2023 (5) TMI 662 - AT - Insolvency and Bankruptcy

Seeking closure (withdrawal) of CIRP proceedings - Section 7 Application admitted - Financial Creditor has already settled the dispute with the Appellant and Terms and Conditions of the Settlement have been brought on record vide Settlement Letter dated 08th May, 2023 - It is submitted that claim of the intervener having been already filed, CIRP process against the Corporate Debtor be allowed to continue rejecting prayer of the Appellant to close the CIRP. HELD THAT - From the facts of the present case, it is clear that CIRP was initiated against the Corporate Debtor vide Order dated 23rd December, 2022 admitting Section 7 Application filed by the IDFC First Bank Limited Respondent No. 1 herein. On 04th January, 2023, Interim Order was passed in this Appeal directing that Committee of Creditors (CoC in short) may not be constituted. Interim Order passed in this Appeal still continues as on date. In the I B Code as enacted in 2016, there was no statutory provision permitting withdrawal of an Application under Section 7 and 9 of the Code. Hon ble Supreme Court Swiss Ribbons Pvt. Ltd. Anr. v. Union of India Ors. 2019 (1) TMI 1508 - SUPREME COURT held that before a Committee of Creditors is constituted, a party can approach the NCLT directly under inherent powers of Rule 11 for withdrawal of Section 7 or 9 Application. The present is a case where Committee of Creditors has not yet been constituted and the Appellant after filing settlement agreement by the Financial Creditor dated 08th May, 2023, prays for withdrawal of the CIRP in exercise of inherent power of this Tribunal under Rule 11 of NCLAT Rules, 2016. A categorical observation made by the Hon ble Supreme Court in Ashok G. Rajani v. Beacon Trusteeship Ltd. Ors. 2022 (9) TMI 1011 - SUPREME COURT is that Settlement cannot be stifled before the Constitution of Creditors in anticipation of the claims against the Corporate Debtor from 3rd Persons. In another recent Judgment of the Hon ble Supreme Court Abhishek Singh v. Huhtamaki PPL Ltd. Anr. 2023 (3) TMI 1285 - SUPREME COURT , Hon ble Supreme Court again referring to the Judgment of Ashok G. Rajani again reiterated the same preposition. In the above case, Appeal was filed against the Order of NCLT by which an Application under Section 12A filed for withdrawal of the CIRP was rejected by the NCLT. The Application filed under Section 12A was opposed by intervener who claimed to have raised their claim before the IRP. The above judgement of the Hon ble Supreme Court in Ashok G Rajani and Abhishek Singh where the cases were Application for withdrawal was filed before the Committee of Creditors was constituted - Present is also a case where Settlement has been entered between the parties and prayer is being made to withdraw the CIRP in exercise of jurisdiction under Rule 11 of NCLAT Rule, 2016. The Financial Creditor having settled the matter with the Corporate Debtor and Settlement letter dated 08th May, 2023 having been brought on record, it is deemed to be a fit case to exercise jurisdiction under Rule 11 of NCLAT Rules, 2016 to close the CIRP. On account of objection raised by the intervener of his filing claim before the IRP, the CIRP can not be allowed to proceed since the debt for which CIRP has been initiated, has been settled with the Financial Creditor. The Intervener is free to take such legal proceedings as may be advised to protect his interest. Taking the settlement letter dated 08th May, 2023 on record, the CIRP against the Corporate Debtor is closed, setting aside the Order dated 23.12.2022 - appeal disposed off.

Summary

Issues Involved:
1. Challenge to the Order admitting Section 7 Application.
2. Consideration of Settlement Proposal.
3. Intervention by Catalyst Trusteeship Limited.
4. Settlement Execution and Withdrawal of CIRP.
5. Objection by Intervener regarding Financial Claims.
6. Legal Precedents on Withdrawal of CIRP before CoC Constitution.

Summary:

Challenge to the Order admitting Section 7 Application:
The appeal was filed by a Suspended Director of the Corporate Debtor challenging the Order dated 23rd December 2022 by the National Company Law Tribunal (NCLT), Mumbai Bench-I, which admitted the Section 7 Application filed by IDFC First Bank Limited.

Consideration of Settlement Proposal:
The Tribunal noted that a settlement proposal was submitted by the appellant on 30th December 2022, which was under active consideration by the bank's management. An interim order was passed on 4th January 2023, directing that the Committee of Creditors (CoC) should not be constituted until the next hearing date.

Intervention by Catalyst Trusteeship Limited:
Catalyst Trusteeship Limited filed an I.A. No. 1905 of 2023, seeking intervention in the appeal.

Settlement Execution and Withdrawal of CIRP:
An affidavit dated 9th May 2023 was filed by the appellant stating that a Settlement Letter was executed on 8th May 2023 by IDFC First Bank Limited. The appellant requested the Tribunal to set aside the admission order and close the Corporate Insolvency Resolution Process (CIRP) under Rule 11 of NCLAT Rules, 2016, and undertook to pay any unpaid CIRP costs.

Objection by Intervener regarding Financial Claims:
The intervener, represented by Mr. Gaurav Mitra, argued that their financial claim against the Corporate Debtor should prevent the settlement between the Corporate Debtor and the Financial Creditor. The intervener claimed that allowing the settlement would lead to duplicative proceedings.

Legal Precedents on Withdrawal of CIRP before CoC Constitution:
The Tribunal referenced the Supreme Court judgments in Swiss Ribbons Pvt. Ltd. v. Union of India and Ashok G. Rajani v. Beacon Trusteeship Ltd., which held that before the constitution of the CoC, a party could approach NCLT under Rule 11 for withdrawal of a Section 7 or 9 Application. The Tribunal also cited the Supreme Court's observations that settlement cannot be stifled before the CoC's constitution in anticipation of third-party claims and that other creditors are free to raise their independent claims in appropriate proceedings.

Conclusion:
The Tribunal concluded that since the CoC had not been constituted and the Financial Creditor had settled the matter with the Corporate Debtor, it was appropriate to exercise jurisdiction under Rule 11 of NCLAT Rules, 2016, to close the CIRP. The appeal was disposed of, allowing the settlement and setting aside the Order dated 23rd December 2022. The intervener was granted liberty to pursue independent legal proceedings to protect their interests.