2019 (7) TMI 217 - Tri - Insolvency and Bankruptcy

Permission to withdraw the Corporate Insolvency Resolution Process (CIRP) - Corporate Debtor - HELD THAT - Regulation 30(A) provides that an application for withdrawal under Section 12A shall be submitted to the interim resolution professional or the resolution professional, as the case may be, in Form FA of the Schedule before the issue of invitation for expression of interest under regulation 36A . The regulation further provides that if the application is approved by the CoC with 90% vote share, the Resolution Professional shall submit the application under sub-regulation (1) to the Adjudicating Authority on behalf of the applicant, within three days of such approval. Further Regulation provides that adjudicating authority may, by order, approve the application submitted under sub-regulation (4). The use of the word may in Sec. 12A of the Code indicates that, if an application is filed under Section 12A, and CoC approves it with 90 per cent voting share, then the Adjudicating Authority may allow the withdrawal application, in such manner as specified. Section 12A of the Code stipulates that the Adjudicating Authority has the discretion to accept or reject the application, filed under Section 12A, provided that application is made by the applicant with the approval of 90% vote share of the CoC - Regulation 30A of CIRP Regulations, 2016 provides the procedure by which application under Section 12A can be filed. Regulation 30A provides that application under Section 12A should be filed in Form FA before issuance of an invitation for expression of interest. Since section 29A of the Code specifically prohibits a wilful defaulter to submit a Resolution Plan. In this case, admittedly promoters of the Corporate Debtor are a wilful defaulter, and therefore. they are not eligible to submit a Resolution Plan as per section 29A. The resolution for withdrawal of CIRP did not obtain the required percentage of voting by the members of CoC, i.e. 90% at the first instance. Subsequently, a CoC meeting was conducted, and a resolution was voted upon for reconsideration of the withdrawal. The RP/CoC has not quoted the exact provision that empowers them to again put for the voting of the resolution which was earlier defeated.

Summary

Issues Involved:
1. Withdrawal of Corporate Insolvency Resolution Process (CIRP) under Section 12A of Insolvency and Bankruptcy Code, 2016.
2. Compliance with Regulation 30A of CIRP Regulations.
3. Validity of One-Time Settlement (OTS) proposal.
4. Eligibility of promoters under Section 29A of the IBC.
5. Role and response of various regulatory bodies and enforcement agencies.
6. Intervention applications by third parties.
7. Decision on liquidation of the Corporate Debtor.

Issue-wise Detailed Analysis:

1. Withdrawal of CIRP under Section 12A of IBC:
Section 12A allows withdrawal of CIRP if approved by 90% voting share of the Committee of Creditors (CoC). The application must be submitted in Form FA before the issue of invitation for expression of interest. The Tribunal has discretionary power to accept or reject the application even if the CoC approves it with the required voting share.

2. Compliance with Regulation 30A of CIRP Regulations:
Regulation 30A outlines the procedure for filing a withdrawal application. The application must be accompanied by a bank guarantee towards estimated costs and considered by the CoC within seven days. In this case, the application was submitted on the last day of the CIRP period, and the CoC did not provide necessary details to the Resolution Professional, thus not fully complying with Regulation 30A.

3. Validity of OTS Proposal:
The OTS proposal was submitted by a representative of the Sandesara Group, whose promoters are absconders and facing criminal charges. The Tribunal questioned the validity of the OTS proposal, as it did not provide sufficient details about the source of funds and compliance with RBI norms. The Tribunal noted that the OTS proposal was essentially a resolution plan submitted by ineligible promoters under Section 29A.

4. Eligibility of Promoters under Section 29A of IBC:
Section 29A disqualifies wilful defaulters and absconders from submitting a resolution plan. The Tribunal emphasized that allowing the withdrawal application under Section 12A would enable the promoters to regain control of the company, circumventing the disqualification under Section 29A. The Tribunal highlighted the legislative intent to prevent such backdoor entries.

5. Role and Response of Various Regulatory Bodies and Enforcement Agencies:
The Enforcement Directorate, CBI, and Ministry of Corporate Affairs opposed the withdrawal application, citing ongoing criminal investigations and the absconding status of the promoters. The Reserve Bank of India provided guidelines but did not take a specific stand on the withdrawal application. SEBI highlighted ongoing proceedings against the company but did not offer specific comments on the withdrawal application.

6. Intervention Applications by Third Parties:
Madison Pacific Trust Limited, representing bondholders, filed an intervention application seeking rejection of the withdrawal application and reconsideration of its resolution plan. The Tribunal rejected the application as it was filed after the statutory CIRP period and due to the admitted mistake in the initial claim submission.

7. Decision on Liquidation of the Corporate Debtor:
The Tribunal noted that no resolution plan was approved within the statutory period, and the Resolution Professional did not file an application for liquidation. Consequently, the Tribunal ordered the liquidation of the Corporate Debtor as a going concern, directing the appointment of a liquidator and specifying the process for liquidation.

Conclusion:
The Tribunal rejected the withdrawal application under Section 12A, citing non-compliance with Regulation 30A and the promoters' ineligibility under Section 29A. The Tribunal ordered the liquidation of the Corporate Debtor, emphasizing the need to prevent misuse of the IBC provisions and uphold the legislative intent.