AI Drafter 
TaxTMI 
TaxTMI 
2021 (7) TMI 663
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntam Gorawara and Mr. Zain A Khan, for R-1. Mr. Keyur J. Shah and Ms. Noopur K Dalal, for IRP (R-2). Proposed Intervenors: Mr. Pankaj Jain, for I.A. 941 of 2021. Ameya Ranade, for I.A. 956 of 2021. Mr. Mohit Chaudhary and Ms. Garima Sharma, for I.A. 957 of 2021. Mr. Ramchandra Madan and Mr. Rahul Gupta, for I.A. 1082, 1083, 1084, 1085 & 1086 of 2021. Mr. Krishnendu Datta, Sr. Advocate alongwith Mr. Samer Parekh, Mr. Sumit Goel, Ms. Sonal Gupta and Ms. Malvika Bhenot, for I.A. 1094 of 2021. Mr. Salvador Santosh Rebello, for I.A. 1116 of 2021. Mr. Debesh Panda, for Diary No. 27487 & 27488. Ms. Mithali Gupta, Mr. Raghav Sharma, Ms. Anukriti Dua, Mr. Mukesh Suhkhija, Mr. P.S. Ghai, Mr. Paras Mithal and Mr. Carlos De Sousa. JUDGEMENT [Per; Shreesha Merla, Member (T)] 1. The Appellant erstwhile Director of 'OYO Hotels and Homes Private Limited' (the 'Corporate Debtor') has preferred the instant Appeal against the Order of Admission of Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (in short, the 'Code') filed by Mr. Rakesh Yadav/the 'Operational Creditor'. The Order of Admission passed on 30.03.2021 by the Adjudicating Authority (National Company Law Tri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d the factual position that the 'Corporate Debtor' and MTH are two separate and distinct legal entities. The dues under the present MSA if payable to the 'Operational Creditor' can only be claimed against MTH and not against R-2 and therefore the Learned Adjudicating Authority ought not to have admitted the Petition under Section 9 ignoring the factum that the Application was filed against incorrect legal entity and also the existence of 'Pre-Existing Dispute'. 2. This Tribunal on 08.04.2021 based on the submission of the Learned Counsel that the 'Operational Creditor' has wrongly proceeded against the 'Corporate Debtor' instead of the sister concern and that the sister concern has already paid all the amounts claimed by the 'Operational Creditor' and that the Committee of Creditors has not yet been constituted, issued notice and suspended the Constitution of the Committee of Creditors. The Counsel for the Appellant further submitted that all efforts would be made to settle with the 'Operational Creditor' under Section 12-A of the Code. 3. Subsequently, the Appellant filed IA No. 815 of 2021 under Rule 11 read with Rule 31 of the National Company Law Appellate Tribun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2021 Dost Hospitality Services Pvt. Ltd. Diary No. 27488 dtd. 23.06.2021 Karmyogi Properties Pvt. Ltd. 6. The Intervention Application IA 957 of 2021 is preferred by M/s. Regalia Retreat on the following grounds:- The Applicant is a partnership concern carrying on the business of Hotels, Restaurants, Guest Houses in 2006 in the name and style of Hotel Regalia Retreat. While so, the agents of an entity named M/s. Oravel Stays Pvt. Ltd., merged into the Corporate Debtor Company with effect from 01.11.2019, approached the Applicant with a proposal to run Hotel Regalia Retreat under the label of 'OYO Homes'. The Applicant entered into a contract with the 'Corporate Debtor' on 15.02.2018, as per the terms of which, the 'Corporate Debtor' agreed to provide assured benchmark revenue of Rs.12,00,000/- per month and charge a fee of 2.5% and commission of 12.5% on the total revenue generated in a month. The parties entered into a new contract dated 11.12.2018 whereby, the assured benchmark revenue was reduced to Rs.10,00,000/- per month, but 'Corporate Debtor' failed to honor its part of obligation since 11.12.2018 despite modifying the terms of the con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lant would settle under Section 12-A and hence sought for dismissal of the Application and the Appeal. 8. Mr. Madhu Choudhary, proprietor of Sher Singh Palace preferred IA No. 941 of 2021 seeking intervention on the ground that the Applicant has rendered Lease Rent Services of Sher Singh Palace to the 'Corporate Debtor' and entered into a Lease Agreement on 05.09.2019; that despite service of Demand Notice dated 01.01.2021, the 'Corporate Debtor' failed to pay the debt amount of Rs. 1,53,85,851/- and hence pursuant to the paper publication dated 03.04.2021, a claim was preferred before the IRP. Submissions on behalf of the Learned Counsel appearing for the Applicant in IA No. 941 of 2021: The Learned Counsel submitted that the Applicant does not have locus standi to file the withdrawal Application and placed reliance on the ratio of 'Swiss Ribbons Pvt. Ltd. and Ors.' (Supra) to buttress his argument that CIRP are Proceedings in Rem and hence withdrawal Application under Rule 11 cannot be entertained. 9. M/s. Lovely Hotels Pvt. Ltd. preferred IA No. 1084 of 2021, seeking to intervene in the present Proceedings on the ground that the Applicant entered into a Lease a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tage based on the ratio laid down by the Hon'ble Supreme Court in 'Mother Pride Dairy India Pvt. Ltd.' Vs. 'Portrait Advertising and Marketing Pvt. Ltd.' and 'Swiss Ribbons Pvt. Ltd. and Ors.' Vs. 'Union of India and Ors.'. 12. Federation of Hotel and Restaurant Association of India preferred IA No. 1094/2021 seeking intervention, on behalf of its hotelier Members: Learned Senior Counsel for the Applicants in IA No. 1094 of 2021, vehemently opposed this withdrawal Application as not maintainable on the following grounds:- Despite the insertion of Section 12-A of the Code, there was no provision which dealt with the situation where withdrawal, Application was sought for 'after Admission but before Constitution of CoC'. Such a situation was dealt with by the Hon'ble Supreme Court in 'Swiss Ribbons Pvt. Ltd. and Ors.' (Supra). Subsequent to the above Judgment, Regulation 30-A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 was substituted with effect from 25.07.2019, which provides for Application for withdrawal of Proceedings under Section 9 after its Admission but before the Constitution of the CoC p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rational Creditors' as their authorized representative S. Operational Creditor Agreement Total Claim (In Rs.) 1. M/s. HOTEL GOLDEN SWAN, Mumbai Management and Service Agreement 2,37,45,705 2. M/s. SONA HOTELS, Goa Management and Service Agreement 1,26,30,388 3. M/s. Vikas Mineral Food Pvt. Ltd., Chandigarh Management and Service Agreement 6,50,00,000 4. M/s. PB Ventures LLP, Mumbai Marketing and Operational Consulting Agreement 14,58,87,870 5. M/s. SAAG VENTURES, Bangalore Marketing and Operational Consulting Agreement 48,62,081 6. M/s. ARMA HOSPITALITY, Mumbai Management and Service Agreement 4,87,24,193 7. M/s. AIRPORT RESIDENCY, Bangalore Marketing and Operational Consulting Agreement 25,60,195 8. M/s. Samaroh Hospitality, LLP, Indore Marketing and Operational Consulting Agreement 41,08,997 9. M/s. OCEANS 7 Hotels and Resorts, Goa Management and Service Agreement 3,23,51,780 10. M/s. Aildasani Hotels & Resorts, Indore Marketing and Operational Consulting Agreement 27,37,708 11. Max Heights Infrastructure Ltd., New Delhi Lease Agreement 7....
X X X X Extracts X X X X
X X X X Extracts X X X X
....24.08.2020 for recovery of outstanding dues asserting that certain licenses of the Applicant have not been renewed. A default notice was sent to the 'Corporate Debtor' on 11.11.2020 to pay the outstanding amount due, but there was no response. The Applicant submitted their claim to the IRP in the prescribed Form B. Submissions of the Learned Counsel appearing on behalf of the proposed Intervenor/Applicant in IA No. 1116 of 2021: Learned Counsel submitted that this Tribunal in 'Mother Pride Dairy India Pvt. Ltd.' (Supra) has laid down that once an Application is admitted cannot be withdrawn since, other Creditors are entitled to raise their claims. Hon'ble Supreme Court in 'Swiss Ribbons Pvt. Ltd. and Ors.' (Supra) has observed that the Proceedings before the Adjudicating Authority is a collective Proceeding and that a party can approach NCLT directly for exercise of inherent powers under Rule 11 of NCLT Rules, 2016. NCLAT cannot permit withdrawal of an admitted Insolvency Application. The Application must necessarily be filed through IRP only before the NCLT. Allowing the IA and vacating the stay on the Constitution of Commit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould be run by the 'Corporate Debtor' with sharing of 37% of the revenue to a minimum benchmark revenue of Rs. 10,00,000/- from the 'Corporate Debtor'. The 'Corporate Debtor' deposited the benchmark revenue from October 2018 till March 2020 and thereafter defaulted. On 15.04.2021, the Applicant issued a Legal Notice, but there was no response. The Applicant approached the Hon'ble High Court of Bombay by way of Arbitration Application (L) No. 3107 of 2020. By Order dated 21.09.2020, the Hon'ble High Court of Bombay preferred all disputes under MSA to a sole Arbitrator and the matter was listed on 26.09.2020. On 30.10.2020, the sole Arbitrator recorded the consent of the Applicant and the 'Corporate Debtor' to continue operating under revenue sharing model till February, 2021. On 12.04.2021, in light of the public announcement made on 03.03.2021, this 'Operational Creditor' preferred their claim before the IRP to the tune of Rs. 5,74,09,620/-. Submissions of Learned Counsel appearing on behalf of the proposed Intervenor/Applicant in IA No. 1083 of 2021: It is submitted that a withdrawal of CIRP Process can be carried out any stage bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the settlement arrived at between the parties and the fact that CoC has not yet been constituted; that Law of Land under Article 141 of the Constitution can only be replaced by a validating law and hence Rule 11 remains and Regulation 30-A cannot run counter to Rule 11 when the CoC has not yet been constituted and that whenever there is a conflict, substantive parent law is to be followed. Learned Sr. Counsel submitted that the scope of the Code Code is meant for 'revival' and not for 'recovery of dues', if any. 20. As regarding the Intervention Application No. 1094 of 2021 preferred by Federation of Hotel and Restaurant Association of India, Learned Senior Counsel contended that FHRAI is filing the present Application on behalf of its Members, the details of which has not been given; that the Application is devoid of material and has been filed on behalf of unknown number of Members with unknown amount of claims and no details of Members who are yet to prove their case and hence the Intervention Application is devoid of merit and ought to be dismissed at the threshold. 21. He further contended that the proposed Intervention Applications are contrary to the settled principles....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of revenue from the existing Hotel partners, disbursement of payments of nearly 5,000 dependent Hotel owners together with disbursal of payments to vendors and employees. He further submitted that approximately 65 properties run by the 'Corporate Debtor' have been accommodating patients for quarantining and isolating in this pandemic. 23. The brief points which fall for consideration are:- a. Whether NCLAT can exercise powers under Rule 11 & entertain Applications seeking withdrawal, prior to Constitution of CoC. b. Whether procedure under Regulation 30-A(1)(a) is applicable to this Application. c. Whether the Intervention Applications filed by the proposed Intervenors, during the pendency of the Appeal, be allowed having regard to the settlement arrived at between the Appellant and the 'Operational Creditor'/Respondent herein, prior to the Constitution of CoC. Assessment: 24. For better understanding of the case, paras 79 to 82 of 'Swiss Ribbons Pvt. Ltd. and Ors.' (Supra) are being reproduced as hereunder:- 'Section 12-A is not violative of Article 14 79. Section 12-A was inserted by the Insolvency and Bankruptcy (Second Ame....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... applicant creditor and the debtor. On the 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 ninety per cent. It was specifically discussed that Rule 11 of the National Company Law Tribunal Rules, 2016 may not be adopted for this aspect of CIRP at this stage [as observed by the Hon'ble Supreme Court in Uttara Foods and Feeds (P) Ltd. v. Mona Pharmachem4] and even otherwise, as the issue can be specifically addressed by amending Rule 8of the CIRP Rules." (emphasis in original) Before this section was inserted, this Court, under Article 142, was passing orders allowing withdrawal of applications after creditors' applications had been admitted by NCLT or NCLAT. 81. Regulation 30-A of the CIRP Regulations states as under: "30-A. Withdrawal of application.- (1) An application for withdrawal under Section 12-A 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 interes....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Creditors has to allow withdrawal. This high threshold has been explained in the ILC Report as all financial creditors have to put their heads together to allow such withdrawal as, ordinarily, an omnibus settlement involving all creditors ought, ideally, to be entered into. This explains why ninety per cent, which is substantially all the financial creditors, have to grant their approval to an individual withdrawal or settlement. In any case, the figure of ninety per cent, in absence of anything further to show that it is arbitrary, must pertain to the domain of legislative policy, which has been explained by the Report (supra). Also, it is clear, that under Section 60 of the Code, the Committee of Creditors do not have the last word on the subject. If the Committee of Creditors arbitrarily rejects a just settlement and/or withdrawal claim, NCLT, and thereafter NCLAT can always set aside such decision under Section 60 of the Code. For all these reasons, we are of the view that Section 12-A also passes Constitutional muster.' (Emphasis Supplied) 25. The Learned Counsels for the Intervention Applicants strenuously contended that as per para 82 of the aforenoted Judgement....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of 'ADP Interiors and Contractors' (Operational Creditor) appears in person and submits that the parties have settled and he has received the settled amount. Mr. Sandeep Chandna, Resolution Professional submits that he has performed duties for about 20 days and pursuant to publication of notice he has collating the claims. He had quoted the fees of Rupees Ten Lakhs for 30 days and incurred Rs. 4.5 lakhs for publication of notice etc. 4. Mr. A.M. Ranjan Kumar, Advocate wanted to intervene on behalf of the Eight Financial Creditors to oppose the prayer. He submitted that the Eight Financial Creditors have already submitted their claim before the 'Resolution Professional'. However, parties having settled the matter prior to Constitution of 'Committee of Creditors', we are not inclined to entertain any application for creditors. 5. Further in view of the decision of the 'Swiss Ribbons Pvt. Ltd. & Anr', and in exercise our inherent powers under Rule 11 of the NCLAT Rules, 2016, allow the prayer made by Mr. Dharmender Sharma for withdrawal of the application in view of the settlement already reached. We accordingly set aside the impugned order dated 10th January, 2019 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stances and in exercise of inherent powers conferred upon this Appellate Tribunal under Rule 11 of the NCLAT Rules 2016, we accept the Terms of Settlement and set aside the impugned order dated 3rd September, 2019 and release the 'Corporate Debtor' from rigour of 'Corporate Insolvency Resolution Process'. The 'Interim Resolution Professional' will handover the assets and records to the 'Corporate Debtor'/'Promoter'. 33. In another occasion, a three Member Bench of this Tribunal in 'Gajendra Sharma' Vs. 'M/s. Dinesh Sanitary Store and Anr.' Company Appeal (AT) (Insolvency) No. 119 of 2020 decided on 03.02.2020 has held as follows:- '5. Although the CoC got constituted on 21.01.2020, when the matter had come up before this Tribunal on 23.01.2010, the fact of prior settlement was brought to the notice of this Tribunal. It appears that Financial Creditor Prema Gupta has filed Intervention Application and filed claim with the IRP. We are disposing the present Appeal on the basis of the compromise referred. It will be open to the Financial Creditor Prema Gupta to initiate proceedings of her own. 6. In view of the settlement reached before formation of CoC between the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me Court has observed that the discretion to allow or disallow lies with the Tribunal. The ratio of 'Jai Kishan Gupta' (Supra) is also not applicable to the facts of the attendant case as CoC was already constituted prior to the second Order of Adjudicating Authority having been passed, and this Tribunal took note of the developments, the conduct of the 'Corporate Debtor', recorded by the IRP in the Minutes of the first CoC Meeting and dismissed the Appeal preferred by the Director of this 'Corporate Debtor'. The Intervenor Applicants in IA Nos. 1084, 1085, 1116 of 2021 have relied on the decision of this Tribunal in 'Mother Pride Dairy India Pvt. Ltd.' (Supra) which is not relevant today as the said decision is dated 28.07.2017 and precedes the inclusion of Section 12-A under the Code and the decision of the Hon'ble Supreme Court in 'Swiss Ribbons Pvt. Ltd. and Ors.' (Supra) dated 25.01.2019 and also precedes the insertion of Regulation 30-A in the Regulations dated 25.07.2019. The Counsel for the Intervenor Applicants have also relied on the Judgement of this Tribunal in 'Mr. K.C. Sanjeev' Vs. 'Mr. Easwara Pillai Kesavan Nair & Ors.' in Company Appeal (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(ab), (c) and (d) of regulation 31, till the date of filing of the application under clause (b) of subregulation (1). (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 subregulation (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 Authority may, by order, approve the application submitted under subregulation (3) or (5). (7) Where the application is approved under subregulation (6), the applicant shall deposit an amount, towards the actual expenses incurred for the purposes referred to in clause (a) or clause (b) of sub-reg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pplicant with the approval of 90% voting share of the Committee of Creditors, in such manner as may be specified', meaning thereby that Section 12-A refers to a situation Post Constitution of CoC, whereas Regulation 30-A(1)(a) deals with procedure to be followed Pre- Constitution of CoC. It is stated by the Learned Sr. Counsel that the language of the Section, whereunder IBBI has been empowered to frame Regulations is clear that the said Regulation should be consistent with the I&B Code. We refrain from making any such observations. The Apex Court clarified in 'Brilliant Alloys Pvt. Ltd.' Vs. 'Mr. S. Rajagopal & Ors.', SLP (Civil) No. 31557/2018 dated 14.12.2018 that Regulation 30-A is not mandatory but is directory for the simple reason that on the facts of a given case, an Application for withdrawal may be allowed in exceptional cases even after issuing the invitation for expression of interest under Regulation 36-A. 41. Rule 11 of NCLAT Rules, 2016 provides that 'Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Appellate Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gs and a sole Arbitrator has been appointed by the Hon'ble High Court of Delhi in OMP(I)212/2021. 45. It is not the case of the Intervenors that Demand Notice under Section 8 is pending. It is only their case that money is due. We are of the considered view that before Constitution of Committee of Creditors mere filing of a 'Claim' does not constitute default per se. It is only on the basis of the 'Claims' that the CoC is constituted. In a catena of Judgements the Hon'ble Supreme Court has reiterated that the prime objective of the Court is not recovery, but revival. This Tribunal in numerous Judgements cited in the aforenoted paras, has observed that after 'Admission', this Tribunal, on a case to case basis can exercise its inherent power under Rule 11 if parties are interested to settle the matter prior to Constitution of CoC. To reiterate, we are of the view that in the interest of Justice, the inherent powers under Rule 11 can be exercised by both NCLT and NCLAT which may allow or disallow the Application of Withdrawal keeping in view the interest of the concerned parties and the facts of each case. 46. The communication filed by the operational Creditors evidences that a....