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

Supreme Court Allows Appeal, Withdrawal under IBC Section 9.

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 ... Withdrawal of application under section 12A of the Insolvency and Bankruptcy Code - Regulation 30A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations - Inherent powers under Rule 11 of the NCLT Rules - Proceedings in rem - Moratorium under section 14 of the IBC and recovery under section 66Withdrawal of application under section 12A of the Insolvency and Bankruptcy Code - Regulation 30A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations - Application for withdrawal of CIRP filed before constitution of the Committee of Creditors under section 12A read with Regulation 30A ought to have been allowed - HELD THAT: - The Court held that section 12A permits withdrawal of applications admitted under sections 7, 9 or 10 and does not bar entertaining withdrawal applications filed before constitution of the Committee of Creditors. The substituted Regulation 30A, framed by the IBBI after Swiss Ribbons, provides the procedural mechanism for disposal of such withdrawal applications and is not inconsistent with section 12A; rather it furthers the legislative purpose. Where the application for withdrawal was filed prior to constitution of the CoC and the safeguards in Regulation 30A were fulfilled, the Adjudicating Authority should have considered and decided the application without deferring to constitution of the CoC. The NCLT erred in rejecting the application and in holding that Regulation 30A was not binding. The Court therefore set aside the impugned NCLT order and allowed the withdrawal application, directing that claims for expenses be dealt with in accordance with law. [Paras 33, 35, 41, 42, 43]The NCLT order rejecting the withdrawal application is set aside; the application under Regulation 30A is allowed and the section 9 petition stands withdrawn, subject to adjudication of claims for expenses in accordance with law.Inherent powers under Rule 11 of the NCLT Rules - Proceedings in rem - Scope and exercise of NCLT's inherent powers under Rule 11 to permit withdrawal prior to constitution of CoC - HELD THAT: - The Court reiterated Swiss Ribbons (paragraph 82) that where CoC is not yet constituted, the Tribunal can, in exercise of its inherent powers under Rule 11, allow or disallow applications for withdrawal or settlement after hearing relevant parties. Delay by the NCLT in disposing of the withdrawal application led to other creditors filing claims; nonetheless, the inherent power exists to meet the ends of justice and should have been invoked by the NCLT to decide the settlement application promptly rather than await participation by additional creditors. [Paras 33, 40, 41]NCLT ought to have invoked its inherent powers under Rule 11 to decide the withdrawal application before constitution of the CoC; failure to do so was an error.Moratorium under section 14 of the IBC and recovery under section 66 - Whether alleged payments made after commencement of moratorium preclude allowance of withdrawal - HELD THAT: - The Court observed that the NCLT was not satisfied that the moratorium had been conclusively violated. Even if transactions from the corporate debtor's account occurred after commencement of moratorium, at best they amount to wrongful transactions subject to recovery by IRP/RP under section 66 in appropriate proceedings. Such possible wrongful transactions do not mandate refusal of the settlement or prevent withdrawal under section 12A/Regulation 30A where the settlement is otherwise acceptable and procedures complied with. [Paras 15, 19, 26, 30, 31]Alleged violation of moratorium does not by itself preclude acceptance of the withdrawal; any wrongful transactions can be pursued and recovered in appropriate proceedings.Rights of other creditors and claims for IRP expenses - Withdrawal of application under section 12A of the Insolvency and Bankruptcy Code - Whether presence of other creditor claims or IRP's claim for expenses prevents withdrawal before constitution of CoC - HELD THAT: - The Court held that third parties may pursue their independent remedies and that acceptance of the settlement and withdrawal of the specific section 9 petition does not extinguish other creditors' rights. Regulation 30A contains safeguards (including bank guarantee and deposit toward expenses) to address claims for IRP/RP expenses; amounts legally admissible to the IRP can be recovered in the same proceedings or be dealt with by the Adjudicating Authority as provided under Regulation 30A. The fact that other creditors filed claims was a consequence of NCLT's delay and does not, by itself, justify stifling the settlement. [Paras 15, 23, 27, 41, 44]Other creditors retain their rights to pursue claims; IRP's expenses can be dealt with under Regulation 30A or by the NCLT in accordance with law; such claims do not defeat the withdrawal.Alternative remedy - Whether failure to prefer appeal to NCLAT bars this Court from entertaining the SLP - HELD THAT: - The Court observed that the plea of alternative remedy is not an absolute bar and, in view of the statutory timelines and commercial nature of IBC proceedings, it was not inclined to refuse entertainment of the SLP on this ground. The SLP was entertained and the matter heard on merits. [Paras 24]Availability of an alternative remedy before NCLAT did not preclude this Court from hearing and deciding the SLP.Final Conclusion: The appeal is allowed; the NCLT order dated 13.04.2021 is set aside, the application under Regulation 30A (and section 12A) is allowed and the section 9 petition stands withdrawn, subject to adjudication of any claims for IRP/RP expenses or other creditors' independent claims in accordance with law. 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.