# ABHISHEK SINGH v. HUHTAMAKI PPL LTD. & ANR

- **Citation:** [2023] 4 S.C.R. 596
- **Court:** Supreme Court of India
- **Decided:** 2023-03-28
- **Case number:** Civil Appeal No.2241 of 2023
- **Bench:** B. R. Gavai, Vikram Nath
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/abhishek-singh-v-huhtamaki-ppl-ltd-anr-37063
- **Pages:** 20

## Headnote

Insolvency and Bankruptcy Code, 2016: ss.9 and 12A -
Interpretation of s. 12A and Regn 30A - Withdrawal of application
of Corporate Insolvency Resolution Process-CIRP before the
constitution of Committee of Creditors-CoC - Validity of - Held:
s.12A permits withdrawal of applications admitted u/ss. 7, 9 and 10
- s. 12A does not debar entertaining applications for withdrawal
even before constitution of CoC - Application u/s. 12A cannot be
said to be kept pending for constitution of CoC, even where such
application was filed before the constitution of CoC - Furthermore,
Regn 30A clearly provided for withdrawal applications being
entertained before constitution of CoC - It does not in anyway
conflicts or is in violation of s.12A - There is no inconsistency in
the two provisions - It only furthers the cause introduced vide s.12A
- On facts, petition u/s.9 filed by Operational Creditor-OC before
NCLT for its outstanding amount against the Corporate DebtorCD - Petition admitted and CIRP initiated - Within two days of
admission order, OCs and CD entered into a settlement for payment
of the amount even before constitution of CoC - After receipt of the
settlement amount, OC filed application u/s.12A and Interim
Resolution Professional filed an application u/Regn 30A seeking
withdrawal of CIRP against the CD - However, the NCLT rejected
the withdrawal application - Said order cannot be sustained - NCLT
erred in taking a contrary view - At the time when the application
for withdrawal of the proceedings was filed the CoC was not
constituted as such there could not have been any other concerned
parties except the OC, CD and IRP - It was only because of the
delay caused by the NCLT in disposing of the applications u/s. 12A
and Regn 30A that large number of creditors filed their claims -
Inherent powers are to be invoked in order to meet the ends of
justice which the NCLT failed to invoke - Thus, application filed u/
Regn 30A allowed and application u/s. 9 filed by the OCs stands
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withdrawn - Insolvency and Bankruptcy Board of India (Insolvency
Resolution Process for Corporate Persons) Regulations, 2018 -
Regn. 30 A.
Allowing the appeal, the Court
HELD: 1.1 Plea of alternative remedy is a self-imposed
restriction by the superior Courts and is never an absolute bar
unless barred by the statute. Further, in the present case, this
Court had entertained the SLP in 2021 itself and had granted an
order of status quo on 20.04.2021. Substantial time has passed
since then. As such this Court is not inclined to entertain the
said objection relating to availability of alternative remedy of filing
the appeal before the NCLT. IBC provides a statutory timeframe
for disposal of matters. Further, such matters being commercial
in nature keeping these matters pending for long, frustrates the
very object of IBC. [Para 25][609-E-G]
1.2 The intervenors have vehemently contended that after
01.03.2021, once the NCLT has admitted the petition and had
issued restraint order, section 14 of IBC had come into play; the
transactions made in the accounts of the CD would be unlawful
and illegal as such payment of the settlement amount from the
funds of the CD transferred to the account of the suspended
Director after 01.03.2021 ought to be rejected and no discretion
should be exercised permitting withdrawal of the proceedings.
Even the NCLT was not satisfied with the submission of the IRP
and has not approved the same. Secondly, even if there was any
transaction from the account of the CD, the same may at best be
held to be a wrongful transaction and in any other proceedings
where CIRP is initiated the amount so transferred could be
recovered under section 66 of IBC by the IRP or the RP subject
to establishing that the said transactions would be hit by the said
provision. [Para 26][609-G-H; 610-A-C]
1.3 Other creditors would have their own right to avail such
legal remedies as may be available to them under law with respect
to their claims. The rights o

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SUPREME COURT REPORTS
[2023] 4 S.C.R.
 [2023] 4 S.C.R. 596
596
ABHISHEK SINGH
v.
HUHTAMAKI PPL LTD. & ANR.
(Civil Appeal No(s). 2241 of 2023)
MARCH 28, 2023
[B. R. GAVAI AND VIKRAM NATH, JJ.]
Insolvency and Bankruptcy Code, 2016: ss.9 and 12A -
Interpretation of s. 12A and Regn 30A - Withdrawal of application
of Corporate Insolvency Resolution Process-CIRP before the
constitution of Committee of Creditors-CoC - Validity of - Held:
s.12A permits withdrawal of applications admitted u/ss. 7, 9 and 10
- s. 12A does not debar entertaining applications for withdrawal
even before constitution of CoC - Application u/s. 12A cannot be
said to be kept pending for constitution of CoC, even where such
application was filed before the constitution of CoC - Furthermore,
Regn 30A clearly provided for withdrawal applications being
entertained before constitution of CoC - It does not in anyway
conflicts or is in violation of s.12A - There is no inconsistency in
the two provisions - It only furthers the cause introduced vide s.12A
- On facts, petition u/s.9 filed by Operational Creditor-OC before
NCLT for its outstanding amount against the Corporate DebtorCD - Petition admitted and CIRP initiated - Within two days of
admission order, OCs and CD entered into a settlement for payment
of the amount even before constitution of CoC - After receipt of the
settlement amount, OC filed application u/s.12A and Interim
Resolution Professional filed an application u/Regn 30A seeking
withdrawal of CIRP against the CD - However, the NCLT rejected
the withdrawal application - Said order cannot be sustained - NCLT
erred in taking a contrary view - At the time when the application
for withdrawal of the proceedings was filed the CoC was not
constituted as such there could not have been any other concerned
parties except the OC, CD and IRP - It was only because of the
delay caused by the NCLT in disposing of the applications u/s. 12A
and Regn 30A that large number of creditors filed their claims -
Inherent powers are to be invoked in order to meet the ends of
justice which the NCLT failed to invoke - Thus, application filed u/
Regn 30A allowed and application u/s. 9 filed by the OCs stands
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withdrawn - Insolvency and Bankruptcy Board of India (Insolvency
Resolution Process for Corporate Persons) Regulations, 2018 -
Regn. 30 A.
Allowing the appeal, the Court
HELD: 1.1 Plea of alternative remedy is a self-imposed
restriction by the superior Courts and is never an absolute bar
unless barred by the statute. Further, in the present case, this
Court had entertained the SLP in 2021 itself and had granted an
order of status quo on 20.04.2021. Substantial time has passed
since then. As such this Court is not inclined to entertain the
said objection relating to availability of alternative remedy of filing
the appeal before the NCLT. IBC provides a statutory timeframe
for disposal of matters. Further, such matters being commercial
in nature keeping these matters pending for long, frustrates the
very object of IBC. [Para 25][609-E-G]
1.2 The intervenors have vehemently contended that after
01.03.2021, once the NCLT has admitted the petition and had
issued restraint order, section 14 of IBC had come into play; the
transactions made in the accounts of the CD would be unlawful
and illegal as such payment of the settlement amount from the
funds of the CD transferred to the account of the suspended
Director after 01.03.2021 ought to be rejected and no discretion
should be exercised permitting withdrawal of the proceedings.
Even the NCLT was not satisfied with the submission of the IRP
and has not approved the same. Secondly, even if there was any
transaction from the account of the CD, the same may at best be
held to be a wrongful transaction and in any other proceedings
where CIRP is initiated the amount so transferred could be
recovered under section 66 of IBC by the IRP or the RP subject
to establishing that the said transactions would be hit by the said
provision. [Para 26][609-G-H; 610-A-C]
1.3 Other creditors would have their own right to avail such
legal remedies as may be available to them under law with respect
to their claims. The rights of the creditors for their respective
claims do not get whittled down or adversely affected if the
settlement with the OC in the instant case is accepted and the
proceedings allowed to be withdrawn. [Para 27][610-D]
ABHISHEK SINGH v. HUHTAMAKI PPL LTD. & ANR.
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1.4 Any amount spent by the IRP legally admissible to him
could always be recovered in the same proceedings and the NCLT
or the Adjudicating Authority would be well within its power to
get the same cleared under Clause 7 of Regulation 30A of IBBI
Regulations. [Para 28]
1.5 The NCLT committed an error in holding that the
Regulation 30A would have no binding effect. This would amount
to defeating the very purpose of substituting Regulation 30A in
IBBI Regulations on 25.07.2019 after the judgment of Swiss
Ribbons's case which was dated 25.01.2019. Section 12A of IBC
permits the withdrawal of applications admitted under sections
7, 9, and 10 of IBC. The withdrawal of such an application is with
the approval of 90 percent voting of the CoC. Section 12A did
not provide particularly for a situation wherein the CoC has not
been constituted but, the Court held that Section 12A does not
debar entertaining applications for withdrawal of CIRP even prior
to the Constitution of CoC. Therefore, the application u/s 12 A
for withdrawal cannot be said to be kept pending for the
constitution of the CoC, even where such an application was filed
before the constitution of the CoC. The substituted Regulation
30A of IBC as it stands today clearly provided for withdrawal
applications being entertained before the constitution of CoC. It
does not in any way conflicts or is in violation of section 12A of
IBC. There is no inconsistency in the two provisions. It only
furthers the cause introduced vide section 12A of IBC. NCLT
fell in error in taking a contrary view. [Paras 34 and 35][612-F-G;
613-A-C]
1.6 From a perusal of the order of the NCLT it appears that
it was annoyed with the conduct of CD and its counsel. NCLT has
recorded its displeasure and annoyance at a couple of places
referring to the conduct of the CD and its counsel before the
NCLAT, and maybe for this reason, the NCLT passed the
impugned order ignoring the observation in the NCLAT order
dated 26.03.2021 which had specifically expressed that the
Adjudicating Authority (NCLT) would pass orders on the
withdrawal application without standing on technicalities. [Para
39][614-E-F]
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1.7 At the time when the application for withdrawal of the
proceedings was filed the CoC was not constituted as such there
could not have been any other concerned parties except the OC,
CD and IRP. It was only because of the delay caused by the NCLT
in disposing of the applications under section 12A of IBC and
Regulation 30A that large number of creditors filed their claims.
The inherent powers are to be invoked in order to meet the ends
of justice which, in our opinion, the NCLT failed to invoke.
Regulation 30A of IBBI Regulations provide a complete
mechanism for dealing with the applications filed under such
provision. The issue raised by the IRP regarding its claim for
expenses is well taken care of under the said provision. Various
safeguards have been provided in Regulation 30A of IBBI
Regulations to be fulfilled by the OC which apparently have been
fulfilled as there is no complaint in that regard either by the IRP
nor it is apparent from the impugned order of the NCLT. Thus,
the objection raised by the IRP does not merit any consideration
in this appeal. [Para 40, 41][614-G-H; 615-A-C]
1.8 The impugned order of NCLT cannot be sustained and
is set aside. The application for withdrawal u/s 12A is allowed
along with the application under Regulation 30A of IBBI
Regulations. The Application u/s 9 of IBC filed by the OCs shall
stand withdrawn. [Para 43][615-D]
Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC
17 : [2019] 3 SCR 535; Kamal K.Singh v. Dinesh Gupta
& Anr., dated 25.08.2021 in Civil Appeal No. 4993 of
2021 - relied on.
Ashok G. Rajani v. Beacon Trusteeship Ltd.& Ors. (2022)
SCC Online SC 1275; P. Mohanraj v. Shah Bros. ISPAT
(P) Ltd. (2021) 6 SCC 258; Dena Bank (Now Bank of
Baroda) v. Shivakumar Reddy & Anr. (2021) 10 SCC
330; MSTC Limited v. Adhunik Metalliks Ltd. and others
(2019) SCC Online NCLAT 146; Indian Overseas
Bank v. Mr. Dinkar T. Venkatsubramaniam, Resolution
Professional for Amtek Auto Limited (2017) SCC
Online NCLAT 584; Manoj K. Daga v. ISGEC Heavy
Engineering Limited and others (2020) SCC Online
NCLAT 869; Narayanamma and anr. v. Govindappa
ABHISHEK SINGH v. HUHTAMAKI PPL LTD. & ANR.
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and Ors. (2019) 19 SCC 42; Ram Saran Das v. CTO
Calcutta & Anr. AIR 1962 SC 1362; Titaghur Paper
Mills Co. Ltd. v. State of Orissa (1983) 2 SCC
433:[1983] 2 SCR 743 - referred to.
Case Law Reference
[2019] 3 SCR 535
relied on
Para 17
(2021) 6 SCC 258
referred to
Para 22
(2021) 10 SCC 330
referred to
Para 22
(2019) 19 SCC 42
referred to
Para 22
AIR 1962 SC 1362
referred to
Para 22
[1983] 2 SCR 743
referred to
Para 22
CIVIL APPELLATE JURISDICTION : Civil Appeal No.2241
of 2023.
From the Judgment and Order dated 13.04.2021 of the National
Company Law Tribunal in IA No.196 of 2021.
Shyam Divan, Sr. Adv., Abhijit Sinha, Mahesh Agarwal, Nachiket
Dave, Himanshu Satija, Ms. Swaroop George, E. C. Agrawala,
Pradhuman Gohil, Mrs. Taruna Singh Gohil, Ms. Ranu Purohit, Alapati
Sahithya Krishna, Advs. for the Appellant.
Tushar Mehta, S.G., Kanu Agrawal, Saurabh Roy, Ms. Deepabali
Dutta, Ms. Ruchi Gour Narula, Arvind Kumar Sharma, Ms. Anannya
Ghosh, Kinshuk Chatterjee, Anirudh Sanganeria, Shamik Shirishbhai
Sanjanwala, Sameer Abhyankar, Sarthak Ghonkrokta, Sunil Fernandes,
Ms. Priyansha Sharma, Divyansh Tiwari, Advs. for the Respondents.
The Judgment of the Court was delivered by
VIKRAM NATH, J.
Leave granted.
2. The appellant,a suspended Director of the Corporate
Debtor1:Manpasand Beverages Ltd. (respondent 2),has filed this appeal
assailing the correctness of the order dated 13.04.2021 passed by the
National Company Law Tribunal2, Ahmedabad Bench at Ahmedabad in
1 In short "CD"
2 In short, "NCLT"
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I.A. No.196 of 2021 arising out of C.P.(I.B.) No.503 of 2019 rejecting
the application of the appellant under section 12A of Insolvency and
Bankruptcy Code, 20163 for withdrawal of the Corporate Insolvency
Resolution Process4.
3. CD is in the business of manufacturing and distribution of fruit
beverages. It has approximately 700 employees and a turnover of
Rs.984.96 Crores in the Financial Year 2018-2019. The Operational
Creditor5Huhtamaki PPL Ltd.(respondent No.1) used to supply packaging
material to the CD.
4. The OCs filed a petition under section 9 of IBC before the
NCLT, stating a total outstanding amount of Rs.1,31,00,825/- against the
CD. This was registered as CP (IB) No. 503 of 2019.
5. The NCLT by order dated 01.03.2021 passed an order admitting
the petition and initiating CIRP. Two days thereafter i.e. 03.03.2021, the
OCs and the CD entered into a settlement wherein the CD was required
to pay an amount of Rs.95.72 lakhs. The above settlement was arrived
at even before the Committee of Creditors6 could be constituted.
6. On 4th March, 2021, the OCs received Rs.50 Lakhs and again
on 8th March, 2021, it received the balance amount of Rs.45.72 lakhs.
Thus, the total amount to be paid as per the settlement, was paid to the
OCs. The Interim Resolution Professional7 on 10th March, 2021 moved
an application under Regulation 30A of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 20188 seeking withdrawal of CIRP against the CD. Along
with it the application of OCs dated 09.03.2021 was also attached which
was moved under section 12A of IBC. The application for withdrawal
was registered as IA No. 196 of 2021.
7. In the meantime, an appeal was preferred against the admission
order dated 01.03.2021 before the National Company Law Appellate
Tribunal9 apparently on the ground that section 9 of IBC petition was not
maintainable as there was a pre-existing dispute. On 26.03.2021, the
3 In short, "IBC"
4 In short, "CIRP"
5 In short "OC"
6 In short "CoC"
7 In short "IRP"
8 In short "IBBI Regulations"
9 In short "NCLAT"
ABHISHEK SINGH v. HUHTAMAKI PPL LTD. & ANR.
[VIKRAM NATH, J.]
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appeal was withdrawn before the NCLAT with liberty to apply for revival
of the appeal in case the settlement failed. The NCLAT while allowing
the withdrawal of the appeal granted stay of formation of CoC. The said
order dated 26.03.2021 is reproduced below:
"Mr. Vikram Nankani, Advocate appears for the Appellant. He
submits that Respondent No.1 - Operational Creditor filed CP
(IB) No.503/9/NCLT/AHM/2019 before Adjudicating Authority
(NCLT Ahmedabad Bench, Court No.1). The Application was
filed under section 9 of Insolvency and Bankruptcy Code, 2016
(IBC in short) against the Respondent No.2 M/s.Manpasand
Beverages Ltd. the Corporate Debtor. Appellant is the Director
of the Suspended Board of the Corporate Debtor. Respondent
No.3 is Interim Resolution Professional.
2. Learned counsel for the Appellant submits that the Application
was admitted by the Impugned Order and Appeal is filed. It is
stated that thereafter the Appellant has settled the claim of
Operational Creditor and the Operational Creditor has filed
Application for withdrawal copy of which is at Page 348 and
even the IRP has filed Application before the Adjudicating Authority
copy of which is at page 368. The Application for withdrawal
under section 12A of IBC has been filed through IRP. Mr. Salil
Thakore, Advocate agrees with the Learned Counsel for the
Appellant that there has been a settlement and accordingly
Application under section 12A of IBC has ben filed. The Learned
Counsel for IRP however states that the money has been paid
violating moratorium which the IRP has reported to the
Adjudicating Authority.
3. Mr. Hitesh Buch, PCS also agrees that settlement has taken
place.
4. Learned counsel for the Appellant submits that considering these
facts, the Appeal may be allowed to be withdrawn with liberty to
seek restoration in case the effort with regard tosection 12 A of
IBC runs into difficulty. The Learned Counsel for IRP accepts
that Committee of Creditors (CoC in short) has not been
constituted.
5. The learned counsel for the Appellant submits that he is making
request for withdrawal of the Appeal under instructions from the
Appellant.
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6. Considering the objects of IBC, we have no reason to doubt
that the Adjudicating Authority without standing on technicalities
would pass appropriate Orders, if settlement has taken place
between the Original Operational Creditor and Corporate Debtor
and CoC is not yet constituted.
7(A) For reasons stated above, the Appeal is permitted to be
withdrawn with liberty to seek restoration of the Appeal in case
at any future time the effort to settle in terms of section 12A of
IBC runs into difficulty and does not happen.
7(B) Till the Adjudicating Authority decides Application under
section 12 A of IBC which is stated to have already been filed,
CoC may not be constituted.
The Appeal is disposed with observations and directions as above."
8. NCLT by the impugned judgment and order dated 13.04.2021
rejected the settlement application and fixed the matter for disposal of
the application under Regulation 30A of IBBI Regulations after hearing
all creditors.
9. Subsequent to the above order of NCLT dated 13.04.2021, the
IRP constituted the CoC on 15.04.2021. The appellant preferred the
SLP on 19.04.2021. This Court vide order dated 20.04.2021 while issuing
notice, directed the parties to maintain status quo.
10. It would be pertinent to mention here that primary opposition
is by the IRP by way of an intervention application. The OC is not
opposing the appeal in as much as it had already received the full amount
as per the settlement dated 03.03.2021.Further, three other applications
for intervention/impleadment have been filed by creditors of the CD,
who allegedly had raised their claims before the IRP.
11. Before proceeding any further, the relevant statutory provisions
may be noticed.
12. Rule 11 of The National Company Law Tribunal Rules, 201610
confer inherent powers on the NCLT to pass appropriate orders for
meeting the ends of justice or to prevent abuse of the process of the
Tribunal. The said rule is reproduced hereunder:
"11. Inherent powers- Nothing in these rules shall be deemed
to limit or otherwise affect the inherent powers of the Tribunal to
10 In short "the NCLT Rules"
ABHISHEK SINGH v. HUHTAMAKI PPL LTD. & ANR.
[VIKRAM NATH, J.]
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make such orders as may be necessary for meeting the ends of
justice or to prevent abuse of the process of the Tribunal."
13. Section 12A of IBC which was inserted w.e.f. 06.06.2018
permits withdrawal of applications admitted under sections 7, 9 or 10 of
IBC, with the approval of 90 percent voting share of the CoC in such
manner as may be specified. The said provision is reproduced below:
"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."
14. Regulation 30A of IBBI Regulations was introduced after
insertion of section 12A in IBC. It provided the mechanism of dealing
with applications filed for withdrawal. Later on, itwas substituted by
notification dated 25.07.2019 in IBBI Regulations. According to the said
provision, withdrawal under section 12A of IBC could be moved before
Adjudicating Authority by the applicant through IRP before constitution
of the CoC and in case the CoC has been constituted, then also by the
applicant through IRP or the RP.However, the applicant would be required
to justify the withdrawal by giving reasons. It further provides the
procedure for dealing with such an application. Regulation 30A of IBBI
Regulations,as it stands today, is reproduced hereunder:
"30A. Withdrawal of application. (1) An application for
withdrawal under section 12A may be made to the Adjudicating
Authority -
(a) before the constitution of the committee, by the applicant
through the interim resolution professional;
(b) after the constitution of the committee, by the applicant
through the interim resolution professional or the resolution
professional, as the case may be:
Provided that where the application is made under clause (b) after
the issue of invitation for expression of interest under regulation
36A, the applicant shall state the reasons justifying withdrawal
after issue of such invitation.
(2) The application under sub-regulation (1) shall be made in FormFA of the Schedule accompanied by a bank guarantee-
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(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);
or
(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. "
15. NCLT, in the impugned order while rejecting I.A.No.196 of
2021 filed by the OCs, recorded the following findings:
i.
The facts relating to the settlement and the fulfilment of
the terms of the settlement are not disputed;
ABHISHEK SINGH v. HUHTAMAKI PPL LTD. & ANR.
[VIKRAM NATH, J.]
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ii.
The suspended directors of the CD despite the moratorium
having commenced with effect from 01.03.2021 have not
only made transactions of deposit but also withdrawal from
the account of the CD. They have thus violated the
directions contained in the admission order dated 01.03.2021;
iii.
Although the IRP had made submissions that the suspended
director having transferred huge amount from the account
of the company to his personal account and from there
having made the payment to the OC under the settlement
but the same was not conclusively proved;
iv.
The suspended director and their counsel made frivolous
arguments before the NCLT which were contrary to record
in order to obtain favourable orders;
v.
As many as 35 claims of creditors both operational and
financial have been filed in the meantime. As such
withdrawal of the proceedings would adversely affect their
rights;
vi.
The proceedings once admitted and IRP having initiated,
such proceedings are in rem and all stake holders can
participate in the proceedings with their respective claims;
and
vii.
Regulation 30A of IBBI Regulations was not binding upon
it and such provision would not be of any help to the CD or
its suspended Directors;
16. Heard learned counsel for the parties and perused the material
on record.
17. Shri Shyam Divan, learned senior counsel appearing for the
appellant referring to statutory provisions like section 12A of IBC,
Regulation 30A of IBBI Regulations and alsoto Rule 11 of the NCLT
Rules, 2016 submitted that such provisions clearly permit settlement
between the creditor and the debtor and withdrawal of proceedings prior
to the constitution of CoC. According to him, once the settlement was
arrived at and acted upon prior to the constitution of CoC, the NCLT
committed a grave error in not allowing the withdrawal of the proceedings.
He has placed reliance on a number of orders/judgments passed by this
Court exercising powers under Article 142 of the Constitution allowing
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withdrawal of such petitions where settlement had been arrived at and
also certain orders passed by NCLAT permitting withdrawal before
constitution of CoC.Reliance was also placed upon a judgment of this
Court in the case of Swiss Ribbons (P) Ltd. V. Union of India11
dated 25.01.2019 whereafter the Central Government vide Notification
dated 25th July, 2019 inserted Regulation 30A in IBBI Regulations which
permitted withdrawal of petitions before constitution of CoC.
18. Further submission advanced by Mr.Divan is to the effect
that NCLT was swayed by the fact that there were several other creditors
who had raised their claims against the CD and as such without hearing
such creditors, permission of withdrawal would not be proper. This,
according to the learned senior counsel, was an error committed by the
NCLT inasmuch as these third party claims could not have been taken
into consideration nor they should have weighed with the NCLT in
forming its opinion. Once the CoC had not been constituted the claims
of other creditors would not come into play to defeat the settlement
arrived at between the OC and the CD. In support of the said submission
he has placed reliance upon a judgment of this Court in the case of
Ashok G. Rajani v. Beacon Trusteeship Ltd.&Ors.12 Reliance is
also placed upon another order of this Court in the case of Kamal
K.Singh v. Dinesh Gupta & Anr., dated 25.08.2021 in Civil Appeal
No.4993 of 2021.
19. The next submission relates to the objection taken by the IRP
that the suspended Director had transferred huge amounts from the
account of the CD during the period of moratorium i.e. after 1 March,
2021 upto 18 March 2021 into his personal account as also other third
parties. Further the amount so transferred in the personal account of the
suspended Director was utilized in paying off the amount as per the
settlement to the OC. The submission made by learned senior Counsel
is to the effect that the NCLT itself recorded a finding that the above
objection taken by the IRP was not conclusively established. His
submission is that despite the said finding the NCLT was apparently
influenced by the objection taken by the IRP.
20. Lastly, it was submitted by Shri Divan, that the NCLT had no
jurisdiction to declare or hold that Regulation 30A of IBBI Regulations
was not binding on it; NCLT committed a grave errorof law in ignoring
11 (2019) 4 SCC 17
12 (2022) SCC Online SC 1275.
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the said provision. According to him, it was beyond the power of the
NCLT to have discarded a statutory provision.
21.Based on the above points it was submitted that the appeal
deserves to be allowed, the impugned order of the NCLT be set aside
and the withdrawal of the proceedings be allowed.
22. On the other hand, the IRP and other interveners have strongly
opposed the appeal. The submissions advanced on their behalf are the
same as were raised before the NCLT which had found favour therein
resulting into the passing of the impugned order. In effect they supported
the findings of the NCLT.Additionally, it has been objected on their behalf
that the appellant ought to have availed alternative remedy by filing an
appeal before the NCLAT. The IRP has also raised the issue regarding
non-clearance of his funds with respect to the expenditure incurred by
him. In support of the submissions, reliance is placed upon the following
judgments:
(1)
P. Mohanrajv. Shah Bros. ISPAT (P) Ltd.13
(2)
Swiss Ribbons Private Limited &Anr. v. Union of India
&Ors. (supra)
(3)
Dena Bank (Now Bank of Baroda) v. Shivakumar
Reddy &Anr.14
(4)
MSTC Limited v. AdhunikMetalliks Ltd. and
others15;
(5)
Indian Overseas Bank v. Mr. Dinkar T.
Venkatsubramaniam, Resolution Professional for
Amtek Auto Limited16;
(6)
Manoj K. Daga v. ISGEC Heavy Engineering Limited
and others17;
(7)
Narayanamma and anr. v. Govindappa and Ors.18
(8)
Ram Saran Das v. CTO Calcutta &Anr.19
(9)
Titaghur Paper Mills Co. Ltd. v. State of Orissa20
13 (2021) 6 SCC 258
14 (2021) 10 SCC 330
15 (2019) SCC Online NCLAT 146
16 (2017) SCC Online NCLAT 584
17 (2020) SCC Online NCLAT 869
18 (2019) 19 SCC 42
19 AIR 1962 SC 1362
20 (1983) 2 SCC 433
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23. The facts as stated above are not disputed. The application
had been filed prior to the constitution of the CoC. The settlement had
been arrived at within two days of the admission order. The payment as
per the settlement had been made within the next five days i.e. in a
weeks' time from the date of admission. The application for withdrawal
was filed on the 10th day. The NCLT ought to have immediately taken
the decision on the application. Once the parties had settled the dispute
even before the CoC had been constituted, the application ought to have
been allowed then and there rather than await the other creditors to
jump into the fray and allow the IRP to proceed further.
24. On behalf of the appellant number of orders of this Court
have been relied upon wherein the power under Article 142 of the
Constitution was exercised to approve the settlement and permit
withdrawal of cases wherein CIRP had been initiated. We could have
also done the same which would have been an easy way out but
considering the order passed by the NCLT rejecting the application for
withdrawal and further the IRP and three other OCs having filed
intervention applications, we are embarking upon to decide the issues
raised and as to what should be the course adopted by NCLT in dealing
with withdrawal matters before the constitution of CoC. We take up the
issues one by one.
Alternative Remedy
25. Plea of alternative remedy is a self-imposed restriction by the
superior Courts and is never an absolute bar unless barred by the statute.
Further, in the present case, this Court had entertained the SLP in 2021
itself and had granted an order of status quo on 20.04.2021.Substantial
time has passed since then.As such we are not inclined to entertain the
said objection relating to availability of alternative remedy of filing the
appeal before the NCLT. We may also note here that IBC provides a
statutory timeframe for disposal of matters. Further, such matters being
commercial in nature keeping these matters pending for long, frustrates
the very object of IBC.
Violation of the Moratorium
26. The intervenors have vehemently contended that after
01.03.2021, once the NCLT has admitted the petition and had issued
restraint order, section 14 of IBC had come into play; the transactions
made in the accounts of the CD would be unlawful and illegal as such
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payment of the settlement amount from the funds of the CD transferred
to the account of the suspended Director after 01.03.2021 oughtto be
rejected and no discretion should be exercised permitting withdrawal of
the proceedings. In this respect, it would suffice to state that even the
NCLT was not satisfied with the said submission of the IRP and has not
approved the same. Secondly, even if there was any transaction from
the account of the CD, the same may at best be held to be a wrongful
transaction and in any other proceedings where CIRP is initiated the
amount so transferred could be recovered under section 66 of IBC by
the IRP or the RP subject to establishing that the said transactions would
be hit by the said provision.
Multiple claims of OCs
27. With respect to the said objection, it only needs to be mentioned
that other creditors would have their own right to avail such legal remedies
as may be available to them under law with respect to their claims. The
rights of the creditors for their respective claims do not get whittled
down or adversely affected if the settlement with the OC in the present
case is accepted and the proceedings allowed to be withdrawn.
Claims for expenses for IRP
28. Any amount spent by the IRP legally admissible to him could
always be recovered in the same proceedings and the NCLT or the
Adjudicating Authority would be well within its power to get the same
cleared under Clause 7 of Regulation 30A of IBBI Regulations.
Judgments relied upon:
29. In the facts and circumstances of the present case and for the
discussion made above none of the judgments relied upon by the
intervenors are of any help to the intervenors. Briefly the same are
discussed hereinafter.
30. The interveners have relied upon P.Mohanraj (supra), Swiss
Ribbons (supra), Dena Bank (supra), MSTC Limited (supra), Indian
Overseas Bank (supra) and Manok K. Daga (supra), for the proposition
that settlement would be in violation of moratorium as payments have
been made after transferring money from the CD account after initiation
of CIRP. As already recorded above, we have held that firstly, the NCLT
itself was not satisfied that moratorium had been violated and even if it
had been violated, at best it would amount to a wrongful trading/transaction
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and the same, if established, could always be recovered by the IRP or
the RP in appropriate proceedings for CIRP by other OCs under section
66 of IBC. However, the present settlement could not be stalled. Thus,
these cases are of no help to the intervenors.
31. The case of Narayanamma and another (supra) has been
relied upon for the proposition that this Court would not put a seal on an
illegal act of the suspended Directors of the CD as they have transferred
funds out of CD's account after application was admitted. Here also,
we may only add that as NCLT itself was not satisfied with such violation,
no benefit can be derived by the intervenors.
32. Lastly, the intervenors have relied upon Ram Saran Das
(supra) and Titaghur Paper Mills (supra) for the proposition that the
appeal deserves to be dismissed as the appellant did not avail the
alternative remedy. This aspect also, for the reasons recorded above,
does not benefit the interveners in any way.
Legality of the impugned order:
33. Now coming to the legality and the correctness of the impugned
order passed by the NCLT in the present appeal.Majority of the findings
recorded in the impugned orders are already covered above.An important
issue remains to be considered is the finding recorded by the NCLT that
Regulation 30A of IBBI Regulations was not binding upon it and could
not be of any help to the CD or its suspended Directors. In this respect,
we may first refer to the judgment of this Court in the case of Swiss
Ribbons (supra). Section 12A of IBC permitted withdrawal of
applications admitted under sections 7, 9 or 10 of IBC.But the said
provision envisaged a situation where the withdrawal application would
be filed after the CoC has been constituted, as it requires approval of 90
per cent voting shares of CoC. There was no provision which would
deal with withdrawal of proceedings before constitution of CoC. Even
Regulation 30A, as it existed earlier, did not contemplate of consideration
of an application for withdrawal filed before constitution of CoC. This
issue was flagged by this Court in the case of Swiss Ribbons (supra)
in paragraph 82 thereof which is reproduced hereunder:
"82. It is clear that once the Code gets triggered by admission of
a creditor's petition under Sections 7 to 9, the proceeding that is
before the adjudicating authority, being a collective proceeding, is
a proceeding in rem. Being a proceeding in rem, it is necessary
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that the body which is to oversee the resolution process must be
consulted before any individual corporate debtor is allowed to settle
its claim. A question arises as to what is to happen before a
Committee of Creditors is constituted (as per the timelines that
are specified, a Committee of Creditors can be appointed at any
time within 30 days from the date of appointment of the interim
resolution professional). We make it clear that at any stage where
the Committee of Creditors is not yet constituted, a party can
approach NCLT directly, which Tribunal may, in exercise of its
inherent powers under Rule 11 of NCLT Rules, 2016, allow or
disallow an application for withdrawal or settlement. This will be
decided after hearing all the parties concerned and considering all
relevant factors on the facts of each case."
This Court had required the NCLT to invoke its powers under
Rule 11 of the NCLT Rules.
34. It was after the observations made by this Court in the case
of Swiss Ribbons (supra), as noted above and also considering the
aspect that large number of orders were being passed by this Court
invoking Article 142 of the Constitution that IBBI Regulations which
were framed by the Insolvency and Bankruptcy Board of India21
exercising powers conferred under sections 5, 7, 9, 14, 15, 17, 18, 21, 24,
25, 29, 30, 196, 208 read with section 240 substituted section 30A vide
notification dated 25.07.2019. The Board was conferred with powers to
frame regulations for various purposes referred to insection 240 of IBC
and the other allied sections. These regulations maybe subordinate in
character but would still carry a statutory flavor and would be binding on
the NCLT. The NCLT committed an error in holding that Regulation
30A would have no binding effect. This would amount to defeating the
very purpose of substituting Regulation 30A in IBBI Regulations on
25.07.2019 after the judgment of Swiss Ribbons(supra) which was
dated 25.01.2019.
35. Section 12A of IBC permits withdrawal of applications admitted
under sections 7, 9 and 10 of IBC. It permits withdrawal of such
applications with approval of 90 percent voting share of CoC in such
manner as may be specified. The role of CoC and 90 percent of its
voting share approving the said withdrawal would come into play only
when CoC has been constituted. Section 12A did not specifically mention
21 In short "IBBI"
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withdrawal of such applications where CoC had not been constituted
but at the same time it does not debar entertaining applications for
withdrawal even before constitution of CoC. Therefore, the application
under section 12A for withdrawal cannot be said to be kept pending for
constitution of CoC, even where such application was filed before
constitution of CoC. The IBBI which had the power to frame Regulations
wherever required and in particular section 240 of IBC for the subjects
covered therein had accordingly substituted Regulation 30A dealing with
the procedure for disposal of application for withdrawal filed under section
12A of IBC. The substituted Regulation 30A of IBC as it stands today
clearly provided for withdrawal applications being entertained before
constitution of CoC. It does not in any way conflicts or is in violation of
section 12A of IBC. There is no inconsistency in the two provisions. It
only furthers the cause introduced vide section 12A of IBC. Thus, NCLT
fell in error in taking a contrary view.
36. In Kamal K. Singh (supra), relying upon paragraph 82 of the
report in the case of Swiss Ribbons (supra), the Supreme Court, which
was dealing with a similar situation where the settlement had been arrived
before constitution of CoC allowed the proceedings to be withdrawn
and held that the applications filed under Rule 11 of the NCLT Rules
would be maintainable and the OCs therein was justified in moving such
application.
37. In the case of Ashok G. Rajani (supra), the settlement had
been arrived at between the parties on 08.08.2021, after the NCLT had
admitted the application under section 7 of IBC vide order dated
03.08.2021. On appeal, the NCLAT vide order dated 18.08.2021 stayed
the formation of CoC but declined to exercise its powers under Rule 11
of the NCLAT Rules. The said order was challenged before this Court.
This Court in its order in paragraphs 29 and 30 gave reasons as to why
the applications for withdrawal cannot be stifled before the constitution
of CoC by third parties. The said paragraphs are reproduced below:
"29. Considering the investments made by the Corporate Debtor
and considering the number of people dependant on the Corporate
Debtor for their survival and livelihood, there is no reason why
the applicant for the CIRP, should not be allowed to withdraw its
application once its disputes have been settled.
30.