2021 (7) TMI 406 - Tri - Insolvency and Bankruptcy

Seeking withdrawal of Corporate Insolvency Resolution Process - Rule 11 of NCLT Rules, 2016 r.w. Section 60(5) of Insolvency and Bankruptcy Code, 2016 - Locus of the application being shareholder of the corporate Debtor - Under which provision of law, the impugned application needs to be dealt with? - HELD THAT - It is an admitted fact that subsequent to admission of Corporate Debtor into CIRP by the order of this Adjudicating Authority, the amount due to the concerned Operational Creditor has been paid and settled. It is also an admitted position that COC has not been formed as yet, though, IRP has been appointed and IRP is running the affairs of the Corporate Debtor as a going concern and also conducting CIRP in a limited manner. It is also to be noted that Corporate Debtor was admitted into CIRP by an order of this Adjudicating Authority on 18.12.2020 and, thereafter, multiple hearings have taken place. It is also a matter of record that on earlier occasions M/s. KKR India Financial Services was opposing this application and simultaneously they also submitted before this Adjudicating Authority that settlement talks were also going on with the Corporate Debtor. Locus of the applicant - HELD THAT - a person who is aggrieved or whose interests are going to be prejudiced would prima facie have a locus to file an application as a stranger to the proceedings cannot approach. In the present case, this application has been filed by a joint shareholder and it has not been the case of Interveners that such joint shareholder is not having any interest in the subject matter. Therefore, the prima facie locus of the applicant gets established. Under which provision of law, the impugned application needs to be dealt with? - HELD THAT - The question of non-applicability of Regulation 30A of IBBI (Corporate Insolvency Resolution Process for Corporate Persons) Regulation, 2016, being an instance of not being in terms with the provisions of Section 12A of IBC, 2016 has been raised by the applicant and it has also been contended that Rule 11 of NCLT Rules, 2016 was applicable whereas Interveners have pleaded that this application needs to be considered in accordance with the provisions of said Regulation - On the aspect whether provisions of Section 12A of IBC, 2016 or Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and Form-FA were applicable in this kind of a situation, this Authority in the case of HUHTAMAKI PPL LIMITED. VERSUS M/S. MANPASAND BEVERAGES LTD. 2021 (3) TMI 1225 - NATIONAL COMPANY LAW TRIBUNAL, AHMEDABAD BENCH held that Rule 11 of NCLT Rules, 2016 was applicable and not the Regulation 30A of IBBI (CIRP) Regulations, 2016. It is also noteworthy that before amending the Regulation 30A of CIRP Regulations, IBBI published a discussion paper thereon along with draft regulation dated 08.05.2019. IBBI, in this discussion paper, took note of various rulings which, inter alia, covered the aspect that Regulation 30A could not override the substantive provisions of Section 12A of IBC, 2016, CIRP could be withdrawn even after issue of EOI in exceptional cases as Regulation 30A (1) was not mandatory but directory. The practice of delegated legislation is established across all jurisdictions. The scope of delegated legislation essentially depends upon the power given by the parent legislature. There could be an instance where some wide powers are given by legislature by providing policy guidelines in a specific manner and there could be a situation where the legislature may give power of delegated legislation in a restricted manner. To put it differently, in some cases, the executive may even be empowered to frame Rules which may cover a situation not provided in the substantive legislation. This would be of course subject to scrutiny/approval of parliament/legislature at some stage - The Parliament has reserved the power with itself to modify or annul any Rules/Regulations and, in our view, such power unless the provisions of Section 239 or Section 240 of IBC, 2016 are amended, cannot give any power to either to Central Government or IBBI to act beyond the scope of delegation of powers under Section 239 and Section 240 of IBC, 2016. If it is to be interpreted in a manner otherwise, then, in that event provisions of Section 239 or Section 240 of IBC, 2016 would become redundant to this extent and which cannot be the legislative policy. This application is allowed and the Corporate Debtor is released from all rigours of CIRP. The Corporate Debtor is directed to pay fee and all expenses incurred by the IRP since commencement of CIRP till date - Application filed under Rule 11 of NCLT Rules, 2016 stands allowed.

Summary

Issues Involved:
1. Withdrawal of Corporate Insolvency Resolution Process (CIRP) under Rule 11 of NCLT Rules, 2016.
2. Locus standi of Intervenors in opposing the withdrawal application.
3. Applicability of Section 12A of IBC, 2016 and Regulation 30A of IBBI (CIRP) Regulations, 2016.
4. Validity and scope of delegated legislation under Section 240 of IBC, 2016.
5. Interests of stakeholders post-admission of Corporate Debtor into CIRP.
6. Conduct of Interim Resolution Professional (IRP) during CIRP.

Detailed Analysis:

1. Withdrawal of CIRP under Rule 11 of NCLT Rules, 2016:
The application for withdrawal of CIRP was filed by the promoter shareholder of the Corporate Debtor following a settlement with the Original Operational Creditor. The applicant argued that Rule 11 of NCLT Rules, 2016, and not Regulation 30A of IBBI (CIRP) Regulations, 2016, should apply in this case. The Tribunal noted that, as per the Supreme Court's decision in "Swiss Ribbons Pvt. Ltd vs. Union of India," Rule 11 can be invoked when Section 12A of IBC, 2016 is not applicable. The Tribunal held that Rule 11 was applicable in this case as the Committee of Creditors (COC) had not been constituted.

2. Locus Standi of Intervenors:
The Intervenors, M/s. KKR India Financial Services and M/s. DSP Investment Managers Pvt. Ltd., opposed the withdrawal application, arguing that their interests as Financial Creditors would be prejudiced. The applicant contended that the Intervenors had no locus standi as they could file their claims under Section 7 of IBC, 2016. The Tribunal agreed with the applicant, stating that the Intervenors' interests would not be prejudiced as they could approach the Adjudicating Authority under Section 7 if they wished.

3. Applicability of Section 12A of IBC, 2016 and Regulation 30A of IBBI (CIRP) Regulations, 2016:
The applicant argued that Section 12A of IBC, 2016, which requires a 90% voting share of the COC for withdrawal, was not applicable as the COC had not been constituted. The Tribunal noted that Regulation 30A, which provides for withdrawal before the constitution of the COC, was inconsistent with Section 12A of IBC, 2016. The Tribunal held that Rule 11 of NCLT Rules, 2016, was applicable and not Regulation 30A.

4. Validity and Scope of Delegated Legislation under Section 240 of IBC, 2016:
The Tribunal examined the scope of delegated legislation under Section 240 of IBC, 2016. It noted that the power to make regulations is limited to carrying out the provisions of the Code and cannot expand the scope of the Act. The Tribunal held that Regulation 30A, to the extent it was inconsistent with Section 12A, was not binding. The Tribunal emphasized that any regulation made under Section 240 must be consistent with the Code and the rules made thereunder.

5. Interests of Stakeholders Post-Admission of Corporate Debtor into CIRP:
The Tribunal considered the interests of all stakeholders, including Operational Creditors, Financial Creditors, employees, and shareholders. It noted that the Corporate Debtor had sufficient funds to settle the claims of Operational Creditors and that allowing the withdrawal would not prejudice the interests of Financial Creditors. The Tribunal emphasized that the objective of IBC, 2016, is to ensure the Corporate Debtor remains a going concern and that the interests of all stakeholders are protected.

6. Conduct of Interim Resolution Professional (IRP) During CIRP:
The applicant alleged that the IRP was taking instructions from lenders instead of the suspended management, which was not in the interests of the Corporate Debtor. The Tribunal found no merit in this contention, noting that the IRP was running the affairs of the Corporate Debtor as a going concern and no grievances were raised by employees, Operational Creditors, or lenders against the IRP's conduct.

Conclusion:
The Tribunal allowed the application for withdrawal of CIRP under Rule 11 of NCLT Rules, 2016, and directed the Corporate Debtor to pay the fee and expenses incurred by the IRP. The IRP was instructed to hand over all records and documents to the management of the Corporate Debtor. The Tribunal made it clear that the suspended management should not act against the interests of the Corporate Debtor or creditors. The application under Rule 11 of NCLT Rules, 2016, was allowed, and the Corporate Debtor was released from CIRP.