2021 (7) TMI 663 - AT - Insolvency and Bankruptcy

Tribunal allows CIRP withdrawal pre-COC formation, dismisses Operational Creditors' intervention. Corporate Debtor freed to operate independently.

The Tribunal allowed the withdrawal of CIRP proceedings based on a settlement reached before the formation of the Committee of Creditors, using its ... Seeking withdrawal of admitted application - Pre-constitution stage of CoC - submission of the Learned Counsel is that the ‘Operational Creditor’ has wrongly proceeded against the ‘Corporate Debtor’ instead of the sister concern and that the sister concern has already paid all the amounts claimed by the ‘Operational Creditor’ - HELD THAT:- Section 12-A read together with amended Regulation 30-A effective from 25.07.2019 provides that stage of pre-Constitution of CoC which is now covered in Regulation 30-A(1)(a). It is evident that Section 12-A deals with the situation of Withdrawal of Application admitted under Sections 7, 9 or 10, on an Application made by the Applicant with the approval of 90% voting share of the Committee of Creditors, in such manner as may be specified’, meaning thereby that Section 12-A refers to a situation Post Constitution of CoC, whereas Regulation 30-A(1)(a) deals with procedure to be followed Pre- Constitution of CoC. It is stated by the Learned Sr. Counsel that the language of the Section, whereunder IBBI has been empowered to frame Regulations is clear that the said Regulation should be consistent with the I&B Code. Rule 11 of NCLAT Rules, 2016 provides that ‘Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Appellate Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Appellate Tribunal.’ - in the present case, there is no force in the contention of the proposed Intervenor Applicants that the Application for Withdrawal, filed, prior to Constitution of CoC ought to be mandatorily dealt with the provisions under the Regulation 30-A(1)(a). It is not the case of the Intervenors that Demand Notice under Section 8 is pending. It is only their case that money is due. Before Constitution of Committee of Creditors mere filing of a ‘Claim’ does not constitute default per se. It is only on the basis of the ‘Claims’ that the CoC is constituted. In a catena of Judgements the Hon’ble Supreme Court has reiterated that the prime objective of the Court is not recovery, but revival - in the interest of Justice, the inherent powers under Rule 11 can be exercised by both NCLT and NCLAT which may allow or disallow the Application of Withdrawal keeping in view the interest of the concerned parties and the facts of each case. Application allowed. Issues Involved:1. Privity of Contract and Pre-Existing Dispute.2. Settlement and Withdrawal of CIRP Proceedings.3. Intervention Applications by Operational Creditors.Detailed Analysis:1. Privity of Contract and Pre-Existing Dispute:The Appellant, a former Director of the Corporate Debtor, challenged the Order of Admission under Section 9 of the Insolvency and Bankruptcy Code, 2016, arguing the absence of any Agreement between the Appellant and the second Respondent, and hence, no privity of contract. The Appellant contended that the Learned Adjudicating Authority ignored the existence of a 'Pre-Existing Dispute' and incorrectly admitted the Petition against an incorrect legal entity. The Tribunal noted that the payments were made by MTH and accepted by the Operational Creditor, thus recognizing MTH and the Corporate Debtor as separate legal entities.2. Settlement and Withdrawal of CIRP Proceedings:The Tribunal, on 08.04.2021, issued notice and suspended the Constitution of the Committee of Creditors based on the Appellant's submission that the Operational Creditor wrongly proceeded against the Corporate Debtor instead of the sister concern, which had paid all claimed amounts. The Appellant filed IA No. 815 of 2021 under Rule 11 of NCLAT Rules, 2016, seeking to set aside the Impugned Order dated 30.03.2021 due to a settlement. The Operational Creditor confirmed the settlement and receipt of the total operational debt amount. The Tribunal emphasized that the settlement was reached before the Constitution of the Committee of Creditors, making Regulation 30-A(1)(a) inapplicable. The Tribunal exercised its inherent powers under Rule 11 to allow the Application of Withdrawal.3. Intervention Applications by Operational Creditors:Several Intervention Applications were filed by proposed Intervenors, mainly Operational Creditors, seeking to oppose the withdrawal of CIRP Proceedings. These Applications were based on the argument that once CIRP Proceedings are initiated, they cannot be withdrawn without settling claims of all creditors, citing the ratio of 'Swiss Ribbons Pvt. Ltd. and Ors. Vs. Union of India and Ors.' and other judgments. The Tribunal, however, noted that the settlement was reached before the Constitution of the Committee of Creditors and that mere filing of a 'Claim' does not constitute default per se. The Tribunal referred to multiple judgments where it had exercised inherent powers under Rule 11 to allow withdrawal of CIRP Proceedings before the formation of the Committee of Creditors. Consequently, the Intervention Applications were dismissed.Conclusion:The Tribunal allowed the Application of Withdrawal based on the settlement reached before the Constitution of the Committee of Creditors, exercising its inherent powers under Rule 11 of NCLAT Rules, 2016. The Intervention Applications filed by various Operational Creditors were dismissed, and the Corporate Debtor was released from the rigors of CIRP, allowing it to function independently through its Board of Directors. The Order emphasized that any Financial/Operational Creditors could still move an Application for CIRP before the Adjudicating Authority, which would hear the matter uninfluenced by the observations made in this Judgment.