The court ruled that the NCLAT erred in approving a settlement without adhering to the procedural requirements of the Insolvency and Bankruptcy Code, emphasizing the collective nature of insolvency proceedings.

JUDGMENT :

Dr Dhananjaya Y. Chandrachud, CJI.

1. This appeal arises from a judgment of the National Company Law Appellate Tribunal, Chennai¹[“NCLAT”] dated 2 August 2024. ²[“Impugned Judgement”] The National Company Law Tribunal, Bengaluru, ³[“NCLT”] admitted the application instituted by the second respondent under Section 9 of the Insolvency and Bankruptcy Code⁴[“IBC”] and initiated the corporate insolvency resolution process⁵[“CIRP”] against the third respondent. In the exercise of its powers under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016⁶[“NCLAT Rules”], the NCLAT approved a settlement in relation to the dues payable to the third respondent by the second respondent and set aside the order of the NCLT.

2. The appellant, who claims to be a Financial Creditor, had moved an application before the NCLAT objecting to the approval of the settlement and questioned the source of the funds for the settlement. The objections of the appellant were rejected by the NCLAT in the Impugned Judgement. The present appeal raises substantial questions about the legal framework governing the withdrawal of a CIRP; the settlement of claims after the admission of an application instituted by a debtor; and the scope of the inherent powers vested in the NCLAT under Rule 11 of the NCLAT Rules.

A. Background

i. Parties before this Court

3. The third respondent, Think and Learn Pvt Ltd, a company engaged in the business of providing online educational services, is the Corporate Debtor. ⁷[“Corporate Debtor”] The first respondent, Byju Raveendran and his brother, Riju Raveendran are former directors of the Corporate Debtor.

4. The second respondent, the Board of Control for Cricket in India (BCCI) is an Operational Creditor who executed a ‘Team Sponsor Agreement’ dated 25 July 2019 with the Corporate Debtor, which relates to the sponsorship of the Indian National Cricket Team.

5. The Corporate Debtor has a 100% owned subsidiary, Byju’s Alpha Inc. – a company incorporated in the United States of America. Byju’s Alpha Inc. availed a loan facility aggregating to approximately USD 1,200,000,000 under a credit and guarantee agreement dated 24 November 2021. ⁸[“Credit Agreement”] The Appellant, GLAS Trust Company LLC, is the ‘Administrative Agent’ of all the lenders under this agreement and the ‘Collateral Agent’ for the secured parties. Under the terms of the Credit Agreement, the Corporate Debtor acted as a guarantor and issued a guarantee deed dated 24 November 2021 in favour of the appellant.

ii. Proceedings before the Delaware Court

6. On account of an alleged default under the Credit Agreement, the appellant enforced the security in respect of the loan and took a series of steps that resulted in the removal of all pre-existing directors of Byju’s Alpha Inc., including Riju Raveendran and the appointment of a new sole director. The appellant contends that despite these measures, defaults persisted in payment of the principal outstanding amount and the i