2022 (5) TMI 579 - Tri - Insolvency and Bankruptcy

Seeking to withdraw the Application - settlement between the parties and the amount under settlement has been paid, inspite of which the Respondent No. 1/Operational Creditor is not coming forward to file an Applicant - Section 12A of IBC - HELD THAT - The inherent powers can be exercised to meet the ends of justice in an application which is maintainable under the provisions of the Code and to prevent an abuse of process of the Tribunal involved in deciding such application. A settlement presupposes a consensus between the parties entering into a settlement. If from the inception of the settlement, one of the parties proceeds with an element of cheating in its mind, it cannot be termed as a settlement. Section 12A permits withdrawal of the application only if there is an agreed settlement between the parties. Since the Application under Section 9 of IBC is filed by Respondent No. 1 and since withdrawal of an Application can be done only by a person who filed it, it implies that the Applicant referred to in Section 12A would only be the Operational Creditor or the Financial Creditor as the case may be. It is true that after having induced Respondent No. 2 to pay the entire claim amount, it would not be in the interest of fairness to put forth the plea of interest. But at the same time this Tribunal cannot direct Respondent No. 1 to act on the draft settlement deed which is not yet signed by the parties by considering the correspondence between the parties and Respondent No. 1 cannot be asked to forgo the above mentioned interest or to file a suit or proceeding for recovery of the same - taking into consideration the events presented before this Tribunal and by relying on what the NCLAT has done in the case of BHASKAR BISWAS VERSUS M/S. DEVI TRADING HOLDING PVT. LTD. ANR. 2019 (8) TMI 1731 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI , the Applicant is allowed to approach the Operational Creditor as sought for by them, for having further talks on the matter and with regard to the interest for the above mentioned period and Respondent No. 1 may consider the proposal that would be made by the Applicant with regard to the same and in the interest of fairness, consider withdrawing the Application. Application disposed off.

Summary

Issues Involved:
1. Settlement between parties and withdrawal of the application under Section 12A of IBC.
2. Jurisdiction and powers of the Tribunal under Section 12A and Rule 11 of NCLT Rules.
3. Entitlement and locus to file an application under Section 12A.
4. Allegations of abuse of process of law and inducement to pay.

Issue-wise Detailed Analysis:

1. Settlement between parties and withdrawal of the application under Section 12A of IBC:
The application was filed under the premise that a settlement had been reached between the Applicant and Respondent No. 1, where the Applicant paid the agreed amount on behalf of Respondent No. 2. Despite this, Respondent No. 1 did not file an application under Section 12A of IBC to withdraw the insolvency proceedings. The Tribunal noted the exchange of emails and communications between the parties but found no conclusive evidence of a final, signed settlement agreement. The Tribunal emphasized that a settlement requires consensus, and without a signed agreement, it cannot be considered binding.

2. Jurisdiction and powers of the Tribunal under Section 12A and Rule 11 of NCLT Rules:
The Tribunal discussed its inherent powers under Rule 11 of NCLT Rules, which allow it to make necessary orders to meet the ends of justice or prevent abuse of process. However, it clarified that these powers could only be exercised in applications maintainable under the provisions of the Insolvency and Bankruptcy Code (IBC). Section 12A of IBC allows withdrawal of an application with the approval of 90% voting share of the Committee of Creditors (CoC), but it does not specify who can file the application. The Tribunal concluded that the inherent powers under Rule 11 could not be invoked to compel a party to file an application for withdrawal without a clear, agreed settlement.

3. Entitlement and locus to file an application under Section 12A:
The Tribunal examined whether the Applicant had the locus to file the application under Section 12A. It referred to several judgments, including the Supreme Court's ruling in Swiss Ribbons Pvt. Ltd. vs. Union of India, which allowed withdrawal applications prior to the constitution of CoC under Rule 11. However, the Tribunal noted that Section 12A specifically provides for withdrawal by the party who filed the original application, implying that only the Operational Creditor or Financial Creditor has the locus to file for withdrawal. The Tribunal found that the Applicant, being the Corporate Debtor, did not have the locus to file the application under Section 12A.

4. Allegations of abuse of process of law and inducement to pay:
The Applicant alleged that Respondent No. 1 induced payment under false pretenses and resiled from the settlement, amounting to abuse of process and cheating. The Tribunal acknowledged that inducement to pay under a false promise could constitute cheating, but it questioned its jurisdiction to adjudicate such matters under IBC. The Tribunal concluded that mere change of mind regarding settlement does not constitute abuse of process. It suggested that the Applicant could pursue appropriate legal action for cheating but could not seek relief under Section 12A without a clear, agreed settlement.

Conclusion:
The Tribunal disposed of the application, allowing the Applicant to approach Respondent No. 1 for further negotiations regarding the settlement and interest for the period in question. It vacated the interim order made on 16.03.2022, emphasizing that without a clear, agreed settlement, it could not compel Respondent No. 1 to withdraw the insolvency application.