The Supreme Court ruled that there is no bar to withdraw an application admitted under Section 7 of the IBC before the Committee of Creditors is constituted.
The Appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 (IBC) is against an interim order passed by the National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi in Company Appeal, filed by the Appellant, whereby the NCLAT issued notice of the Appeal, but did not restrain the Interim Resolution Professional (IRP) from proceeding with Corporate Insolvency Resolution Process (CIRP) of M/s Seya Industries Limited (Corporate Debtor).
The NCLAT, however, restrained the IRP from constituting a Committee of Creditors (CoC) till the next date of hearing.
In the meanwhile, the Appellant and the Respondents were given the opportunity to settle their disputes before the Adjudicating Authority (NCLT) in terms of Section 12A of the IBC read with Rule 11 of the National Company Law Tribunal Rules, 2016 (NCLT Rules).
The division bench of Justice Indira Banerjee and Justice J.K. Maheshwari observed that Section 12A of the IBC enables the Adjudicating Authority to allow the withdrawal of an application admitted under Section 7 or Section 9 or Section 10, on an application made by the applicant with the approval of 90% voting shares of the Committee of Creditors in such a manner as may be specified.
It was further observed that the question of approval of the Committee of Creditors by the requisite percentage of votes, can only arise after the Committee of Creditors is constituted.
The court viewed that before the Committee of Creditors is constituted, there is no bar to withdrawal by the applicant of an application admitted under Section 7 of the IBC.
“The object of the IBC is to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance of interests of all stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India and matters connected therewith or thereto” the court said.
The court stated that a reading of the statement of objects and reasons with the statutory Rule 11 of the NCLT Rules enables the NCLT to pass orders for the ends of justice including order permitting an applicant for CIRP to withdraw its application and to enable a corporate body to carry on business with ease, free of any impediment.
Considering the investments made by the Corporate Debtor and considering the number of people dependant on the Corporate Debtor for their survival and livelihood, the court held that there is no reason why the applicant for the CIRP, should not be allowed to withdraw its application once its disputes have been settled.
Division bench said that the settlement cannot be stifled before the constitution of the Committee of Creditors in anticipation of claims against the Corporate Debtor from third persons.
It was further added that the withdrawal of an application for CIRP by the applicant would not prevent any other financial creditor from taking recourse to a proceeding under IBC.
“The urgency to abide by the timelines for completion of the resolution process is not a reason to stifle the settlement” the bench stated.
The court held that the order impugned is only an interim order which does not call for interference and said that in an appeal under Section 62 of the IBC, there is no question of law which requires determination by the Court.
The court directed the NCLT to take up the settlement application and decide the same in the light of the observations made.
Case title: Ashok G. Rajani v/s Beacon Trusteeship Ltd. & Ors.
Citation: CIVIL APPEAL NO.4911 OF 2021