AI Drafter 
TaxTMI 
TaxTMI 
2023 (3) TMI 1285
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....1) used to supply packaging material to the CD. 4. The OCs filed a petition under section 9 of IBC before the NCLT, stating a total outstanding amount of Rs.1,31,00,825/- against the CD. This was registered as CP (IB) No. 503 of 2019. 5. The NCLT by order dated 01.03.2021 passed an order admitting the petition and initiating CIRP. Two days thereafter i.e. 03.03.2021, the OCs and the CD entered into a settlement wherein the CD was required to pay an amount of Rs.95.72 lakhs. The above settlement was arrived at even before the Committee of Creditors In short "CoC" could be constituted. 6. On 4th March, 2021, the OCs received Rs.50 Lakhs and again on 8th March, 2021, it received the balance amount of Rs.45.72 lakhs. Thus, the total amount to be paid as per the settlement, was paid to the OCs. The Interim Resolution Professional In short "IRP" on 10th March, 2021 moved an application under Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2018 In short "IBBI Regulations" seeking withdrawal of CIRP against the CD. Along with it the application of OCs dated 09.03.2021 was also attached which was move....
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....s not been constituted. 5. The learned counsel for the Appellant submits that he is making request for withdrawal of the Appeal under instructions from the Appellant. 6. Considering the objects of IBC, we have no reason to doubt that the Adjudicating Authority without standing on technicalities would pass appropriate Orders, if settlement has taken place between the Original Operational Creditor and Corporate Debtor and CoC is not yet constituted. 7(A) For reasons stated above, the Appeal is permitted to be withdrawn with liberty to seek restoration of the Appeal in case at any future time the effort to settle in terms of section 12A of IBC runs into difficulty and does not happen. 7(B) Till the Adjudicating Authority decides Application under section 12 A of IBC which is stated to have already been filed, CoC may not be constituted. The Appeal is disposed with observations and directions as above." 8. NCLT by the impugned judgment and order dated 13.04.2021 rejected the settlement application and fixed the matter for disposal of the application under Regulation 30A of IBBI Regulations after hearing all creditors. 9. Subsequent to ....
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....h IRP or the RP. However, the applicant would be required to justify the withdrawal by giving reasons. It further provides the procedure for dealing with such an application. Regulation 30A of IBBI Regulations, as it stands today, is reproduced hereunder: "30A. Withdrawal of application. (1) An application for withdrawal under section 12A may be made to the Adjudicating Authority - (a) before the constitution of the committee, by the applicant through the interim resolution professional; (b) after the constitution of the committee, by the applicant through the interim resolution professional or the resolution professional, as the case may be: Provided that where the application is made under clause (b) after the issue of invitation for expression of interest under regulation 36A, the applicant shall state the reasons justifying withdrawal after issue of such invitation. (2) The application under sub-regulation (1) shall be made in Form-F A of 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 ....
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.... huge amount from the account of the company to his personal account and from there having made the payment to the OC under the settlement but the same was not conclusively proved; iv. The suspended director and their counsel made frivolous arguments before the NCLT which were contrary to record in order to obtain favourable orders; v. As many as 35 claims of creditors both operational and financial have been filed in the meantime. As such withdrawal of the proceedings would adversely affect their rights; vi. The proceedings once admitted and IRP having initiated, such proceedings are in rem and all stake holders can participate in the proceedings with their respective claims; and vii. Regulation 30A of IBBI Regulations was not binding upon it and such provision would not be of any help to the CD or its suspended Directors; 16. Heard learned counsel for the parties and perused the material on record. 17. Shri Shyam Divan, learned senior counsel appearing for the appellant referring to statutory provisions like section 12A of IBC, Regulation 30A of IBBI Regulations and also to Rule 11 of the NCLT Rules, 2016 submitted that such provisions cl....
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....senior Counsel is to the effect that the NCLT itself recorded a finding that the above objection taken by the IRP was not conclusively established. His submission is that despite the said finding the NCLT was apparently influenced by the objection taken by the IRP. 20. Lastly, it was submitted by Shri Divan, that the NCLT had no jurisdiction to declare or hold that Regulation 30A of IBBI Regulations was not binding on it; NCLT committed a grave error of law in ignoring the said provision. According to him, it was beyond the power of the NCLT to have discarded a statutory provision. 21. Based on the above points it was submitted that the appeal deserves to be allowed, the impugned order of the NCLT be set aside and the withdrawal of the proceedings be allowed. 22. On the other hand, the IRP and other interveners have strongly opposed the appeal. The submissions advanced on their behalf are the same as were raised before the NCLT which had found favour therein resulting into the passing of the impugned order. In effect they supported the findings of the NCLT. Additionally, it has been objected on their behalf that the appellant ought to have availed alternative remedy by fil....
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.... one by one. Alternative Remedy 25. Plea of alternative remedy is a self-imposed restriction by the superior Courts and is never an absolute bar unless barred by the statute. Further, in the present case, this Court had entertained the SLP in 2021 itself and had granted an order of status quo on 20.04.2021. Substantial time has passed since then. As such we are not inclined to entertain the said objection relating to availability of alternative remedy of filing the appeal before the NCLT. We may also note here that IBC provides a statutory timeframe for disposal of matters. Further, such matters being commercial in nature keeping these matters pending for long, frustrates the very object of IBC. Violation of the Moratorium 26. The intervenors have vehemently contended that after 01.03.2021, once the NCLT has admitted the petition and had issued restraint order, section 14 of IBC had come into play; the transactions made in the accounts of the CD would be unlawful and illegal as such payment of the settlement amount from the funds of the CD transferred to the account of the suspended Director after 01.03.2021 ought to be rejected and no discretion should be exercised per....
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....d another (supra) has been relied upon for the proposition that this Court would not put a seal on an illegal act of the suspended Directors of the CD as they have transferred funds out of CD's account after application was admitted. Here also, we may only add that as NCLT itself was not satisfied with such violation, no benefit can be derived by the intervenors. 32. Lastly, the intervenors have relied upon Ram Saran Das (supra) and Titaghur Paper Mills (supra) for the proposition that the appeal deserves to be dismissed as the appellant did not avail the alternative remedy. This aspect also, for the reasons recorded above, does not benefit the interveners in any way. Legality of the impugned order: 33. Now coming to the legality and the correctness of the impugned order passed by the NCLT in the present appeal. Majority of the findings recorded in the impugned orders are already covered above. An important issue remains to be considered is the finding recorded by the NCLT that Regulation 30A of IBBI Regulations was not binding upon it and could not be of any help to the CD or its suspended Directors. In this respect, we may first refer to the judgment of this Court in the....
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....25.07.2019. The Board was conferred with powers to frame regulations for various purposes referred to in section 240 of IBC and the other allied sections. These regulations may be subordinate in character but would still carry a statutory flavor and would be binding on the NCLT. The NCLT committed an error in holding that Regulation 30A would have no binding effect. This would amount to defeating the very purpose of substituting Regulation 30A in IBBI Regulations on 25.07.2019 after the judgment of Swiss Ribbons(supra) which was dated 25.01.2019. 35. Section 12A of IBC permits withdrawal of applications admitted under sections 7, 9 and 10 of IBC. It permits withdrawal of such applications with approval of 90 percent voting share of CoC in such manner as may be specified. The role of CoC and 90 percent of its voting share approving the said withdrawal would come into play only when CoC has been constituted. Section 12A did not specifically mention withdrawal of such applications where CoC had not been constituted but at the same time it does not debar entertaining applications for withdrawal even before constitution of CoC. Therefore, the application under section 12A for withdra....
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.... would not prevent any other financial creditor from taking recourse to a proceeding under IBC. The urgency to abide by the timelines for completion of the resolution process is not a reason to stifle the settlement." 38. This Court relying upon the order in the case of Kamal K. Singh (supra) issued directions in paragraph 32 to the NCLT to take up the settlement application and decide the same in the light of observations made therein. The said paragraph is reproduced hereunder: "32. The application for settlement under Section 12A of the IBC is pending before the Adjudicating Authority (NCLT). The NCLAT has stayed the constitution of the Committee of Creditors. The order impugned is only an interim order which does not call for interference. In an appeal under Section 62 of the IBC, there is no question of law which requires determination by this Court. The appeal is, accordingly, dismissed. The NCLT is directed to take up the settlement application and decide the same in the light of the observations made above." 39. One more aspect needs to be flagged here. From a perusal of the order of the NCLT it appears that it was annoyed with the conduct of CD and its couns....