Withdrawal before Committee of Creditors constitution cannot be defeated by further insolvency steps under the Code.

Where settlement was reached before constitution of the Committee of Creditors, a pending withdrawal request under Rule 11 could not be rendered infructuous by directing further insolvency steps first. The Adjudicating Authority was required to consider withdrawal on its own merits, and the admission order under Section 9 of the Insolvency and Bankruptcy Code was set aside because the insolvency process had not advanced to a stage that barred withdrawal; the separate Section 7 proceeding by another creditor was left unaffected.

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Issues: (i) Whether the Adjudicating Authority could defer a pending application under Rule 11 of the National Company Law Tribunal Rules, 2016 and direct constitution of the Committee of Creditors so as to render the withdrawal request infructuous. (ii) Whether, on the facts of settlement before constitution of the Committee of Creditors, the order admitting the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was liable to be set aside and the application treated as withdrawn.

Issue (i): Whether the Adjudicating Authority could defer a pending application under Rule 11 of the National Company Law Tribunal Rules, 2016 and direct constitution of the Committee of Creditors so as to render the withdrawal request infructuous.

Analysis: The settlement had been reached before constitution of the Committee of Creditors and the demand drafts had already been handed over. In that situation, the pending withdrawal request under Rule 11 could not be neutralised by directing constitution of the Committee of Creditors first. The Adjudicating Authority was required to deal with the withdrawal application on its own merits before taking steps that would defeat it.

Conclusion: The Adjudicating Authority had no jurisdiction to defer the matter in the manner adopted and the withdrawal application ought to have been considered first.

Issue (ii): Whether, on the facts of settlement before constitution of the Committee of Creditors, the order admitting the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was liable to be set aside and the application treated as withdrawn.

Analysis: The admitted settlement preceded constitution of the Committee of Creditors, and the insolvency process had not progressed to a stage that would prevent withdrawal. The pendency of a separate Section 7 application by another creditor did not justify continuation of the Section 9 proceeding once settlement had been reached in the operational creditor matter. The admission order and all consequential steps therefore could not be sustained.

Conclusion: The admission order was set aside, the Section 9 application was disposed of as withdrawn, and the corporate debtor was released from the consequences of the insolvency admission.

Final Conclusion: The appeal succeeded, the insolvency admission was annulled, and the proceedings under Section 9 came to an end while leaving the separate Section 7 application unaffected.

Ratio Decidendi: Where settlement is reached before constitution of the Committee of Creditors, a pending withdrawal application cannot be rendered infructuous by directing further insolvency steps, and the admission order under Section 9 may be set aside in favour of withdrawal.

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