2022 (11) TMI 4 - HC - Insolvency and Bankruptcy

Restoration of petition, which has been withdrawn - availability of effective alternative remedy of appeal before the NCLAT - initiation of CIRP - power of NCLT under Section 60(5) of the Insolvency and Bankruptcy Code or under Rule 11 of the NCLT Rules, to restore a petition which has been withdrawn - HELD THAT - Under the provisions of the Insolvency and Bankruptcy Code, the insolvency resolution process, of a company, commences when the petition by a creditor, under Sections 7 to 9 is admitted. Subsequently, any application by the corporate debtor to withdraw the proceedings, on the ground that the claim of the corporate debtor is settled, is permissible after the committee of creditors, constituted under the resolution process, is consolidated. The provisions of the Code also stipulate that the committee of creditors is to be constituted within 30 days from the date of admission / appointment of an interim resolution professional. A question arose before the Hon ble Supreme Court in (2019) 4 SCC 17 2019 (1) TMI 1508 - SUPREME COURT as to what is to be done if a settlement is arrived at even before the committee of creditors is constituted. The Hon ble Supreme Court answered this question by holding that where the committee of creditors is not yet constituted, a party can approach the NCLT directly and the Tribunal, in exercise of its powers under Rule 11 of the NCLT Rules, may allow or disallow such an application for withdrawal or settlement - In view of the observations of the Hon ble Supreme Court, the NCLT has the inherent power, to direct withdrawal of the creditors petition, before the committee of creditors is constituted. The recognition of such a power, by the Hon ble Supreme Court, in a situation, which is not covered or contemplated under the Statute or the Rules made thereunder, clearly shows that the inherent powers of the NCLT cannot be interpreted restrictively and a wider and larger approach need to be taken while interpreting Rule 11 of the NCLT Rules. Such an expansive interpretation of Rule 11 would clearly mean that the Tribunal, which has the inherent power to permit withdrawal of a petition, would also have the inherent power to restore such a petition. There could be a dispute or challenge to the grounds on which such a power of restoration can be exercised. There cannot be a dispute on the inherent power of the NCLT to direct restoration of an application which had been permitted by the Tribunal to be withdrawn earlier - Apart from this, Section 60(5) c) of the Insolvency and Bankruptcy Code also empowers the NCLT to entertain or dispose of any application or proceeding by or against the corporate debtor or corporate person as well as any claim made by or against the corporate debtor. This provision is in the nature of a residuary power. The dispute between the petitioner and the respondent as to the maintainability of the petition filed by the unofficial respondent before the NCLT on account of the subsequent MOU, capping the liability of the writ petitioner to Rs.5 crores, and whether the writ petitioner had remitted the entire amount as claimed by the unofficial respondent or whether the writ petitioner had not remitted the entire amount of Rs.5 crores as contended by the unofficial respondent, are all issues which need to be gone into by the NCLT, without being bound by its earlier observation that, the situation, as before the Memorandum of Understanding, would revive in toto. This writ petition is disposed of leaving it open to the writ petitioner to raise all the aforesaid issues before the NCLT, in the hearing before the NCLT, which would take an appropriate decision on the objections raised by the writ petitioner.

Summary

Issues Involved:
1. Maintainability of the writ petition against an order passed by the NCLT.
2. Jurisdiction and inherent powers of the NCLT under Section 60(5) of the Insolvency and Bankruptcy Code and Rule 11 of the NCLT Rules to restore a withdrawn petition.
3. Impact of the Memorandum of Understanding (MOU) on the revival of the original petition filed by the 3rd respondent.

Issue-wise Detailed Analysis:

1. Maintainability of the Writ Petition:
The petitioner argued that a writ petition is maintainable against an order passed by the NCLT, citing the Supreme Court judgments in Radha Krishan Industries vs. State of Himachal Pradesh and Ors., and M/s. Magadh Sugar & Energy Ltd., vs. The State of Bihar and Ors. The Court noted that the principles laid down in Radha Krishan Industries allow a writ petition to be entertained even when an alternative remedy exists, particularly when there is a challenge to the jurisdiction of the authority passing the impugned order. The Court concluded that the writ petition is maintainable as it challenges the jurisdiction of the NCLT to recall its earlier orders.

2. Jurisdiction and Inherent Powers of the NCLT:
The petitioner contended that the NCLT lacks the power under Section 60(5) of the Insolvency and Bankruptcy Code or Rule 11 of the NCLT Rules to restore a petition that has been withdrawn. The 3rd respondent argued that the application for withdrawal included a clause allowing for the continuation of proceedings if the MOU failed, and the NCLT has the inherent power to restore such petitions. The Court examined Section 60(5) and Rule 11, noting that the NCLT has broad jurisdiction to entertain applications related to insolvency resolution and inherent powers to make necessary orders to meet the ends of justice. The Court referenced the Supreme Court's decision in Swiss Ribbons (P) Ltd., and Anr., vs. Union of India and Ors., which recognized the NCLT's inherent power to permit withdrawal of petitions before the committee of creditors is constituted. The Court concluded that this inherent power extends to the restoration of petitions.

3. Impact of the Memorandum of Understanding (MOU):
The petitioner argued that the MOU capped the liability at Rs. 5 crores and did not include a default clause that would revive the original claim of Rs. 8.9 crores. The Court observed that the dispute regarding the terms of the MOU and whether the petitioner had fulfilled its obligations under the MOU are issues that need to be examined by the NCLT. The Court emphasized that the NCLT must consider whether the MOU affects the pending company petition and whether the 3rd respondent can continue the petition in light of the MOU. The Court refrained from making any determinations on these issues, leaving them for the NCLT to resolve.

Conclusion:
The writ petition was disposed of, with the Court directing the petitioner to raise all relevant issues before the NCLT. The NCLT is to take an appropriate decision on the objections raised by the petitioner, considering the terms of the MOU and the payments made. There was no order as to costs, and any pending miscellaneous petitions were closed.