TaxTMI 
TaxTMI 
2021 (7) TMI 406
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....l Operational Creditor and Respondent no. 2 whereby dues of Operational Creditor have been paid and settled. There are two Intervenors who are opposing this application. One Intervenor is M/s. KKR India Financial Services and another Intervenor is M/s. DSP Investment Managers Pvt. Ltd. who are the Financial Creditors and have got exposure to the tune of Rs. 435 crores and Rs. 134 crores approximately. 3. Learned Counsel for the applicant appeared. After narrating the brief background of the case, firstly, he referred to the order of Hon'ble NCLAT dated 04.01.2021 in the case of Corporate Debtor against order of this Adjudicating Authority admitting the Corporate Debtor into CIRP. In the said order the Hon'ble NCLAT directed the applicant to approach this Adjudicating Authority for seeking exit from CIRP. It was also pleaded that the Hon'ble NCLAT had also directed that Committee of Creditors (hereinafter referred to as "COC") shall not be constituted for one week from the date of its order. Learned Counsel, thereafter, submitted that this Adjudicating Authority further stayed the constitution of COC from time to time in view of the fact that there were settlement talks....
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.... the Constitution of COC. 7. That the relevant ratio of the Hon'ble Supreme Court in the case of Swiss Ribbons (pg 36 of the application), speaks of party being permitted to approach NCLT under Rule 11 of NCLT Rules, 2016 for withdrawal/settlement at the stage of prior to Constitution of COC. 8. That section 12A of the IB code provides for a situation only post formation of COC, and section 12A of the IB code reads as follows: "The Adjudicating Authority allow the withdrawal of application admitted under section 7 of the section 9 of section 10, and an application made by the Applicant with the approval of 90 per cent voting share of the committee of creditors, in such manner as may be prescribed." 9. Hence, section 12A of the IB code cannot have any application for seeking exit from CIRP prior to formation of COC. 10. That the other side sought to place reliance on regulation 30A of the CIRP Regulations, where regulation 30 A contemplates a situation for withdrawal prior to Constitution of COC, and such application be made through the interim resolution professional. 11. It is respectfully submitted that the regulation cannot expand the scope of the Act itself, and....
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....e withdrawal was not allowed, though agreed to by the Corporate Debtor as well as the financial creditor State bank of India and the operational creditor - respondent no. 3, is because regulation 30A states that withdrawals cannot be permitted after issue of invitation for expression of interest. According to us, this regulation has to be read along with the main provision of section 12A which contains no such stipulation. Accordingly, this stipulation can only be construed as directory depending on the facts of each case. Accordingly, we allow the settlement that has been entered into and annul the proceedings. The Special Leave Petition is disposed of accordingly." Hereto enclosed is a copy of the order dated 14/12/2018 in the case of Brilliant Alloys Private Limited v. S. Rajagopal 8B Ors. SLP no. 31557 of 2018. 15. Hence, in light of the above it can be seen that the regulation sought to do, which the Act itself did not provide for, and hence accordingly the stipulation set out in the regulation was to be treated as merely directory in nature. 16. Hence, it is submitted that the requirement to file the present withdrawal application through an interim resolution pro....
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....ing into consideration the fact that we have closed the proceedings, we direct the 'Corporate Debtor' to pay the total sum of Rs. 14.5 Lakhs towards fee and cost incurred by Mr. Sandeep Chandna, (Resolution Professional) within two weeks. So far as the 'Financial Creditors' who wanted to intervene and other 'Operational Creditors' who applied pursuant to the advertisement, this order will not come in their way to take recourse in accordance with law." 21. It is submitted that the Hon'ble NCLAT after taking into consideration the judgment of Swiss Ribbons, does not listen to the intervention of any financial creditors, and permits them to avail the recourse available to them under law. 22. In light of the aforesaid, it is submitted that no intervening financial creditors (including KKR and DSP) have a locus to be heard in the present application for closing CIRP proceedings. Malafides of KKR 23. In light of the above, it is submitted that KKR's intervention is not permissible under law, and the motive of KKR is merely to seek recovery by arm twisting, which is not the purpose of the IB code, and now is a settled position of law. 24. That on ....
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....(page 19 of the rebuttal affidavit of the Applicant). 34. It is further submitted that in the event the claim of KKR is taken into consideration which is purportedly approximately Rs. 450 crores, in the event the Corporate Debtor wish to pay it out, the Corporate Debtor has additionally approximately Rs. 3700 crores worth of assets, and it is very easy for the Corporate Debtor to liquidate any such assets and/or use the funds lying in the bank account to pay off KKR. 35. However, the Corporate Debtor strongly believes that there is no debt that is due and payable in the section 7 petition filed by KKR and there is no financial default whatsoever. 36. Further looking to the affidavit filed by KKR, not a single document has been placed on record by KKR to substantiate any kind of facility it has given to the Corporate Debtor. 37. In light of the above, it is submitted that, in the facts and circumstances of the present case, it is a fit case that the present application for closure of CIRP be allowed and accepted, permitting the Corporate Debtor to deal with the respective insolvency petitions on its own merits as and when they are heard. 38. In the event simply pendency of....
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....orporate Debtor as a going concern. 42. It is submitted that it becomes clear that the lenders are interfering and affecting the status of the Corporate Debtor as a going concern. 43. That the present is not the first case scenario where formation of COC has come to be stayed. 44. That in other matters were COC has come to be stayed the Hon'ble NCLAT has been pleased to pass direction that the interim resolution professional take the assistance of the suspended Board of Directors and officers/directors and employees of the Corporate Debtor to ensure that CD remains as a going concern. One such order dated 23/11/2020 of NCLAT Company Appeal (AT) (INS) no. 1012 of 2020 is placed on record in the rebuttal affidavit of the Applicant at page 32. 45. In light of the aforesaid, it is submitted that in the event CIRP is continued, it is sure to bring the death of the Corporate Debtor. Exit be permitted for the sake of employees 46. It is submitted that the Corporate Debtor employs approximately 4500 employees, and they reside within the premises of the Corporate Debtor itself along with their entire families, and all of their livelihood is at stake in the event the Corporat....
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....en filed in the specified manner therein, hence, the same needs to be dismissed. Secondly, it has been pleaded that after admission of a Corporate Debtor into CIRP, the proceedings become in rem and interests of all stakeholders have to be taken into consideration while disposing of an application filed under Section 12A of IBC, 2016. They have also placed reliance on the decision of Hon'ble Supreme Court in the case of Swiss Ribbons for their contentions. 7. On behalf of Interim Resolution Professional (hereinafter referred to as "IRP"), Learned Senior Counsel appeared from time to time and narrated about the status of the Corporate Debtor. Learned Senior Counsel also made submissions on the scope and applicability of Rule 11 of NCLT Rules, 2016. It was also submitted that the provisions of Section 12A of IBC, 2016 as well as Regulation 30A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 were of directory nature. The Learned Senior Counsel also submitted that, in case, the application under Section 12A of IBC, 2016 would be dismissed, then, period from 18.12.2020 till disposal of this application need to be e....
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....A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 as applicable from time to time and inter play between such provisions. Further, we may also be required to look into the scope of our jurisdiction under Rule 11 of NCLT Rules, 2016 and whether such rule can be put into operation for disposing of the present application. As far as the applicability of Rule 11 of NCLT Rules, 2016 is concerned, prior to decision of Hon'ble Supreme Court in the case of Swiss Ribbons Pvt. Ltd vs. Union of India, there was some cloud on the applicability of Rule 11 of NCLT Rules, 2016 for allowing withdrawal of CIRP, however, now this issue does not require any deliberation as the Hon'ble Supreme Court in the case of Swiss Ribbons Pvt. Ltd vs. Union of India has categorically, stated that in a situation not covered under Section 12A of IBC, 2016, the Rule 11 of NCLT Rules, 2016 can be invoked. 10. On the aspect whether provisions of Section 12A of IBC, 2016 or Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and Form-FA were applicable in this kind of a situation, this Authority in the case of Huthamaki PPL Ltd vs. Man....
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....participate to collectively assess viability. The law must ensure that all creditors who have the capability and the willingness to restructure their liabilities must be part of the negotiation process. The liabilities of all creditors who are not part of the negotiation process must also be met in any negotiated solution." Thus, it was agreed that once the CIRP is initiated, it is no longer a proceeding only between the applicant creditor and the corporate debtor but is envisaged to be a proceeding involving all creditors of the debtor. The intent of the Code is to discourage individual actions for enforcement and settlement to the exclusion of the general benefit of all creditors. 29.2 On a review of the multiple NCLT and NCLAT judgments in this regard, the consistent pattern that emerged was that a settlement may be reached amongst all creditors and the debtor, for the purpose of a withdrawal to be granted, and not only the applicant creditor and the debtor. On this basis read with the intent of the Code, the Committee unanimously agreed that the relevant Rules may be amended to provide for withdrawal post admission if the CoC approves of such action by a voting share of ninet....
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....ttee of creditors arbitrarily rejects a just settlement and/or withdrawal claim, the NCLT, and thereafter, the NCLAT can always set aside such decision Under Section 60 of the Code. For all these reasons, we are of the view that Section 12A also passes constitutional muster. 21. From the perusal of above observations, we can see that the Hon'ble Supreme Court has extracted the views expressed, in this regard, in the report of Insolvency Law Committee March, 2018. In the said report, as reproduced here-in-before, it has been clearly mentioned that once CIRP is initiated, it is no longer proceeding only between the applicant creditor and the corporate debtor but it is envisaged to be a proceeding involving all creditors of the debtor. It is specifically mentioned in this report that the intent of the CODE is to discourage individual actions for enforcement and settlement to the exclusion of the general benefit of all creditors. Having regard to this view of the Government, the Hon'ble Supreme Court has also observed that hearing of all concerned parties and considering relevant factors on the facts of each case was necessary. These observations also apply not only when this....
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....llate Authority or the Hon'ble Supreme Court. The committee was appointed for review of various provisions of the CODE. The committee submitted its report which lead to insertion of Section 12A and Regulation 30A r.w. Form-FA in CIRP Regulations, 2016. Now, we arrive at second stage. Section 12A was introduced w.e.f. 06.06.2018 which is reproduced as under: 12A. Withdrawal of application admitted under section 7, 9 or 10. The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent, voting share of the committee of creditors, in such manner as may be prescribed. Regulation 30A was introduced w.e.f. 04.07.2018 which is reproduced as under: 30A. Withdrawal of application. (1) An application for withdrawal under section 12A shall be submitted to the interim, resolution professional or the resolution professional, as the case may be, in Form FA of the Schedule before issue of invitation for expression of interest under regulation 36A. (2) (2) The application in sub-regulation (1) shall be accompanied by a bank guarantee towards esti....
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....l be made by the director/manager/secretary/designated partner and in the case of other entities, an officer authorized for the purpose by the entity]] 23. From the perusal of substantive provisions as well as subordinate legislation i.e. Regulation 30A and Form-FA it is observed that both were in sync with each other and such Regulation 30A provided the procedure for the implementation or execution of provisions of Section 12A of IBC, 2016. Such situation remained in operation for certain period. In the meanwhile, the Hon'ble Supreme Court considered the constitutional validity of various amendments which included the constitutional validity of Section 12A of the CODE as well. These issues have been dealt with by the Hon'ble Supreme Court in the celebrated case of Swiss Ribbons. This order was pronounced on 25.01.2019. In para 52 of the said order, a situation of non-applicability of Section 12A for pre-COC stage was posed before the Hon'ble Supreme Court because Section 12A dealt with a situation post constitution of COC only. The Hon'ble Supreme Court while answering this issue held that such situation could still be considered by NCLT or NCLAT under Rule 11 of....
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....the Schedule accompanied by a bank guarantee-(a) towards estimated expenses incurred on or by the interim resolution professional for purposes of regulation 33, till the date of filing of the application under clause (a) of sub-regulation (1); or (b) towards estimated expenses incurred for purposes of-clauses (aa), (ab), (c) and (d) of regulation 31, till the date of filing of the application under clause (b) of sub-regulation (1). Page 2 of 6 (3) Where an application for withdrawal is under clause (a) of sub-regulation (1), the interim resolution professional shall submit the application to the Adjudicating Authority on behalf of the applicant, within three days of its receipt. (4) Where an application for withdrawal is under clause (b) of sub-regulation (1), the committee shall consider the application, within seven days of its receipt (5) Where the application referred to in sub-regulation (4) is approved by the committee with ninety percent voting share, the resolution professional shall submit such application along with the approval of the committee, to the Adjudicating Authority on behalf of the applicant, within three days of such approval (6) The Adjudicating Autho....
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....on 30A as effective from 25.07.2019, it is noted that stage of pre-constitution of COC is now being covered in Clause (a) of Regulation 30 A(1). It may be recalled that the Hon'ble Supreme Court, in the case of Swiss Ribbons, had dealt with this gap as such situation was not covered under Section 12A of the CODE. At this stage, we consider it pertinent to mention that power to make regulations is given to IBBI. However, Section 240(1) specifically mentions that IBBI can make regulations consistent with this CODE and the rules made there-under to carry out the provisions of the CODE. Thus, such power of making regulations is for limited purpose i.e. to carry out the provisions of CODE. Accordingly, in our view, any regulation, so made, if inconsistent with the CODE and Rules made there-under then it would amount to violation of provisions of Section 240(1) of the CODE. Apart from that Section 240(2) provides various specific situations apart from general power as mentioned in Section 240(1). From the perusal of various clauses of Section 240(2), it is noted that these clauses cover the situation starting from Section 3 of the CODE to Section 222 of the CODE. However, it is notic....
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....are further of the view that in view of the inherent power of this Adjudicating Authority, being NCLT, and the observations of Hon'ble Supreme Court, still we can consider application of this nature under Rule 11 of NCLT Rules, 2016 and in that situation considerations which apply to exercise of such discretionary power in the interests of justice or to prevent misuse of the provisions of law, those considerations need to be given due weightage by this Authority. Accordingly, we hold that in this kind of situation which is now present before us, there is no force in the contention of the applicant that provision of law is clear and we should decide the application in terms of provisions of regulation 30A. Accordingly, we need to consider the application filed by objectors before arriving at the final conclusion exercising our power under Rule 11 of NCLT Rules, 2016. 27. Our views as regard to nature and scope of Regulations made by IBBI further find support from the decision of Hon'ble NCLAT in the case of Neelkanth Township and Construction Private Limited vs. Urban Infrastructure Prestige Limited in Company Appeal (AT)(Insolvency) No. 44 of 2017 order dated 11.08.2017 r....
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.... OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF OPERATIONAL DEBT AND THE AMOUNT IN DEFAULT" 20. The rules framed by the Central Government under Section 239 having prescribed the documents, record and evidence of default as noticed above, we hold that in absence of regulation framed by the Board relating to record of default recorded with the information utility or other record of evidence of default specified, "the documents", record' and 'evidence of default' prescribed at Part V of Form-1, of the Adjudicatory Rules 2016 will hold good to decide the default of debt for the purpose of Section 7 of the 'I & B Code'. 21. We further hold that the 'Regulations framed by the Board' being subject to the provisions of I & B Code' and rules framed by the Central Government under Section 239, Part V of Form - T of Adjudicating Authority Rules, 2016 framed by Central Government relating to 'documents', 'record' and 'evidence of default', will override the regulations, if framed by the Board and if inconsistent with the Rule. However, it is always open to Board to prescribe additional records in su....
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....n plan. It is also noteworthy that before amending the Regulation 30A of CIRP Regulations, IBBI published a discussion paper thereon along with draft regulation dated 08.05.2019. IBBI, in this discussion paper, took note of various rulings which, inter alia, covered the aspect that Regulation 30A could not override the substantive provisions of Section 12A of IBC, 2016, CIRP could be withdrawn even after issue of EOI in exceptional cases as Regulation 30A (1) was not mandatory but directory. The Note of ruling of Hon'ble Supreme Court in the case of Swiss Ribbons was also taken wherein the Hon'ble Supreme Court had held that Rule 11 of NCLT Rules, 2016 can be invoked prior to constitution of COC. Accordingly, the amendment was proposed for correcting the course of action in view of above judicial rulings. The draft proposed Regulation 30A in such note stood as under: Withdrawal of application. 30A, (1) An application for withdrawal of an application filed under section 7, 9 or 10 of the Code may be made,- (a) before the constitution of the committee, by the applicant through the interim resolution professional; or (b) after the constitution of the committee, by the app....
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....cannot decide the constitutionality of provision of law. The practice of delegated legislation is established across all jurisdictions. The scope of delegated legislation essentially depends upon the power given by the parent legislature. There could be an instance where some wide powers are given by legislature by providing policy guidelines in a specific manner and there could be a situation where the legislature may give power of delegated legislation in a restricted manner. To put it differently, in some cases, the executive may even be empowered to frame Rules which may cover a situation not provided in the substantive legislation. This would be of course subject to scrutiny/approval of parliament/legislature at some stage. To further explain this position of law, we need to consider two different statutes and power given to Central Government to make Rules there-under. Incidentally, both these statutes are inter-connected and relevant for our purposes. One is the Companies Act, 2013 and other is Insolvency and Bankruptcy Code, 2016 itself. For this purpose, we reproduce Section 239, Section 240(1), Section 240(2) and Section 241 of IBC, 2016 as under: 239. Power to make rul....
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.... the parliament may approve or modify or annul the same, however, that will not affect the validity of anything previously done under that Rule or Regulation. Power under Section 239 or Section 240 of IBC, 2016 is an instance of a limited delegated legislative power given both to Central Government and IBBI as both Central Government and IBBI can make Rules/Regulations only to execute provisions of the Code and cannot provide independent solution where no provision exists or expand the scope of any specific provision. Even Section 241 of IBC, 2016 provides only for legislative concurrence on the Rules/Regulations made under Section 239 and Section 240 of IBC, 2016. The Parliament has reserved the power with itself to modify or annul any Rules/Regulations and, in our view, such power unless the provisions of Section 239 or Section 240 of IBC, 2016 are amended, cannot give any power to either to Central Government or IBBI to act beyond the scope of delegation of powers under Section 239 and Section 240 of IBC, 2016. If it is to be interpreted in a manner otherwise, then, in that event provisions of Section 239 or Section 240 of IBC, 2016 would become redundant to this extent and whic....
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....on 642 of Companies Act, 1956 which read as under: 642. POWER OF CENTRAL GOVERNMENT TO MAKE RULES (1) In addition to the powers conferred by section 641, the Central Government may, by notification in the Official Gazette, make rules - (a) for all or any of the matters which by this Act are to be, or may be, prescribed by the Central Government; and (b) generally to carry out the purposes of this Act (2) Any rule made under sub-section (1) may provide that a contravention thereof shall be punishable with fine which may extend to 1 [five thousand] rupees and where the contravention is a continuing one, with a further fine which may extend to 2 [five hundred] rupees for every day after the first during which such contravention continues. (3) Every rule made by the Central Government under sub-section (1) shall be laid as soon as may be after it is made before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification i....
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....any rules and regulations is made, the same is to be laid before parliament before specified time and such provision is given in Section 469(4) of the Companies Act, 2013. In 1956 Act, Clause-b of Section 642(1) used the words "generally to carry out purposes to this Act" whereas in Section 469(1), the words are more specific as the words "for carry out the provision of this Act" have been used. One may say that the scope of rule making power has been somewhat curtailed as rules should be consistent with the provisions of the Act. There may not be any quarrel with this view. However, fact remains that substantive rule making power has been given to the Central Government by virtue of second part of Section 469(2) as from the plain reading of such second part, it is apparent that rules can be made not only in respect of all the matters for which rules are or may be stated to be prescribed but also for making enabling provisions, distinct from mandatory substantive provision. Thus, ambit and reach of delegated legislation has been significantly expanded. The reason for such expanded rule making power could be found from the relevant comments of 57th report of the Standing Committee o....
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....olvency Resolution Process for Corporate Persons) Regulations, 2016 as well. Now, we have to look into the scheme, structure and object of provision of IBC, 2016 to find out whether inherent jurisdiction under Rule 11 of NCLT Rules, 2016 can be invoked in the facts of the case. It is also relevant to mention that neither under Section 12A of IBC, 2016, Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 there is no specific bar for application against invocation of Rule 11 of NCLT Rules, 2016 nor any other provisions exists under IBC, 2016 which covers a situation that prior to constitution of Committee of Creditors, if there happens a settlement and application for withdrawal of CIRP is filed, what can be done. Thus, considering all legal aspects, exercise of jurisdiction under Rule 11 of NCLT Rules, 2016 to the fact situation cannot be doubted in any manner. 18. Having obtained the jurisdiction under Rule 11 of NCLT Rules, 2016, now, we have to see that what aspects we need to consider while exercising such jurisdiction. One of the aspects is that we cannot grant a relief by exercising inherent jurisdiction which is against the object a....
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....y other provision of IBC, 2016 has been brought to our notice. Thus, the conduct of the Corporate Debtors or its management during such period cannot be doubted. Having said so, M/s. KKR India Financial Services in its application have referred to some allegations of siphoning off funds on the basis of order of Hon'ble Delhi High Court. The applicant has clarified that subject order of Hon'ble Delhi High Court is pending for consideration before Hon'ble Supreme Court, hence, the same also cannot be a constraint to dispose of this application on merits. It is further claimed that matter before Hon'ble High Court, Intervenor was not a party. Hence, applicant clears first hurdle. 19. The other aspect which has been highlighted on behalf of the Intervenors is that once the Corporate Debtor is admitted into CIRP, proceedings become in rem. There is no doubt about it. Even the Hon'ble Supreme Court in the case of Swiss Ribbons has also held so. It has also been held by Hon'ble Supreme Court in that case that Adjudicating Authority while considering an application for setting aside the order of CIRP under Rule 11 of NCLT Rules, 2016 must take into consideration al....
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.... M/s. DSP Investment Managers Pvt. Ltd has not filed any application under Section 7 of IBC, 2016 and there appears to be no legal limitation attached to filing of such application, hence, their interests cannot be prejudiced in any manner, if this application is allowed. In case of M/s. KKR India Financial Services Ltd, application filed under Section 7 of IBC, 2016 is already pending for disposal and their rights can be enforced in that application as per law, hence, withdrawal of CIRP of this application would also not affect their rights in any adverse manner. Thus, considering the above facts, legal position and following the decision of Hon'ble Supreme Court in the case of Swiss Ribbons, due opportunity of hearing has been given to the Intervenors, though, it has been vehemently argued that Intervenors have got no locus to be heard. Following the ratio of these decisions of Hon'ble NCLAT, we hold that if this application is allowed, no prejudice of whatsoever nature would be caused to the interests of both Intervenors. In fact, M/s. KKR India Financial Services has sought adjournment on hearing of this application on the ground that there was possibility of settlement....