Court restores CIRP, safeguards assets, rejects Section 7 Application. Upholds integrity of insolvency resolution.

The court set aside the withdrawal of the Section 9 Application, allowing the Corporate Insolvency Resolution Process (CIRP) initiated on 18.12.2020 to continue. It directed the restoration of funds withdrawn by State Bank of India and rejected the admission of the Section 7 Application. The judgment emphasized maintaining the integrity of the insolvency resolution process and safeguarding the corporate debtor's assets for an effective resolution, prioritizing the interests of all creditors involved.

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Issues Involved:
1. Validity of the withdrawal of Section 9 Application and closure of CIRP.
2. Appropriateness of the initiation of CIRP under Section 7 Application.
3. Conduct of State Bank of India regarding withdrawal of funds.
4. Jurisdiction of NCLT to comment on the legality of IBBI regulations.
5. Restoration of assets and management of the corporate debtor.

Detailed Analysis:

1. Validity of the Withdrawal of Section 9 Application and Closure of CIRP:

The primary issue is whether the CIRP initiated under Section 9 Application should continue or be closed following the withdrawal order dated 29.06.2021. The NCLT had permitted the withdrawal based on a settlement between the operational creditor and the corporate debtor. However, this order was stayed by the NCLAT on 12.07.2021, restoring the status quo ante and directing that the IRP continue to manage the corporate debtor's affairs. The judgment emphasizes that the CIRP initiated on 18.12.2020 should continue to ensure an adequate and proper insolvency resolution, considering the interests of all creditors.

2. Appropriateness of the Initiation of CIRP under Section 7 Application:

The CIRP initiated under Section 7 Application by KKR India Financial Services Ltd. on 19.07.2021 was contested. The NCLAT noted that the earlier CIRP under Section 9 was still ongoing due to the stay order. Initiating a fresh CIRP under Section 7 would complicate the resolution process and potentially harm the interests of other creditors. Thus, the judgment sets aside the Section 7 Application and directs the continuation of the CIRP initiated under Section 9.

3. Conduct of State Bank of India Regarding Withdrawal of Funds:

State Bank of India (SBI) withdrew Rs. 116.41 Crores from the Trust and Retention Account of the corporate debtor after the NCLT's stay order. The judgment directs SBI to deposit the withdrawn amount back into the corporate debtor's account and release the hold on an additional Rs. 31.27 Crores. This ensures that the corporate debtor's assets remain intact for the resolution process.

4. Jurisdiction of NCLT to Comment on the Legality of IBBI Regulations:

The judgment addresses the NCLT's comments on the legality of IBBI regulations in its order dated 29.06.2021. It clarifies that the NCLT does not have the jurisdiction to declare any provision of IBC or its regulations as ultra vires. The judgment emphasizes that Regulation 30-A of IBBI should be read harmoniously with Section 12A of IBC, and the NCLT's observations on the inconsistency between them were avoidable.

5. Restoration of Assets and Management of the Corporate Debtor:

The judgment directs that any assets alienated or withdrawn from the corporate debtor after the Section 9 admission order should revert to the position as on 29.06.2021. This includes the machine claimed to be owned by KKR India Financial Services Ltd., which should be dealt with by the Resolution Professional under IBC provisions. The judgment ensures that the corporate debtor's assets are preserved for an effective resolution process.

Conclusion:

The judgment concludes by setting aside the withdrawal of the Section 9 Application and allowing the CIRP initiated on 18.12.2020 to continue. It directs the restoration of funds withdrawn by SBI and sets aside the Section 7 Application's admission order. The judgment provides a comprehensive resolution framework, ensuring that the corporate debtor's insolvency process is conducted in a fair and orderly manner, considering the interests of all stakeholders.

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