Tribunal Allows Application Withdrawal Under IBC Section 9

The Tribunal allowed the withdrawal of the Application under Section 9 of the IBC due to a settlement reached before the formation of the Committee of Creditors. The Settlement Deed, signed by the Corporate Debtor's authorized signatory after the Application was admitted, was scrutinized. Relying on Rule 11 of NCLAT Rules, 2016, the Tribunal set aside the Impugned Order, releasing the Corporate Debtor from insolvency proceedings. All related orders were declared illegal, and the Corporate Debtor was permitted to operate independently through its Board of Directors. The IRP/RP was directed to submit details of the insolvency process costs for review.

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Issues:
1. Settlement reached before the formation of Committee of Creditors (CoC) and its implications.
2. Validity of the Settlement Deed signed by the Corporate Debtor's authorized signatory.
3. Application of Rule 11 of NCLAT Rules, 2016 in allowing withdrawal of Application under Section 9 of IBC.
4. Consequences of the settlement on the Corporate Insolvency Resolution Process.

Analysis:

1. The Appellant, representing the Corporate Debtor, filed an appeal against the Impugned Order admitting the Application under Section 9 filed by the Operational Creditor. The Appellant submitted a Settlement Deed dated 10.01.2020, along with a Bank Draft, to show that a settlement had been reached between the parties before the Committee of Creditors (CoC) was constituted. The Appellant relied on the judgment of the Hon’ble Supreme Court regarding the necessity of consulting the overseeing body before allowing individual debtors to settle claims in collective proceedings.

2. The Interim Resolution Professional (IRP) raised concerns about the Settlement Deed, pointing out that it was signed by the Corporate Debtor's authorized signatory after the Application was admitted. Additionally, the IRP highlighted that the Bank Draft was purchased by a sister concern of the Corporate Debtor. The Tribunal considered these discrepancies and the timing of the settlement in relation to the constitution of the CoC.

3. Referring to the powers under Rule 11 of NCLAT Rules, 2016, the Tribunal examined a similar precedent where the Tribunal set aside an Impugned Order in a comparable situation. The Tribunal acknowledged the settlement reached before the CoC formation and decided to exercise its powers under Rule 11 to allow the withdrawal of the Application under Section 9 of the Insolvency and Bankruptcy Code (IBC).

4. In light of the settlement preceding the CoC formation, the Tribunal set aside the Impugned Order initiating the Corporate Insolvency Resolution Process against the Corporate Debtor. Consequently, all orders related to the resolution process, including the appointment of the Interim Resolution Professional, moratorium declaration, and actions taken by the Resolution Professional, were declared illegal and set aside. The Corporate Debtor was released from the legal constraints and allowed to function independently through its Board of Directors. The Tribunal directed the IRP/RP to present details of the Corporate Insolvency Resolution Process costs and fees for consideration by the Adjudicating Authority.

In conclusion, the Tribunal disposed of the appeal, withdrawing the Application under Section 9 of the IBC, and closed the proceedings, releasing the Corporate Debtor from insolvency proceedings and allowing it to resume independent operations.

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