2025 (1) TMI 993 - AT - IBC

Tribunal Approves Insolvency Withdrawal Under IBC Section 12A After OTS; Union Bank and Bank of Baroda Intervene.

Harsh Kilachand Versus Indian Bank & Anr.

Harsh Kilachand Versus Indian Bank & Anr. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether, in view of a settlement/OTS accepted by a Financial Creditor and issuance of a 'no dues' certificate, the appeal against admission of a Section 7 petition should be kept pending or disposed with directions to follow the remedial mechanism under Section 12A and applicable regulations. 2. Whether a Financial Creditor may file an application under Section 12A of the Code through the Interim Resolution Professional (IRP) in accordance with Regulation 30A of the CIRP Regulations, 2016, in light of the law laid down in the referred precedent. 3. How CIRP costs are to be treated when a Section 12A application is filed and whether the IRP must be furnished a Form 'FA' to reflect CIRP costs in such application. 4. The extent to which other Financial Creditors (including intervenors) may oppose a Section 12A application and the procedural timeline the Adjudicating Authority/IRP must follow pending disposal of such application. 5. Whether the IRP should continue to manage the Corporate Debtor as a going concern until the Adjudicating Authority passes final orders. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Disposition of appeal in view of OTS/no-dues certificate Legal framework: The remedy under Section 12A (and related CIRP Regulations) permits settlement and pre-admission resolution efforts; appellate discretion to keep appeals pending or dispose with directions is exercised in consonance with settlement steps and judicial precedents. Precedent Treatment: The Tribunal treated the referred Supreme Court authority as guiding the appropriate recourse (GLAS Trust Company - followed as the governing precedent on filing under Section 12A through the IRP and related procedure). Interpretation and reasoning: The Court observed that an OTS had been submitted and, subsequently, accepted by the Financial Creditor with issuance of a 'no dues' certificate and payments having been made. In these circumstances, keeping the appeal pending was unnecessary; instead, the appropriate procedural route is to permit the Financial Creditor to file under Section 12A through the IRP so the Adjudicating Authority can consider settlement and related modalities. Ratio vs. Obiter: Ratio - where a binding settlement/OTS is in place and the creditor has issued a 'no dues' certificate, appellate proceedings need not be kept pending; the proper course is to permit Section 12A route through the IRP for adjudication. Conclusion: The appeal was disposed with liberty to proceed under Section 12A through the IRP rather than maintaining the appeal. Issue 2 - Filing Section 12A application through IRP in accordance with Regulation 30A Legal framework: Section 12A of the Code and Regulation 30A of the CIRP Regulations, 2016 permit filing of applications for withdrawal of insolvency proceedings or for settlement through the IRP; the IRP is the conduit for listing before the Adjudicating Authority. Precedent Treatment: The Tribunal expressly relied on the Supreme Court authority (referred) that delineates the procedure under Section 12A and Regulation 30A - the precedent was followed as binding guidance. Interpretation and reasoning: The Court held that the appropriate recourse is to permit the Financial Creditor to file a 12A application through the IRP in accordance with the statutory/regulatory scheme. The IRP is required to take steps for listing and securing an early disposal. The Court set a timetable for filing (within two weeks) and for the Adjudicating Authority to dispose (within six weeks) to prevent undue delay and prejudice to other stakeholders. Ratio vs. Obiter: Ratio - Section 12A applications must be filed through the IRP as per Regulation 30A; the IRP is duty-bound to list and facilitate early disposal. The timetable direction is an application of supervisory jurisdiction to ensure expeditious adjudication. Conclusion: Financial Creditors are permitted to file Section 12A applications through the IRP under Regulation 30A; the IRP must list and secure adjudication within the directed timeframes. Issue 3 - Treatment of CIRP costs and use of Form 'FA' when filing under Section 12A Legal framework: The Code contemplates CIRP costs and their priority/settlement; Form 'FA' (as per regulations/procedure) can be used to communicate amounts sought to be treated in the application filed by the Financial Creditor via the IRP. Precedent Treatment: The Court did not distinguish precedent on this narrow point but applied the regulatory mechanism to ensure CIRP costs are not overlooked. Interpretation and reasoning: The Court observed CIRP costs have been incurred and clarified it is open to the Financial Creditor, while filing the Section 12A application, to take CIRP cost into account by furnishing a Form 'FA' to the IRP for inclusion in the application. This ensures transparency and that the Adjudicating Authority can consider CIRP cost liabilities when deciding the application. Ratio vs. Obiter: Ratio - insofar as an application under Section 12A is filed, CIRP costs should be indicated and can be incorporated by providing Form 'FA' to the IRP; this is a necessary element of a complete application under Regulation 30A. Conclusion: The Financial Creditor should furnish Form 'FA' to the IRP to reflect CIRP costs in the 12A application; the costs may be considered by the Adjudicating Authority and other creditors may object if their dues are not covered. Issue 4 - Rights of other Financial Creditors to object and consequences Legal framework: The Code grants other Financial Creditors the right to object to settlement/withdrawal applications and to seek protection of their claims; Adjudicating Authority must consider objections when adjudicating Section 12A applications. Precedent Treatment: The Court applied settled procedural principles and did not depart from existing doctrine regarding creditors' rights to oppose settlements. Interpretation and reasoning: The Tribunal explicitly permitted other Financial Creditors (including intervening banks) to file objections in the event their dues are not settled or otherwise taken care of by the proposed settlement. The Court's directions facilitating an early hearing preserved the rights of other creditors to be heard within the prescribed timetable. Ratio vs. Obiter: Ratio - other Financial Creditors retain the right to object to Section 12A applications; such objections must be considered by the Adjudicating Authority in adjudicating the application. Conclusion: Intervening/other Financial Creditors are free to file objections to the 12A application; the IRP/Adjudicating Authority must consider such objections during the early disposal mandated by the Tribunal. Issue 5 - Continuation of IRP and status of Corporate Debtor as going concern Legal framework: The Code requires that the IRP/Resolution Professional manage the Corporate Debtor during CIRP and preserve it as a going concern unless and until the Adjudicating Authority orders otherwise. Precedent Treatment: The Tribunal followed statutory mandate and established practice that the IRP continues duties until final orders are passed. Interpretation and reasoning: Given the pendency of procedural steps and the possibility of objections, the Tribunal directed that the IRP already in place shall continue to manage the Corporate Debtor as a going concern until any orders are passed by the Adjudicating Authority, ensuring continuity and protection of stakeholder interests. Ratio vs. Obiter: Ratio - IRP to continue responsibilities and maintain the Corporate Debtor as a going concern until the Adjudicating Authority issues further orders. Conclusion: The IRP must continue to manage the Corporate Debtor as a going concern pending the Adjudicating Authority's decision on any Section 12A application or other proceedings.