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TMI Blog2021 (7) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, whereunder IBBI has been empowered to frame Regulations is clear that the said Regulation should be consistent with the I B Code. Rule 11 of NCLAT Rules, 2016 provides that Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Appellate Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Appellate Tribunal. - in the present case, there is no force in the contention of the proposed Intervenor Applicants that the Application for Withdrawal, filed, prior to Constitution of CoC ought to be mandatorily dealt with the provisions under the Regulation 30-A(1)(a). It is not the case of the Intervenors that Demand Notice under Section 8 is pending. It is only their case that money is due. Before Constitution of Committee of Creditors mere filing of a Claim does not constitute default per se. It is only on the basis of the Claims that the CoC is constituted. In a catena of Judgements the Hon ble Supreme Court has reiterated that the prime objective of the Court is not recovery, but revival - in the interest of Justice, the inherent powers under Rule 11 can be exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Professional (IRP) has been assailed through this Appeal on the following grounds:- In absence of any Agreement subsisting at the time of filing of the Petition between the Appellant and the second Respondent there is no privity of Contract between the two; the Learned Adjudicating Authority has considered the existence of a Pre-Existing Dispute ; the second Respondent (erstwhile Alcott Town Planners Private Limited) had executed the Management Service Agreement (MSA) dated 16.11.2018, with the first Respondent (hereinafter referred to as the Operational Creditor ) to manage and operate Hotel Yellow White Residency situated at Gurgaon for which the Operational Creditor received a Security Deposit of ₹ 13,50,000/- in addition to the investment made by the second Respondent of approximately ₹ 14,25,098/- as capital expenditure; during the subsistence of MSA all rights and liabilities were transferred to Mypreferred Transformation and Hospitality Private Limited (MTH) a distinct legal entity with effect from 01.06.2019; MTH revised the term of commercial arrangement last on 17.07.2019, wherein the benchmark revenue payable to the Operational Creditor was modif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of this Tribunal under Rule 11, in view of the settlement arrived at between the parties. It is stated that all disputes, claims and counter claims of the Operational Creditor qua both R- 2 OYO Hotels and Homes Private Limited as well as MTH stand settled to the full satisfaction of the parties and the Operational Creditor has issued a letter dated 23.04.2021 to that effect. It is also submitted that the IRP has received the payment towards the total expenses incurred by him and there is no further amount outstanding in this regard. 4. The Respondent/ Operational Creditor vide a communication dated 23.04.2021, confirmed as follows:- d. That Mypreferred Transformation and Hospitality Private Limited has, paid to me, a sum of INR 16,02,000 vide Demand Draft No. 714502 dated 03 April 2021 drawn on Citi Bank, being the total operational debt amount as per my Petition under Section 9 of the Code. e. Consequently, all the disputes/claims and counterclaims of the Applicant qua both Oyo Hotels and Homes Private Limited as well as Mypreferred Transformation and Hospitality Private Limited stand settled to the full satisfaction of the Parties and the Parties have agreed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nth and charge a fee of 2.5% and commission of 12.5% on the total revenue generated in a month. The parties entered into a new contract dated 11.12.2018 whereby, the assured benchmark revenue was reduced to ₹10,00,000/- per month, but Corporate Debtor failed to honor its part of obligation since 11.12.2018 despite modifying the terms of the contract with respect to minimum guarantee. As on 01.04.2021, the Corporate Debtor owes an amount of ₹ 50,04,391/- to the Applicant and hence pursuant to the paper publication dated 03.04.2021, this Applicant submitted their claims on 10.04.2021, under Form B to the IRP. Submissions on behalf of the Learned Counsel for the proposed Intervenor/Applicant in IA No. 957 of 2021: The Learned Counsel submitted that this Tribunal cannot grant the relief of withdrawal of CIRP Proceedings on account of settlement between the Appellant and the Operational Creditor ; that as per the ratio of Swiss Ribbons Pvt. Ltd. and Ors. Vs. Union of India and Ors. (2019) 4 SCC 17, a party can approach NCLT directly where the Committee of Creditors is not yet constituted, and the Tribunal may, in exercise of inherent powers under R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io of Swiss Ribbons Pvt. Ltd. and Ors. (Supra) to buttress his argument that CIRP are Proceedings in Rem and hence withdrawal Application under Rule 11 cannot be entertained. 9. M/s. Lovely Hotels Pvt. Ltd. preferred IA No. 1084 of 2021, seeking to intervene in the present Proceedings on the ground that the Applicant entered into a Lease and License Agreement (LLA) dated 11.07.2017, with the Corporate Debtor who undertook to run the Hotel as part of OYO Platform and generate revenue therefrom and undertook to pay a fee of ₹ 16,00,000/- per month to the Applicant but the Corporate Debtor has committed multiple defaults to the tune of ₹ 1,57,58,429/-. Submissions on behalf of the Learned Counsel in IA No. 1084 of 2021: 10. The Learned Counsel opposed the withdrawal Application on the following grounds:- Once CIRP Proceedings is initiated, it cannot be withdrawn without a settlement of claims of creditors as it is a proceeding in Rem and placed reliance on the following Judgements in support of his contention:- Mother Pride Dairy India Pvt. Ltd. Vs. Portrait Advertising and Marketing Pvt. Ltd. , 2017 SCC OnLine SC 1789. a. Swiss Ribbons Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 was substituted with effect from 25.07.2019, which provides for Application for withdrawal of Proceedings under Section 9 after its Admission but before the Constitution of the CoC provided i. has to be filed before the NCLT; ii. by the Applicant to the IRP; iii. in Form FA accompanied with Bank guarantee; After Regulation 30-A was substituted on 25.07.2019, an Application for withdrawal, cannot be filed before NCLAT by invoking inherent powers under Rule 11 and such Application could be filed only before NCLT as per the ratio of Swiss Ribbons Pvt. Ltd. and Ors. (Supra). Prayer for withdrawal on the basis of settlement with one Creditor ought to be rejected as it is ultra-virus to the scope and intent of the Code. The Intervenor FHRAI represents Hotels and Restaurant across the country and pursuant to the Admission of the Insolvency Proceedings, IRP invited the claims and 46 numbers of Members of FHRAI have already filed their respective claims against the Corporate Debtor amounting to ₹ 96.44 Crs. Though the CoC has not been yet constituted, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48,62,081 6. M/s. ARMA HOSPITALITY, Mumbai Management and Service Agreement 4,87,24,193 7. M/s. AIRPORT RESIDENCY, Bangalore Marketing and Operational Consulting Agreement 25,60,195 8. M/s. Samaroh Hospitality, LLP, Indore Marketing and Operational Consulting Agreement 41,08,997 9. M/s. OCEANS 7 Hotels and Resorts, Goa Management and Service Agreement 3,23,51,780 10. M/s. Aildasani Hotels Resorts, Indore Marketing and Operational Consulting Agreement 27,37,708 11. Max Heights Infrastructure Ltd., New Delhi Lease Agreement 74,41,533 TOTAL CLAIM AMOUNT ₹ 35,00,50,450 It is stated that the Appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate Debtor on 11.11.2020 to pay the outstanding amount due, but there was no response. The Applicant submitted their claim to the IRP in the prescribed Form B. Submissions of the Learned Counsel appearing on behalf of the proposed Intervenor/Applicant in IA No. 1116 of 2021: Learned Counsel submitted that this Tribunal in Mother Pride Dairy India Pvt. Ltd. (Supra) has laid down that once an Application is admitted cannot be withdrawn since, other Creditors are entitled to raise their claims. Hon ble Supreme Court in Swiss Ribbons Pvt. Ltd. and Ors. (Supra) has observed that the Proceedings before the Adjudicating Authority is a collective Proceeding and that a party can approach NCLT directly for exercise of inherent powers under Rule 11 of NCLT Rules, 2016. NCLAT cannot permit withdrawal of an admitted Insolvency Application. The Application must necessarily be filed through IRP only before the NCLT. Allowing the IA and vacating the stay on the Constitution of Committee of Creditors would prejudice their rights. In support of his contention, the Learned Counsel placed reliance on the following Judgements:- Sr. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they have entered into an MSA with the Corporate Debtor on 15.07.2018, whereby Hotels would be run by the Corporate Debtor with sharing of 37% of the revenue to a minimum benchmark revenue of ₹ 10,00,000/- from the Corporate Debtor . The Corporate Debtor deposited the benchmark revenue from October 2018 till March 2020 and thereafter defaulted. On 15.04.2021, the Applicant issued a Legal Notice, but there was no response. The Applicant approached the Hon ble High Court of Bombay by way of Arbitration Application (L) No. 3107 of 2020. By Order dated 21.09.2020, the Hon ble High Court of Bombay preferred all disputes under MSA to a sole Arbitrator and the matter was listed on 26.09.2020. On 30.10.2020, the sole Arbitrator recorded the consent of the Applicant and the Corporate Debtor to continue operating under revenue sharing model till February, 2021. On 12.04.2021, in light of the public announcement made on 03.03.2021, this Operational Creditor preferred their claim before the IRP to the tune of ₹ 5,74,09,620/-. Submissions of Learned Counsel appearing on behalf of the proposed Intervenor/Applicant in IA No. 1083 of 2021: It is submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble at this stage of Appeal having regard to the settlement arrived at between the parties and the fact that CoC has not yet been constituted; that Law of Land under Article 141 of the Constitution can only be replaced by a validating law and hence Rule 11 remains and Regulation 30-A cannot run counter to Rule 11 when the CoC has not yet been constituted and that whenever there is a conflict, substantive parent law is to be followed. Learned Sr. Counsel submitted that the scope of the Code Code is meant for revival and not for recovery of dues , if any. 20. As regarding the Intervention Application No. 1094 of 2021 preferred by Federation of Hotel and Restaurant Association of India, Learned Senior Counsel contended that FHRAI is filing the present Application on behalf of its Members, the details of which has not been given; that the Application is devoid of material and has been filed on behalf of unknown number of Members with unknown amount of claims and no details of Members who are yet to prove their case and hence the Intervention Application is devoid of merit and ought to be dismissed at the threshold. 21. He further contended that the proposed Intervention Applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency) No. 105 of 2020 [Order dated 30.01.2020] Para 6-10, 13,14 22. Learned Counsel concluded that great prejudice would be caused to the Corporate Debtor in view of the subsistence of the CIRP Proceedings despite having settled the matter between Operational Creditor leading to loss of goodwill and reputation, loss of perspective investments and irreparable losses apart from serious administrative difficulties in collection of revenue from the existing Hotel partners, disbursement of payments of nearly 5,000 dependent Hotel owners together with disbursal of payments to vendors and employees. He further submitted that approximately 65 properties run by the Corporate Debtor have been accommodating patients for quarantining and isolating in this pandemic. 23. The brief points which fall for consideration are:- a. Whether NCLAT can exercise powers under Rule 11 entertain Applications seeking withdrawal, prior to Constitution of CoC. b. Whether procedure under Regulation 30-A(1)(a) is applicable to this Application. c. Whether the Intervention Applications filed by the proposed Intervenors, during the pendency of the Appeal, be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g all creditors of the debtor. The intent of the Code is to discourage individual actions for enforcement and settlement to the exclusion of the general benefit of all creditors. 29.2. On a review of the multiple NCLT and NCLAT judgements in this regard, the consistent pattern that emerged was that a settlement may be reached amongst all creditors and the debtor, for the purpose of a withdrawal to be granted, and not only the applicant creditor and the debtor. On the basis read with the intent of the Code, the Committee unanimously agreed that the relevant rules may be amended to provide for withdrawal post admission if the CoC approves of such action by a voting share of ninety per cent. It was specifically discussed that Rule 11 of the National Company Law Tribunal Rules, 2016 may not be adopted for this aspect of CIRP at this stage [as observed by the Hon ble Supreme Court in Uttara Foods and Feeds (P) Ltd. v. Mona Pharmachem4] and even otherwise, as the issue can be specifically addressed by amending Rule 8of the CIRP Rules. (emphasis in original) Before this section was inserted, this Court, under Article 142, was passing orders allowing withdrawal of applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectly, which Tribunal may, in exercise of its inherent powers under Rule 11 of NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the parties concerned and considering all relevant factors on the facts of each case. 83. The main thrust against the provision of Section 12-A is the fact that ninety per cent of the Committee of Creditors has to allow withdrawal. This high threshold has been explained in the ILC Report as all financial creditors have to put their heads together to allow such withdrawal as, ordinarily, an omnibus settlement involving all creditors ought, ideally, to be entered into. This explains why ninety per cent, which is substantially all the financial creditors, have to grant their approval to an individual withdrawal or settlement. In any case, the figure of ninety per cent, in absence of anything further to show that it is arbitrary, must pertain to the domain of legislative policy, which has been explained by the Report (supra). Also, it is clear, that under Section 60 of the Code, the Committee of Creditors do not have the last word on the subject. If the Committee of Creditors arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent powers of the Appellate Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Appellate Tribunal. 28. This Tribunal in Jogender Kumar Arora Vs. Dharmendar Sharma and Ors. Company Appeal (AT) (Insolvency) No. 94, 95 of 2019 decided on 12.02.2019 has held as follows:- 3. Mr. Dharmender Sharma, Proprietor of ADP Interiors and Contractors (Operational Creditor) appears in person and submits that the parties have settled and he has received the settled amount. Mr. Sandeep Chandna, Resolution Professional submits that he has performed duties for about 20 days and pursuant to publication of notice he has collating the claims. He had quoted the fees of Rupees Ten Lakhs for 30 days and incurred ₹ 4.5 lakhs for publication of notice etc. 4. Mr. A.M. Ranjan Kumar, Advocate wanted to intervene on behalf of the Eight Financial Creditors to oppose the prayer. He submitted that the Eight Financial Creditors have already submitted their claim before the Resolution Professional . However, parties having settled the matter prior to Constitution of Committee of Creditors , we are not inclined to en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. As per the Terms of Settlement, both the parties agreed to share the cost and fee of the Interim Resolution Professional . Learned Counsel for the parties state that cost and fee of Interim Resolution Professional has already been paid, which is also accepted by the Learned Counsel appearing on behalf of the Interim Resolution Professional . 5. In the facts and circumstances and in exercise of inherent powers conferred upon this Appellate Tribunal under Rule 11 of the NCLAT Rules 2016, we accept the Terms of Settlement and set aside the impugned order dated 3rd September, 2019 and release the Corporate Debtor from rigour of Corporate Insolvency Resolution Process . The Interim Resolution Professional will handover the assets and records to the Corporate Debtor / Promoter . 33. In another occasion, a three Member Bench of this Tribunal in Gajendra Sharma Vs. M/s. Dinesh Sanitary Store and Anr. Company Appeal (AT) (Insolvency) No. 119 of 2020 decided on 03.02.2020 has held as follows:- 5. Although the CoC got constituted on 21.01.2020, when the matter had come up before this Tribunal on 23.01.2010, the fact of prior settlement was brought to the noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her Home Buyers and also with the entire Tower/Project. Likewise, Hadi Mohd. Taher Badri (Supra) and Chitra Sharma (Supra) too are matters where Home Buyers are the Financial Creditors and this Tribunal has dealt with these matters as a case-to-case basis, keeping in view the ratio of Swiss Ribbons Pvt. Ltd. and Ors. (Supra) wherein the Hon ble Supreme Court has observed that the discretion to allow or disallow lies with the Tribunal. The ratio of Jai Kishan Gupta (Supra) is also not applicable to the facts of the attendant case as CoC was already constituted prior to the second Order of Adjudicating Authority having been passed, and this Tribunal took note of the developments, the conduct of the Corporate Debtor , recorded by the IRP in the Minutes of the first CoC Meeting and dismissed the Appeal preferred by the Director of this Corporate Debtor . The Intervenor Applicants in IA Nos. 1084, 1085, 1116 of 2021 have relied on the decision of this Tribunal in Mother Pride Dairy India Pvt. Ltd. (Supra) which is not relevant today as the said decision is dated 28.07.2017 and precedes the inclusion of Section 12-A under the Code and the decision of the Hon ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Form FA of the Schedule accompanied by a bank guarantee- (a) towards estimated expenses incurred on or by the interim resolution professional for purposes of regulation 33, till the date of filing of the application under clause (a) of subregulation (1); or (b) towards estimated expenses incurred for purposes of clauses (aa), (ab), (c) and (d) of regulation 31, till the date of filing of the application under clause (b) of subregulation (1). (3) Where an application for withdrawal is under clause (a) of sub-regulation (1), the interim resolution professional shall submit the application to the Adjudicating Authority on behalf of the applicant, within three days of its receipt. (4) Where an application for withdrawal is under clause (b) of sub-regulation (1), the committee shall consider the application, within seven days of its receipt. (5) Where the application referred to in subregulation (4) is approved by the committee with ninety percent voting share, the resolution professional shall submit such application along with the approval of the committee, to the Adjudicating Authority on behalf of the applicant, within three days of such approval. (6) The Adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective from 25.07.2019 provides that stage of pre-Constitution of CoC which is now covered in Regulation 30-A(1)(a). It is evident that Section 12-A deals with the situation of Withdrawal of Application admitted under Sections 7, 9 or 10, on an Application made by the Applicant with the approval of 90% voting share of the Committee of Creditors, in such manner as may be specified , meaning thereby that Section 12-A refers to a situation Post Constitution of CoC, whereas Regulation 30-A(1)(a) deals with procedure to be followed Pre- Constitution of CoC. It is stated by the Learned Sr. Counsel that the language of the Section, whereunder IBBI has been empowered to frame Regulations is clear that the said Regulation should be consistent with the I B Code. We refrain from making any such observations. The Apex Court clarified in Brilliant Alloys Pvt. Ltd. Vs. Mr. S. Rajagopal Ors. , SLP (Civil) No. 31557/2018 dated 14.12.2018 that Regulation 30-A is not mandatory but is directory for the simple reason that on the facts of a given case, an Application for withdrawal may be allowed in exceptional cases even after issuing the invitation for expression of interest under Regulation 36- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82 of 2021 has also invoked Arbitration clause and approached the Hon ble High Court of Bombay by way of a Petition which is pending Adjudication before the Hon ble High Court. 44. The Applicants in and Diary Nos. 27487 27488 have also invoked Arbitration Proceedings and a sole Arbitrator has been appointed by the Hon ble High Court of Delhi in OMP(I)212/2021. 45. It is not the case of the Intervenors that Demand Notice under Section 8 is pending. It is only their case that money is due. We are of the considered view that before Constitution of Committee of Creditors mere filing of a Claim does not constitute default per se. It is only on the basis of the Claims that the CoC is constituted. In a catena of Judgements the Hon ble Supreme Court has reiterated that the prime objective of the Court is not recovery, but revival. This Tribunal in numerous Judgements cited in the aforenoted paras, has observed that after Admission , this Tribunal, on a case to case basis can exercise its inherent power under Rule 11 if parties are interested to settle the matter prior to Constitution of CoC. To reiterate, we are of the view that in the interest of Justice, the inherent powers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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