steps under the Memorandum of Settlement until further proceedings on the matter.

In conclusion, the judgment delves into the nuanced interpretation of statutory provisions governing insolvency proceedings, particularly focusing on the permissibility of withdrawals, the validity of private settlements, and the importance of adhering to procedural rules. The Court's decision to issue an ad-interim order reflects the gravity of the issues raised and the need for a thorough examination of the legal aspects involved in the case.