2019 (12) TMI 431 - AT - Insolvency and Bankruptcy

Tribunal Upholds Adjudicator's Decision on Financial Creditors & Committee of Creditors Settlement

The Tribunal upheld the Adjudicating Authority's decision to involve Financial Creditors and refer a settlement to the Committee of Creditors (COC). The ... Withdrawal of the insolvency proceedings - HELD THAT:- In the Judgement of Swiss Ribbons, Hon’ble Supreme Court (in para – 81) [2019 (1) TMI 1508 - SUPREME COURT] referred to the “Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016” (Regulations – in short) and dealing with Regulation 30-A, relating to withdrawal of Application the Hon’ble Supreme Court referred to its earlier Judgement in the matter of “Brilliant Alloys Private Limited versus S. Rajagopal & Ors.” reported in 2018 SCC OnLine SC 3154 to observe that Regulation 30-A(1) was not mandatory but that it was directory. The question, however, remains that the Hon’ble Supreme Court has in the above para – 82 left discretion with the Adjudicating Authority to allow or disallow an Application for withdrawal or settlement. The last sentence of the paragraph states that “this will be decided after hearing of the parties concerned and considering all relevant factors on the facts of each case.” Thus, Adjudicating Authority has to consider all relevant factors on facts of each case and to take a decision. When the Appellant - Mr. Jai Kishan Gupta was contacted, he showed some other functional office of the Corporate Debtor where again no address of the office was found. The Adjudicating Authority did not write in so many words but exercised its discretion to hear the Financial Creditor who had already filed claims. Considering facts of the matter, we do not interfere. There are no fault with the Impugned Orders passed. Adjudicating Authority did not accept or reject the withdrawal Application - decision taken by COC in rejecting the request for withdrawal has not been challenged before the Adjudicating Authority - appeal dismissed. Issues Involved:1. Validity of the orders dated 9th August 2019 and 22nd August 2019 by the Adjudicating Authority (NCLT).2. Whether the Adjudicating Authority should have allowed the withdrawal of insolvency proceedings based on the settlement before the constitution of the Committee of Creditors (COC).3. The role and discretion of the Adjudicating Authority in allowing or disallowing withdrawal applications before the constitution of COC.4. The impact of the claims filed by Financial Creditors on the withdrawal application.5. The procedural aspects and timelines concerning the filing and refiling of the appeal.Detailed Analysis:1. Validity of the Orders Dated 9th August 2019 and 22nd August 2019:The Appellant, a Director of the Corporate Debtor, challenged two orders passed by the NCLT. The first order dated 9th August 2019 directed notice to be given to Financial Creditors who had filed claims to ascertain their objections to the withdrawal application. The second order dated 22nd August 2019 referred the settlement to the COC for consideration. The Appellant argued that the Adjudicating Authority wrongly observed that COC was constituted without noticing that the notice for constituting COC was sent on 23rd August 2019.2. Withdrawal of Insolvency Proceedings Based on Settlement:The Appellant contended that the Operational Creditor and Corporate Debtor had settled their dispute, and a withdrawal application was filed before the constitution of COC. The Appellant relied on the judgment in 'Swiss Ribbons Private Limited and another Versus Union of India and others' to argue that the Adjudicating Authority should have allowed the withdrawal as COC was not yet constituted.3. Discretion of the Adjudicating Authority:The Adjudicating Authority has the discretion to allow or disallow a withdrawal application even before the constitution of COC. According to the judgment in 'Swiss Ribbons,' the Adjudicating Authority must consider all relevant factors and hear all parties concerned before deciding on the withdrawal application. The NCLT exercised its discretion to hear the Financial Creditors who had filed claims, considering the significant amounts involved.4. Impact of Claims Filed by Financial Creditors:The Adjudicating Authority noted that claims from Financial Creditors, including Reliance Commercial Finance Ltd. and Syndicate Bank, amounted to more than Rs. 8 Crores. The objections raised by Reliance Commercial Finance Ltd. influenced the decision to refer the settlement to the COC. The COC, in its meeting, disapproved the withdrawal of the CIRP proceedings, considering the claims and the conduct of the Corporate Debtor's Director.5. Procedural Aspects and Timelines:The Respondent argued that the appeal against the first order was time-barred. However, the Tribunal found that the appeal was initially presented on 28th August 2019, and delays in refiling due to defects were condoned. Thus, the original filing date was maintained, and the appeal was not considered time-barred.Conclusion:The Tribunal concluded that the Adjudicating Authority did not err in its discretion to hear the Financial Creditors and refer the settlement to the COC. The decision taken by the COC to reject the withdrawal request was not challenged by the Appellant. Considering the developments and the undesirable conduct of the Corporate Debtor's Director, the Tribunal found no fault with the impugned orders and dismissed the appeal without costs.