2021 (9) TMI 733 - SC - IBC

CIRP withdrawal allowed with 90% CoC approval; debtor settles creditors, management restored and RP becomes functus officio

SC held that the adjudicating authority may permit withdrawal of a CIRP application if approved by 90% of the CoC. The resolution to withdraw had the ... Withdrawal of CIRP under Section 12A - Approval of ninety per cent voting share of the committee of creditors - Functus officio status of the Resolution Professional and Committee of Creditors upon withdrawal - Objective of the IBC to revive the corporate debtor and make it a going concern - Finality of earlier appellate orders affecting locus and entitlement to challengeFinality of earlier appellate orders affecting locus and entitlement to challenge - Functus officio status of the Resolution Professional and Committee of Creditors upon withdrawal - Whether the challenge by the erstwhile employee (appellant) to the CoC resolution withdrawing CIRP was maintainable and whether NCLT rightly disposed of his application as infructuous after withdrawal of CIRP. - HELD THAT: - The Court observed that the appellant had not challenged the NCLAT order of 2.8.2017 which had set aside the earlier admission order and that the question in relation to his claim had attained finality. The Corporate Debtor had, in pursuance of assurances recorded before appellate authority, made payment to the appellant. The CoC resolution withdrawing CIRP had the requisite voting majority under Section 12A and NCLT, having considered the resolution, permitted withdrawal and directed restoration of management to the Board of Directors. From the date of withdrawal, the powers of the RP and CoC in relation to the Corporate Debtor became functus officio and the application filed by the appellant was rendered infructuous. The Court declined to examine ancillary academic contentions on composition of CoC where not necessary for decision. [Paras 14, 17, 18, 19, 20]The appeal filed by D. Ramjee is dismissed; NCLT was right to treat the application as rendered infructuous following valid withdrawal of CIRP and resultant functus officio status of RP and CoC.Withdrawal of CIRP under Section 12A - Approval of ninety per cent voting share of the committee of creditors - Objective of the IBC to revive the corporate debtor and make it a going concern - Disposition of the appeal filed by the suspended director challenging directions to convene a CoC meeting and related orders in light of subsequent withdrawal of CIRP. - HELD THAT: - In view of the subsequent development that CIRP proceedings were withdrawn by a CoC resolution supported by the requisite majority and permitted by the Adjudicating Authority under Section 12A, the appellant's challenge became academic. The counsel for the appellant circulated a letter seeking withdrawal of the appeal while reserving questions of law. The Court accordingly accepted withdrawal and disposed of the appeal as withdrawn. [Paras 3, 21]Civil Appeal No.1792 of 2021 stands disposed of as withdrawn.Final Conclusion: The appeal of the erstwhile employee is dismissed as the issue had attained finality and the application was rendered infructuous following valid withdrawal of CIRP; the appeal by the suspended director is disposed of as withdrawn. All pending applications stand disposed of. Issues Involved:1. Validity of the resolution passed by the Committee of Creditors (CoC) to withdraw the Corporate Insolvency Resolution Process (CIRP).2. Legitimacy of the National Company Law Tribunal's (NCLT) and National Company Law Appellate Tribunal's (NCLAT) orders concerning the constitution of CoC.3. Rights and claims of operational creditors versus financial creditors.4. The impact of the settlement between the Corporate Debtor and its creditors on the CIRP.5. The principle of finality in legal proceedings and its application to the appeals.Issue-wise Detailed Analysis:1. Validity of the Resolution Passed by CoC to Withdraw CIRP:The primary issue revolves around the resolution passed by the CoC in its 8th meeting on 25.5.2021, which unanimously resolved to withdraw the CIRP initiated against the Corporate Debtor. The NCLT, in its order dated 4.6.2021, permitted this withdrawal, and the subsequent order dated 6.7.2021 dismissed D. Ramjee’s application seeking to set aside this resolution. The Supreme Court upheld these decisions, noting that the resolution met the requisite 90% voting share as mandated by Section 12A of the Insolvency and Bankruptcy Code (IBC).2. Legitimacy of NCLT's and NCLAT's Orders Concerning the Constitution of CoC:The contention was whether the CoC should consist solely of financial creditors or include operational creditors like D. Ramjee. The appellant argued that the CoC should be updated to reflect the current claims, which would include operational creditors. However, the NCLT and NCLAT maintained that the CoC should consist of the financial creditors as on the date of the initiation of CIRP proceedings. The Supreme Court refrained from delving into these academic issues, emphasizing that the primary objective of the IBC is the revival of the Corporate Debtor and making it a going concern.3. Rights and Claims of Operational Creditors Versus Financial Creditors:D. Ramjee argued that since the financial creditors’ claims were settled, the CoC should be reconstituted to include operational creditors, granting them substantial voting rights. However, the opposing view was that HDFC Bank, as the sole financial creditor, should constitute the CoC. The Supreme Court did not find it necessary to resolve this issue explicitly, given the broader context of the case.4. Impact of Settlement Between Corporate Debtor and Creditors on CIRP:The new management of the Corporate Debtor successfully settled the claims amounting to Rs. 46,31,16,650/-. This settlement led to the resolution for the withdrawal of CIRP, which was approved by the CoC and permitted by the NCLT. The Supreme Court highlighted that one of the principal objects of the IBC is the revival of the Corporate Debtor and making it a going concern, with liquidation being the last resort.5. Principle of Finality in Legal Proceedings:The Supreme Court noted that the order dated 2.8.2017 by NCLAT, which set aside the initiation of CIRP proceedings against the Corporate Debtor at the behest of D. Ramjee, was not challenged by him and thus attained finality. Furthermore, an amount of Rs. 18,50,000/- was paid to D. Ramjee towards arrears of salary, and his application for permission to file an appeal was rejected on 3.3.2021. Consequently, the Court held that the issue concerning D. Ramjee had attained finality, and his appeal was dismissed.Conclusion:The Supreme Court dismissed Civil Appeal No.2901 of 2021 filed by D. Ramjee, affirming the decisions of NCLT and NCLAT regarding the withdrawal of CIRP and the constitution of CoC. Civil Appeal No.1792 of 2021 filed by K.N. Rajakumar was withdrawn, leaving the questions of law open. The judgment underscores the IBC's objective of reviving the Corporate Debtor and making it a going concern, emphasizing the finality of settled legal proceedings.