Supreme Court of India
Glas Trust Company Llc vs Byju Raveendran on 23 October, 2024
Author: Dhananjaya Y Chandrachud
Bench: Dhananjaya Y Chandrachud
Reportable
2024 INSC 811
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 9986 of 2024
GLAS Trust Company LLC …Appellant
Versus
BYJU Raveendran & Ors. …Respondents
And With
Special Leave Petition (C) No. 21023 of 2024
Signature Not Verified
Digitally signed by
SANJAY KUMAR
Date: 2024.10.23
12:34:28 IST
Reason:
Page 1 of 61
JUDGMENT
Dr Dhananjaya Y Chandrachud, CJI
Table of Contents
A. Background ……………………………………………………………………………………… 5
i. Parties before this Court………………………………………………………………… 5
ii. Proceedings before the US Courts …………………………………………………. 6
iii. Insolvency proceedings against the first respondent …………………… 8
iv. Settlement between the parties and proceedings before the NCLAT .. 9
v. Impugned Judgement ………………………………………………………………….. 14
vi. Proceedings before this Court and the Delaware Court …………………. 16
B. Issues …………………………………………………………………………………………. 18
C. Submissions ……………………………………………………………………………….. 18
D. Legal Background…………………………………………………………………………… 23
i. Legal context and fundamental principles …………………………………….. 23
a. General principles underlying the IBC……………………………………………. 23
b. Nature of the proceedings after admission of the application ……………. 27
ii. Legal framework for withdrawal and settlement of claims……………… 31
a. Evolution of the legal framework …………………………………………………… 31
b. Insights from the evolution of the legal framework …………………………… 44
iii. Scope of ‘Inherent Powers’ under Rule 11 …………………………………. 49
Page 2 of 61
E. Application to the instant case ………………………………………………………… 51
i. Locus of the appellant before this Court ………………………………………. 52
ii. Approach of the NCLAT in the Impugned Judgement ……………………. 54
iii. Decisions of this Court cited in the Impugned Judgement …………. 57
F. Conclusion ………………………………………………………………………………….. 60
Page 3 of 61
1. This appeal arises from a judgment of the National Company Law Appellate
Tribunal, Chennai1 dated 2 August 2024.2 The National Company Law Tribunal,
Bengaluru,3 admitted the application instituted by the second respondent under
Section 9 of the Insolvency and Bankruptcy Code4 and initiated the corporate
insolvency resolution process5 against the third respondent. In the exercise of
its powers under Rule 11 of the National Company Law Appellate Tribunal
Rules, 20166, the NCLAT approved a settlement in relation to the dues payable
to the third respondent by the second respondent and set aside the order of the
NCLT.
2. The appellant, who claims to be a Financial Creditor, had moved an application
before the NCLAT objecting to the approval of the settlement and questioned
the source of the funds for the settlement. The objections of the appellant were
rejected by the NCLAT in the Impugned Judgement. The present appeal raises
substantial questions about the legal framework governing the withdrawal of a
CIRP; the settlement of claims after the admission of an application instituted
by a debtor; and the scope of the inherent powers vested in the NCLAT under
Rule 11 of the NCLAT Rules.
1
“NCLAT”
2
“Impugned Judgement”
3
“NCLT”
4
“IBC”
5
“CIRP”
6
“NCLAT Rules”
Page 4 of 61
PART A
A. Background
i. Parties before this Court
3. The third respondent, Think and Learn Pvt Ltd, a company engaged in the
business of providing online educational services, is the Corporate Debtor.7 The
first respondent, Byju Raveendran and his brother, Riju Raveendran are former
directors of the Corporate Debtor.
4. The second respondent, the Board of Control for Cricket in India (BCCI) is an
Operational Creditor who executed a ‘Team Sponsor Agreement’ dated 25 July
2019 with the Corporate Debtor, which relates to the sponsorship of the Indian
National Cricket Team.
5. The Corporate Debtor has a 100% owned subsidiary, Byju’s Alpha Inc. – a
company incorporated in the United States of America. Byju’s Alpha Inc. availed
a loan facility aggregating to approximately USD 1,200,000,000 under a credit
and guarantee agreement dated 24 November 2021.8 The Appellant, GLAS
Trust Company LLC, is the ‘Administrative Agent’ of all the lenders under this
agreement and the ‘Collateral Agent’ for the secured parties. Under the terms
of the Credit Agreement, the Corporate Debtor acted as a guarantor and issued
a guarantee deed dated 24 November 2021 in favour of the appellant.
7 “Corporate Debtor” 8 “Credit Agreement” Page 5 of 61 PART A ii. Proceedings before the Delaware Court
6. On account of an alleged default under the Credit Agreement, the appellant
enforced the security in respect of the loan and took a series of steps that
resulted in the removal of all pre-existing directors of Byju’s Alpha Inc., including
Riju Raveendran and the appointment of a new sole director. The appellant
contends that despite these measures, defaults persisted in payment of the
principal outstanding amount and the interest accrued under the Credit
Agreement.
7. Accordingly, the appellant, acting as the Administrative Agent of the lenders,
issued a notice of demand dated 6 December 2023 to the Corporate Debtor,
invoking the guarantee deed and demanding that the Corporate Debtor pay the
requisite amount. However, it is the case of the appellant, that the Corporate
Debtor too defaulted in its capacity as the guarantor under the Credit
Agreement.
8. It is contended that a series of wire transfers were carried out in April and July
2022 by Byju’s Alpha Inc., allegedly at the behest of the Corporate Debtor,
fraudulently transferring approximately USD 533 million to a hedge fund based
in the United States. A motion for preliminary injunctive relief to protect this
amount was moved before the United States Bankruptcy Court, District of
Delaware9.
9
“Delaware Court”
Page 6 of 61
PART A
9. On 18 March 2024, the Delaware Court issued a preliminary injunction inter alia
restraining Riju Raveendran, another wholly owned subsidiary of the Corporate
Debtor, the concerned hedge fund, and other similarly placed persons from
taking any steps to spend, transfer, exchange, convert, dissipate, liquidate, or
otherwise move or modify any rights related to the USD 533 million transferred
from Byju’s Alpha Inc to the hedge fund. The operative directions of the order
passed by the Delaware Court read as follows:
“Defendants Riju Ravindran, Inspilearn LLC
(“Inspilearn”), Camshaft Capital Fund LP, Camshaft
Capital Advisors, LLC, Camshaft Capital
Management, LLC; and any of such parties’ officers,
agents, servants, employees, and attorneys, and
any other persons who are in active concert or
participation with the foregoing, including, Byju
Raveendran and Divya Gokulnath (collectively, the
“Enjoined Parties”) are immediately enjoined,
upon entry of this Order, from taking any steps
to spend, transfer, exchange, convert, dissipate,
liquidate, or otherwise move or modify any rights
related to: (i) the funds that in the approximate
amount of $533,000, I00.00 transferred from the
Debtor to Camshaft Capital Fund, LP in April and
July 2022, (ii) the funds (or other assets)
transferred to and/or redeemed by a non-U.S.
trust on behalf of lnspilearn on or about February
1 , 2024, and (iii) the funds (or other assets) that
were purportedly subsequently transferred to a
“non-US based 100% subsidiary of BYJU’S,”
along with any associated accrued interest or
proceeds, in each case ((i), (ii), and (iii)
collectively, the “Alpha Funds”).”
(emphasis supplied)
10. On 28 May 2024, the Delaware Court passed an order finding that Riju
Raveendran was in contempt of the above preliminary injunction order dated
18 March 2024. The Delaware Court directed that “full discovery shall
immediately commence concerning Mr Ravindran’s financial situation,
Page 7 of 61
PART A
including, but not limited to, the location and amounts of his assets wherever
and however held, including (i) how much money he has, including funds in his
personal bank account(s), and (ii) what other assets he holds” and posted the
case to a later date to determine the financial penalties to be imposed on Riju
Raveendran. Eventually, on 31 July 2024, the Delaware Court imposed
financial penalties of USD 10,000 per day on Riju Raveendran, which is payable
until the contempt is ”purged by him”.
iii. Insolvency proceedings against the first respondent
11. On 23 September 2023, the second respondent moved a petition under Section
9 of the IBC, in respect of an operational debt of approximately Rs 158 crore
payable by the Corporate Debtor under the Team Sponsor Agreement.10 The
NCLT admitted the petition on 16 July 2024 and initiated CIRP. 11 A moratorium
under Section 14 of IBC was imposed and an Interim Resolution Professional,12
was appointed.
12. Separately, the appellant also filed a petition under Section 7 of the IBC against
the Corporate Debtor on 22 January 2024.13 On 16 July 2024, the NCLT
disposed of the Section 7 petition, in view of the order passed on the same day
admitting the Section 9 petition filed by the second respondent.14 The appellant
was granted liberty to file their claims before the IRP appointed pursuant to the
10
Company Petition (IB) No. 149/BB/2023 (“Section 9 Petition”)
11
“Section 9 Order”
12
“IRP”
13
Company Petition (IB) No. 55/BB/2024 (“Section 7 Petition”)
14
“Section 7 Order”
Page 8 of 61
PART A
Section 9 Order. Significantly, the NCLT also granted liberty to the appellant to
seek a revival of its Section 7 petition, “depending on the subsequent
developments at the appellate level, if any.” The NCLT directed as follows:
“3. In view of the order passed today i.e., 16.07.2024
by this Adjudicating Authority in another Company
petition bearing C.P (IB) No.149/BB/2023 which is filed
by The Board and Control for Cricket in India under
Section 9of the I & B Code 2016 r/w Rule 6 of the
Insolvency & Bankruptcy (Application to Adjudicating
Authority) Rules 2016, against the same Corporate
Debtor herein i.e., Think & Learn Private Limited and
since the Corporate Insolvency Resolution Process
(CIRP) has been initiated in respect of the Corporate
Debtor therein by appointing the IRP, the instant C.P
is disposed of by granting liberty to the Petitioner
herein to put-forth their claim before the IRP
appointed in C.P (IB) No. 149/BB/2023 in
accordance with the provisions of the IBC 2016 and
the Regulation made thereunder.
4. However, at the request of the Learned Senior
Counsel for the Petitioner, we hereby grant liberty to
the Petitioner to seek restoration/revival of the said
petition bearing C.P (IB) No.55/BB/2024 depending
on the subsequent developments in the matter at
the Appellate level; if any.”
(emphasis supplied)
13. The IRP made a public pronouncement on 17 July 2024 and the appellant filed
its claim in the prescribed format on 25 July 2024.
iv. Settlement between the parties and proceedings before the NCLAT
14. Both the appellant and the first respondent moved the NCLAT in appeal against
the respective orders of the NCLT. The first respondent challenged the
admission of the Section 9 petition by the NCLT.15 On the other hand, the
15
CA (AT) (CH) (Ins) No. 262 of 2024.
Page 9 of 61
PART A
appellant challenged the order disposing of the Section 7 petition.16 The
appellant also moved an application before the NCLAT for impleadment in the
appeal filed by the first respondent, seeking to be heard before any relief was
granted.17
15. The appeal instituted by the first respondent was placed before the NCLAT for
the first time on 30 July 2024 and adjourned on a request made by the senior
counsel for the second respondent. On the next date of the hearing, i.e. 31 July
2024, it was recorded, based on the submissions by the counsel for the first
and second respondents, that a sum of INR 50 crore had been transferred to
the second respondent as part of a settlement. The counsel for the first
respondent further submitted, before the NCLAT, that another sum of Rs 25
crore would be paid by 2 August 2024, and the balance amount of Rs 83 crore
would be paid thereafter, on or before 9 September 2024.18
16. The payment was purportedly made pursuant to a settlement offer extended by
Riju Raveendran, in his personal capacity, to the second respondent by an
email dated July 30, 2024. He proposed to clear the operational debt of Rs 158
crore in three tranches on 30 July 2024,19 2 August 2024 and 9 August 2024,
respectively. The second respondent agreed to take steps for withdrawal of the
16
CA (AT) (CH) (Ins) No. 274 of 2024.
17
I.A. No. 727 of 2024.
18
Impugned Judgement, paras 9-11.
19
The settlement offer inadvertently stated “30 June 2024”, which was clarified to be a typographical error
for 30 July 2024.
Page 10 of 61
PART A
petition upon receipt of full payment of the operational debt. Relevant excerpts
of the email are as follows:
“1. We undertake to pay INR. 50 crores upfront
today i.e. 30 June 2024, by way of RTGS from the
account of its promoter, Mr. Riju Ravindran. We shall
forward the UTR details of the same shortly.
2. We further undertake to pay INR. 25 crores on 02
August 2024 through RTGS.
3. The total dues are approximately INR. 158 crores.
4. The balance amount of INR. 83 crores to complete
the figures of INR. 158 crores shall be paid on or
before 09 August 2024.
5. We shall also hand over post-dated cheques to
the tune of INR. 83 crores drawn in favour of “Board
of Control for Cricket in India” payable on 09 August
2024.
6. In view of the aforesaid proposed settlement, the
parties shall jointly request the Hon’ble NCLAT on
31 July 2024 to suspend the order of admission of
Think & Learn Pvt. Ltd passed by the NCLT until 09
August 2024.
7. Further, once the payment of complete INR. 158
crores to BCCI is made, BCCI shall make statement
to withdraw the Company Petition and take
necessary steps towards the same.”
17. It is common ground that on 31 July 2024, when the parties sought to place the
settlement on record, although CIRP had been initiated and an IRP had been
appointed, the CoC had not been constituted. Before the NCLAT, the second
respondent stated that in view of the money being generated in India and
coming through a banking channel, it shall be accepted and was in favour of
the withdrawal of CIRP. The appellant, however, raised several objections,
including inter alia that the alleged payment made by Riju Raveendran would
constitute a preferential payment to an operational creditor. Further, the
appellant contended that the source of the funds is not clear, and the amount
being offered by Riju Raveendran to settle the debt of the second respondent
Page 11 of 61
PART A
would constitute an act of round-tripping. The appellant apprehended that the
funds of Byjus’s Alpha Inc. were being offered to settle dues in India, in
contravention of the preliminary injunction issued by the Delaware Court on 18
March 2024.
18. On 1 August 2024, an affidavit was filed along with an undertaking by Riju
Raveendran. The affidavit of Riju Raveendran could purportedly not be filed in
time as he was not in India and thus, the undertaking was filed through an
authorized representative. In the undertaking, Riju Raveendran affirmed that (i)
the money being offered for settlement between the Corporate Debtor and the
second respondent was being paid from his personal funds, including the sale
of shares held by him in the Corporate Debtor; (ii) the money was generated in
India and is not linked to the money involved in the proceedings pending in the
Delaware Court; (iii) the first respondent (Byju Raveendran) has not transferred
any money or extended any security towards raising the sums for payment of
the settlement amount. The undertaking reads as follows:
“…
3. I state and confirm that no part of the Settlement
Amount is being paid in violation of any order passed
by any court or tribunal, including orders passed by
the Delaware Bankruptcy Court.
4. I have not received any portion of the USD 533
million that are the subject matter of the proceedings
before the Delaware Bankruptcy Court and,
accordingly, no part of those funds have been, or will
be, used to pay the BCCI. In fact, the funds forming
part of the Settlement Amount are being paid out of
my personal funds, as explained in paragraph 8
below.
5. To clarify, under the terms of the Credit
Agreement dated 24 November 2021 (the “Credit
Agreement”), a group of lenders represented byPage 12 of 61
PART AGLAS Trust LLC (GLAS) disbursed an amount of
USD 1.2 billion to Byju’s Alpha, Inc. (a step-down
subsidiary of Think & Learn Pvt. Ltd. (TLPL)). Under
the Credit Agreement, monies disbursed thereunder
could not be brought into India. Therefore, none of
the monies disbursed under the Credit Agreement
(of which the USD 533 million forms a part) has ever
been brought into India. Indeed, the allegation that I
have received any sum of monies disbursed under
the Credit Agreement has never been made by
GI.AS in any proceeding whatsoever, including the
proceeding under Section 7 of the IBC filed by it
before the NCLT.
6. I specifically confirm that there has been no
violation of the Order dated 18 March 2024 passed
by the Delaware Bankruptcy Court, and I have not
taken any steps in contravention of the same. I also
confirm that I have not directly, indirectly or in any
form or manner received any sum of money from
disbursements made under the Credit Agreement. In
fact, the foreign remittance received by me since
execution of the Credit Agreement is from two
secondary sales of my shareholding in TLPL in
January and November 2022 totalling approximately
USD 109 million, as demonstrated by the SH-4
annexed hereto …
7. I further confirm that Byju Raveendran has not
transferred any money or extended any security of
his assets towards raising the sums for payment of
the Settlement Amount to the BCCI.
8. I further state and confirm that the Settlement
Amount comprises funds raised by me personally:
a. from the sale and the gains/income on such sale
of shares held personally by me in TLPL between
May 2015 and January 2022. By way of these
sales, I had accumulated approximately INR 3600
crores. The forms SH-4 evidencing these sales are
hereto annexed and marked Exhibit A. Out of the
aforementioned amount, approximately INR 1050
crores was paid as income tax. The IT returns filed
by me over the relevant period and which would
reflect these amounts are hereto annexed and
marked Exhibit B. The remaining amounts of
approximately INR 2600 crores was infused back
into TLPL due to its operational needs and to
ensure that TLPL continues to carry on businessPage 13 of 61
PART Aas a going concern, including paying salaries to its
27000 employees and sustaining the platform
which has over 150 million students worldwide
(which is a matter of record). The amounts that
remained with me were used to pay the first
tranche of the Settlement Amount (in the amount
of INR 50 crores) to BCCI on 30 June 2024; andb. from liquidation of personal assets in India,
which will be used to pay the balance amount of
the Settlement Amount.”
19. In view of these developments, on 1 August 2024, the NCLAT passed an interim
order staying the constitution of the CoC.
v. Impugned Judgement
20. Before the NCLAT, the appellant contended that (i) Section 12A of the IBC and
Regulation 30A of the CIRP Regulations 2016 deal with the settlement of claims
after CIRP is initiated, both before and after the CoC is constituted. The first
respondent should have, thus, approached the NCLT as mandated by Rule 30A
instead of invoking the inherent powers of the NCLAT under Rule 11; (ii) NCLAT
should not exercise its discretionary power under Rule 11 of the NCLAT Rules
because the directors of the Corporate Debtor and its allied entities are
fugitives, living abroad; have defaulted on government dues; Enforcement
Directorate proceedings are pending, look out notices have been issued; and
there has been a significant drop in the valuation of the Corporate Debtor; and
(iii) the interests of all creditors must be considered while accepting a
settlement, including the appellant who has a substantial interest with regard to
the Corporate Debtor.
Page 14 of 61
PART A
21. On 2 August 2024, the NCLAT delivered the Impugned Judgement. After
recording the factual background and submissions of the parties before it, the
NCLAT outlined its reasoning and analysis in paras 44 to 50 of the Impugned
Judgement. The NCLAT held the affidavit and undertaking filed by Riju
Raveendran made it clear that the money was generated by Riju Raveendran
from his own sources; income tax had been paid on the sales of shares from
which the amount was generated; and there was no violation of the Order dated
18 March 2024 passed by the Delaware Court either directly or indirectly.
Therefore, NCLAT held that in the absence of any evidence to the contrary,
there was no reason to believe that the money that was being offered by Riju
Raveendran was linked to the money disbursed to Byju’s Alpha Inc. under the
Credit Agreement or from the coffers of the Corporate Debtor.
22. Further, it was held that the law regarding the settlement of disputes between
the parties is in the process of evolution, and this Court has approved the
invocation of Rule 11 of the NCLAT Rules to allow such settlements. Reliance
was placed on the decisions of this Court in Abhishek Singh vs Huhtamaki
PPL Limited20 and Kamal K. Singh v. Dinesh Gupta21, in addition to decisions
of the NCLAT on the point. Further, it was held that the NCLT had granted the
appellant the liberty to revive its Section 7 petition, in case of any adverse
developments in the appellate proceedings in the Section 9 petition and thus,
the right of the applicant to enforce its claims was well protected.
20
2023 SCC Online SC 349
21
(2022) 8 SCC 330.
Page 15 of 61
PART A
23. Accordingly, the settlement between the parties was approved and the order of
the NCLT admitting the Section 9 petition was set aside. The NCLAT directed
that in case of a breach of the undertaking and affidavit, the Section 9 Order
would automatically be revived. The operative directions are extracted below:
“51. Thus, in view of the aforesaid facts and
circumstances, in view of the undertaking given and
affidavit filed, the settlement between the parties is
hereby approved and as a result thereof, the present
appeal succeeds and the impugned order is set
aside, however, with a caveat that in case there is a
breach in the undertaking given and the affidavit
filed, the order dated 16.07.2024 passed against the
present Appellant, shall automatically revive.”vi. Proceedings before this Court and the Delaware Court
24. On 1 August 2024, Byju’s Alpha Inc. and the appellant instituted a motion before
the Delaware Court seeking a temporary restraining order against Riju
Raveendran, inter alia restraining him from using his personal assets to satisfy
the dues of the second respondent. Before the Delaware Court, the appellant
contended that fraudulent payments were being made by Riju Raveendran to
pay the operational debt due to the second respondent and dismiss insolvency
proceedings against the Corporate Debtor, which is “his older brother’s
crumbling business enterprise in India”. On 8 August 2024, the Delaware Court
passed an order rejecting the motion.
25. The appellant instituted the present Civil Appeal before this Court, challenging
the Impugned Judgement of the NCLAT. By an Order dated 14 August 2024,
this Court issued notice on the appeal and directed that there would be a stay
Page 16 of 61
PART A
on the operation of the Impugned Judgment. The second respondent was
directed to maintain the amount of Rs 158 crores, which has been realized in
pursuance of the settlement, in a separate escrow account, to abide by further
directions of this Court.
26. In view of the above directions of this Court granting an interim stay on the
Impugned Judgement, the CIRP proceedings resumed. On 19 August 2024,
the IRP addressed a letter to the appellant noting that the CIRP had revived,
verified the claim submitted by the appellant and admitted the appellant as a
financial creditor. Accordingly, the IRP constituted the CoC, which consisted of
four financial creditors, including the appellant.
27. Subsequently, by a letter dated 1 September 2024, the IRP sought to
reconstitute the CoC and reclassify the claim of the appellant as ‘contingent’.
The IRP stated that the reclassification of the claim as ‘contingent’ was on
account of purported disqualification notices issued by the Corporate Debtor to
certain lenders of the loan, which allegedly disqualified more than sixty percent
of the lenders and therefore, the appellant no longer had the requisite
authorization. From the record and submissions before us, it appears that the
first meeting of the CoC took place on 3 September 2024.
28. On 26 September 2024, this Court reserved its judgment and directed that the
IRP maintain the status quo and not hold any meeting of the CoC until the
judgment is pronounced.
Page 17 of 61
PART B & C
B. Issues
29. In view of the above background, the following issues arise for our
consideration:
a. Whether the appellant, who is not a party to the settlement between the
second respondent and the Corporate Debtor, has locus in the proceedings
before this Court;
b. Whether the NCLAT erred in invoking its inherent powers under Rule 11 of
the NCLAT Rules 2016 in the presence of a prescribed procedure for
withdrawal of CIRP and settlement of claims between parties; and
c. Without prejudice to the above, whether the NCLAT adequately addressed
the objections raised by the appellant, while exercising its discretionary
power under Rule 11 of the NCLAT Rules 2016.
C. Submissions
30. Mr Kapil Sibal and Mr Shyam Divan, Senior Counsel appearing for the appellant
broadly advanced the following submissions:
a. NCLAT should have refrained from exercising its discretionary power under
Rule 11 of the NCLAT Rules to sanction the settlement when there is a
prescribed procedure for withdrawal and settlement under Section 12A of
the IBC read with Regulation 30A of the CIRP Regulations 2016;
b. The powers conferred on the NCLAT under Rule 11 of the NCLAT Rules
are discretionary and should not be exercised mechanically in cases where
the withdrawal of the application would prejudice other stakeholders and
Page 18 of 61
PART Cmay result in numerous other creditors filing insolvency actions against the
Corporate Debtors on account of their unpaid dues;
c. NCLAT failed to deal with the objections raised by the appellant about the
source of the funds and the conduct of the first respondent and his brother,
Mr Riju Raveendran. Facts such as – the purported fraudulent transfer of
USD 533 million to a hedge fund in the United States; the orders of the US
Court restraining the brothers from transferring or dissipating the amount;
the contempt proceedings against Mr Riju Raveendran; the ongoing
investigation by the Enforcement Directorate against the first respondent
and the Corporate Debtor; attempts by the Corporate Debtor to dissipate
assets – were not adequately dealt with in the Impugned Judgement;
d. There are clear indications that the Corporate Debtor cannot service its
outstanding debts to its financial creditors. There has been a 99% drop in
the valuation of the Corporate Debtor, defaults in paying employees’
salaries, the exit of key managerial persons, failure to file financial
statements, and oppression and mismanagement petitions by the
shareholders against the promoters, all of which indicate that insolvency
proceedings are inevitable;
e. Setting aside the CIRP merely because one of the creditors has recovered
its dues by way of a settlement agreement, runs contrary to the settled
position that the IBC cannot be used as a recovery mechanism. Upon
initiation of insolvency, third-party rights are created in all creditors of the
corporate debtor; and
Page 19 of 61
PART Cf. Riju Raveendran failed to provide the details of the source of funds by way
of an affidavit. His undertaking was accompanied by an affidavit of a third
party who claims to be a power of attorney holder of Riju Raveendran. The
declaration in the undertaking is ambiguous and the figures mentioned do
not add up so as to enable him to make payments under the settlement
agreement.
31. Dr Abhishek Manu Singhvi and Mr Neeraj Kishan Kaul, Senior Counsel for the
first respondent advanced the following submissions:
a. The inherent powers of the NCLAT, under Rule 11 of the NCLAT Rules,
include the power to pass orders permitting the withdrawal of the CIRP. In
several judgements, after Section 12A was inserted in the IBC, the NCLAT
has invoked Rule 11 to permit the withdrawal of CIRP;
b. The appellant has no locus to maintain the present proceedings before this
Court. In a case of settlement between a corporate debtor and an individual
creditor, there is no scope for hearing any third-party creditor, as such a
creditor is free to adopt other remedies for its claims;
c. Despite liberty being granted to the appellant to revive its Section 7 petition,
the appellant has failed to do so, because a revival would lead to scrutiny
of the maintainability of the Section 7 petition. As the appellant has a weak
case on maintainability, it is seeking to piggyback on the Section 9 NCLT
Order and is opposing the settlement;
d. The appellant is indulging in forum shopping. Despite specific liberty to
revive its Section 7 petition, the appellant chose to move an appeal against
Page 20 of 61
PART Cthe order of disposal and intervened in the proceedings before the NCLAT
instituted by the second respondent. In parallel, the appellant also initiated
proceedings before the Delaware Bankruptcy Court to stall the settlement;
e. The Corporate Debtor is an ed-tech services business, whose revenue is
generated from its intellectual property and subscriptions from students.
Revenues are likely to be hit with each day that the Corporate Debtor
continues into insolvency, which could lead to classes shutting down,
disruption of services, teachers resigning, and students dropping out; and
f. The Corporate Debtor is a solvent company with a running business of
27,000 employees and 150 million students. A viable company capable of
repaying its debts must not be admitted into CIRP.
32. Mr Tushar Mehta, the learned Solicitor General appearing for the second
respondent, supported the arguments of the first respondent in support of the
Impugned Judgement and also advanced the following submissions:
a. The IBC aims to prevent the economic death of entities, which involves
encouraging settlement between the parties. NCLAT passed the Impugned
Judgement after hearing all concerned parties. Thus, there was no infirmity
in invoking inherent powers under Rule 11 of the NCLAT Rules 2016;
b. Regulation 30A was a statutory response to the decision of this Court in
Swiss Ribbons (P) Ltd. v. Union of India22 and the intent is to encourage
settlement. The provision is directory as no consequence of non-
compliance is stipulated. It does not contemplate adjudication about the
22
(2019) 4 SCC 17.
Page 21 of 61
PART C
factum of settlement, the mode/method of settlement or any specific legal
ground by the NCLT;
c. Regulation 30A, even if applicable can have no application when the
settlement is made using personal funds and not the funds of the corporate
debtor; and
d. The payment to BCCI does not prejudice other creditors or stakeholders of
the Corporate Debtor as it is not made from the possible insolvency estate
that would be created if the Corporate Debtor goes through CIRP.
33. We also had an opportunity to hear the learned Senior Counsel who appeared
for the intervenors. Mr Gopal Sankarnarayan appeared for an entity that claims
to be another Operational Creditor. Another intervention application was moved
by several shareholders of the Corporate Debtor, who purportedly hold 16.75%
of its issued and the paid-up share capital. These shareholders have also
instituted proceedings under Sections 241, 242 and 244 of the Companies Act
2013 for oppression and mismanagement against the erstwhile management
of the Corporate Debtor, including the first respondent and Riju Raveendran.
The counsel for the intervenors advanced submissions broadly on the same
lines as the appellant. They assailed the acceptance of the settlement
agreement by the NCLAT and contended that insolvency proceedings against
the Corporate Debtor are inevitable.
Page 22 of 61
PART D
D. Legal Background
i. Legal context and fundamental principles
a. General principles underlying the IBC
34. Before delving into the provisions which constitute the legal framework for the
withdrawal of CIRP, it is crucial to delineate some of the underlying aims and
objectives which guide the IBC. These principles will assume relevance while
analyzing the locus of the appellant and the course of action adopted by the
NCLAT in the Impugned Judgement.
35. The Statement of Objects and Reasons for the IBC reads as follows:
“Statement of Objects and Reasons.—There is no
single law in India that deals with insolvency and
bankruptcy. Provisions relating to insolvency and
bankruptcy for companies can be found in the Sick
Industrial Companies (Special Provisions) Act, 1985,
the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993, the Securitisation and
Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 and the Companies
Act, 2013. These statutes provide for creation of
multiple fora such as Board of Industrial and
Financial Reconstruction (BIFR), Debts Recovery
Tribunal (DRT) and National Company Law Tribunal
(NCLT) and their respective Appellate Tribunals.
Liquidation of companies is handled by the High
Courts. Individual bankruptcy and insolvency is dealt
with under the Presidency Towns Insolvency Act,
1909, and the Provincial Insolvency Act, 1920 and is
dealt with by the courts. The existing framework for
insolvency and bankruptcy is inadequate, ineffective
and results in undue delays in resolution, therefore,
the proposed legislation.
2.The objective of the Insolvency and Bankruptcy
Code, 2015 is to consolidate and amend the laws
relating to reorganisation and insolvency resolution
Page 23 of 61
PART D
of corporate persons, partnership firms and
individuals in a time-bound manner for maximisation
of value of assets of such persons, to promote
entrepreneurship, availability of credit and balance
the interests of all the stakeholders including
alteration in the priority of payment of government
dues and to establish an Insolvency and Bankruptcy
Fund, and matters connected therewith or incidental
thereto. An effective legal framework for timely
resolution of insolvency and bankruptcy would
support development of credit markets and
encourage entrepreneurship. It would also improve
Ease of Doing Business, and facilitate more
investments leading to higher economic growth and
development.
[…]
5. The Code seeks to achieve the above
objectives.’”
36. The long title of the IBC provides that it is “an Act to consolidate and amend the
laws relating to reorganisation and insolvency resolution of corporate persons,
partnership firms and individuals in a time bound manner for maximisation of
value of assets of such persons, to promote entrepreneurship, availability of
credit and balance the interests of all the stakeholders including alteration in the
order of priority of payment of Government dues and to establish an Insolvency
and Bankruptcy Board of India, and for matters connected therewith or
incidental thereto.”
37. The objectives discernible from the long title and the Statement of Objects and
Reasons of the IBC were discussed in a decision of a two-judge bench of this
Court in Swiss Ribbons (P) Ltd. v. Union of India.23 This Court observed that
23
(2019) 4 SCC 17.
Page 24 of 61
PART D
the IBC is a beneficial legislation which attempts to put the Corporate Debtor
back on its feet. According to this Court, this would involve considering the
interests of all concerned stakeholders rather than viewing the IBC as a mere
recovery legislation for individual creditors. This Court, speaking through
Justice RF Nariman, observed as follows:
“28. It can thus be seen that the primary focus of the
legislation is to ensure revival and continuation of the
corporate debtor by protecting the corporate debtor
from its own management and from a corporate
death by liquidation. The Code is thus a beneficial
legislation which puts the corporate debtor back
on its feet, not being a mere recovery legislation
for creditors. The interests of the corporate
debtor have, therefore, been bifurcated and
separated from that of its promoters/those who
are in management. Thus, the resolution process is
not adversarial to the corporate debtor but, in fact,
protective of its interests. The moratorium imposed
by Section 14 is in the interest of the corporate
debtor itself, thereby preserving the assets of the
corporate debtor during the resolution process. The
timelines within which the resolution process is to
take place again protects the corporate debtor’s
assets from further dilution, and also protects all its
creditors and workers by seeing that the resolution
process goes through as fast as possible so that
another management can, through its
entrepreneurial skills, resuscitate the corporate
debtor to achieve all these ends.”
(emphasis supplied)
38. A two-judge Bench of this Court, speaking through one of us (DY Chandrachud,
J), in Arun Kumar Jagatramka v Jindal Steel & Power Ltd24 also had
occasion to observe the quantum change in corporate governance and the rule
of law brought in by the enactment of the IBC. This Court observed as follows:
24
(2021) 7 SCC 474.
Page 25 of 61
PART D
“41. … First and foremost, the IBC perceives good
corporate governance, respect for and adherence to
the rule of law as central to the resolution of
corporate insolvencies. Second, the IBC perceives
corporate insolvency not as an isolated problem
faced by individual business entities but places
it in the context of a framework which is founded
on public interest in facilitating economic growth
by balancing diverse stakeholder interests.
Third, the IBC attributes a primacy to the
business decisions taken by creditors acting as
a collective body, on the premise that the timely
resolution of corporate insolvency is necessary
to ensure the growth of credit markets and
encourage investment. Fourth, in its diverse
provisions, the IBC ensures that the interests of
corporate enterprises are not conflated with the
interests of their promoters; the economic value
of corporate structures is broader in content
than the partisan interests of their
managements. These salutary objectives of the IBC
can be achieved if the integrity of the resolution
process is placed at the forefront. Primarily, the IBC
is a legislation aimed at reorganisation and
resolution of insolvencies. Liquidation is a matter of
last resort. These objectives can be achieved only
through a purposive interpretation which requires
courts, while infusing meaning and content to its
provisions, to ensure that the problems which beset
the earlier regime do not enter through the backdoor
through disingenuous stratagems.”
(emphasis supplied)
39. From the above, the following guiding principles emerge, which we must keep
in mind while determining the issues raised in the present appeal:
a. A significant change brought about by the IBC was the consolidation of the
pre-existing fragmented insolvency framework, The aim was to eliminate
parallel proceedings by various creditors before different fora, given that all
creditors would be a part of a single insolvency process under the IBC;
b. The above consolidation also sought to implement the principle of ‘collective
distribution’, where the interests of all stakeholders were considered. The
Page 26 of 61
PART DCIRP envisaged by the IBC is premised on the principle that each creditor
of the same class should receive a share that is proportionate to the debt
owed to him;
c. IBC must not be used as a tool for coercion and debt recovery by individual
creditors. Improper use of the IBC mechanism by a creditor includes using
insolvency as a substitute for debt enforcement or attempting to obtain
preferential payments by coercing the debtor using insolvency proceedings.
That the mechanism under the IBC must not be used as a money recovery
mechanism has been reiterated in a consistent line of precedent by this
Court;25 and
d. The interests of the corporate debtor must be detached from those of its
promoters/those who are in management. A “recalcitrant management”26
must be prevented from taking advantage of undue delays and preventing
an inevitable insolvency. In other words, as noted by this Court in Arun
Kumar Jagatramka (supra), the economic value of corporate structures is
broader than the partisan interests of their management.
b. Nature of the proceedings after admission of the application
40. Chapter II of the IBC provides that CIRP can be invoked in three ways: (i) by a
financial creditor under Section 7; (ii) by an operational creditor under Section
9; and (iii) by a corporate debtor itself under Section 10.27 Section 5(11) of the
25
Swiss Ribbons, para 28;
26
Mobilox, para 36.
27
Section 6, IBC reads: “6. Persons who may initiate corporate insolvency resolution process. – Where
any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor
Page 27 of 61
PART D
IBC defines the “initiation date” as the date on which the financial creditor,
operational creditor or corporate applicant makes an application to the NCLT
for initiating insolvency proceedings, including CIRP. This is distinct from the
“insolvency commencement date” which is defined in Section 5(12) of the IBC
as the date of admission of an application for initiating CIRP by the NCLT under
Sections 7, 9 or 10, as the case may be.
41. Once the application is admitted, the CIRP commences and the NCLT inter alia
declares a moratorium; issues a public pronouncement of the initiation of CIRP
and a call for submission of claims; and appoints an IRP.28 Once an IRP is
appointed, the affairs of the corporate debtor are managed by the IRP,29 who
inter alia receives and collates all the claims submitted by the creditors pursuant
to the public announcement of the CIRP.30 After the collation of claims received
itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner
as provided under this Chapter.”
28
Sections 13, 14, 15, 16, IBC.
29
Section 17, IBC reads “17. Management of affairs of corporate debtor by interim resolution
professional. – (1) From the date of appointment of the interim resolution professional, –
(a) the management of the affairs of the corporate debtor shall vest in the interim resolution professional;
(b) the powers of the board of directors or the partners of the corporate debtor, as the case may be, shall
stand suspended and be exercised by the interim resolution professional;
(c) the officers and managers of the corporate debtor shall report to the interim resolution professional and
provide access to such documents and records of the corporate debtor as may be required by the interim
resolution professional;
(d) the financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the
interim resolution professional in relation to such accounts and furnish all information relating to the corporate
debtor available with them to the interim resolution professional.
(2) The interim resolution professional vested with the management of the corporate debtor, shall-
(a) act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other
documents, if any;
(b)take such actions, in the manner and subject to such restrictions, as may be specified by the Board;
(c)have the authority to access the electronic records of corporate debtor from information utility having
financial information of the corporate debtor;
(d)have the authority to access the books of account, records and other relevant documents of corporate
debtor available with government authorities, statutory auditors, accountants and such other persons as may
be specified; and
(e) be responsible for complying with the requirements under any law for the time being in force on behalf of
the corporate debtor.”
30
Section 18(b), IBC.
Page 28 of 61
PART D
and the determination of the financial position of the corporate debtor, the IRP
shall constitute a CoC, which consists of all the financial creditors of the
corporate debtor.31 The CoC appoints a Resolution Professional32 and the CIRP
process continues, as prescribed.
42. From this scheme of Chapter II of the IBC, it appears that the admission of an
application is a significant event that alters the nature of the proceedings, and
the stakeholders involved. Initially, when the petition is filed by the financial
creditor, operational creditor or corporate applicant, as the case may be, the
proceedings are in personam and the only relevant stakeholders are the
applicant creditor and the corporate debtor. However, once the petition is
admitted and CIRP is initiated, several significant changes take place, including
the transfer of the management of the affairs of the corporate debtor to the IRP,
the declaration of the moratorium, and the collation of the claims against the
corporate debtor. Therefore, the proceedings now change character – they
become in rem and are no longer the preserve of only the applicant creditor and
the corporate debtor and even creditors who were not the original applicants,
become necessary stakeholders.
43. A three-judge Bench of this Court in Indus Biotech (P) Ltd. v. Kotak India
Venture (Offshore) Fund33 adjudicated on the question of the stage at which
the proceedings under the IBC attain the status of in rem and create third-party
31
Section 21, IBC.
32
“RP”
33
(2021) 6 SCC 436.
Page 29 of 61
PART D
rights for all creditors. This Court held that the trigger point is not the filing of the
application, but the admission of the application, and observed as follows:
“17. The procedure contemplated will indicate that
before the adjudicating authority is satisfied as to
whether the default has occurred or not, in addition
to the material placed by the financial creditor, the
corporate debtor is entitled to point out that the
default has not occurred and that the debt is not due,
consequently to satisfy the adjudicating authority
that there is no default. In such exercise undertaken
by the adjudicating authority if it is found that there is
default, the process as contemplated under sub-
section (5) of Section 7 of IB Code is to be followed
as provided under sub-section (5)(a); or if there is no
default the adjudicating authority shall reject the
application as provided under sub-section (5)(b) to
Section 7 of IB Code. In that circumstance if the
finding of default is recorded and the adjudicating
authority proceeds to admit the application, the
corporate insolvency resolution process
commences as provided under sub-section (6) and
is required to be processed further. In such event,
it becomes a proceeding in rem on the date of
admission and from that point onwards the
matter would not be arbitrable. The only course
to be followed thereafter is the resolution
process under IB Code. Therefore, the trigger
point is not the filing of the application under
Section 7 of IB Code but admission of the same
on determining default.
26. […] On admission, third-party right is created in
all the creditors of the corporate debtors and will
have erga omnes effect. The mere filing of the
petition and its pendency before admission,
therefore, cannot be construed as the triggering of a
proceeding in rem. Hence, the admission of the
petition for consideration of the corporate insolvency
resolution process is the relevant stage which would
decide the status and the nature of the pendency of
the proceedings and the mere filing cannot be taken
as the triggering of the insolvency process.”Page 30 of 61
PART D
44. In summary, the scheme of the IBC under Chapter II gives rise to two significant
principles:
a. Once the petition is admitted, the proceedings are no longer the preserve
of the applicant creditor and the debtor. They now become in rem and all
creditors of the corporate debtor become stakeholders in the process; and
b. Once the petition is admitted, the management of the affairs of the corporate
debtor is vested in the IRP and eventually, in the RP. Thus, the corporate
debtor no longer exists in the form that it did, before the admission of the
petition. Once CIRP is initiated, the interests of the erstwhile management
of the corporate debtor must be distinguished from the interests of the
corporate debtor.
ii. Legal framework for withdrawal and settlement of claims
a. Evolution of the legal framework
45. Introduced less than a decade ago, the IBC and the various rules and
regulations promulgated under the Act constitute a relatively nascent legal
framework. On several occasions, the legislature and the executive have
responded to the lacunae in the framework identified by this Court and sought
to fill the gaps by legislating, in the form of amendments to the IBC or
promulgating rules or regulations, if necessary. The evolution of the legal
framework in relation to the withdrawal of CIRP after the admission of an
application moved by a creditor is a classic example of this delicate
coordination.
Page 31 of 61
PART D
46. Under Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 201634, the NCLT may permit the withdrawal of applications
made by a creditor (under Sections 7, 9 or 10) on a request by the applicant
before the admission of the application.35 When the IBC was originally enacted
in 2016, it did not contain any provisions, in the text of the Act or its allied rules
and regulations, for the withdrawal of CIRP after the application had been
admitted. Although there was no express provision in this regard, in several
instances, this Court invoked its powers under Article 142 of the Constitution
and permitted withdrawal of the CIRP on account of a settlement between the
creditor and the corporate debtor after the application had been admitted by the
NCLT.36
47. In one such decision of this Court, namely, Lokhandwala Kataria
Construction (P) Ltd. v. Nisus Finance and Investment Managers LLP,37 a
two-judge bench of this Court invoked its power under Article 142 to record the
settlement of the parties and allow the compromise between the creditor and
the corporate debtor after the admission of the concerned application. While
doing so, this Court also prima facie agreed with the proposition that in view of
Rule 8 of the CIRP Rules, the NCLAT cannot use its inherent powers under
Rule 11 of the NCALT Rules 2016 to allow a settlement or withdrawal after the
admission of the application.
34
“CIRP Rules”
35
“8. Withdrawal of application. —The Adjudicating Authority may permit withdrawal of the application
made under rules 4, 6 or 7, as the case may be, on a request made by the applicant before its admission.”
36
Mothers Pride Dairy India Private Limited v. Portrait Advertising and Marketing Private Limited, 2017 SCC
OnLine SC 1789; Uttara Foods & Feeds (P) Ltd. v. Mona Pharmachem, (2018) 15 SCC 587.
37
(2018) 15 SCC 589.
Page 32 of 61
PART D
48. The above position was followed by the same Bench of this Court in Uttara
Foods & Feeds (P) Ltd. v. Mona Pharmachem,38 while allowing another
settlement between the parties under Article 142. However, on this occasion,
the bench also observed that instead of all such orders coming to this Court to
utilize its powers under Article 142, the relevant rules may be amended to
account for cases where an agreement has been reached after admission of
the application. This Court observed as follows:
“2. … this Bench had observed that in view of Rule
8 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016, the National
Company Law Appellate Tribunal prima facie could
not avail of the inherent powers recognised by Rule
11 of the National Company Law Appellate Tribunal
Rules, 2016 to allow a compromise to take effect
after admission of the insolvency petition. We are of
the view that instead of all such orders coming
to the Supreme Court as only the Supreme Court
may utilise its powers under Article 142 of the
Constitution of India, the relevant Rules be
amended by the competent authority so as to
include such inherent powers. This will obviate
unnecessary appeals being filed before this
Court in matters where such agreement has
been reached. On the facts of the present case, we
take on record the settlement between the parties
and set aside the NCLT order …”
49. Against this backdrop, the Ministry of Corporate Affairs of the Government of
India set up the Insolvency Law Committee,39 to address the early teething
challenges arising from the implementation of the IBC.40 The ILC Report,
submitted on 26 March 2018, also dealt with the issue of withdrawal of CIRP
proceedings and discussed the existing practice of this Court of granting
38
(2018) 15 SCC 587.
39
“ILC”
40
“ILC Report”
Page 33 of 61
PART D
“judicial permission” for withdrawal of CIRP after the admission of the
application of the creditor. In this context, the report discussed the objectives of
the IBC, drawing from the report of the Bankruptcy Law Reforms Committee
which preceded the enactment of the IBC, and concluded that:
“29.1 …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.”
(emphasis supplied)
50. The ILC Report found that in several cases, a settlement may be reached
amongst “all creditors and the debtor” for withdrawal, and not only between the
individual applicant creditor and the debtor. In light of this, the ILC unanimously
agreed that the relevant rules may be amended to provide for withdrawal post-
admission if the CoC approved of such an action by a voting share of ninety per
cent. Significantly, the report states that the ILC specifically discussed and
concluded that Rule 11 of the NCLAT Rules, 2016 may not be adopted for
withdrawal of CIRP, and instead Rule 8 of the CIRP Rules may be appropriately
amended. The observations in the ILC Report on this aspect are as follows:
“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 ninety per cent. It was specifically discussed thatPage 34 of 61
PART Drule 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 the case of Uttara Foods and Feeds Private
Limited v. Mona Pharmacem) and even otherwise,
as the issue can be specifically addressed by
amending rule 8 of the CIRP Rules.”
51. Accepting the recommendation of the ILC, the legislature introduced Section
12A in the IBC by the Insolvency and Bankruptcy (Second Amendment) Act,
2018 with effect from 6 June 2018.41. It reads as follows:
“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 specified.”
(emphasis supplied)
52. The provision provides for the withdrawal of an application under Sections 7, 9
and 10 after it has been admitted, with the approval of ninety-percent voting
share of the CoC. Evidently, Section 12A was made more stringent in
comparison to Section 30(4) of the IBC, which pertains to approval of the
Resolution Plan by the CoC. Whereas under Section 30(4) of the IBC, the voting
share of the CoC for approving the Resolution Plan is sixty-six percent, the
requirement under Section 12A of the IBC for withdrawal of CIRP is ninety
percent. The reason for this divergence and high threshold appears to be rooted
in the reasoning provided in the ILC report that once an application is admitted
it is no longer a proceeding only between the applicant creditor and the
41
Act No. 26 of 2018.
Page 35 of 61
PART D
corporate debtor but is a proceeding involving all creditors of the debtor.
Significantly, the text of Section 12A only details the procedure for the
withdrawal of the application after the formation of the CoC (with ninety percent
of the voting share), but is silent about the withdrawal of an application after the
application is admitted, but before the CoC is formed.
53. With the introduction of Section 12A in the IBC, the CIRP Regulations were also
amended to include Regulation 30A which delineated the detailed procedure to
withdraw an application under Section 12A.42 At the time of its introduction, the
regulation read as follows:
“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 interest under Regulation 36-A.
(2) The application in sub-regulation (1) shall be
accompanied by a bank guarantee towards
estimated cost incurred for purposes of clauses (c)
and (d) of Regulation 31 till the date of application.
(3) The committee shall consider the application
made under sub-regulation (1) within seven days of
its constitution or seven days of receipt of the
application, whichever is later.
(4) Where the application is approved by the
committee with ninety per cent voting share, the
resolution professional shall submit the application
under sub-regulation (1) to the adjudicating authority
on behalf of the applicant, within three days of such
approval.
(5) The adjudicating authority may, by order,
approve the application submitted under sub-
regulation (4).”
42
IBBI (CIRP) (Third Amendment) Regulations, 2018 vide Notification No. IBBI/2018-19/GN/REG031, dated
3rd July, 2018, w.e.f. 04.07.2018.
Page 36 of 61
PART D
54. Regulation 30A(1), as it stood originally, required that an application for
withdrawal shall be submitted to the IRP or the RP in the prescribed form, before
the invitation for expression of interest under Regulation 30A. It did not provide
the procedure for withdrawal after the invitation of expression of interest had
been issued. Regulation 30A(2) provided that the application for withdrawal
shall be accompanied by a bank guarantee towards the specified estimated
costs. Regulation 30A(3) mandated that the CoC must consider the application
within seven days of its constitution or the receipt of the application, whichever
is later. Finally, Regulation 30A(4) provided that once the CoC approved the
application with ninety percent voting share, the RP shall submit the application
to the NCLT on behalf of the applicant, within three days of the approval. Finally,
under Regulation 30A(5), the NCLT could approve the application submitted by
an order.
55. Notably, akin to Section 12A, Regulation 30A in its original form, was silent
about withdrawal in cases where the application had been admitted, but the
CoC had not been formed. Similarly, Regulation 30A(1) only spoke of
withdrawal before the invitation of expression of interest had been issued and
there was no provision which provided for withdrawal after it had been issued.
Both these gaps were identified in subsequent judgements of this Court.
56. In Brilliant Alloy Private Limited vs S Rajagopal and Ors43, a two-judge
bench of this Court observed that the requirement in Regulation 30A, as it stood
43
(2022) 2 SCC 544.
Page 37 of 61
PART D
then, that the application must be made before the issuance of an invitation for
expression of interest was only directory. The regulation, it was held, has to be
read along with Section 12A, which does not contain any bar on withdrawal
after the issuance of an invitation for expression of interest.
57. The constitutional validity of various provisions of the IBC, including Section
12A was challenged before this Court. In Swiss Ribbons (supra), a two-judge
bench of this Court, speaking through Justice Rohinton Fali Nariman, inter alia
upheld the constitutionality of Section 12A. One of the questions that arose
before this Court, in this context, was what happens if withdrawal is sought after
admission of the application, but before the CoC is constituted. This Court
observed:
“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 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.
Page 38 of 61
PART D
83. The main thrust against the provision of Section
12-A is the fact that ninety per cent of the Committee
of 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 the 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)
58. From the above observations of this Court in Swiss Ribbons (supra), the
following positions of law may be deduced:
a. Once the petition instituted by a creditor is admitted, the proceedings before
the NCLT become a ‘collective proceeding’ or a proceeding in rem. Thus,
the body which oversees the resolution process, i.e. CoC must be consulted
before allowing the claim to be settled;
b. This Court recognized that there was a lacuna in relation to cases where
the CoC had not been formed. Accordingly, it was held that, in such cases,
the party can approach the NCLT directly, and the NCLT may exercise its
inherent powers under Rule 11 to allow or disallow the application for
settlement/withdrawal. However, given the in rem nature of the
Page 39 of 61
PART Dproceedings, such an application must be decided only after hearing all the
parties concerned and considering the relevant factors in the case;
c. This high threshold of a ninety-percent voting share of the CoC is not
arbitrary. The idea is that the financial creditors have to put their heads
together to allow such withdrawal; and
d. Under Section 60 of the IBC, the decision of the CoC to reject or accept the
settlement claim can be challenged before the NCLT and then, the NCLAT.
59. In response to the lacunae identified by this Court in Swiss Ribbons (supra)
and Brilliant Alloy Private Limited (supra), an amendment was made to
Regulation 30A of the CIRP Regulations.44 This amendment came into effect
on 25 July 2019 and Regulation 30A in its present form reads as follows:
“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 FA of the Schedule-I 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); or44
Notification No. IBBI/2019-20/GN/REG048, dated 25th July, 2019 (w.e.f. 25-07-2019)Page 40 of 61
PART D
(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).
(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 Authority may, by order,
approve the application submitted under sub-
regulation (3) or (5).
(7) Where the application is approved under sub-
regulation (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-regulation (2) till the date of approval by the
Adjudicating Authority, as determined by the interim
resolution professional or resolution professional, as
the case may be, within three days of such approval,
in the bank account of the corporate debtor, failing
which the bank guarantee received under sub-
regulation (2) shall be invoked, without prejudice to
any other action permissible against the applicant
under the Code.”
60. Regulation 30A (1) now provides for the procedure to make an application for
withdrawal before the NCLT under Section 12A, both before and after the
constitution of the CoC. Sub-clause (a) of Regulation 30A (1) states that in
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PART D
cases where the CoC has not been constituted, the applicant may place an
application for withdrawal before the NCLT, through the IRP. Similarly, sub-
clause (b) of Regulation 30A (1) states that in cases where the CoC is
constituted, the applicant may place an application for withdrawal before the
NCLT, through the IRP or the RP, as the case may be. In essence, at both
stages – before and after the constitution of the CoC – the application for
withdrawal may only be made through the person appointed to oversee the
insolvency proceedings, i.e. the IRP or the RP.
61. The proviso to Regulation 30A (1) provides that when the application is made
after the CoC has been constituted and after the invitation for expression of
interest has been issued, the applicant shall state the reasons for withdrawal at
this stage. In essence, the regulation in its amended form, deviates from its
earlier form by also responding to the decision of this Court in Brilliant Alloy
Private Limited (supra). Unlike the unamended regulation, the regulation
acknowledges the possibility of withdrawal even after the invitation for
expression has been issued. However, it mandates that an application for
withdrawal in such cases must be accompanied by reasons.
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PART D
62. Regulation 30A (2) provides that the application must be made in the manner
prescribed in Form FA of Schedule-I,45 and must be accompanied by a bank
guarantee towards the specified expenses. Regulation 30A(3) provides that in
cases where the application for withdrawal is moved before the constitution of
the CoC, the IRP shall submit the application to the NCLT on behalf of the
applicant within three days of receipt. Regulations 30A (4) and (5) deal with the
situation where the CoC has already been constituted. They provide that the
CoC shall consider the application within seven days of receipt, and
subsequently, if the application is approved by the CoC with a ninety-percent
voting share, the RP must submit the application with the approval to the NCLT
within three days of the approval. Finally, regulation 30A(6) provides that on the
receipt of the application under both mechanisms (before the CoC and after),
45
Page 43 of 61
PART D
the NCLT may pass an order approving the application submitted by the RP or
IRP, as the case may be.
b. Insights from the evolution of the legal framework
63. In essence, after a series of deliberations by the legislature, the executive and
nudges by this Court, the framework created by Rule 8 of the NCLT Rules and
Section 12A of the IBC read with Rule 30A of the CIRP Regulations lays down
an exhaustive procedure for the withdrawal of an application filed by creditors
under Sections 7, 9, or 10 of the IBC. Withdrawal may be sought at four stages,
all of which have a procedure prescribed under the existing framework. These
may be summarized as follows:
i. Before the application under Sections 7, 9 or 10 is admitted by the
NCLT: Such cases are squarely covered by Rule 8 of the NCLT Rules,
which requires that the applicant approach the NCLT directly. The NCLT
may then pass an order permitting the withdrawal of the application. At this
stage, as the CIRP process has not been initiated, the proceedings are still
in personam, as between the applicant creditor and the corporate debtor.
Therefore, while approving the withdrawal at this stage, the NCLT may
restrict its enquiry to only hear the applicant creditor and corporate debtor,
and other potential creditors are not stakeholders at this stage.
ii. After an application under Sections 7, 9, or 10 is admitted, but before
the CoC has been constituted: Although Section 12A continues to be
Page 44 of 61
PART Dsilent on this aspect, after the decision in Swiss Ribbons (supra),
Regulation 30A was amended to provide for this eventuality. An application
for withdrawal in such cases may be made by the applicant through the
IRP.46 The IRP will then place the application before the NCLT, which may
pass an order either approving or rejecting the application. As noted above,
once the application has been admitted, the proceedings are no longer the
sole preserve of the applicant creditor and the corporate debtor. They are
now in rem and at this stage, the NCLT must hear the concerned parties
and consider all relevant factors before approving or rejecting the application
for withdrawal. The NCLT being a quasi-judicial body, must not act as a
mere post office, which stamps and approves every settlement agreement,
without application of judicial mind.
iii. After an application under Section 7, 9 or 10 is admitted, the CoC has
been constituted and the invitation for expression of interest has not
been issued: Section 12A read with Regulation 30A provides exhaustively
for this scenario. In such cases, the application for withdrawal is to be placed
before the NCLT, through the IRP or the RP. The application is first placed
before the CoC and after ascertaining approval with a ninety percent voting
share, the RP shall submit the application to the NCLT.
iv. After an application under Section 7, 9 or 10 is admitted, the CoC has
been formed and the invitation for expression of interest has been
46
Regulation 30A (1), CIRP Regulations, 2016.
Page 45 of 61
PART D
issued: The procedure is the same as that detailed in (iii) above, with the
added requirement stemming from the proviso to Regulation 30A (1). in such
cases, the applicant must state the reasons for withdrawal at this belated
stage.
64. Not only is there an exhaustive framework to deal with withdrawal and
settlement, but the evolution of the law and the creation of an comprehensive
framework indicates an attempt to reduce reliance on discretionary powers. As
detailed above, the IBC and the allied rules and regulations, in their original
form did not provide any procedure for the settlement/withdrawal of claims after
admission of the application by the creditor. This Court was compelled to invoke
Article 142 in decisions such as Lokhandwala Kataria Construction (supra)
and Uttara Foods & Feeds (P) Ltd. (supra). To reduce reliance on Article 142,
Section 12A and Regulation 30A were introduced to provide a detailed
procedure for such cases. In fact, the ILC report which led to the inclusion of
Section 12A specifically discussed and rejected the proposition that Rule 11
can instead be used for this purpose. Next, this Court in Swiss Ribbons (supra)
held that since there was no prescribed framework to allow
settlement/withdrawal of claims after admission of the application but before the
CoC was constituted, Rule 11 of the NCLT Rules may be invoked. In response
to this, to reduce reliance on the inherent powers under Rule 11 and provide
certainty, necessary amendments were made to Regulation 30A. There is now
a detailed procedure to deal with withdrawal or settlement at both stages post
admission – before and after the CoC is constituted. In view of this detailed
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PART D
framework, the requirement to invoke discretionary power such as Rule 11 of
the NCLT Rules, or Rule 11 of the NCLAT Rules or even the power of this Court
under Article 142 no longer arises.
65. Mr Tushar Mehta, Senior Counsel for the second respondent, has sought to
contend that the requirement under Regulation 30A (1) to move an application
before the NCLT through the IRP, in cases where the CoC is not constituted, is
a mere technicality which can be dispensed with. The logic he advances is that
the regulation does not require adjudication by the NCLT about the factum of
the settlement, the mode of settlement or adjudication on any other ground. His
submission is that Regulation 30A (1) only requires that the withdrawal
application be submitted to the IRP in the prescribed Form FA, which is then
forwarded to the NCLT to mechanically approve the settlement. At this stage,
according to him, the NCLT is not required to hear any other parties, but only
approve the application and thus, whether the application is submitted through
the IRP or whether it is before the NCLT or the NCLAT, is a mere technicality.
66. We do not concur with the above understanding for two broad reasons.
a. Firstly, that the application is to be submitted by the IRP rather than the
parties themselves is not a distinction without difference. As noted above,
once the application is admitted and CIRP is initiated, it is the IRP who takes
charge of the affairs of the corporate debtor. The proceedings become
collective proceedings and the interests of the former management of the
corporate debtor, become disjunct from the interest of the corporate debtor.
Page 47 of 61
PART D
Therefore, the parties (such as the former management of the corporate
debtor) must submit their application for withdrawal through the IRP who is
now the person in control of the insolvency proceedings. To subvert this
requirement would run contrary to the scheme of the IBC and the underlying
principles discussed in this judgment; and
b. Secondly, the NCLT cannot be considered a post office that merely puts a
stamp on the withdrawal application submitted by the parties through the
IRP. The ILC Report, in response to which, the parent provision, i.e. Section
12A was introduced in the IBC specifically discussed the possibility of the
creditors, apart from the applicant creditor agreeing to a settlement as the
underlying reason to permit withdrawal even after initiation of the CIRP. It
was never fathomed by the ILC that withdrawal of claims would remain a
unilateral process, even though the application is admitted and CIRP has
been initiated. Similarly, this Court in Swiss Ribbons (supra), in response
to which Regulation 30A was amended, specifically observed that in cases
where withdrawal is sought after initiation of CIRP, but before the CoC is
constituted, the NCLT must decide on the application after “hearing all the
parties concerned and considering all relevant factors on the facts of each
case.” Therefore, the NCLT does conduct an adjudicatory exercise when
the application for withdrawal is placed before it, and the procedure is not a
mere technicality.
Page 48 of 61
PART D
iii. Scope of ‘Inherent Powers’ under Rule 11
67. Section 151 of the Code of Civil Procedure47 reads as follows:
“151. Saving of inherent powers of Court.—
Nothing in this Code shall be deemed to limit or
otherwise affect the inherent power of the Court to
make such orders as may be necessary for the ends
of justice or to prevent abuse of the process of the
Court.”
68. Rule 11 of the NCLT Rules 2016 and Rule 11 of the NCLAT Rules 2016, which
preserve the inherent powers of the NCLT and the NCLAT respectively, mirror
Section 151 of the CPC and read as follows:
“11. Inherent powers.- Nothing in these rules shall
be deemed to limit or otherwise affect the inherent
powers of the Appellate Tribunal to make such
orders or give such directions as may be necessary
for meeting the ends of justice or to prevent abuse
of the process of the Appellate Tribunal.”
69. In a consistent line of precedent, this Court has held that ‘inherent powers’ may
be exercised in cases where there is no express provision under the legal
framework. However, such powers cannot be exercised in contravention of,
conflict with or in ignorance of express provisions of law. We may helpfully refer
to the observations of a two-judge bench of this Court in one such case. In Ram
Chand and Sons Sugar Mills (P) Ltd. v. Kanhayalal Bhargava,48 a two-judge
bench of this Court, speaking through Justice K Subba Rao (as the learned
chief Justice then was), opined:
“5. … Having regard to the said decisions, the scope
of the inherent power of a court under Section 151
of the Code may be defined thus: The inherent47
“CPC”
48
1966 SCC OnLine SC 215.
Page 49 of 61
PART D
power of a court is in addition to and complementary
to the powers expressly conferred under the Code.
But that power will not be exercised if its exercise is
inconsistent with, or comes into conflict with, any of
the powers expressly or by necessary implication
conferred by the other provisions of the Code. If
there are express provisions exhaustively
covering a particular topic, they give rise to a
necessary implication that no power shall be
exercised in respect of the said topic otherwise
than in the manner prescribed by the said
provisions. Whatever limitations are imposed by
construction on the provisions of Section 151 of the
Code, they do not control the undoubted power
of the Court conferred under Section 151 of the
Code to make a suitable order to prevent the
abuse of the process of the Court.”
(emphasis supplied)
70. When a procedure has been prescribed for a particular purpose exhaustively,
no power shall be exercised otherwise than in the manner prescribed by the
said provisions. In such cases, the court must be circumspect in invoking its
‘inherent powers’ to deviate from the prescribed procedure. If such deviation is
made, the court must justify why this was necessary to “prevent the abuse of
the process of the Court”.
71. The need to be circumspect while invoking “inherent powers”, when there is an
exhaustive legal framework is amplified in the context of a legislation like the
IBC. In Ebix Singapore (P) Ltd. vs. Educomp Solutions Ltd. (CoC),49 a two-
judge bench of this Court, speaking through one of us (DY Chandrachud, J),
affirmed this position and observed as follows:
“Any claim seeking an exercise of the adjudicating
authority’s residuary powers under Section 60(5)(c)
IBC, NCLT’s inherent powers under Rule 11 of the
NCLT Rules or even the powers of this Court under49
(2022) 2 SCC 401.
Page 50 of 61
PART E
Article 142 of the Constitution must be closely
scrutinized for broader compliance with the
insolvency framework and its underlying objective.
The adjudicating mechanisms which have been
specifically created by the statute, have a narrowly
defined role in the process and must be circumspect
in granting reliefs that may run counter to the
timeliness and predictability that is central to the IBC.
Any judicial creation of a procedural or
substantive remedy that is not envisaged by the
statute would not only violate the principle of
separation of powers, but also run the risk of
altering the delicate coordination that is
designed by the IBC framework and have grave
implications on the outcome of the CIRP, the
economy of the country and the lives of the
workers and other allied parties who are
statutorily bound by the impact of a resolution or
liquidation of a Corporate Debtor.”
(emphasis supplied)
E. Application to the instant case
72. In the preceding section, we have analyzed the law with regard to (i) the
principles governing IBC relevant to contextualize the consequences of
withdrawing CIRP; (ii) the nature of the proceedings after admission of an
application by a creditor; (iii) the evolution of the legal framework for the
withdrawal of CIRP or settlement of claims; and (iv) the scope of Rule 11 of the
NCLAT Rules 2016. We will now apply the above discussion to the specific
issues before this Court in the present factual context, namely, the locus of the
appellant to institute the present proceedings and the approach of the NCLAT
in the Impugned Judgment.
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PART E
i. Locus of the appellant before this Court
73. The counsel for the respondents sought to argue that the appellant does not
have the locus to maintain the present proceedings before this Court. They
contend that in a case for settlement between the Corporate Debtor and the
second respondent, there is no scope for hearing any other creditors, such as
the appellant. We do not find merit in this submission.
74. Section 62 of the IBC governs statutory appeals to the Supreme Court from the
orders of the NCLAT. The provision reads as follows:
“62. Appeal to Supreme Court – (1) Any person
aggrieved by an order of the National Company Law
Appellate Tribunal may file an appeal to the
Supreme Court on a question of law arising out of
such order under this Code within forty-five days
from the date of receipt of such order.
(2) The Supreme Court may, if it is satisfied that a
person was prevented by sufficient cause from filing
an appeal within forty-five days, allow the appeal to
be filed within a further period not exceeding fifteen
days.”
(emphasis supplied)
75. The provision stipulates that “any person” who is aggrieved by the order of the
NCLAT may file an appeal before the Supreme Court within the prescribed
limitation period. Similar language is used in Section 61 of the IBC, which
provides for appeals to NCLAT from orders of the NCLT.50 The use of the
phrase “any person aggrieved” indicates that there is no rigid locus requirement
50
“61. Appeals and Appellate Authority.-
(1) Notwithstanding anything to the contrary contained under the Companies Act 2013 (18 of 2013), any
person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the
National Company Law Appellate Tribunal.
[…]”
Page 52 of 61
PART E
to institute an appeal challenging an order of the NCLT, before the NCLAT or
an order of the NCLAT, before this Court. Any person who is aggrieved by the
order may institute an appeal, and nothing in the provision restricts the phrase
to only the applicant creditor and the corporate debtor. As noted above, once
the CIRP is initiated, the proceedings are no longer restricted to the individual
applicant creditor and the corporate debtor but rather become collective
proceedings (in rem), where all creditors, such as the appellant, are necessary
stakeholders. The appellant is not an unrelated party to the CIRP, but is in fact,
an entity whose claims had been verified by the IRP vide letter 19 August 2024.
The appellant who claims to be a Financial Creditor, has expressed reasonable
apprehensions about the prejudice it would face if there were roundtripping of
the funds, and the prioritization of the debts of the second respondent, an
operational creditor.
76. In any event, the appellant had moved an application before the NCLAT seeking
impleadment as a respondent and the objections of the appellant were
specifically recorded and addressed in the Impugned Judgement. Therefore,
there is no doubt that the appellant falls within the ambit of the phrase “any
person aggrieved” and has the locus standi to institute the present Civil Appeal
before this Court.
Page 53 of 61
PART E
ii. Approach of the NCLAT in the Impugned Judgement
77. The appellant contends that the NCLAT erred in invoking its inherent powers
under Rule 11 of the NCLAT Rules in the presence of a prescribed procedure
dealing with the withdrawal of CIRP. The respondent, on the other hand,
contends that at the time of executing the settlement agreement, the CoC was
not formed and in such situations, Rule 11 of the NCLAT Rules may be invoked
to allow the settlement. In view of the detailed discussion in Part D of this
judgement, we find considerable force in the submissions of the appellant on
this point.
78. In paragraph 63 of this judgement, we identified the four stages at which a
procedure for the withdrawal of CIRP or settlement of claims is contemplated in
the existing legal framework. The situation before the NCLAT in the present
case fell within serial number (ii), that is, when the application of a creditor has
been admitted and CIRP has been initiated, however, the CoC has not been
formed. When settlement was sought by the first respondent before the NCLAT,
the Section 9 petition had been admitted and the Section 7 petition had also
been disposed of on that basis. However, admittedly, on this date, i.e. 31 July
2024, the CoC had not been constituted and the NCLAT subsequently stayed
the formation of the CoC.
79. In such cases, the legal framework mandates that an (i) application for
withdrawal be moved; (ii) the application has to be moved through the IRP; and
(iii) it be placed before the NCLT for approval. None of these requirements were
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PART E
met in the present case. First and foremost, there was no formal application
instituted to seek the withdrawal of the CIRP. The settlement agreement was
taken on record and approved by the NCLAT based on the submissions and
assurances of the counsel before it and the affidavits/undertakings filed by the
parties. Further, the first respondent, who is a former director of the Corporate
Debtor, did not move the application through the IRP and instead approached
the NCLAT directly. Finally, the request to approve the settlement was moved
before the NCLAT during appellate proceedings, instead of being placed before
the NCLT. Despite these grave deviations, the NCLAT still proceeded with
approving the settlement and setting aside the CIRP by invoking its inherent
power under Rule 11 of the NCLAT Rules.
80. We are of the view that recourse to Rule 11 of the NCLAT Rules was not
warranted in the present circumstances. As noted above, ‘inherent powers’
cannot be used to subvert legal provisions, which exhaustively provide for a
procedure. To permit the NCLAT to circumvent this detailed procedure by
invoking its inherent powers under Rule 11 would run contrary to the carefully
crafted procedure for withdrawal. In the Impugned Judgement, the NCLAT does
not provide any reasons for deviating from this procedure or the urgency to
approve the settlement without following the procedure. The correct course of
action by the NCLAT would have been to stay the constitution of the CoC and
direct the parties to follow the course of action in Section 12A read with
Regulation 30A of the CIRP Regulations 2016. This legal framework for such
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PART E
withdrawal was formulated after giving due consideration to the appropriate
procedure for withdrawal and balancing it with the objectives of the IBC.
81. Even if the procedural infirmity is kept aside, once the CIRP was admitted, the
proceedings became collective, and all creditors of the Corporate Debtor
became stakeholders. As noted in Swiss Ribbons (supra), even while invoking
Rule 11 to allow withdrawal, the NCLT must hear all the concerned parties and
consider all relevant factors on the facts of each case. The appellant raised
detailed objections before the NCLAT to the source of the funds for the
settlement and a reasonable apprehension that there was round tripping of
funds, in violation of the order passed by the Delaware Court on 18 March 2024.
These objections were summarily dismissed by the NCLAT, relying solely on
the undertaking filed by Riju Raveendran. The only finding in this regard is found
in paragraph 44. The NCLAT relies entirely on the undertaking filed by Riju
Raveendran and states that “although, the Applicant is not satisfied about the
undertaking but the Applicant has also not brought on record any evidence to
the contrary that the money which is being offered has actually been brought
by Riju Raveendran from the money disbursed to the borrower in terms of credit
agreement or has been taken out of the coffers of the CD.” Alleged facts such
as the fraudulent transfer of USD 533 million to a hedge fund in the United
States; the orders of the US Court restraining the brothers from transferring or
dissipating the amount; the contempt proceedings against Mr Riju Raveendran;
the ongoing investigation by the Enforcement Directorate against the first
respondent and the Corporate Debtor; and other attempts by the Corporate
Debtor to dissipate assets, were not adequately addressed by the NCLAT.
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PART E
iii. Decisions of this Court cited in the Impugned Judgement
82. The respondents relied on the decisions of this Court in Ashok G. Rajani v.
Beacon Trusteeship Ltd.51, and Abhishek Kumar (supra) to argue that before
the CoC is formed, the proceedings are between the applicant creditor and the
debtor and thus, Rule 11 can be invoked to allow the settlement. In the
Impugned Judgement too, the NCLAT relies on the decisions of this Court in
Abhishek Kumar (supra) and Kamal K Singh (supra), to justify the invocation
of Rule 11 of the NCLAT Rules and observe that there has been “a change in
the law on settlement”. The respondents are correct to contend that each of
these decisions was rendered after Section 12A was inserted and Regulation
30A was amended. However, it is important to understand the context in which
this Court upheld the invocation of Rule 11 of the NCLAT Rules and whether
these decisions considered the prescribed procedure under Section 12A and
the amended Regulation 30A. We are of the considered view that these
judgements do not advance the case of the respondents.
83. In Kamal Singh (supra), a two-judge bench of this Court passed a brief order
setting aside an order of the NCLT, which dismissed an application filed under
Rule 11 of the NCLT Rules 2016 for withdrawal of CIRP based on a settlement
arrived at before the constitution of the CoC. This Court relied on the
observations in para 82 of Swiss Ribbons (supra) referred to above, wherein
this Court stated that at the stage when the CoC has not been constituted, the
51
2022 SCC OnLine SC 1275.
Page 57 of 61
PART E
NCLT may exercise its inherent powers under Rule 11 to allow or disallow an
application for withdrawal or settlement. It may be noted that there is no
reference in this order to the prescribed procedure under Section 12A read with
Regulation 30A, although the proceedings took place well after their insertion.
As noted above, in response to the decision of this Court in Swiss Ribbons
(supra), there was a change in the legal framework and Regulation 30A was
amended to specifically provide for a procedure for withdrawal before the CoC
is constituted. The intention was to account for the lacuna identified in Swiss
Ribbons (supra) and at the same time, reduce the reliance on ‘inherent powers’
by prescribing a procedure for withdrawal at this stage. In our view, as the order
overlooks the relevant legal provisions and fails to even refer to the existing
legal framework under Regulation 30A, it would be per incuriam and is not
binding on this Court.
84. The same infirmity is found in Ashok G. Rajani (supra), a judgement rendered
by a two-judge bench of this Court. In this case, too, the petition filed by a
creditor against a corporate debtor had been admitted, but the CoC had not
been constituted. The decision refers to Section 12A of the IBC but fails to even
acknowledge the amendment to Regulation 30A, which specifically provided for
such an eventuality. Instead, this Court proceeded to hold while Section 12A of
the IBC permits withdrawal after admission of the application by the creditor, it
only provides for the procedure for withdrawal after the CoC has been
constituted, without laying down a bar on withdrawal before the constitution of
the CoC. According to the two-judge bench, the question of approval of the CoC
by the requisite percentage of votes can only arise after the CoC is constituted
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PART E
and thus, Rule 11 must be invoked to allow withdrawal. This observation was
made without as much as a passing reference to Regulation 30A, which
specifically governs such a situation.
85. The decision of this Court in Abhishek Kumar (supra) rendered by a two-judge
bench of this Court speaking through Justice Vikram Nath, correctly identifies
the legal framework. However, it is distinguishable from the present factual
situation and the findings of this Court do not support the case of the
respondents. The facts are comparable vis-à-vis the stage of the proceedings
– the petition had been admitted, but the CoC had not been constituted.
However, in that case, the IRP had moved an application under Regulation 30A
of the CIRP Regulations. Instead of adjudicating upon the application under
Regulation 30A, the NCLT took the view that Regulation 30A is a mere directory
provision and dismissed the application. The NCLT vacated the stay on the
constitution of the CoC and directed that the application under 12A be decided
directly (i.e. including for compliance with the requirement of a ninety-percent
voting share of the CoC). This Court set aside the order of the NCLT on the
ground that Regulation 30A provides a complete mechanism for dealing with
the applications filed under such a provision, and it is not necessary to get the
approval of a ninety percent voting share of the CoC if the application for
withdrawal is moved before the constitution of the CoC. On the other hand, in
the present case, there was no application filed through the IRP before the
NCLT under Regulation 30A at all. Therefore, this decision is not applicable to
the present case.
Page 59 of 61
PART F
F. Conclusion
86. For the above reasons, we allow the present appeal and set aside the impugned
judgment of the NCLAT dated 2 August 2024 in the above terms. At this stage,
it would not be appropriate for this Court to adjudicate on the objections of the
appellant to the settlement agreement on merits. The issues raised are the
subject matter of several litigations in different fora, including the Delaware
Court and investigation by various authorities, including the Enforcement
Directorate, which are pending.
87. During the course of the proceedings before this Court, the CoC has been
constituted. The parties are at liberty to invoke their remedies, to seek a
withdrawal or settlement of claims, in compliance with the legal framework
governing the withdrawal of CIRP. Nothing in this judgment should be construed
as a finding on the conduct of any of the parties or other stakeholders involved
in the insolvency proceedings.
88. The amount of Rs 158 crore, along with accrued interest, if any, which has been
maintained in a separate escrow account pursuant to the Order of this Court
dated 14 August 2024, is to be deposited with the CoC. The CoC is directed to
maintain this amount in an escrow account until further developments and to
abide by the further directions of the NCLT.
89. The civil appeal and special leave petition shall stand disposed of accordingly.
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PART F
90. Pending applications, if any, stand disposed of.
..….…….……………………………………CJI
[Dr Dhananjaya Y Chandrachud]
…….……………………………………………J
[J B Pardiwala]
…….……………………………………………J
[Manoj Misra]
New Delhi;
October 23, 2024.
Page 61 of 61