2021 (9) TMI 196 - AT - Insolvency and Bankruptcy

Supreme Court rules on Creditor's appeal, Adjudicating Authority's decision under Section 12A upheld

The Supreme Court dismissed the Operational Creditor's appeal, confirming the claim's non-maintainability. The Adjudicating Authority dismissed the ... Withdrawal of application - application was earlier dismissed on the technical ground that the form FA is not signed by the Operational Creditor - Section 12A of the IBC - HELD THAT:- Ld. Adjudicating Authority has rejected the Application on the ground that the Application Section 12A of the IBC is not filed by the Applicant (Operational Creditor) on whose instance CIRP initiated against the Corporate Debtor. No doubt, as per Section 12A of the IBC, the Application must be filed by the Applicant and Regulation 30A of the Regulations provides the procedure and format of the Application i.e. FA. When the admitted claim of the Operational Creditor and other creditors are satisfied by the Corporate Debtor and CoC approved the resolution for withdrawal of the Application by 100% voting share and the Corporate Debtor has provided a bank guarantee as per sub-Regulation 2 of Regulation 30-A even though the Operational Creditor (Applicant) misusing his position, refused to sign the form FA and does not file Application under Section 12A of the IBC. No cause of action survives in favour of the Operational Creditor to proceed with CIRP - the matter is remitted back to the Ld. Adjudicating Authority to decide the fees and costs of CIRP payable to IRP which shall be borne by the Corporate Debtor. Appeal allowed by way of remand. Issues Involved:1. Legitimacy of the claim by the Operational Creditor.2. Admissibility of the application under Section 12A of the IBC.3. Procedural compliance regarding the filing of Form FA.4. Role and authority of the Interim Resolution Professional (IRP) in filing the withdrawal application.5. Interpretation of Section 12A and Regulation 30A of the IBC.6. Abuse of the Corporate Insolvency Resolution Process (CIRP) by the Operational Creditor.Detailed Analysis:1. Legitimacy of the Claim by the Operational Creditor:The Operational Creditor filed an application under Section 9 of the IBC against the Corporate Debtor for two claims: Rs. 50,32,028 and Rs. 3,67,200. The Adjudicating Authority accepted the claim of Rs. 3,67,200 but rejected the claim of Rs. 50,32,028 due to lack of supporting documents. This decision was upheld by the Appellate Tribunal, which found the claim of Rs. 50,32,028 not tenable. The Supreme Court later dismissed the Operational Creditor's appeal, confirming the claim's non-maintainability.2. Admissibility of the Application under Section 12A of the IBC:The Corporate Debtor satisfied the claims of the Financial Creditor (State Bank of India) and the admitted claim of the Operational Creditor. The Committee of Creditors (CoC) approved the withdrawal of the CIRP application by 100% voting share. However, the Adjudicating Authority dismissed the application under Section 12A, citing that it was not filed by the original applicant (Operational Creditor).3. Procedural Compliance Regarding the Filing of Form FA:The IRP sent Form FA to the Operational Creditor for signature, but the Operational Creditor did not respond. Consequently, the IRP filed the form along with the application under Section 12A. The Adjudicating Authority dismissed the application on the grounds that Form FA was not signed by the Operational Creditor, which was a procedural requirement.4. Role and Authority of the IRP in Filing the Withdrawal Application:The IRP filed the application for withdrawal under Section 12A based on the CoC's resolution. The Adjudicating Authority rejected the application, stating that only the original applicant (Operational Creditor) could file for withdrawal. The Appellate Tribunal, however, noted that the IRP acted in compliance with the CoC's resolution and the peculiar circumstances of the case.5. Interpretation of Section 12A and Regulation 30A of the IBC:The Appellant argued that the Supreme Court in Brilliant Alloys Pvt. Ltd. vs. Mr. S. Rajagopal held that Regulation 30A could be construed as directory. The Appellant also cited the Supreme Court's judgment in Uday Shankar Triyar vs. Ram Kalewar Prasad Singh, which emphasized that procedural technicalities should not defeat the statute's purpose. The Appellate Tribunal agreed that the Adjudicating Authority should have used a purposive interpretation of Section 12A and Regulation 30A, especially when the admitted claims were satisfied.6. Abuse of the CIRP by the Operational Creditor:The Appellant contended that the Operational Creditor was using the CIRP as a recovery mechanism, which is not permissible as per the Supreme Court's ruling in Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. The Appellate Tribunal found that the Operational Creditor acted with malafide intent by refusing to sign Form FA and continuing the CIRP despite the satisfaction of admitted claims.Conclusion:The Appellate Tribunal, exercising inherent powers under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016, set aside the impugned order and the order initiating CIRP against the Corporate Debtor. The Corporate Debtor was released from the rigours of the CIRP and allowed to function through its Board of Directors. The matter was remitted back to the Adjudicating Authority to decide the fees and costs of CIRP payable to the IRP, to be borne by the Corporate Debtor. The appeal was allowed, with no order as to costs.