Pre-CoC Application for CIRP Withdrawal Valid, Rules Supreme Court

Synopses: The Abhishek Singh v. Huhtamaki Ppl Ltd. &Anr. case, cited as CIVIL APPEAL NO(s). 2241 OF 2023, has been an interesting legal battle concerning Section 12A of the Insolvency and Bankruptcy Code, 2016 (IBC), and Regulation 30A of the Insolvency and Bankruptcy Board of India’s 2018 Regulations on the Insolvency Resolution Process for Corporate Persons. The Supreme Court in this case has held that Section 12A does not prevent the acceptance of applications for withdrawal even before the formation of the Committee of Creditors (CoC), and such applications cannot be kept pending until the CoC is constituted. Additionally, Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2018, is binding upon the National Company Law Tribunal (NCLT). The Supreme Court of India has set a landmark precedent that would shape the interpretation of these provisions in the future.

Background of the Case:

In essence, the case involved a company called Manpasand Beverages Ltd. that was facing a petition under Section 9 of the IBC by Huhtamaki PPL Ltd. for defaulting on a payment of Rs. 1,31,00,825. The National Company Law Tribunal (NCLT) accepted the petition and initiated the Corporate Insolvency Resolution Process (CIRP) against the company. During this time, Manpasand Beverages Ltd. had filed an appeal with the National Company Law Appellate Tribunal (NCLAT) against the NCLT’s order, but the appeal was withdrawn with the option to revive it if the settlement failed. The NCLATalso stayed the formation of the Committee of Creditors until the NCLT decided on the application under Section 12A of the IBC.

On April 13th, 2021, the NCLT rejected the settlement application under Section 12A of the IBC and scheduled a hearing to consider the application under Regulation 30A after hearing from all creditors. The NCLT had noted that 35 creditors had filed their claims during the pendency of the application, and the withdrawal of the proceedings would negatively impact their rights. However, the Supreme Court later ruled that Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2018, which allows for withdrawal of CIRP under Section 12A of IBC before the constitution of CoC, is binding on the NCLT.

Hon’ble Supreme Court Observation:

The Supreme Court has ruled that NCLT is bound by Regulation 30A of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2018, which allows for withdrawal of CIRP under Section 12A of IBC before the constitution of CoC. The court referred to its previous judgment in Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17, which stated that NCLT may use its inherent powers under Rule 11 of NCLT Rules, 2016, to allow or disallow applications for withdrawal or settlement before the constitution of CoC. The court noted that the IBBI was empowered to make regulations for various purposes under Section 240 of IBC and that such regulations, though subordinate, would still have a statutory nature and be binding on NCLT.

In nutshell, this ruling clarified the ambiguity that existed in the legal interpretation of the provisions and provided a comprehensive framework for dealing with such cases. The court emphasized that the IBBI had the power to create regulations where needed, and Regulation 30A allowed for withdrawal applications to be considered before the CoC is formed, which supported the purpose of Section 12A of the IBC.

Additionally, the Supreme Court highlighted that the delay in disposing of applications under Section 12A of the IBC and Regulation 30A of the CIRP Regulations can lead to creditors filing their claims in large numbers, and therefore, NCLT should invoke its inherent powers when required to ensure justice is served. The NCLT made an error in its interpretation of the law and failed to use its inherent powers to meet the ends of justice. As a result, the NCLT’s order was set aside, and the withdrawal application filed under Regulation 30A was approved. However, creditors of the Corporate Debtor can still make their claims in other proceedings.

Conclusion

The ruling, in this case, has far-reaching consequences and has resolved the ambiguity surrounding the interpretation of Section 12A of the IBC and Regulation 30A of the CIRP Regulations. The Supreme Court’s decision has reaffirmed the IBBI’s power to create regulations when necessary and has provided clarity on the scope and applicability of the provisions. It has also emphasized the importance of NCLT using its inherent powers to ensure justice is served and to prevent undue delays in the CIRP.