2021 (10) TMI 340 - AT - Insolvency and Bankruptcy

Appellate Tribunal Upholds Order Denying Petition Withdrawal under IBC Section 7

The Appellate Tribunal dismissed the Application to set aside the impugned order and allow withdrawal of the Petition under Section 7 of the IBC, citing ... Withdrawal of the petition under Section 7, 9 or 10 of the IBC - CIRP was initiated but the settlement arrived at between the parties and the terms of settlement are filed alongwith this Application - inherent power under Rule 11 of NCLAT, Rules, 2016 - HELD THAT:- Hon’ble Supreme court in SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. [2019 (1) TMI 1508 - SUPREME COURT] unequivocally held that before constitute of committee of creditors, a party can approach the NCLT directly, and the Tribunal may, in exercise of its inherent powers under Rule 11 of the NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the concerned parties and considering all relevant factors on the facts of each case. It cannot be read that Hon’ble Supreme Court has held that this Appellate Tribunal should exercise inherent power and allow or disallow an Application for withdrawal or settlement. It is well settled that inherent power can be exercised only when no other remedy is available to the litigant and nowhere a specific remedy is provided by the statute. If an effective alternative remedy is available, inherent power will not be exercised, especially when the applicant may not have availed of that remedy. It is also settled law that inherent power cannot be invoked which intends to by-pass the procedure prescribed. The procedure prescribed under the law is to be followed strictly - Rule 11 of NCLAT Rules, 2016 provides that the inherent power of the Appellate Tribunal can be exercised to make any orders as may be necessary for meeting the ends of the justice or to prevent abuse of process of the Appellate Tribunal. This provision suggest that such power can be exercised in the absence of express provision of the Code or Regulation. The procedure prescribed for withdrawal of the petition under Section 7, 9 or 10 of the IBC before the constitution of CoC and after constitution of CoC is provided in Section 12-A and Regulation 30-A of the Regulation. When the settlement has taken place at an appellate stage the Applicant who has filed the petition under Section 7 or 9 of the IBC may file the Application (Form – FA) under Section 12-A of the IBC r/w Regulation 30-A of the Regulations for withdrawal of the Petition before the Ld. Adjudicating Authority - there is a prescribed procedure for withdrawal of Petition under Section 7 of the IBC. Therefore, there is no justification to invoke inherent power of this Appellate Tribunal and to take on record the terms of the settlement and pass the order for withdrawal of Petition under Section 7 of the IBC. Application dismissed. Issues:1. Application under Rule 11 r/w Rule 31 of NCLAT Rules, 2016 to place on record terms of settlement agreement and set aside the impugned order dated 13.05.2021 passed in CP No. 1236/IBC/NCLT/MB/MAH/2020.Analysis:1. The Appellant filed an appeal against the impugned order admitting the Respondent's Company Petition under Section 7 of the IBC, initiating CIRP against the Corporate Debtor. A settlement was reached before the constitution of CoC, and the terms of settlement were submitted with the Application.2. The Appellate Tribunal can set aside the impugned order and quash the CIRP against the Corporate Debtor based on the settlement terms, as argued by the Appellant's Counsel. The Counsel relied on various judgments, including Swiss Ribbons Pvt. Ltd. case and other relevant precedents.3. The Respondent's Counsel supported the Appellant's arguments, highlighting that delaying the withdrawal of the Petition could increase CIRP costs. The terms of settlement were requested to be taken on record by the Appellate Tribunal.4. The Tribunal reviewed the arguments presented by both parties and considered the relevant legal citations, including the judgments of the Hon'ble Supreme Court and the NCLAT.5. The Tribunal specifically examined the Supreme Court's rulings in Swiss Ribbons Pvt. Ltd., Brilliant Alloys Pvt. Ltd., and Kamal K Singh cases to determine the applicability of inherent powers under Rule 11 of NCLAT Rules in allowing withdrawal or settlement applications.6. The Supreme Court's guidance emphasized the importance of following prescribed procedures for withdrawal of petitions under the IBC, especially before the constitution of CoC. The Tribunal noted that inherent powers should only be invoked when no other remedy is available and when the prescribed procedure cannot be followed.7. Rule 11 of NCLAT Rules, 2016 allows the Appellate Tribunal to exercise inherent powers to ensure justice and prevent abuse of process, but such powers should be used judiciously and not to bypass statutory procedures.8. The Tribunal concluded that since there is a prescribed procedure for withdrawal of the Petition under Section 7 of the IBC, invoking inherent powers to entertain the settlement terms and order withdrawal would amount to an abuse of process in this case.9. Therefore, the Application under Rule 11 r/w Rule 31 of NCLAT Rules, 2016 to set aside the impugned order and allow withdrawal of the Petition was dismissed by the Appellate Tribunal.