Supreme Court
Application U/s. 12A Of IBC For Withdrawal Of CIRP Is Maintainable Prior To Constitution Of Committee Of Creditors: SC
Supreme Court

Application U/s. 12A Of IBC For Withdrawal Of CIRP Is Maintainable Prior To Constitution Of Committee Of Creditors: SC

Sanjoli N Srivastava
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30 March 2023 11:30 AM GMT

The Supreme Court has observed that application under Section 12A of the Insolvency and Bankruptcy Code, 2016 for withdrawal of the Corporate Insolvency Resolution Process is maintainable prior to the constitution of the Committee of Creditors (CoC). The Court also observed that Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2018 is binding upon the National Company Law Tribunal.

The Bench of Justice B.R. Gavai and Justice Vikram Nath held that "Section 12A did not specifically mention withdrawal of such applications (Corporate Insolvency Resolution Process) where CoC (Committee of Creditors) had not been constituted but at the same time it does not debar entertaining applications for withdrawal even before constitution of CoC. Therefore, the application under section 12A for withdrawal cannot be said to be kept pending for constitution of CoC, even where such application was filed before constitution of CoC.”

The Bench further held that “The substituted Regulation 30A of IBC as it stands today clearly provided for withdrawal applications being entertained before constitution of CoC. It does not in any way conflicts or is in violation of section 12A of IBC. There is no inconsistency in the two provisions. It only furthers the cause introduced vide section 12A of IBC.”

Senior Advocate Shyam Divan and Advocate Mahesh Agarwal appeared for the appellant and Advocate-on-Record Anirudh Sanganeria appeared for the respondent.

In this case, the appellant was a suspended director of the Corporate Debtor (CD)- Manpasand Beverages Ltd. and had assailed the order of the NCLT whereby the application of the appellant under section 12A of IBC for withdrawal of the Corporate Insolvency Resolution Process was rejected.

A petition under section 9 of IBC was filed before the NCLT by the Operational Creditor- Huhtamaki PPL Ltd. stating a total outstanding amount of Rs.1,31,00,825/- against the CD for the packaging materials delivered to CD. Two days after the initiation of CIRP, the parties entered into settlement, even before the CoC was constituted. The Settlement amount was paid by the CD within 5 days.

Thereafter, the Interim Resolution Professional moved an application under Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2018 seeking withdrawal of CIRP against the CD. The suspended Director- appellant of CD also filed an application under Section 12A of IBC for withdrawal of CIRP.

On March 13, 2021 the NCLT observed that as many as 35 claims of creditors both operational and financial had been filed and withdrawal of the proceedings would adversely affect their rights. Further, Regulation 30A of IBBI Regulations was not binding upon it and such provision would not be of any help to the CD or its suspended Directors. The NCLT also rejected the settlement under section 12A of IBC and fixed the matter for disposal of application under Regulation 30A. Against this order of NCLT, the appellant approached the Apex Court.

The Apex Court relied upon the judgment of Swiss Ribbons (P) Ltd. V. Union of India (2019) 4 SCC 17, wherein it was held that the NCLT ought to have exercised its inherent powers under Rule 11 of the NCLT Rules, 2016 to permit settlement between the creditor and the debtor and withdrawal of proceedings prior to the constitution of CoC.

Further, the Apex Court noted that large number of orders were being passed by the Supreme Court by invoking its power under Article 142 of the Constitution to withdraw or settle cases under IBC.

“The Board was conferred with powers to frame regulations for various purposes referred to in section 240 of IBC and the other allied sections. These regulations may be subordinate in character but would still carry a statutory flavor and would be binding on the NCLT. The NCLT committed an error in holding that Regulation 30A would have no binding effect. This would amount to defeating the very purpose of substituting Regulation 30A in IBBI Regulations on 25.07.2019 after the judgment of Swiss Ribbons(supra) which was dated 25.01.2019.” observed the Court.

The Apex Court noted that Section 12A of IBC permitted withdrawal of applications admitted under sections 7, 9 and 10 of IBC. The approval of 90% members of COC was required when withdrawal was made after constitution of COC. However, Section 12A did not debar entertaining applications for withdrawal even before constitution of CoC.

“The IBBI which had the power to frame Regulations wherever required and in particular section 240 of IBC for the subjects covered therein had accordingly substituted Regulation 30A dealing with the procedure for disposal of application for withdrawal filed under section 12A of IBC. The substituted Regulation 30A of IBC as it stands today clearly provided for withdrawal applications being entertained before constitution of CoC.” the Court further observed.

The Apex Court further held that “It was only because of the delay caused by the NCLT in disposing of the applications under section 12A of IBC and Regulation 30A of IBBI Regulations that large number of creditors filed their claims. The inherent powers are to be invoked in order to meet the ends of justice which, in our opinion, the NCLT failed to invoke.”

Accordingly, the Court allowed the withdrawal application filed under Regulation 30A by the IRP and said that the order would not affect the claim of other creditors.

Cause Title- Abhishek Singh v. Huhtamaki PPL Ltd. & Anr.

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