1. Corporate insolvency resolution process initiated under Section 9, IBC — Settlement reached between operational creditor and promoters — NCLAT approved settlement using inherent powers — Challenge by financial creditor. (Para 1 , 11 , 15 , 21 , 23 )
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2024 Supreme(SC) 964
SUPREME COURT OF INDIA
DHANANJAYA Y. CHANDRACHUD, C.J.I., J.B. PARDIWALA, MANOJ MISRA, JJ.
GLAS Trust Company LLC – Appellant
Versus
BYJU Raveendran & Ors. - Respondents
Civil Appeal No. 9986 of 2024 And With Special Leave Petition (C) No. 21023 of 2024
Decided on : 23-10-2024
Important Points
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.
Subject
Insolvency - Corporate Insolvency Resolution Process
Act Referred
CIRP RULES: R.8
COMPANIES ACT: S.241, S.242, S.244
CONSTITUTION OF INDIA: Art.142
INSOLVENCY AND BANKRUPTCY APPLICATION TO ADJUDICATING AUTHORITY RULES: R.6, R.8
INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (INSOLVENCY RESOLUTION PROCESS FOR CORPORATE PERSONS) REGULATIONS: Reg.30(a), Reg.30(a)(1), Reg.30(a)(2), Reg.30(a)(3), Reg.30(a)(4), Reg.30(a)(5)
INSOLVENCY AND BANKRUPTCY CODE: S.12(a), S.13, S.14, S.15, S.16, S.18(b), S.30(4), S.5(11), S.7, S.9
COMPANIES ACT: S.241, S.242, S.244
CONSTITUTION OF INDIA: Art.142
INSOLVENCY AND BANKRUPTCY APPLICATION TO ADJUDICATING AUTHORITY RULES: R.6, R.8
INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (INSOLVENCY RESOLUTION PROCESS FOR CORPORATE PERSONS) REGULATIONS: Reg.30(a), Reg.30(a)(1), Reg.30(a)(2), Reg.30(a)(3), Reg.30(a)(4), Reg.30(a)(5)
INSOLVENCY AND BANKRUPTCY CODE: S.12(a), S.13, S.14, S.15, S.16, S.18(b), S.30(4), S.5(11), S.7, S.9
Headnote
(A) Insolvency and Bankruptcy Code, 2016 - Section 9 and Section 12A - National Company Law Appellate Tribunal Rules, 2016 - Rule 11 - Corporate insolvency resolution process - Appeal against NCLAT judgment approving settlement between corporate debtor and operational creditor - Appellant, a financial creditor, objected to settlement citing concerns over source of funds and potential preferential payments - NCLAT's approval of settlement without following prescribed procedure under Section 12A and Regulation 30A deemed improper - Court emphasized that once CIRP is initiated, proceedings become collective and all creditors are stakeholders - NCLAT failed to adequately address objections raised by appellant regarding the settlement and source of funds - Appeal allowed, NCLAT judgment set aside. (Paras 1, 20, 21, 86, 87)
Judgement Key Points
Key Points: - Supreme Court allowed appeal by GLAS Trust Company LLC against NCLAT judgment approving settlement between BCCI (operational creditor) and Think & Learn Pvt Ltd (corporate debtor) without following Section 12A IBC and Regulation 30A procedure (!) (!) - NCLT admitted BCCI's Section 9 petition on 16 July 2024 initiating CIRP against corporate debtor; appellant's Section 7 petition disposed with liberty to file claims or revive (!) (!) - NCLAT approved settlement on 2 August 2024 using Rule 11 inherent powers before CoC constitution, setting aside NCLT order despite appellant's objections on fund source and preferential payment (!) (!) (!) - Once CIRP initiated post-admission, proceedings become collective/in rem; all creditors are stakeholders, management vests in IRP (!) (!) - Section 12A IBC and Regulation 30A provide exhaustive procedure for CIRP withdrawal post-admission, both before/after CoC constitution; inherent powers under Rule 11 cannot circumvent this (!) (!) (!) - Appellant has locus as "person aggrieved" under Section 62 IBC to challenge NCLAT order; not restricted to applicant creditor (!) (!) - NCLAT erred by approving settlement without formal application through IRP to NCLT, summarily dismissing appellant's objections on fund source without evidence analysis (!) (!) - Supreme Court set aside NCLAT judgment; directed Rs 158 crore in escrow to CoC; parties may seek withdrawal per legal framework (!) (!) - Evolution of framework: Section 12A/Reg 30A introduced post-ILC recommendations to reduce reliance on inherent powers/Art 142 for post-admission withdrawals (!) (!) (!)
What is the locus of a financial creditor who is not a party to a settlement in challenging NCLAT approval of CIRP withdrawal? [p_29]
Whether NCLAT can invoke inherent powers under Rule 11 of NCLAT Rules for CIRP withdrawal when a prescribed procedure exists under Section 12A IBC and Regulation 30A? [p_78][p_79]
Whether NCLAT adequately addressed objections to settlement while exercising inherent powers under Rule 11? [p_80]
Legal Category Hierarchy
- insolvency and bankruptcy law
- practice and procedure
- legal doctrines
Advocates appeared:
For the Appellant(s) : Mr. Shyam Divan, Sr. Adv. Mr. Kapil Sibal, Sr. Adv. Mr. Prateek Kumar, Adv. Ms. Raveena Rai, Adv. Ms. Moha Paranjpe, Adv. Mr. Nishant Sharma, Adv. Ms. Anshula Laroiya, Adv. Ms. Manisha Singh, Adv. M/S. Khaitan & Co., AOR
For the Respondent(s): Mr. Tushar Mehta, SG/Sr. Adv. Mr. R. Sudhinder, Adv. Ms. Adity Chaudhury, Adv. Ms. Bhavya Mohan, Adv. Mr. Rahul Dev, Adv. Ms. Aastha Trivedi, Adv. Ms. Ann Pereira, Adv. Ms. Anjali Kutiyal, Adv. Mr. Arjun Amin, Adv. Ms. Anushka Sharma, Adv. Mr. Kanu Agrawal, Adv. Ms. Mili Baxi, Adv. Mr. A. Karthik, AOR I/b Argus Partners Dr. Abhishek Manu Singhvi, Sr. Adv. Mr. Neeraj Kishan Kaul, Sr. Adv. Mr. Zulfiquar Memon, Adv. Mr. Rishabh Gupta, Adv. Mr. Waseem Pangarkar, Adv. Mr. Mrinal Bharti, Adv. Mr. Kunal Vajani, Adv. Mr. Amit Bhandari, Adv. Mr. Avishkar Singhvi, Adv. Mr. Vivek Jain, Adv. Mrs. Nadiya Sarguroh, Adv. Mr. Swapnil Srivastava, Adv. Mr. Jayesh Srivastava, Adv. Mrs. Kanika Goenka, Adv. Mrs. Swagata Ghosh, Adv. Ms. Kashika Gera, Adv. Mr. Yashowardhan Dixit, Adv. Ms. Gargi Patil, Adv. Mrs. Aditi Tiwari, Adv. Mr. Allan David, Adv. Ms. Yashita Bharadwaj, Adv. Mr. Deepak Joshi, Adv. M/S. Mzm Legal Delhi Llp Mr. Gopal Sankaranarayanan, Sr. Adv. Ms. Shivani Vij, AOR Ms. Trisha Chandran, Adv. Mr. Poornachandra B Pattar, Adv. Mr. Chintan Chinappa, Adv. Mr. Sahil Bhalaik, AOR Mr. Tushar Giri, Adv. Ms. Bhavna Arul, Adv. Mr. Siddharth Anil Khanna, Adv. Mr. Ritik Arora, Adv. Mr. Shivam Mishra, Adv. Ms. Namrata Saraogi, Adv. Mr. Arjun Bhatia, Adv. Ms. Gulshan Jahan, Adv. Mr. S. Niranjan Reddy, Sr. Adv. Mr. Syed Jafar Alam, AOR Mr. Shankh Sengupta, Adv. Ms. Tine Abraham, Adv. Mr. Yogesh Singh, Adv. Manasa Sundarraman, Adv. Mr. Rangam Sharma, Adv. Mr. Sujoy Sur, Adv. Prarthna Bathija, Adv. Mr. Rohan Kohli, Adv. Mr. Shreyash Sharma, Adv. Mr. Shivam Singhania, Adv. Ms. Neha Dhavalikar, Adv. Shubh Arora, Adv. Mr. Sahil Raveen, Adv.
For the Appellant(s) : Mr. Shyam Divan, Sr. Adv. Mr. Kapil Sibal, Sr. Adv. Mr. Prateek Kumar, Adv. Ms. Raveena Rai, Adv. Ms. Moha Paranjpe, Adv. Mr. Nishant Sharma, Adv. Ms. Anshula Laroiya, Adv. Ms. Manisha Singh, Adv. M/S. Khaitan & Co., AOR
For the Respondent(s): Mr. Tushar Mehta, SG/Sr. Adv. Mr. R. Sudhinder, Adv. Ms. Adity Chaudhury, Adv. Ms. Bhavya Mohan, Adv. Mr. Rahul Dev, Adv. Ms. Aastha Trivedi, Adv. Ms. Ann Pereira, Adv. Ms. Anjali Kutiyal, Adv. Mr. Arjun Amin, Adv. Ms. Anushka Sharma, Adv. Mr. Kanu Agrawal, Adv. Ms. Mili Baxi, Adv. Mr. A. Karthik, AOR I/b Argus Partners Dr. Abhishek Manu Singhvi, Sr. Adv. Mr. Neeraj Kishan Kaul, Sr. Adv. Mr. Zulfiquar Memon, Adv. Mr. Rishabh Gupta, Adv. Mr. Waseem Pangarkar, Adv. Mr. Mrinal Bharti, Adv. Mr. Kunal Vajani, Adv. Mr. Amit Bhandari, Adv. Mr. Avishkar Singhvi, Adv. Mr. Vivek Jain, Adv. Mrs. Nadiya Sarguroh, Adv. Mr. Swapnil Srivastava, Adv. Mr. Jayesh Srivastava, Adv. Mrs. Kanika Goenka, Adv. Mrs. Swagata Ghosh, Adv. Ms. Kashika Gera, Adv. Mr. Yashowardhan Dixit, Adv. Ms. Gargi Patil, Adv. Mrs. Aditi Tiwari, Adv. Mr. Allan David, Adv. Ms. Yashita Bharadwaj, Adv. Mr. Deepak Joshi, Adv. M/S. Mzm Legal Delhi Llp Mr. Gopal Sankaranarayanan, Sr. Adv. Ms. Shivani Vij, AOR Ms. Trisha Chandran, Adv. Mr. Poornachandra B Pattar, Adv. Mr. Chintan Chinappa, Adv. Mr. Sahil Bhalaik, AOR Mr. Tushar Giri, Adv. Ms. Bhavna Arul, Adv. Mr. Siddharth Anil Khanna, Adv. Mr. Ritik Arora, Adv. Mr. Shivam Mishra, Adv. Ms. Namrata Saraogi, Adv. Mr. Arjun Bhatia, Adv. Ms. Gulshan Jahan, Adv. Mr. S. Niranjan Reddy, Sr. Adv. Mr. Syed Jafar Alam, AOR Mr. Shankh Sengupta, Adv. Ms. Tine Abraham, Adv. Mr. Yogesh Singh, Adv. Manasa Sundarraman, Adv. Mr. Rangam Sharma, Adv. Mr. Sujoy Sur, Adv. Prarthna Bathija, Adv. Mr. Rohan Kohli, Adv. Mr. Shreyash Sharma, Adv. Mr. Shivam Singhania, Adv. Ms. Neha Dhavalikar, Adv. Shubh Arora, Adv. Mr. Sahil Raveen, Adv.
Table of Contents
2. Whether inherent powers under Rule 11 can bypass prescribed withdrawal procedures under Section 12A, IBC and Regulation 30A — Locus of non-settling creditors to object to withdrawal. (Para 20 , 30 , 31 , 32 , 33 )
3. Proceedings become in rem upon admission, creating third-party rights for all creditors — Prescribed withdrawal procedures are exhaustive and cannot be bypassed via inherent powers. (Para 37 , 38 , 39 , 42 , 43 , 44 , 49 , 50 , 52 , 57 , 58 , 63 , 64 , 66 , 69 , 70 , 71 , 75 , 77 , 79 , 80 , 81 )
4. Inherent powers under Rule 11 cannot be exercised to circumvent exhaustive statutory procedures for withdrawal of corporate insolvency resolution process under Section 12A, IBC and Regulation 30A. (Para 64 , 69 , 70 , 80 )
5. Appeal allowed — NCLAT judgment set aside — Settlement funds ordered to be deposited with the Committee of Creditors. (Para 86 , 88 )
6. Does a creditor who is not a party to a settlement have the locus to challenge the withdrawal of CIRP?
Yes. Under Section 62, any person aggrieved may appeal. Since CIRP proceedings become in rem upon admission, all creditors become necessary stakeholders and have the locus to challenge settlements that may prejudice their interests. (Para 42 , 43 , 74 , 75 , 76 )
7. Can the NCLAT use inherent powers under Rule 11 to approve a settlement when a prescribed procedure for withdrawal exists?
No. Inherent powers are complementary and cannot be exercised in conflict with or in ignorance of express statutory provisions. Where an exhaustive procedure for withdrawal is prescribed under Section 12A and Regulation 30A, Rule 11 cannot be used to circumvent it. (Para 64 , 69 , 70 , 80 )
8. What is the procedure for withdrawing a CIRP application after admission but before the Committee of Creditors is constituted?
The applicant must move an application for withdrawal through the Interim Resolution Professional (IRP) to the NCLT. The NCLT then decides the application after hearing concerned parties and considering relevant factors. (Para 57 , 58 , 59 , 60 , 63 )
9. At what stage do insolvency proceedings change from in personam to in rem?
The trigger point is the admission of the application by the Adjudicating Authority. Upon admission, the proceedings become in rem, creating third-party rights for all creditors and altering the management of the corporate debtor. (Para 42 , 43 )
10. Is the requirement to file a withdrawal application through the IRP a mere technicality?
No. Once CIRP is initiated, the IRP manages the corporate debtor's affairs. Because proceedings are collective, the IRP must be the channel for withdrawal applications to ensure the process remains distinct from the interests of former management. (Para 60 , 66 )
JUDGMENT :
Dr Dhananjaya Y. Chandrachud, CJI.
| Table of Contents |
| A. Background |
| i. Parties before this Court |
| ii. Proceedings before the US Courts |
| iii. Insolvency proceedings against the first respondent |
| iv. Settlement between the parties and proceedings before the NCLAT 9 |
| v. Impugned Judgement |
| vi. Proceedings before this Court and the Delaware Court |
| B. Issues |
| C. Submissions |
| D. Legal Background |
| i. Legal context and fundamental principles |
| a. General principles underlying the IBC |
| b. Nature of the proceedings after admission of the application |
| ii. Legal framework for withdrawal and settlement of claims |
| a. Evolution of the legal framework |
| b. Insights from the evolution of the legal framework |
| iii. Scope of ‘Inherent Powers’ under Rule 11 |
| E. Application to the instant case |
| i. Locus of the appellant before this Court |
| ii. Approach of the NCLAT in the Impugned Judgement |
| iii. Decisions of this Court cited in the Impugned Judgement |
| F. Conclusion |
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
