2022 (9) TMI 1011 - SC - Insolvency and Bankruptcy

Seeking withdrawal of application admitted u/s 7 of IBC - Seeking restraint on IRP from constituting a Committee of Creditors (CoC) till the next date of hearing - Section 12A of the IBC read with Rule 11 of the National Company Law Tribunal Rules, 2016 (NCLT Rules) - HELD THAT - Section 12A of the IBC clearly permits withdrawal of an application under Section 7 of the IBC that has been admitted on an application made by the applicant. The question of approval of the Committee of Creditors by the requisite percentage of votes, can only arise after the Committee of Creditors is constituted. Before the Committee of Creditors is constituted, there is no bar to withdrawal by the applicant of an application admitted under Section 7 of the IBC. The object of the IBC is to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance of interests of all stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India and matters connected therewith or thereto - A reading of the statement of objects and reasons with the statutory Rule 11 of the NCLT Rules enables the NCLT to pass orders for the ends of justice including order permitting an applicant for CIRP to withdraw its application and to enable a corporate body to carry on business with ease, free of any impediment. Considering the number of people dependant on the Corporate Debtor for their survival and livelihood, there is no reason why the applicant for the CIRP, should not be allowed to withdraw its application once its disputes have been settled - the settlement cannot be stifled before the constitution of the Committee of Creditors in anticipation of claims against the Corporate Debtor from third persons. The withdrawal of an application for CIRP by the applicant would not prevent any other financial creditor from taking recourse to a proceeding under IBC. The urgency to abide by the timelines for completion of the resolution process is not a reason to stifle the settlement. The application for settlement under Section 12A of the IBC is pending before the Adjudicating Authority (NCLT). The NCLAT has stayed the constitution of the Committee of Creditors. The order impugned is only an interim order which does not call for interference. In an appeal under Section 62 of the IBC, there is no question of law which requires determination by this Court - appeal dismissed.

Issues Involved:
1. Interim order by NCLAT and its implications.
2. Corporate Debtor's financial and operational status.
3. Investment and financial agreements between the Corporate Debtor and Beacon Trusteeship.
4. Arbitration proceedings and claims.
5. Application under Section 7 of IBC.
6. Settlement between parties and application under Section 12A of IBC.
7. Powers of NCLT and NCLAT under Rule 11 of NCLT Rules.
8. Legal precedents and interpretation of IBC provisions.

Detailed Analysis:

1. Interim Order by NCLAT and its Implications:
The appeal was against an interim order dated 18th August 2021 by the NCLAT, which issued notice of the appeal but did not restrain the Interim Resolution Professional (IRP) from proceeding with the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor. The NCLAT restrained the IRP from constituting a Committee of Creditors (CoC) till the next hearing date but allowed the IRP to issue publication and proceed with CIRP despite a settlement between the parties.

2. Corporate Debtor's Financial and Operational Status:
The Corporate Debtor, engaged in manufacturing benzene-based specialty chemicals, had significant investments in its facilities, including Rs.400 Crores in existing facilities and Rs.900 Crores in a new Greenfield Mega Project. It employed around 150 workmen, 40 unskilled workers, and 75 employees, with a net worth of Rs.972 Crores and fixed assets worth more than Rs.1500 Crores.

3. Investment and Financial Agreements:
To expand its plant, the Corporate Debtor raised capital, with Beacon Trusteeship committing Rs.100 Crores (Rs.20 Crores in Compulsorily Convertible Preference Shares and Rs.80 Crores in Non-Convertible Debentures). A Debenture Trust Deed (DTD) was executed, outlining the obligations of the Corporate Debtor. Beacon Trusteeship released Rs.72 Crores for the first tranche but defaulted on the second tranche of Rs.8 Crores, leading to financial disputes.

4. Arbitration Proceedings and Claims:
The Corporate Debtor initiated arbitration proceedings against Beacon Trusteeship and others. Beacon Trusteeship issued a notice for non-payment of interest and an enforcement notice for the full investment amount. The Corporate Debtor sought arbitration, and while proceedings were pending, Beacon Trusteeship filed an application under Section 7 of the IBC. The Arbitrator passed an interim award in favor of Beacon Trusteeship, directing the Corporate Debtor to pay Rs.72,06,99,244/- with interest.

5. Application under Section 7 of IBC:
The NCLT, Mumbai Bench, admitted the application under Section 7 of the IBC filed by Beacon Trusteeship against the Corporate Debtor on 3rd August 2021, initiating CIRP. The Corporate Debtor and Beacon Trusteeship had sought deferment for settlement, which was rejected by the NCLT.

6. Settlement Between Parties and Application under Section 12A of IBC:
The parties settled their disputes on 8th August 2021 and filed an application under Section 12A of the IBC for withdrawal of the CIRP application. The NCLAT stayed the formation of CoC but did not take the settlement on record. The application under Section 12A was pending before the NCLT.

7. Powers of NCLT and NCLAT under Rule 11 of NCLT Rules:
Section 12A of the IBC allows withdrawal of an application admitted under Section 7 with the approval of 90% voting shares of the CoC. Before the CoC is constituted, there is no bar to withdrawal by the applicant. Rule 11 of the NCLT Rules grants inherent powers to the Tribunal to make orders necessary for justice or to prevent abuse of process. The Supreme Court emphasized that the NCLT could permit withdrawal of CIRP applications before CoC constitution for the ends of justice.

8. Legal Precedents and Interpretation of IBC Provisions:
The Supreme Court referred to the Swiss Ribbons case, which held that before CoC constitution, NCLT could allow or disallow withdrawal applications under its inherent powers. The Court reiterated that settlements should not be stifled before CoC constitution and that other financial creditors could still take recourse under IBC.

Conclusion:
The Supreme Court dismissed the appeal, directing the NCLT to take up the settlement application and decide it in light of the observations made. The interim order by NCLAT did not call for interference, and there was no question of law requiring determination by the Supreme Court.

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