Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2024 Supreme(Online)(SC) 11090

SUPREME COURT OF INDIA
Dr Dhananjaya Y Chandrachud, CJ
GLAS Trust Company LLC – Appellant
Versus
BYJU Raveendran & Ors. – Respondent
Civil Appeal No. 9986 of 2024 | Special Leave Petition (C) No. 21023 of 2024

Advocates:
For the Appellants/Petitioners: Kapil Sibal, Shyam Divan
For the Respondents: Abhishek Manu Singhvi, Neeraj Kishan Kaul, Tushar Mehta

The court reaffirmed that withdrawal or settlement under the IBC requires adherence to established procedures and cannot be approved solely through inherent powers when the CoC is not constituted.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 7, 9, and 12A - Approval of settlement under Rule 11 of NCLAT Rules - The NCLAT set aside the CIRP initiated against the corporate debtor and approved the settlement between the operational creditor and the corporate debtor, which was contested by the financial creditor based on concerns regarding fund sources and procedural irregularities. The appeal raises questions about appropriate procedures and inherent powers under the legal framework. (Paras 1, 21, 72-88).

(B) Legal Principles - The proceedings become collective post-admission, requiring consultation with all creditors before withdrawal or settlement can occur. Procedural frameworks must be adhered to without circumventing established rules for approval of withdrawal. (Paras 35-39, 73-80).

(C) Issues - The locus of the appellant in challenging the settlement approval, whether the NCLAT erred in invoking its powers under Rule 11 in light of the established procedure and the implications of approving a settlement post-admission while the CoC is not constituted. (Paras 29-30, 74-80).

Findings of Court:
The appellant has locus to challenge the NCLAT's decision, which improperly used inherent powers to approve a settlement without fulfilling procedural requirements, necessitating adherence to the structured withdrawal framework under the IBC. (Paras 73-86).

Result: Appeal allowed, and NCLAT's judgment set aside.

Judgement Key Points

Key Points: - The Supreme Court allowed the appeal by GLAS Trust Company LLC against NCLAT's judgment approving a settlement between BCCI (operational creditor) and Think and Learn Pvt Ltd (corporate debtor) without following IBC procedures [1][2][86]. - NCLT admitted BCCI's Section 9 petition on 16 July 2024, initiating CIRP against the corporate debtor, while disposing of GLAS's Section 7 petition with liberty to revive [11][12]. - Settlement involved Riju Raveendran paying Rs 158 crore in tranches to BCCI, approved by NCLAT under Rule 11 despite no CoC constitution and procedural deviations [15][16][23]. - Post-admission, CIRP proceedings become collective (in rem), requiring adherence to Section 12A IBC and Regulation 30A CIRP Regulations for withdrawal, not inherent powers [42][63]. - NCLAT erred by invoking Rule 11 of NCLAT Rules to approve settlement bypassing the requirement for application through IRP to NCLT before CoC formation [77][78][79]. - Appellant (financial creditor) has locus to challenge as "any person aggrieved" under Section 62 IBC, being a stakeholder in collective proceedings [73][74][75]. - Inherent powers under Rule 11 cannot circumvent exhaustive statutory procedures like Section 12A and Regulation 30A [64][69][80]. - NCLAT failed to adequately address appellant's objections on fund sources, round-tripping, and Delaware Court orders [81]. - Appeal allowed; NCLAT judgment set aside; Rs 158 crore to be deposited with CoC, which must abide by NCLT directions [86][88]. - Parties may seek withdrawal compliant with IBC framework now that CoC is constituted [87].

What is the locus of a financial creditor to challenge a settlement approval under the IBC?

How to withdraw or settle claims after admission of a CIRP application under Sections 7, 9, or 10 of the IBC?

What is the scope of inherent powers under Rule 11 of the NCLAT Rules when a prescribed procedure exists for CIRP withdrawal?

Table of Content
1. case origin and initial proceedings. (Para 1 , 2)
2. parties involved in the appeal. (Para 3 , 4 , 5)
3. conduct and disputes related to the corporate debtor. (Para 6 , 7 , 8 , 9 , 10)
4. insolvency proceedings details. (Para 11 , 12 , 13)
5. settlement process overview. (Para 14 , 15 , 16 , 17 , 18)
6. nclat's reasoning and judgement. (Para 19 , 20 , 21 , 22)
7. status of the proceedings with the court and the ongoing cases. (Para 23 , 24 , 25 , 26)
8. emergence of legal issues. (Para 27 , 28 , 29)
9. arguments presented by both parties. (Para 30 , 31 , 32)
10. position of the second respondent. (Para 33)
11. legal context and fundamental principles involved. (Para 34 , 35 , 36 , 37 , 38)
12. framework of insolvency proceedings. (Para 39 , 40 , 41 , 42)
13. importance of stakeholder involvement. (Para 43 , 44 , 45 , 46)
14. critical scrutiny of legal and procedural matters. (Para 47 , 48 , 49 , 50)
15. proper procedural requirements. (Para 51 , 52 , 53)
16. inherent powers and statutory requirements. (Para 54 , 55 , 56 , 57 , 58)
17. ratio decidendi regarding withdrawal of applications. (Para 63 , 64 , 65 , 66)
18. final judgement and directions given. (Para 86 , 87 , 88 , 89 , 90)

JUDGMENT

Dr Dhananjaya Y Chandrachud, CJI Table of Contents

A. Background ................................................................................................... 5

i. Parties before this Court ........................................................................... 5

ii. Proceedings before the US Courts .......................................................... 6

iii. Insolvency proceedings against the first respondent ........................ 8

iv. Settlement between the parties and proceedings before the NCLAT .. 9

v. Impugned Judgement ............................................................................. 14

vi. Proceedings before this Court and the Delaware Court ...................... 16

B. Issues ....................................................................................................... 18

C. Submissions ............................................................................................ 18

D. Legal Background ....................................................................................... 23

i. Legal context and fundamental principles ............................................ 23

a. General principles underlying the IBC .................................................... 23

b. Nature of the proceedings after admission of the application ................ 27

ii. Legal framework for withdrawal and settlement of claims .................. 31

a. Evolution of the legal framework ............................................................ 31

b. Insights from the evolution of the legal framework ................................. 44

iii. Scope of ‘Inherent Powers’ under Rule 11 ........................................ 49

E. Application to the instant case .................................................................. 51

i. Locus of the appellant before this Court .............................................. 52

ii. Approach of the NCLAT in the Impugned Judgement ......................... 54

iii. Decisions of this Court cited in the Impugned Judgement ............. 57

F. Conclusion ............................................................................................... 60

1. This appeal arises from a judgment of the National Company Law Appellate Tribunal, Chennai, “NCLAT” dated 2 August 2024., “Impugned Judgement” The National Company Law Tribunal, Bengaluru,“NCLT” admitted the application instituted by the second respondent under Section 9 of the Insolvency and Bankruptcy Code , “IBC” and initiated the corporate insolvency resolution process, “CIRP” against the third respondent. In the exercise of its powers under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016, “NCLAT Rules” the NCLAT approved a settlement in relation to the dues payable to the third respondent by the second respondent a

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