Regulation 30A Of The Insolvency And Bankruptcy Board Of India (insolvency Resolution Process For Corporate Persons) Regulations, 2018 Is Binding On Nclt: Supreme Court

CAUSE TITLE:

Abhishek Singh vs. Huhtamaki PPL Ltd. & Anr.

DATE OF JUDGMENT:

28th March 2023

JUDGE(S):

 B.R. GAVAI; J., VIKRAM NATH; J.

PARTIES:

Appellant:  Abhishek Singh

Respondent:

Huhtamaki PPL Ltd. & Anr

SUBJECT:

Extent of Application of Section 12 A of IBC vis-à-vis Regulation 30A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2018

IMPORTANT PROVISIONS:

Insolvency and Bankruptcy Code, 2016

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 a ninety percent voting share of the committee of creditors, in such manner as may be specified.

IBBI Regulations

Regulation 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-F A of the Schedule 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); 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.

BRIEF FACTS:

• The appellant herein was a suspended Director of the Corporate Debtor (hereinafter referred to as “CD”) Manpasand Beverages Ltd. which was respondent no. 2 in this appeal.
• This appeal was filed to challenge the legality of the order passed by the Ahmedabad bench of NCLT rejecting the appellant’s application under section 12A of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) rejecting his plea to quash Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”).
• CD, which has around 700 employees and a turnover of Rs.984.96 Crores in FY 2018-19 is in the business of manufacturing and distribution of fruit beverages. Their Operational Creditor (OC), Respondent no. 1 used to supply them with packaging materials.
• The OC moved NCLT by filing a petition under Section 9 of IBC alleging an outstanding amount of Rs.1,31,00,825/- against the CD. This was registered as CP (IB) No. 503 of 2019.
• The NCLT admitted the petition and initiated CIRP. Thereafter, the OCs and CDs entered into a settlement on 03.03.2021 wherein the CD was required to pay an amount of Rs.95.72 lakhs. It must be noted that this settlement was entered into before the Committee of Creditors (hereinafter referred to as “CoC”) could be constituted.
• The OCs received 50 lakhs on 4th March 2021 and 45.72 lakhs on 8th March 2021. Thus, clearing the settlement amount. Now, the Interim Resolution Professional (hereinafter referred to as “IRP”) moved an application under Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2018 (hereinafter referred to as “IBBI Regulations 2018”) seeking withdrawal of CIRP.
• Meanwhile, an appeal was preferred by the Appellants before NCLAT challenging the NCLT’s order dated 01.03.2021 admitting the Respondent’s Petition under Section 9 on the ground that it was not maintainable as there was a pre-existing dispute between the parties which was later withdrawn in the light of the above-mentioned settlement agreement with liberty of revival in case the settlement fails. The NCLAT while allowing the withdrawal stayed the formation of the CoC.
• The NCLT vide order dated 13.04.2021 (IMPUGNED ORDER) rejected the settlement application and put up the matter for disposal, subsequent to which the IRP constituted a CoC. 
• The Hon’ble Supreme Court while issuing notice ordered the parties to maintain status quo. The main opposition to this SLP is from the IRP through an intervention along with 3 creditors from the CoC. 

CONTENTIONS ON BEHALF OF THE APPELLANTS

1. It was contended that on bare perusal, the relevant provisions clearly permit the settlement agreement before the constitution of CoC and the subsequent withdrawal of proceedings. Hence, once settlement was entered into, the NCLT committed a grave error in not allowing the withdrawal of proceedings. Reliance was placed by the Ld. Senior Counsel on the judgment of the Hon’ble Supreme Court in the case of Swiss Ribbons (P) Ltd. V. Union of India after which Regulation 30A was inserted. 

2. Another contention was that NCLT erred in holding a consideration that the proceedings cannot be allowed to be withdrawn without hearing the other creditors. It was submitted that the third-party claims could not have been taken into consideration as by that time, CoC was not constituted and if 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.

3. Next contention was in response to the objection taken by the IRP that the appellant as a suspended director transferred big amounts from the CD’s account during the period of the moratorium to his personal account as well as to third parties. It was submitted by the IRP that the amount transferred to his personal account was used to pay the OC under the settlement agreement. In this regard, it was submitted on behalf of Appellants that NCLT itself recorded a finding that the above objection taken by the IRP was not conclusively established and despite the said finding the NCLT was apparently influenced by the objection taken by the IRP.

4. Further, NCLT had no jurisdiction to declare that Regulation 30A of IBBI Regulations was not binding on it. 

CONTENTIONS ON BEHALF OF THE IRP (INTERVENTIONIST)

1. It was contended that the Appellant must have availed the alternative remedy by filing an appeal in NCLAT. 

2. The IRP relying upon various judgments reiterated its submissions before the NCLT.

3. Another issue that was raised by the IRP was regarding the non-clearance of funds for expenditure incurred by the Appellant.

ANALYSIS

• The Hon’ble Court assessed the rival contentions and framed certain issues. The Court held that the concept of alternate remedy is a self-imposed restriction by the superior courts on their own jurisdiction and is ever a statutory bar. 
• The Hon’ble Court analysed the contentions of the various interventionists to the effect that once the Petition was admitted and the restraint order was issued, Section 14 came into play, hence the transactions made after that are unlawful and discretion should not be used to allow withdrawal of the proceedings. On this contention of violation of the moratorium, the Hon’ble court held that even NCLT was not satisfied with the said contention and even if there was any such transaction, 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.
• On the question of the validity and legality of the impugned order, the SC made the following observations: 
• The court analysed the situation covered by section 12A of IBC 2016 and held that it contemplates withdrawal of applications admitted under sections 7, 9 and 10 of IBC after the formation of the CoC as it contemplates the consent of 90% of members of CoC. Further, Regulation 30A as it stood earlier also did not contemplate the withdrawal of applications before the formation of CoC which led to multiple cases where the Hon’ble SC had to use its inherent power under Article 142 of the Constitution.
• The IBBI regulations were amended and regulation 30A was substituted. The Hon’ble Court observed that though these regulations are subordinate to IBC, they still have a statutory essence and would be binding on NCLT. 
• The Court further held that though section 12A does not specifically mention the withdrawal of applications admitted before the constitution of CoC, it does not debar entertaining applications for withdrawal even before constitution of CoC. As a result, applications for withdrawal filed under Section 12A cannot be kept till the constitution of CoC even where such an application was filed before the constitution of the CoC.
• Regulation 30A is not in conflict with section 12A It only furthers the cause introduced vide section 12A of IBC. Thus, NCLT fell in error in taking a contrary view.
• On the question of the use of inherent power of NCLT as per Rule 11 of NCLT Rules, both the parties relied on Para 82 of Swiss Ribbons vs Union of India which held that NCLT can use its inherent powers only after hearing all the concerned parties. The Hon’ble court held that as the CoC was not constituted at the time of filing the application under Section 12A, the only concerned parties were the OC, CD and IRP.

CONCLUSION

The Hon’ble Court observing that Regulation 30A of IBBI Regulations lay down the complete procedure for applications filed under it. The claim for expenses of IRP Professionals are also covered therein. Hence the court allowed the appeal and set aside the impugned order passed by the NCLT.