Section 12A withdrawal applications not permitted during liquidation proceedings under IBC statutory scheme

NCLAT dismissed appeal challenging rejection of Section 12A withdrawal application filed during liquidation proceedings. The appellant sought withdrawal of CIRP after liquidation commenced on 12.09.2017, filing application over three years later. NCLAT held that Section 12A applications are not permissible during liquidation period under statutory scheme of IBC. Court found former director's involvement in application and previous rejected challenges to liquidation order. Regarding SCC constitution under Regulation 31A (effective 25.07.2019), NCLAT ruled no obligation existed for liquidations commenced before the regulation's insertion, as statute cannot contemplate impossible acts. Adjudicating authority's rejection was upheld with no errors found.

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Issues Involved:

1. Whether an Application under Section 12A for withdrawal of the CIRP can be filed after commencement of the Liquidation Proceedings.
2. Whether it was obligatory for the Liquidator to constitute the Stakeholders Consultation Committee (SCC) as per Regulation 31A inserted in Liquidation Regulation with effect from 25.07.2019.

Issue-wise Detailed Analysis:

Issue 1: Application under Section 12A Post-Liquidation

The primary question was whether a Section 12A application for withdrawal of the Corporate Insolvency Resolution Process (CIRP) is maintainable after the commencement of liquidation proceedings. Section 12A of the Insolvency and Bankruptcy Code (IBC) allows for the withdrawal of an application admitted under sections 7, 9, or 10 with the approval of 90% voting share of the Committee of Creditors (CoC). However, once liquidation proceedings commence, the CoC ceases to exist, rendering the withdrawal under Section 12A inapplicable post-liquidation. The statutory scheme of the IBC and Liquidation Regulations, particularly Regulation 2B, which provides for Compromise or Arrangement, negate the possibility of withdrawal under Section 12A during liquidation. The Tribunal referred to past judgments, such as `V Navneetha Krishnan' and `Lokhandwala Kataria Construction Private Limited', but found them either contextually different or not aligned with the statutory framework post-liquidation. Thus, the Tribunal concluded that the application under Section 12A is not permissible once liquidation has commenced.

Issue 2: Constitution of Stakeholders Consultation Committee (SCC)

The second issue was whether the Liquidator was required to constitute an SCC as per Regulation 31A of the IBBI (Liquidation Process) Regulations, 2016, which was inserted by a notification effective from 25.07.2019. The liquidation in this case commenced on 12.09.2017, prior to the insertion of Regulation 31A. The Tribunal noted that the explanation to Regulation 31A clarifies that the requirement for constituting an SCC applies only to liquidation processes commencing on or after the amendment date. As the liquidation in question began before this amendment, the Liquidator was not obligated to constitute an SCC. The Tribunal emphasized that statutory provisions do not require the performance of impossible acts, and thus, there was no error in the Liquidator's actions or the Adjudicating Authority's decision.

Conclusion:

The Tribunal found no merit in the Appeals, affirming that the Section 12A application was not maintainable post-liquidation and that there was no requirement for constituting an SCC for liquidation proceedings that commenced before the relevant amendment. Consequently, the Appeals were dismissed.

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