Paragraph numbers below are the court’s original numbering, recovered from the source text.
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 filing an appeal before the NCLAT. The IRP has also raised the issue regarding non-clearance of his funds with respect to the expenditure incurred by him. In support of the submissions, reliance is placed upon the following judgments: (1) P. Mohanrajv. Shah Bros. ISPAT (P) Ltd.13 (2) Swiss Ribbons Private Limited &Anr. v. Union of India &Ors. (supra) (3) Dena Bank (Now Bank of Baroda) v. Shivakumar Reddy &Anr.14 (4) MSTC Limited v. AdhunikMetalliks Ltd. and others15; (5) Indian Overseas Bank v. Mr. Dinkar T. Venkatsubramaniam, Resolution Professional for Amtek Auto Limited16; (6) Manoj K. Daga v. ISGEC Heavy Engineering Limited and others17; (7) Narayanamma and anr. v. Govindappa and Ors.18 (8) Ram Saran Das v. CTO Calcutta &Anr.19 (9) Titaghur Paper Mills Co. Ltd. v. State of Orissa20 13 (2021) 6 SCC 258 14 (2021) 10 SCC 330 15 (2019) SCC Online NCLAT 146 16 (2017) SCC Online NCLAT 584 17 (2020) SCC Online NCLAT 869 18 (2019) 19 SCC 42 19 AIR 1962 SC 1362 20 (1983) 2 SCC 433
23. The facts as stated above are not disputed. The application had been filed prior to the constitution of the CoC. The settlement had been arrived at within two days of the admission order. The payment as per the settlement had been made within the next five days i.e. in a weeks’ time from the date of admission. The application for withdrawal was filed on the 10th day. The NCLT ought to have immediately taken the decision on the application. Once the parties had settled the dispute even before the CoC had been constituted, the application ought to have been allowed then and there rather than await the other creditors to jump into the fray and allow the IRP to proceed further.
24. On behalf of the appellant number of orders of this Court have been relied upon wherein the power under Article 142 of the Constitution was exercised to approve the settlement and permit withdrawal of cases wherein CIRP had been initiated. We could have also done the same which would have been an easy way out but considering the order passed by the NCLT rejecting the application for withdrawal and further the IRP and three other OCs having filed intervention applications, we are embarking upon to decide the issues raised and as to what should be the course adopted by NCLT in dealing with withdrawal matters before the constitution of CoC. We take up the issues 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 ABHISHEK SINGH v. HUHTAMAKI PPL LTD. & ANR. [VIKRAM NATH, J.] payment of the settlement amount from the funds of the CD transferred to the account of the suspended Director after 01.03.2021 oughtto be rejected and no discretion should be exercised permitting withdrawal of the proceedings. In this respect, it would suffice to state that even the NCLT was not satisfied with the said submission of the IRP and has not approved the same. Secondly, even if there was any transaction from the account of the CD, the same may at best be held to be a wrongful transaction and in any other proceedings where CIRP is initiated the amount so transferred could be recovered under section 66 of IBC by the IRP or the RP subject to establishing that the said transactions would be hit by the said provision. Multiple claims of OCs
27. With respect to the said objection, it only needs to be mentioned that other creditors would have their own right to avail such legal remedies as may be available to them under law with respect to their claims. The rights of the creditors for their respective claims do not get whittled down or adversely affected if the settlement with the OC in the present case is accepted and the proceedings allowed to be withdrawn. Claims for expenses for IRP
28. Any amount spent by the IRP legally admissible to him could always be recovered in the same proceedings and the NCLT or the Adjudicating Authority would be well within its power to get the same cleared under Clause 7 of Regulation 30A of IBBI Regulations. Judgments relied upon:
29. In the facts and circumstances of the present case and for the discussion made above none of the judgments relied upon by the intervenors are of any help to the intervenors. Briefly the same are discussed hereinafter.
30. The interveners have relied upon P.Mohanraj (supra), Swiss Ribbons (supra), Dena Bank (supra), MSTC Limited (supra), Indian Overseas Bank (supra) and Manok K. Daga (supra), for the proposition that settlement would be in violation of moratorium as payments have been made after transferring money from the CD account after initiation of CIRP. As already recorded above, we have held that firstly, the NCLT itself was not satisfied that moratorium had been violated and even if it had been violated, at best it would amount to a wrongful trading/transaction and the same, if established, could always be recovered by the IRP or the RP in appropriate proceedings for CIRP by other OCs under section 66 of IBC. However, the present settlement could not be stalled. Thus, these cases are of no help to the intervenors.
31. The case of Narayanamma and 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 case of Swiss Ribbons (supra). Section 12A of IBC permitted withdrawal of applications admitted under sections 7, 9 or 10 of IBC.But the said provision envisaged a situation where the withdrawal application would be filed after the CoC has been constituted, as it requires approval of 90 per cent voting shares of CoC. There was no provision which would deal with withdrawal of proceedings before constitution of CoC. Even Regulation 30A, as it existed earlier, did not contemplate of consideration of an application for withdrawal filed before constitution of CoC. This issue was flagged by this Court in the case of Swiss Ribbons (supra) in paragraph 82 thereof which is reproduced hereunder: “82. It is clear that once the Code gets triggered by admission of a creditor’s petition under Sections 7 to 9, the proceeding that is before the adjudicating authority, being a collective proceeding, is a proceeding in rem. Being a proceeding in rem, it is necessary ABHISHEK SINGH v. HUHTAMAKI PPL LTD. & ANR. [VIKRAM NATH, J.] that the body which is to oversee the resolution process must be consulted before any individual corporate debtor is allowed to settle its claim. A question arises as to what is to happen before a Committee of Creditors is constituted (as per the timelines that are specified, a Committee of Creditors can be appointed at any time within 30 days from the date of appointment of the interim resolution professional). We make it clear that at any stage where the Committee of Creditors is not yet constituted, a party can approach NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule 11 of NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the parties concerned and considering all relevant factors on the facts of each case.” This Court had required the NCLT to invoke its powers under Rule 11 of the NCLT Rules.
34. It was after the observations made by this Court in the case of Swiss Ribbons (supra), as noted above and also considering the aspect that large number of orders were being passed by this Court invoking Article 142 of the Constitution that IBBI Regulations which were framed by the Insolvency and Bankruptcy Board of India21 exercising powers conferred under sections 5, 7, 9, 14, 15, 17, 18, 21, 24, 25, 29, 30, 196, 208 read with section 240 substituted section 30A vide notification dated 25.07.2019. The Board was conferred with powers to frame regulations for various purposes referred to insection 240 of IBC and the other allied sections. These regulations maybe 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 21 In short “IBBI” 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 withdrawal cannot be said to be kept pending for constitution of CoC, even where such application was filed before constitution of CoC. The IBBI which had the power to frame Regulations wherever required and in particular section 240 of IBC for the subjects covered therein had accordingly substituted Regulation 30A dealing with the procedure for disposal of application for withdrawal filed under section 12A of IBC. The substituted Regulation 30A of IBC as it stands today clearly provided for withdrawal applications being entertained before constitution of CoC. It does not in any way conflicts or is in violation of section 12A of IBC. There is no inconsistency in the two provisions. It only furthers the cause introduced vide section 12A of IBC. Thus, NCLT fell in error in taking a contrary view.
36. In Kamal K. Singh (supra), relying upon paragraph 82 of the report in the case of Swiss Ribbons (supra), the Supreme Court, which was dealing with a similar situation where the settlement had been arrived before constitution of CoC allowed the proceedings to be withdrawn and held that the applications filed under Rule 11 of the NCLT Rules would be maintainable and the OCs therein was justified in moving such application.
37. In the case of Ashok G. Rajani (supra), the settlement had been arrived at between the parties on 08.08.2021, after the NCLT had admitted the application under section 7 of IBC vide order dated 03.08.2021. On appeal, the NCLAT vide order dated 18.08.2021 stayed the formation of CoC but declined to exercise its powers under Rule 11 of the NCLAT Rules. The said order was challenged before this Court. This Court in its order in paragraphs 29 and 30 gave reasons as to why the applications for withdrawal cannot be stifled before the constitution of CoC by third parties. The said paragraphs are reproduced below: “29. Considering the investments made by the Corporate Debtor and considering the number of people dependant on the Corporate Debtor for their survival and livelihood, there is no reason why the applicant for the CIRP, should not be allowed to withdraw its application once its disputes have been settled. 30. The settlement cannot be stifled before the constitution of the Committee of Creditors in anticipation of claims against the ABHISHEK SINGH v. HUHTAMAKI PPL LTD. & ANR. [VIKRAM NATH, J.] Corporate Debtor from third persons. The withdrawal of an application for CIRP by the applicant 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 counsel. NCLT has recorded its displeasure and annoyance at a couple of places referring to the conduct of the CD and its counsel before the NCLAT, and maybe for this reason, the NCLT passed the impugned order ignoring the observation in the NCLAT order dated 26.03.2021 which had specifically expressed that the Adjudicating Authority (NCLT) would pass orders on the withdrawal application without standing on technicalities. 40. Both the parties have relied upon paragraph 82 of the judgment in the case of Swiss Ribbons (supra). According to the appellant, the NCLT ought to have exercised its inherent powers under Rule 11 of the NCLT Rules whereas for the intervenors it is submitted that this Court had observed that power under Rule 11 would be exercised after hearing all concerned parties. It may be noted that at the time when the application for withdrawal of the proceedings was filed the CoC was not constituted as such there could not have been any other concerned parties except the OC, CD and IRP. It was only because of the delay caused by the NCLT in disposing of the applications under section 12A of IBC and Regulation 30A of IBBI Regulations that large number of creditors filed their claims. The inherent powers are to be invoked in order to meet the ends of justice which, in our opinion, the NCLT failed to invoke. 41. Regulation 30A of IBBI Regulations provide a complete mechanism for dealing with the applications filed under such provision. The issue raised by the IRP regarding its claim for expenses is well taken care of under the said provision. Various safeguards have been provided in Regulation 30A ofIBBI Regulations to be fulfilled by the OC which apparently have been fulfilled as there is no complaint in that regard either by the IRP nor it is apparent from the impugned order of the NCLT. Thus, the objection raised by the IRP does not merit any consideration in this appeal. 42. For all the reasons recorded above, the impugned order of the NCLT cannot be sustained. The application filed under Regulation 30A of IBBI Regulations deserves to be allowed. 43. Accordingly, the appeal is allowed and the impugned order of NCLT is set aside. Further, the Application No. 196 of 2021 also deserves to be allowed along with the application under Regulation 30A of IBBI Regulations. The Application under section 9 of IBC filed by the OCs shall stand withdrawn. It is further provided that any claim for expenses incurred may be dealt with by the NCLT in accordance with law. 44. We make it clear that any observations made in this judgment will not,in any manner,affect the claim of other creditors of whatever category and they would be free to raise their own independent claims in appropriate proceedings which would be dealt with in accordance with law. 45. Pending applications, if any, are disposed of. Nidhi Jain Appeal allowed. (Assisted by : Parth Goswami and Tamana, LCRAs) ABHISHEK SINGH v. HUHTAMAKI PPL LTD. & ANR. [VIKRAM NATH, J.]