2026 (3) TMI 1539 - HC - IBC

Insolvency withdrawal must follow statutory procedure; writ interference for alleged natural justice breach was not warranted.

Once a section 7 insolvency petition is admitted, the proceeding is in rem and control of the corporate debtor vests in the interim resolution ... Violation of Principles of natural justice in withdrawal of CIRP - Maintainability of writ petition despite alternative appellate remedy - Withdrawal of CIRP through interim resolution professional - non compliance with mandatory procedural requirements as per the Insolvency and Bankruptcy Code, 2016 (IBC) as also the Rules and Regulations framed therein. Withdrawal of CIRP through interim resolution professional - Alternative appellate remedy - HELD THAT: - The Court held that once the section 7 application had been admitted and the IRP appointed, the insolvency process became a proceeding in rem and the management and representation of the corporate debtor vested in the IRP. Under section 12-A read with Regulation 30-A, before constitution of the CoC, a withdrawal application could be made only by the applicant through the IRP; neither the original financial creditor nor the suspended director could independently pursue such withdrawal before the NCLT. In that statutory setting, the relevant stakeholders for consideration of the withdrawal application were the corporate debtor acting through the IRP and the objecting financial creditors. Since the intervention applications were served on the IRP, notice was given in accordance with the NCLT Rules, and the IRP as well as the objecting banks were heard, the requirement of hearing the parties concerned stood satisfied. The Court further held that the petitioners' reliance on the expression 'any person aggrieved' was misplaced, because the breadth of appellate locus did not enlarge the class of persons required to be heard by the NCLT at the stage of deciding a withdrawal application. The judgment in Glas Trust Company LLC vs. Byju Raveendran and others [2024 (10) TMI 1185 - SUPREME COURT (LB)] was read as requiring notice to other creditors whose interests would be affected by a settlement, not as conferring an independent right of hearing on the erstwhile management outside the statutory role of the IRP. Kamal K. Singh vs. Union of India [2019 (12) TMI 193 - BOMBAY HIGH COURT], Through the Ministry of Corporate Affairs and others was distinguished, as that case involved a gross procedural irregularity of a different kind. As no exceptional case of breach of natural justice was made out, the Court declined to entertain the writ petitions in the face of the alternative remedy of appeal under the IBC. [Paras 45, 46, 47, 48, 49] The challenge on the ground of violation of natural justice failed, and the petitioners were relegated to the appellate remedy. Final Conclusion: The writ petitions were dismissed on the ground that no breach of natural justice was established and the petitioners had an effective statutory appeal before the NCLAT. The interim order was vacated, and it was observed that any further attempt to seek withdrawal of CIRP, after constitution of the CoC, must be in accordance with the governing IBC framework. Issues: Whether the order of the National Company Law Tribunal suffered from violation of principles of natural justice so as to justify writ interference despite availability of an appellate remedy under the Insolvency and Bankruptcy Code, 2016.Analysis: Upon admission of a petition under section 7, the insolvency process becomes a proceeding in rem and the management of the corporate debtor vests in the interim resolution professional. An application for withdrawal under section 12-A, read with Regulation 30-A, had to be moved through the interim resolution professional, who represented the corporate debtor in the insolvency process. The respondents opposing withdrawal were financial creditors with a direct stake in the proceedings, and they were heard by the adjudicating authority. The petitioners' reliance on lack of direct hearing was misplaced because the suspended management had no independent right to bypass the statutory framework, and the record also showed that the petitioner financial creditor had authorised the interim resolution professional to move the withdrawal application. The existence of an alternate statutory appeal and the constitution of the committee of creditors further supported restraint in writ jurisdiction.Conclusion: The order of the National Company Law Tribunal did not suffer from breach of natural justice, and writ interference was not warranted.