2021 (9) TMI 733 - SC - IBC

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

K.N. RAJAKUMAR Versus V. NAGARAJAN & ORS.

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 ... Validity of permitting withdrawal of Corporate Insolvency Resolution Process - appellant D. Ramjee who is an exemployee of M/s Aruna Hotels Ltd. has filed an appeal as he was not receiving salary regularly, he sought to get relieved from the services with effect from 30.9.2006 and sought for settlement of his salary dues - HELD THAT:- The Adjudicating Authority is entitled to withdraw the application admitted under Section 7 or Section 9 or Section 10, on an application made by the applicant with the approval of 90% voting share of the CoC - It is not in dispute that the resolution of CoC approving withdrawal of CIRP proceedings was supported by the requisite voting majority. One of the principal objects of the IBC is providing for revival of the Corporate Debtor and to make it a going concern. Every attempt has to be first made to revive the concern and make it a going concern, liquidation being the last resort - From the order of NCLT dated 4.6.2021, it could be seen that the Corporate Debtor has already settled the issue with the erstwhile financial creditors, who have resolved to withdraw the CIRP proceedings and by virtue of withdrawal of CIRP proceedings, the Corporate Debtor now is a going concern. NCLT vide order dated 6.7.2021, passed in the application (I.A.No.540/CHE/2021) filed by D.Ramjee, has rightly held that from the date of the order dated 4.6.2021, after the withdrawal of CIRP proceedings, the powers and management of the Corporate Debtor were handed over to the Directors of the Corporate Debtor and from that date RP and CoC in relation to the Corporate Debtor had become functus officio. NCLT has rightly disposed of the application filed by D.Ramjee having rendered infructuous. Appeal disposed off. 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.