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2025 (1) TMI 635 - HC - IBCRejection of petitioner s One Time Settlement (OTS) Proposal - commencement of the CIRP - rejection of the petitioner s OTS without following the Reserve Bank of India Framework for Compromise Settlements and Technical Write-offs dated 08.06.2023 (RBI Framework). Is the petitioner entitled to relief after commencement of the CIRP? - HELD THAT - Section 12 of the IBC contemplates completion of the Insolvency Resolution Process within 180 days which can be extended by another 90 days. The petitioner s OTS proposal was rejected by R.1 on 30.10.2023 (impugned in the present writ petition). The petitioner has however waited almost 6 years after admission of the Borrower Entity into insolvency and almost a year from the impugned rejection and filed the present writ petition on 30.07.2024 - It is clear from the above that the petitioner failed, for reasons unaccounted for, to immediately approach this Court after the impugned rejection. The petitioner has not given any credible reason for the intervening delay in filing the writ petition which includes a delay of almost a year from the impugned rejection. The petitioner has not given any explanation, credible or otherwise, as to why the petitioner failed to approach the Court in 2018 or immediately after the rejection of the OTS in October, 2023. The petitioner s delay would have the effect of upending the Resolution Process. The delay thus clouds the petitioner s bona fides in filing the writ petition - the multiple OTS proposals given by the petitioner during pendency of the writ petition may be seen as an attempt to derail the CIRP and defeat realization of the funds through the CIRP. In any event, the Court cannot compel the respondent No. 1 to accept any OTS proposal made by the petitioner on behalf of its step-down subsidiary/Borrowing Entity. Can the RBI Regulations create new rights which are not contemplated under the IBC - which is a self-contained Code? - HELD THAT - The petitioner s contention that the RBI Circular would apply to the facts of the case notwithstanding the ongoing CIRP would also attract the Supreme Court s decision in Bharti Airtel Limited 2024 (1) TMI 187 - SUPREME COURT which considered whether the principle of set-off under Order VIII Rule 6 of The Code of Civil Procedure, 1908, can apply to claims against an entity undergoing insolvency. The Supreme Court held that the principle of set-off/insolvency cannot be made applicable as it is not permitted under the IBC. The notable aspect is that a right which has not specifically been provided for in the IBC cannot be applied to a Company undergoing insolvency. The Court is hence of the view that the mandate of the RBI Framework must give way to the CIRP of the Borrower Entity once the process has been initiated. It is further relevant that paragraph 14 of the RBI Circular provides that the compromise settlements with the borrowers under the above framework shall be without prejudice to the provisions of any other statute in force which indicates that the RBI Framework recognizes the precedence of the relevant statute (the IBC in this case) and that any settlement must be done within the statutory framework of the IBC. Was the Rejection of the Petitioner s OTS vitiated by reason of R.1 not having a Board-Approved Policy as on 30.10.2023? - HELD THAT - The RBI Circulars/Frameworks constitute a regimented procedure for resolution of stressed assets as opposed to a duty cast on the lenders to consider OTS proposals given by the Borrowers. Hence, in the absence of such a duty, there cannot be a corresponding right on the part of a borrower to be considered for OTS. In any event, a Writ Court does not have the power to issue a writ of Mandamus directing a financial institution to positively grant the benefit of OTS to a borrower. - The RE s request to the petitioner to extend the EMD of the OTS offer for 3 months cannot be equated to an acceptance of the petitioner s OTS. In any event, the respondent No. 1 was dealing with a Borrower which was already in CIRP as on 10.10.2020 (the date of the mail by which the request was made) and would hence be under an obligation to act in terms of the law, i.e., the provisions of the IBC. Is the writ petition maintainable in the face of the alternative remedy under section 60 (5) of the IBC? - HELD THAT - The appropriate remedy of the petitioner, insofar as R.1 or R.3 are concerned, is to apply before the NCLT for appropriate relief. The petitioner cannot upend the insolvency process by invoking the writ jurisdiction of the High Court under Article 226 of the Constitution of India. The IBC also provides for challenging any order passed by the NCLT before the National Company Law Appellate Tribunal (NCLAT) under section 61 of the IBC - The petitioner has not given any explanation for not approaching the NCLT, and filing the present writ petition instead. The turn of events is all the more significant since the petitioner previously invoked the remedies provided under the IBC in relation to the petitioner being included in the CoC. The IBC has overriding effect in view of the non-obstante clause in section 238 of the IBC - The Court is therefore of the view that the petitioner has an alternative remedy within the framework of the IBC and has fallen short of giving reasons for refusing to avail of the effective statutory remedy. Can R.1, as the sole Financial Creditor, entertain an OTS once the Corporate Debtor enters CIRP? - HELD THAT - A CIRP replaces bipartite negotiations with multi-party resolutions. The other parties, which would include the respondent No. 2 and the other members of the CoC, cannot be made to vanish from the advanced stage of the CIRP by clearing the stage for a re-raising of the curtains for replay of Act I when the stage is set for the denouement - Notably, the petitioner unilaterally submitted an OTS offer on 29.07.2020 to the respondent No. 1 for Rs.90 Crores and furnished an earnest money deposit of Rs. 4.5 Crores during pendency of the CIRP. The petitioner made OTS proposals on 26.08.2023, 15.02.2023, 21.07.2023, 29.08.2023, 30.09.2023 and on 17.10.2023. The petitioner s 3 additional offers on 26.07.2024, 31.07.2023 and 24.09.2024 - The petitioner in effect wants the super structure to collapse when the substratum itself has crumbled. Can an application for withdrawal from CIRP be entertained after the CoC approves the Resolution Plan? - HELD THAT - The CoC approved the Resolution Plan of R.3 on 01.08.2024 with the requisite majority. Therefore, the Resolution Plan approved by the CoC has become binding on the stakeholders including R.1 and R.3. The petitioner cannot be allowed to achieve indirectly what it could not have done under the IBC regime - the petitioner s argument that an applicant (the petitioner herein/Corporate Debtor) can withdraw from the CIRP at any point of time without any strings attached is simplistic, to say the least. The effect of the withdrawal would undo what cannot be undone before the NCLT. The withdrawal would also unsettle a binding settlement between the CoC and the Successful Resolution Applicant (R.3). Is the writ petition maintainable in the absence of a necessary party/the borrowing entity? - HELD THAT - The petitioner is not entitled to the relief prayed for under Article 226 of the Constitution of India. The petitioner should have taken recourse to the provisions of the IBC and approached the NCLT for appropriate relief. The writ petition is also not maintainable in view of the efficacious statutory remedy under section 60 (5) of the IBC which is a comprehensive Code envisaging all possible scenarios and modes of redress within the four corners of the IBC. The first respondent, as the sole Financial Creditor, is also divested of powers to entertain an OTS once the CIRP of the Corporate Debtor is set in motion. The power to withdraw the applications under section 12A of the IBC post-admission must also be subject to the approval of the CoC in the manner prescribed in the said provision. Conclusion - i) The Court cannot compel the respondent No. 1 to accept any OTS proposal made by the petitioner on behalf of its step-down subsidiary/Borrowing Entity. ii) The mandate of the RBI Framework must give way to the CIRP of the Borrower Entity once the process has been initiated. iii) The respondent No. 1 was dealing with a Borrower which was already in CIRP as on 10.10.2020 (the date of the mail by which the request was made) and would hence be under an obligation to act in terms of the law, i.e., the provisions of the IBC. iv) The petitioner has an alternative remedy within the framework of the IBC and has fallen short of giving reasons for refusing to avail of the effective statutory remedy. v) A CIRP replaces bipartite negotiations with multi-party resolutions. The other parties, which would include the respondent No. 2 and the other members of the CoC, cannot be made to vanish from the advanced stage of the CIRP by clearing the stage for a re-raising of the curtains for replay of Act I when the stage is set for the denouement. vi) The effect of the withdrawal would undo what cannot be undone before the NCLT. The withdrawal would also unsettle a binding settlement between the CoC and the Successful Resolution Applicant (R.3). vii) The power to withdraw the applications under section 12A of the IBC post-admission must also be subject to the approval of the CoC in the manner prescribed in the said provision. Petition dismissed. 1. ISSUES PRESENTED and CONSIDERED The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS I. Is the petitioner entitled to relief after commencement of the CIRP? The court noted that the petitioner delayed filing the writ petition almost six years after the Borrower Entity was admitted into insolvency and nearly a year after the rejection of the OTS proposal. The delay suggests an attempt to disrupt the time-bound Resolution Process under the IBC. The court emphasized the importance of a time-bound Resolution Process as highlighted in various Supreme Court cases, including Arcelor Mittal India Private Limited vs. Satish Kumar Gupta. The court concluded that the petitioner's delay in approaching the court undermines the bona fides of the writ petition. II. Can the RBI Regulations create new rights not contemplated under the IBC? The court reiterated that the IBC is a self-contained code and any rights or processes must be traced within it. The RBI Framework cannot override the IBC, which is a comprehensive framework for insolvency. The court cited the Supreme Court's decision in Bharti Airtel Limited to support its view that rights not specifically provided under the IBC cannot be applied to entities undergoing insolvency. The court concluded that the RBI Framework must yield to the CIRP once initiated. III. Was the rejection of the Petitioner's OTS vitiated by reason of R.1 not having a Board-Approved Policy as on 30.10.2023? The court found that the absence of a Board-Approved Policy did not undermine the rejection of the OTS proposal. The RBI Framework does not impose a duty on lenders to consider OTS proposals, and no corresponding right exists for borrowers to have their OTS proposals considered. The court concluded that the rejection of the OTS was not vitiated by the absence of a Board-Approved Policy. IV. Is the writ petition maintainable in the face of the alternative remedy under section 60(5) of the IBC? The court emphasized that the IBC provides a comprehensive framework for resolving disputes related to insolvency, and the NCLT is the appropriate forum for such disputes. The petitioner did not provide a valid reason for bypassing the NCLT and approaching the High Court. The court concluded that the writ petition is not maintainable due to the existence of an alternative remedy under the IBC. V. Can R.1, as the sole Financial Creditor, entertain an OTS once the Corporate Debtor enters CIRP? The court noted that once an entity is in CIRP, decisions must be collective and involve the entire CoC. Negotiating with a single creditor is not permissible under the IBC. The court concluded that R.1 cannot entertain an OTS proposal independently once the CIRP has commenced. VI. Can an application for withdrawal from CIRP be entertained after the CoC approves the Resolution Plan? The court highlighted that Section 12A of the IBC requires the approval of 90% of the CoC voting share for withdrawal after admission. Once a Resolution Plan is approved by the CoC, it becomes binding and cannot be undone. The court concluded that withdrawal from CIRP after CoC approval of the Resolution Plan is not permissible. VII. Is the writ petition maintainable in the absence of a necessary party, the borrowing entity? The court determined that the Borrowing Entity is a necessary party to the proceedings, as the relief sought would directly affect it. The absence of the Borrowing Entity renders the writ petition vulnerable. The court concluded that the writ petition is not maintainable without the Borrowing Entity as a party. 3. SIGNIFICANT HOLDINGS The court held that the petitioner is not entitled to the relief sought under Article 226 of the Constitution of India. The petitioner should have utilized the remedies available under the IBC and approached the NCLT. The writ petition is not maintainable due to the existence of an effective statutory remedy under Section 60(5) of the IBC. The court also determined that the RBI Framework does not apply to the Borrowing Entity, as it was not in existence at the time of the entity's admission into CIRP. The court dismissed the writ petition, emphasizing that the petitioner's delay and procedural missteps, such as not including the Borrowing Entity as a party, undermine the petition's validity. The judgment underscores the primacy of the IBC as a self-contained code for insolvency, emphasizing the importance of adhering to its procedures and timelines.
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