1. Operational Creditor filed petition under Section 9, IBC — Settlement reached and payment made before constitution of Committee of Creditors — Application for withdrawal of CIRP rejected by NCLT. (Para 2 , 3 , 4 , 5 , 6 , 8 )
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2023 Supreme(SC) 282
SUPREME COURT OF INDIA
B.R. GAVAI, VIKRAM NATH, JJ.
Abhishek Singh – Appellant
Versus
Huhtamaki PPL Ltd. and Another – Respondents
Civil Appeal No. 2241 of 2023, SLP (Civil) No. 6452 of 2021
Decided On : 28-03-2023
Important Points
IMPORTANT POINTS
(1) Plea of alternative remedy is a self-imposed restriction by superior Courts and is never an absolute bar unless barred by statute.
(2) Application under Section 12A of Insolvency and Bankruptcy Code, 2016 for withdrawal of Corporate Insolvency Resolution Process cannot be kept pending for constitution of CoC, even where such application was filed before constitution of CoC.
(1) Plea of alternative remedy is a self-imposed restriction by superior Courts and is never an absolute bar unless barred by statute.
(2) Application under Section 12A of Insolvency and Bankruptcy Code, 2016 for withdrawal of Corporate Insolvency Resolution Process cannot be kept pending for constitution of CoC, even where such application was filed before constitution of CoC.
Subject
INSOLVENCY AND BANKRUPTCY - WITHDRAWAL OF CORPORATE INSOLVENCY RESOLUTION PROCESS
Act Referred
Headnote
Insolvency and Bankruptcy Code, 2016 – Section 12A read with Regulation 30A of IBBI Regulation – Rejection of application for withdrawal of Corporate Insolvency Resolution Process – Plea of alternative remedy is a self-imposed restriction by superior Courts and is never an absolute bar unless barred by statute – IBC provides a statutory timeframe for disposal of matters – Such matters being commercial in nature keeping these matters pending for long, frustrates very object of IBC – Application under Section 12A for withdrawal cannot be kept pending for constitution of CoC, even where such application was filed before constitution of CoC – Regulation 30A of IBBI Regulations provide a complete mechanism for dealing with the applications filed under such provision – Application filed under Regulation 30A of IBBI Regulations deserves to be allowed – Impugned order of NCLT set aside. (Paras 25, 35, 41, 42 and 43)
Result : Appeal allowed.
Legal Category Hierarchy
Advocates appeared:
For the appellant :E. C. Agrawala, Advocate
For the Respondent:Anirudh Sanganeria, Anannya Ghosh, Advocate
Impleaders Advocate:Sameer Abhyankar, Advocate
Intervenor Advocate:Sarthak Ghonkrokta, Advocate
For the appellant :E. C. Agrawala, Advocate
For the Respondent:Anirudh Sanganeria, Anannya Ghosh, Advocate
Impleaders Advocate:Sameer Abhyankar, Advocate
Intervenor Advocate:Sarthak Ghonkrokta, Advocate
Table of Contents
2. Whether settlement and withdrawal before Committee of Creditors' constitution is permissible — Impact of moratorium violations and third-party claims on withdrawal applications under Section 12A, IBC. (Para 17 , 18 , 19 , 20 , 22 )
3. Regulation 30A of IBBI Regulations is binding on NCLT — Settlement before Committee of Creditors' constitution cannot be stifled by third-party claims or alleged moratorium violations. (Para 25 , 26 , 27 , 28 , 30 , 31 , 33 , 34 , 35 , 37 , 40 , 41 )
4. Withdrawal of CIRP under Section 12A, IBC and Regulation 30A, IBBI Regulations is permissible before the constitution of the Committee of Creditors. (Para 34 , 35 )
5. Appeal allowed — Impugned order set aside — Application for withdrawal of Corporate Insolvency Resolution Process granted. (Para 42 , 43 )
6. Can a Corporate Insolvency Resolution Process be withdrawn before the Committee of Creditors is constituted?
Yes. Regulation 30A of the IBBI Regulations provides a mechanism for withdrawal applications to be made to the Adjudicating Authority before the constitution of the committee through the interim resolution professional. (Para 14 , 34 , 35 )
7. Can the rights of other creditors prevent the withdrawal of CIRP based on a settlement between the applicant creditor and the corporate debtor?
No. Settlement cannot be stifled before the constitution of the Committee of Creditors in anticipation of claims from third persons. Withdrawal does not prevent other creditors from pursuing their own legal remedies. (Para 27 , 37 )
8. Does a violation of the moratorium during settlement payments bar the withdrawal of CIRP proceedings?
No. Even if a moratorium is violated, such transactions may be treated as wrongful transactions recoverable under Section 66 of the IBC, but they cannot be used to stall a valid settlement. (Para 26 , 30 )
9. Are the IBBI Regulations binding on the National Company Law Tribunal (NCLT)?
Yes. Regulations framed by the IBBI under the powers conferred by the IBC carry a statutory flavor and are binding on the NCLT. (Para 34 )
JUDGMENT :
VIKRAM NATH, J.
1. Leave granted.
2. The appellant, a suspended Director of the Corporate Debtor1 [In short “CD”] Manpasand Beverages Ltd. (respondent 2), has filed this appeal assailing the correctness of the order dated 13.04.2021 passed by the National Company Law Tribunal2 [In short “NCLT”] Ahmedabad Bench at Ahmedabad in I.A. No. 196 of 2021 arising out of C.P. (I.B.) No. 503 of 2019 rejecting the application of the appellant under section 12A of Insolvency and Bankruptcy Code, 20163 [In short “IBC”] for withdrawal of Corporate Insolvency Resolution Process.4 [In short “CIRP”].
3. CD is in the business of manufacturing and distribution of fruit beverages. It has approximately 700 employees and a turnover of Rs. 984.96 Crores in the Financial Year 2018-2019. The Operational Creditor5 [In short “OC”] Huhtamaki PPL Ltd. (respondent No. 1) used to supply packaging material to the CD.
4. The OCs filed a petition under section 9 of IBC before the NCLT, stating a total outstanding amount of Rs. 1,31,00,825/- against the CD. This was registered as CP (IB) No. 503 of 2019.
5. The NCLT by order dated 01.03.2021 passed an order admitting the petition and initiating CIRP. Two days thereafter i.e. 03.03.2021, the OCs and the CD entered into a settlement wherein the CD was required to pay an amount of Rs. 95.72 lakhs. The above settlement was arrived at even before the Committee of Creditors6 [In short “CoC”] could be constituted.
6. On 4th March, 2021, the OCs received Rs. 50 Lakhs and again on 8th March, 2021, it received the balance amount of Rs. 45.72 lakhs. Thus, the total amount to be paid as per the settlement, was paid to the OCs. The Interim Resolution Professional7 [In short “IRP”] on 10th March, 2021 moved an application under Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 20188 [In short “IBBI Regulations”] seeking withdrawal of CIRP against the CD. Along with it the application of OCs dated 09.03.2021 was also attached which was moved under section 12A of IBC. The application for withdrawal was registered as I.A. No. 196 of 2021.
7. In the meantime, an appeal was preferred against the admission order dated 01.03.2021 before the National Company Law Appellate Tribunal9 [In short “NCLAT”] apparently on the ground that section 9 of IBC petition was not maintainable as there was a pre-existing dispute. On 26.03.2021, the appeal was withdrawn before the NCLAT with liberty to apply for revival of the appeal in case the settlement failed. The NCLAT while allowing the withdrawal of the appeal granted stay of formation of CoC. The said order dated 26.03.2021 is reproduced below:
“1. Mr. Vikram Nankani, Advocate appears for the Appellant. He submits that Respondent No. 1-Operational Creditor filed CP (IB) No. 503/9/NCLT/AHM/2019 before Adjudicating Authority (NCLT Ahmedabad Bench, Court No. 1). The Application was filed under section 9 of Insolvency and Bankruptcy Code, 2016 (IBC in short) against the Respondent No. 2 M/s. Manpasand Beverages Ltd. the Corporate Debtor. Appellant is the Director of the Suspended Board of the Corporate Debtor. Respondent No. 3 is Interim Resolution Professional.
2. Learned counsel for the Appellant submits that the Application was admitted by the Impugned Order and Appeal is filed. It is stated that thereafter the Appellant has settled the claim of Operational Creditor and the Operational Creditor has filed Application for withdrawal copy of which is at Page 348 and even the IRP has filed Application before the Adjudicating Authority copy of which is at Page 368. The Application for withdrawal under section 12A of IBC has been filed through IRP. Mr. Salil Thakore, Advocate agrees with the Learned Counsel for the Appellant that there has been a settlement and accordingly Application under section 12A of IBC has been filed. The Learned Counsel for IRP however states that the money has been paid violating moratorium whi
