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Issues: (i) Whether withdrawal of the corporate insolvency resolution process under section 12A of the Insolvency and Bankruptcy Code, 2016 could be permitted on the facts, where the promoters were treated as absconding and ineligible and the source of funds for the one-time settlement was not satisfactorily disclosed; (ii) Whether, on failure of the withdrawal request and in the absence of any approved resolution plan within the statutory period, liquidation of the corporate debtor had to follow.
Issue (i): Whether withdrawal of the corporate insolvency resolution process under section 12A of the Insolvency and Bankruptcy Code, 2016 could be permitted on the facts, where the promoters were treated as absconding and ineligible and the source of funds for the one-time settlement was not satisfactorily disclosed.
Analysis: Section 12A permits withdrawal only upon the prescribed procedure and with the requisite approval of the committee of creditors, while regulation 30A requires the application to be routed through the resolution professional in the prescribed form before the invitation for expression of interest. The withdrawal proposal was viewed as a device to restore control to promoters who were treated as wilful defaulters and disqualified under section 29A. The proposed settlement also lacked adequate disclosure of the source of funds, the investors' credentials, and the basis on which the resolution professional could verify the proposal. The Tribunal also relied on the principle that a settlement or arrangement cannot be enforced where its underlying arrangement is tainted by illegality or public policy concerns.
Conclusion: The withdrawal application under section 12A was not allowed and was rejected.
Issue (ii): Whether, on failure of the withdrawal request and in the absence of any approved resolution plan within the statutory period, liquidation of the corporate debtor had to follow.
Analysis: The corporate insolvency resolution process period had expired and no resolution plan had been approved. In those circumstances, the Tribunal treated liquidation as the statutory consequence under section 33(1). Since the corporate debtor was operating as a going concern and employed a large workforce, liquidation was directed to be undertaken on a going concern basis in accordance with the liquidation regulations, with the resolution professional to continue interim management until a liquidator was appointed.
Conclusion: Liquidation of the corporate debtor was directed on a going concern basis.
Final Conclusion: The withdrawal attempt failed, and the insolvency process culminated in liquidation rather than restoration of control to the promoters.
Ratio Decidendi: Section 12A withdrawal cannot be used to defeat the statutory bar under section 29A or to restore control to ineligible promoters, especially where the settlement structure and source of funds are not transparently established and no resolution plan has been approved within the prescribed period.
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