2023 (3) TMI 1285 - SC - Insolvency and Bankruptcy

Supreme Court Allows Appeal, Withdrawal under IBC Section 9.

ABHISHEK SINGH Versus HUHTAMAKI PPL LTD. & ANR.

The Supreme Court allowed the appeal, setting aside the NCLT's impugned order. It permitted the withdrawal of the application under Section 9 of IBC and ... Seeking withdrawal of CIRP under section 12A of Insolvency and Bankruptcy Code, 2016 - appeal was preferred against the admission order before the National Company Law Appellate Tribunal (NCLAT) apparently on the ground that section 9 of IBC petition was not maintainable as there was a pre-existing dispute - HELD THAT:- Regulation 30A of IBBI Regulations was introduced after insertion of section 12A in IBC. It provided the mechanism of dealing with applications filed for withdrawal. Later on, it was substituted by notification dated 25.07.2019 in IBBI Regulations. According to the said provision, withdrawal under section 12A of IBC could be moved before Adjudicating Authority by the applicant through IRP before constitution of the CoC and in case the CoC has been constituted, then also by the applicant through IRP or the RP. However, the applicant would be required to justify the withdrawal by giving reasons. It further provides the procedure for dealing with such an application. The application had been filed prior to the constitution of the CoC. The settlement had been arrived at within two days of the admission order. The payment as per the settlement had been made within the next five days i.e. in a weeks’ time from the date of admission. The application for withdrawal was filed on the 10th day. The NCLT ought to have immediately taken the decision on the application. Once the parties had settled the dispute even before the CoC had been constituted, the application ought to have been allowed then and there rather than await the other creditors to jump into the fray and allow the IRP to proceed further. Alternative Remedy - HELD THAT:- Plea of alternative remedy is a self-imposed restriction by the superior Courts and is never an absolute bar unless barred by the statute. Further, in the present case, this Court had entertained the SLP in 2021 itself and had granted an order of status quo on 20.04.2021. Substantial time has passed since then. As such we are not inclined to entertain the said objection relating to availability of alternative remedy of filing the appeal before the NCLT. Violation of the Moratorium - HELD THAT:- The intervenors have vehemently contended that after 01.03.2021, once the NCLT has admitted the petition and had issued restraint order, section 14 of IBC had come into play; the transactions made in the accounts of the CD would be unlawful and illegal as such payment of the settlement amount from the funds of the CD transferred to the account of the suspended Director after 01.03.2021 ought to be rejected and no discretion should be exercised permitting withdrawal of the proceedings. In this respect, it would suffice to state that even the NCLT was not satisfied with the said submission of the IRP and has not approved the same. Secondly, even if there was any transaction from the account of the CD, the same may at best be held to be a wrongful transaction and in any other proceedings where CIRP is initiated the amount so transferred could be recovered under section 66 of IBC by the IRP or the RP subject to establishing that the said transactions would be hit by the said provision. Multiple claims of OCs - HELD THAT:- It only needs to be mentioned that other creditors would have their own right to avail such legal remedies as may be available to them under law with respect to their claims. The rights of the creditors for their respective claims do not get whittled down or adversely affected if the settlement with the OC in the present case is accepted and the proceedings allowed to be withdrawn. Claims for expenses for IRP - HELD THAT:- Any amount spent by the IRP legally admissible to him could always be recovered in the same proceedings and the NCLT or the Adjudicating Authority would be well within its power to get the same cleared under Clause 7 of Regulation 30A of IBBI Regulations. Section 12A of IBC permits withdrawal of applications admitted under sections 7, 9 and 10 of IBC. It permits withdrawal of such applications with approval of 90 percent voting share of CoC in such manner as may be specified. The role of CoC and 90 percent of its voting share approving the said withdrawal would come into play only when CoC has been constituted. Section 12A did not specifically mention withdrawal of such applications where CoC had not been constituted but at the same time it does not debar entertaining applications for withdrawal even before constitution of CoC. Therefore, the application under section 12A for withdrawal cannot be said to be kept pending for constitution of CoC, even where such application was filed before constitution of CoC - The substituted Regulation 30A of IBC as it stands today clearly provided for withdrawal applications being entertained before constitution of CoC. It does not in any way conflicts or is in violation of section 12A of IBC. There is no inconsistency in the two provisions. It only furthers the cause introduced vide section 12A of IBC. Thus, NCLT fell in error in taking a contrary view. Regulation 30A of IBBI Regulations provide a complete mechanism for dealing with the applications filed under such provision. The issue raised by the IRP regarding its claim for expenses is well taken care of under the said provision. Various safeguards have been provided in Regulation 30A of IBBI Regulations to be fulfilled by the OC which apparently have been fulfilled as there is no complaint in that regard either by the IRP nor it is apparent from the impugned order of the NCLT. Thus, the objection raised by the IRP does not merit any consideration in this appeal. The impugned order of the NCLT cannot be sustained. The application filed under Regulation 30A of IBBI Regulations deserves to be allowed - Appeal allowed. Issues Involved:1. Alternative Remedy2. Violation of the Moratorium3. Multiple Claims of Operational Creditors (OCs)4. Claims for Expenses for Interim Resolution Professional (IRP)5. Legality of the Impugned OrderSummary:Alternative Remedy:The plea of alternative remedy is a self-imposed restriction by superior courts and is not an absolute bar unless barred by statute. The Supreme Court entertained the Special Leave Petition (SLP) in 2021 and granted an order of status quo on 20.04.2021. Given the substantial time elapsed, the Court chose not to entertain the objection regarding the availability of an alternative remedy of filing an appeal before the National Company Law Appellate Tribunal (NCLAT). The Court noted that the Insolvency and Bankruptcy Code (IBC) provides a statutory timeframe for disposal of matters, and keeping commercial matters pending for long frustrates the very object of IBC.Violation of the Moratorium:The intervenors argued that transactions made in the Corporate Debtor's (CD) accounts after the moratorium commenced on 01.03.2021 were unlawful. The Supreme Court noted that the National Company Law Tribunal (NCLT) was not satisfied with the IRP's submission and did not approve it. Even if there were transactions from the CD's account, they could be recovered under Section 66 of IBC by the IRP or the Resolution Professional (RP) in appropriate proceedings.Multiple Claims of Operational Creditors (OCs):The Court held that other creditors have their own right to avail legal remedies for their claims. The rights of the creditors for their respective claims do not get adversely affected if the settlement with the OC is accepted and the proceedings are allowed to be withdrawn.Claims for Expenses for IRP:The Court stated that any amount spent by the IRP, which is legally admissible, could be recovered in the same proceedings. The NCLT or the Adjudicating Authority has the power to get such expenses cleared under Clause 7 of Regulation 30A of the Insolvency and Bankruptcy Board of India (IBBI) Regulations.Legality of the Impugned Order:The Supreme Court found that the NCLT committed an error in holding that Regulation 30A of IBBI Regulations was not binding upon it. The Court referred to its judgment in Swiss Ribbons (P) Ltd. v. Union of India, which led to the substitution of Regulation 30A in IBBI Regulations to allow withdrawal of petitions before the constitution of the Committee of Creditors (CoC). The Court emphasized that Section 12A of IBC permits withdrawal of applications with the approval of 90 percent voting share of CoC, but it does not debar entertaining applications for withdrawal before the constitution of CoC. The substituted Regulation 30A provides a mechanism for dealing with such applications and does not conflict with Section 12A of IBC.The Supreme Court set aside the impugned order of the NCLT, allowed the application filed under Regulation 30A of IBBI Regulations, and permitted the withdrawal of the application under Section 9 of IBC. The Court clarified that any observations made in this judgment would not affect the claims of other creditors, who are free to raise their claims in appropriate proceedings.Conclusion:The appeal was allowed, and the impugned order of the NCLT was set aside. The application under Regulation 30A of IBBI Regulations was allowed, and the application under Section 9 of IBC filed by the OCs was withdrawn. The NCLT was directed to deal with any claims for expenses incurred by the IRP in accordance with the law.