Section 12-A of IBC

Supreme Court: In a Civil Appeal filed by the suspended Director of the Corporate Debtor Manpasand Beverages Ltd. challenging the correctness of order dated 13-04-2021 passed by National Company Law Tribunal (‘NCLT’), Ahmedabad Bench rejecting application under Section 12-A of Insolvency and Bankruptcy Code, 2016 (‘IBC Code’) for withdrawal of Corporate Insolvency Resolution Process (‘CIRP’), the Division Bench of B.R. Gavai and Vikram Nath*, JJ. set aside the impugned NCLT order, allowed the application under Regulation 30-A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2018 (‘IBBI Regulations’) and said that NCLT fell in error while taking a contrary view.

The Corporate Debtor manufactures and distributes fruit beverages whom, the Operational Creditor Huhtamaki PPL Ltd. used to supply packaging material. The Operational Creditor filed a petition under Section 9 of IBC Code before NCLT for an outstanding amount of Rs.1,31,00,825 in which, the NCLT through order dated 1-3-2021 admitted the petition and initiated CIRP. On 3-3-2021, the parties entered a settlement requiring Corporate Debtor to pay an amount of Rs 95.72 lakhs even before the constitution of Committee of Creditors. The Operational Creditor received Rs 50 lakhs on 4-3-2021 and the balance amount of Rs 45.72 lakhs on 8-3-2021 thereby resulting in complete payment of settlement. On 10-3-2021, the Interim Resolution Professional (‘IRP’) moved an application under Regulation 30-A of IBBI Regulations seeking withdrawal of CIRP against the Corporate Debtor with application of Operational Creditors under Section 12-A of IBC dated 9-3-2021.

An appeal against the admission order of 1-3-2021 was made before National Company Law Appellate Tribunal stating that petition under Section 9 of IBC was not maintainable due to a pre-existing dispute. On 26-3-2021, appeal before NCLAT was withdrawn wherein, NCLAT granted stay on formation of Committee of Creditors (‘CoC’).

NCLT through judgment and order dated 13-4-2021 rejected the application for settlement and fixed the matter for disposal of application under Regulation 30-A of IBBI Regulations after hearing all the creditors. Thereafter, IRP constituted CoC, the appellant came up with a Special Leave Petition (‘SLP’) and the Court granted status quo through order dated 20-4-2021.

The Court scrutinized Rule 11 of NCLT Rules, 2016 providing the inherent powers, Section 12-A of IBC regarding withdrawal of applications admitted under Sections 7, 9 or 10 of IBC Code, Regulation 30-A of IBBI Regulations for mechanism in dealing with withdrawal of applications and NCLT’s findings.

The Court said that since the parties had settled the dispute even before the constitution of CoC, the application ought to be allowed immediately. The Court rejected the plea of alternative remedy due to passage of substantial time after orders of status quo and stated the statutory timeframe for disposal of matters under IBC Code. The Court also rejected the claims of violation of Moratorium under Section 14 of IBC Code. It clarified that settlement with the Operational Creditor in the present case does not adversely affect the multiple claims of Operational Creditors. Dealing with the claims for expenses by IRP, the Court said that it could be recovered in the same proceedings to be cleared by NCLT or adjudicating authority under Clause 7 of Regulation 30-A of IBBI Regulations.

While dealing with the legality of the impugned NCLT order, the Court referred to Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17 regarding withdrawal of application before the CoC is constituted and said that NCLT committed an error in holding no biding effect of Regulation 30-A of IBBI Regulations. The Court clarified that “the substituted Regulation 30-A of IBC clearly provided for withdrawal applications being entertained before constitution of CoC. It does not in any way conflict or violates the Section 12-A of IBC. There is no inconsistency in the two provisions.” It further commented that the NCLT fell in error taking a contrary view in this regard.

The Court further mentioned the case of Kamal K. Singh v. Dinesh Gupta, (2022) 8 SCC 330 relying on Swiss Ribbons (supra) wherein, it was held that “applications filed under Rule 11 of NCLT Rules would be maintainable and the Operational Creditors therein were justified in moving such application.” The Court referred to Ashok G. Rajani v. Beacon Trusteeship Ltd., 2022 SCC OnLine SC 1275 wherein, the Court gave reasons of why applications for withdrawal cannot be stifled before constitution of CoC by third parties.

The Court set aside the impugned NCLT order and allowed the application under Regulation 30-A of IBBI Regulations. It further added that the application filed by Operational Creditors under Section 9 of IBC Code shall stand withdrawn.

[Abhishek Singh v. Huhtamaki PPL Ltd., 2023 SCC OnLine SC 349, judgment dated 28-3-2023]

Judgment authored by: Justice Vikram Nath

Know Thy Judge | Justice Vikram Nath

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